The Fair Tax Contract: A Living Allowance, Equal Rules, and No Hidden Spending

The living allowance

Congress should set one adult allowance and one child or dependent amount, indexed to inflation. The first dollars a person needs to live are free of federal income tax; the refundable component supports workers and caregivers with low earnings. A transparent phaseout replaces overlapping cliffs. The allowance should coordinate with payroll taxes because families experience both as one household burden.

Economic income and liquidity

Realized gains remain the administrable base for most households. At death, accrued gains should be recognized subject to spousal rollover, a substantial small-estate exemption, and long payment periods for active family businesses and farms. Ultra-high-wealth households should face a minimum effective tax calculated from income plus large unrealized gains, with deferral carrying interest where valuation or liquidity is genuinely difficult. The goal is equal burden over time while avoiding forced sales.

Tax expenditures are spending

CBO estimated 2025 individual and corporate income-tax expenditures at $2.3 trillion, about 44 percent of federal revenue and more than all discretionary outlays combined. Behavior changes mean Congress could not recover that total dollar for dollar. Its scale proves that exclusions and credits deserve explicit review.

Trade-offs

Prefilling can reproduce bad third-party information. Monthly credits can create reconciliation debt. Top-end accrual rules create valuation disputes. Externality taxes raise visible prices. Appeal, safe harbors, deferral with interest, broad exemptions for ordinary households, independent valuation, and dividends mitigate those costs. The platform accepts complexity at the very top to remove complexity from tens of millions of ordinary returns.