What is Trump's new tax plan? A Simple Breakdown Using Real Numbers of the Fair Tax Act

New Tax Bill

What is the Fair Tax Act? A Simple Breakdown Using Real Numbers

There’s been a lot of talk about replacing the current federal income tax system with a Fair Tax—but what does that really mean for your paycheck, your groceries, and your next big purchase?

The Fair Tax Act proposes to eliminate federal income taxes, payroll taxes (like Social Security and Medicare deductions), and corporate taxes. In their place, a 23% national sales tax would be added to all new goods and services purchased for personal consumption.

Let’s break this down with real examples:

1. Your Paycheck Under the Fair Tax

Let’s say you’re a single individual making $80,000 a year.

Under today’s system:

• You pay around $13,200 in federal income tax (based on 2024 brackets with standard deductions).

• You also pay around $6,120 in payroll taxes (Social Security + Medicare).

• That means you take home roughly $60,680 per year, or $5,057 per month.

Under the Fair Tax Act:

• You keep your entire paycheck—no federal income or payroll tax taken out.

• Your new monthly take-home pay would be $6,666.67.

That’s a monthly increase of over $1,600.

2. Your Grocery Bill Example

The Fair Tax includes a 23% sales tax on new goods and services, but used items and basic necessities are addressed differently thanks to something called the “prebate.”

Let’s break this down:

• Say your grocery bill is $100 under today’s system (no federal tax on groceries).

• Under the Fair Tax, groceries would be taxed at 23%, making the total $123.

BUT—every household would receive a monthly prebate (advance tax rebate) based on poverty level spending to offset the taxes on basic needs.

For example:

• A single adult would receive about $250/month in a prebate (based on 2024 HHS poverty guidelines).

• This means your grocery tax is effectively refunded to cover essentials like food, diapers, toiletries, etc.

3. What About a Vehicle Purchase?

Let’s say you’re buying a new car for $30,000.

• Under the Fair Tax, you’d pay an additional 23%, which is $6,900 in tax.

• Total cost: $36,900.

Used car? No Fair Tax.

Only new goods and services are taxed—used goods are exempt to avoid double taxation.

This design encourages reuse, resale, and conscious consumerism.

Key Takeaways:

• You keep 100% of your paycheck.

• A 23% sales tax replaces all federal income and payroll taxes.

• A monthly prebate offsets taxes on essentials, especially helping lower-income Americans.

• Used goods are not taxed, so shopping secondhand is even more attractive.

• All purchases—from groceries to cars to Netflix—get taxed, but only once at the point of sale.

Who Benefits?

People who spend less than they earn. The more you save or invest, the more you benefit. High spenders will pay more tax, not high earners.

The Fair Tax flips the script—it doesn’t penalize productivity, it taxes consumption.

If you’re tired of complicated tax filings and want a system that’s more transparent, the Fair Tax might just be the bold solution you’re looking for.