Fair Tax Nation

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

I have read quite a bit and still I have not uncovered an answer to this question and I not ready to answer anyone if they ask.

Bank services, such as checking and savings accounts or purchasing of CD's. Since I am the consumer would there be a Fair Tax on this type, if not where is the statement or explain why not.

Excuse me, but have not figured this one out yet and it probably is simple

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As I understand it, banking fees would be subject to the FairTax. Business accounts probably would not be. But I don't have any checking or savings accounts that have fees. Does any bank charge for a checking account these days?

Someone may have better information than I do.
As Pat stated, business accounts would not be subject to any taxes, so I'll address this from the viewpoint of individual accounts.

From my understanding, checking accounts will not be taxed unless the bank charges you a direct fee.

As everyone should know, the FairTax taxes new goods and personal services. Financial institutions charge service fees but unlike most services, in addition to explicit (direct, clearly stated fees), their fees can be either partially or totally implicit (hidden) in the interest rate paid.

For example, one bank might offer a 4% return with a $50 annual fee and the other a 3.5% return with no fee. The cost is still there, it is just hidden in the interest rate.

To prevent companies from hiding service charges inside of interest rates, the FairTax taxes the difference between the base rate (based on section 511 of the bill) and the rate paid. So if you had $10,000 in savings and the base rate was 4% but the bank only paid you 3.5%, the difference of 0.5% or $50 (0.5% times $10,000) would be taxed.

Of course, compare that to today where the entire interest earned...in this example $400, is subject to the income tax. Any tax is collected and remitted by the bank. These rates are only examples. I don't think any bank is paying even 1% currently on savings!

To read the information on this treatment, refer to section 800 through 805 of the bill covering financial intermediation services.

In determining the applicable base rate, refer to section 511 of the bill. Basically there are three different rates:
Short Term - less than 3 years of maturity
Mid-Term - between 3 and 9 years
Long Term - longer than 9 years

These rates are based on the AFR (Applicable Federal Rates) which change monthly based on the interest rates of marketable government securities of the same maturity range. They are then adjusted based on what they are used for. You can find them here:

Of course, when the FairTax is the law, the rates will be listed on the US Treasury's website instead of IRS.

Hopefully, this doesn't sound too complicated. It really isn't, but financial intermediation services are probably the most complex area of our economy, no matter what tax system we are using. Basically, I just state that under the FairTax, base interest will be 100% tax free and any explicit or implicit service charges will be taxed.

And remember, up to the poverty level, all taxes are offset by the prebate regardless what the tax is from.
Thank you for info, greatly appreciated and always enjoy the education.
Again Thanks!
Great explanation, Bill. I knew someone would have better information than I have.


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