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A Distributional Analysis of the FairTax Plan: Annual and Lifetime Income Considerations
Author(s) -
Kuang Yingxu,
Englebrecht Ted,
Gilley Otis W.
Publication year - 2011
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-78.2.358
Subject(s) - economics , plan (archaeology) , public economics , federal budget , income tax , skepticism , finance , geography , philosophy , archaeology , epistemology , fiscal year
Dissatisfaction with the current federal tax system is fostering serious interest in the FairTax Plan, which would replace most of the federal taxes with a national retail sales tax. The FairTax is promoted as being progressive, but there is considerable skepticism of this claim. We examine the distributional effects of the FairTax, as well as the current system it intends to replace, under both annual income and lifetime income approaches. Global measures of progressivity suggest that the current federal tax system is progressive while the FairTax is regressive. Our results are also robust to different assumptions used for estimation.