FairTax Fact of the day 12-Dec-2007

How does the FairTax affect Social Security reform?

FairTax.org is a one-issue organization: Tax replacement. However, its proposal does benefit any Social Security reform proposal. The FairTax.org plan does not change Social Security benefits or the structure of the Social Security system. All it does is replace the current revenue source (narrow, regressive payroll taxes) with a new revenue source (broad, progressive sales taxes paid by all consumers).

Additionally, research shows that consumption is a more stable revenue source than income. If Social Security is reformed or privatized in a way that reduces the government’s need for revenue, then the FairTax rate can be reduced. For example, if a mandatory private savings program is implemented where people must save ten percent of their income and Social Security benefits are curtailed, then the FairTax rate can be reduced just as payroll taxes would be reduced.

Dyne,

You are absolutely correct, but I think the point is that the Fair Tax is neutral with respect to government pensions.  In fact, if anything, it will have a beneficial effect by increasing the incentives for saving relative to spending at the margin.