What if I decide all my expenses are necessities?

Q: The FairTax ensures my “necessities” are tax-free. What if I decide all my expenses are necessities?

Under the FairTax you have the ability to decide -what- your necessities are, but not how much of what you spend is on necessities. Basically, that means you can choose whether you use the prebate money for Beer and Cheez-It’s, or Fruits & Vegetables & Toiletries, or even fast-food 7 days a week; but buying a keg of beer per week and eating 3 burgers each meal is beyond being necessary for the average person’s survival. In other words, the FairTax won’t limit you to certain items (exemptions, under the Income tax or flat tax) being untaxed because everything will be untaxed if it is paid for with the pre-tax money you are afforded (the Prebate). Although you can decide what your necessities are, I don’t think deciding what percentage of your expenses are necessities is a variable most people can control.

To be a little more clear on how your necessites remain tax-free, it would help if you understood a couple other things first. 1) How “necessities” are calculated, and 2) How the prebate is calculated. These are two things the FairTax feels are best determined by the Govt.

The FairTax Prebate is based on the National Poverty Guidelines (NPG). The NPG is calculated annually by the Department of Health & Human Services (HHS) and the resulting numbers are an average taken across the United States for households of each family size 1-8. The NPG for a Single Adult is $11,490 (“Necessities”). Spending at the poverty guideline means you spend $11,490/year (or $957.50/month). http://aspe.hhs.gov/poverty/13poverty.cfm. The FairTax prebate is 23% (the FairTax rate) of your necessites. (11490*0.23/12=220.23).

Assume you make ~$14K after taxes. That means you’re spending slightly above the NPG. So you can’t really claim all your purchases are “necessities”. That also means you’re in the 15% tax bracket. On top of the 15%, you also pay 7.65% FICA taxes; unless you’re Self-employed, then you pay 15.3% SECA taxes.

But here’s the good news: The FairTax will put that 22.65% back in your pocket immediately. So now, instead of bringing home ~$530 every 2 weeks, you’ll bring home ~$700 every 2 weeks. In addition, the FairTax prebate will provide you with an additional $220 at the beginning of each month. Add that all up and your take-home is increased by ~$560 per month. Ultimately, what that means is that the $14K you take home now would be about $20,700 after the FairTax/prebate. Think you could use an extra $6,700 each year?

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I'm the grandson of an Underwood and have been mapping my Underwood Family Tree for a couple years now.

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