Fair Tax Nation

Replace All Federal Taxes on Income with the Fair Tax Act , HR 25

Question: is there a credit for individual ROTH IRA accounts?

Question: is there a credit for individual ROTH IRA accounts?

No, there is not a credit for individual ROTH IRA accounts?

However, the FairTax legislation totally repeals the current income tax on Social Security benefits.

The bill also adjusts the Social Security benefits indexing formula, commonly known as the cost of living adjustment or COLA, so that benefits increase to the extent, if any, that the federal sales tax results in higher costs to seniors. (See explanation below.)

Please see the research article for other benefits to seniors:
The FairTax benefits seniors
Senior citizens are becoming a larger portion of the overall population and the overwhelming majority of them are much better off under the FairTax. In 2010, seniors will account for 13 percent of the population.


Karen Walby, Ph.D.
Research Consultant

Sec. 303. Sales tax inclusive Social Security benefits indexation.

This section makes sure that the cost of living adjustment for Social Security benefits includes price increases, if any, caused by the FairTax. In other words, it maintains the real purchasing power of Social Security benefits after the FairTax is enacted. Here is how it works.

The cost of living adjustment (COLA) for Social Security benefits is an annual increase to offset the effects of inflation on fixed incomes based on the annual increase in consumer prices as measured by the Consumer Price Index (CPI). Based on the increase in the CPI from the third quarter of 2004 through the third quarter of 2005, Social Security beneficiaries will receive a 4.1 percent COLA for 2005. The calculation of the percentage increase is done by dividing the average CPI for third quarter 2005 by the average CPI for third quarter 2004 (or 192.7 divided by 185.1) minus 1.0 = 4.1.

HR 25/S 25 adjusts the CPI for price increases, if any, that occur due to the FairTax by multiplying the CPI times the national sales tax factor. The national sales tax factor is equal to 1.0 plus the FairTax rate divided by 1.0 minus the FairTax rate. Given a FairTax rate of 23 percent, it is equal to 1.299 [1.0 + (0.23/(1.0 - 0.23)) = 1.299]. Multiplying the CPI by the national sales tax factor has the effect of upwardly adjusting the COLA for any price level increase that occurs as a result of the FairTax.

If we were in a zero inflation year and sales tax exclusive prices were unchanged and the CPI did not include sales tax, then benefits would increase by 29.9 percent. If producer prices fall, then adding the sales tax back makes benefits equal to those today. If the CPI is revised to include sales tax, then there won’t be a need for such an adjustment.

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