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A Distributional Analysis of the FairTax Plan: Annual and Lifetime Income Considerations

  • Yingxu Kuang

    ()

    (School of Business Administration, University of Houston—Victoria, Victoria, TX 77901, USA kuangy@uhv.edu)

  • Ted Englebrecht

    ()

    (†Smolinski Endowed Chair, Professor of Accounting, College of Business, Louisiana Tech University, Ruston, LA 71272, USA)

  • Otis W. Gilley

    ()

    (Century Telephone Enterprises, Inc., and Clarke M. Williams Memorial Endowed Professor, Professor of Economics, College of Business, Louisiana Tech University, Ruston, LA 71272, USA)

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    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.

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    Article provided by Southern Economic Association in its journal Southern Economic Journal.

    Volume (Year): 78 (2011)
    Issue (Month): 2 (October)
    Pages: 358-381

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    Handle: RePEc:sej:ancoec:v:78:2:y:2011:p:358-381
    Contact details of provider: Web page: http://www.southerneconomic.org/

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