For older, low-income households, the FairTax generates a major reduction in remaining lifetime taxes. Again, the reason is that the elderly not only continue, under the FairTax, to receive the same real Social Security benefits, they also receive the FairTax prebate. The average Social Security benefits for a retired couple living solely on Social Security are $18,776. The FairTax prebate for this couple is $4,697 which is $381 more than the FairTaxes the couple would have to pay if they spent the entire $18,776 on taxable consumption.
Let’s look at a single 60-year-old earning $15,000 a year. His or her average remaining lifetime tax rate falls from 9.8 percent to -28.0 percent! Middle-income and upper-income seniors also experience lower average lifetime tax rates under the FairTax compared to the current tax system. High-income seniors experience average remaining lifetime tax rates under the FairTax of 18.2 percent for singles and 19.3 percent for couples. However, these rates are significantly lower than what they would experience under the current system: 40.8 percent for singles and 41.5 percent for couples.
In general, the FairTax offers several other benefits to seniors. The FairTax repeals the taxation of Social Security benefits and adjusts Social Security indexing to preserve the purchasing power of seniors. The FairTax ends all record keeping and income tax filings of any kind for seniors, totally insulating them from the high costs and abusive tactics of tax preparers.
The FairTax repeals the income tax imposed on investment income and pension benefits or IRA withdrawals. No form of savings or investment is taxed. The beneficiaries and owners of pension funds, IRAs, and 401(k) plans (with assets of over $11 trillion in 2003) will not have to pay taxes on these plans upon withdrawal, despite taking an income tax deduction for the contributions to most of these plans. (For a complete discussion of these benefits, please see “The FairTax Benefits Seniors,” available at http://www.fairtax.org/PDF/The_FairTax_benefits_seniors_11-7-06.pdf).