Technical Appendix A:
Calculation of Sales Tax Base
Similar to methods used by Bachman and colleagues (2006) to estimate FairTax revenues, we utilized line items from the 2018 National Income and Product Accounts (NIPA) as the basis for estimating the consumption tax base. [1, 2] Data was pulled from the following NIPA tables: 2.5.5, 2.9, 3.2, 3.3, 3.9.5, 5.4.5, 6.3D, 7.5, 7.11. The proposed FairTax base is narrower than that proposed by Bachman et al. Table A-1 below details what is included in the tax base, and what is not.
Table A-1. Computation of Proposed FairTax Base, 2018 (Billion $)
| TAXED | NOT TAXED | ||
|---|---|---|---|
| PRIVATE CONSUMPTION & OTHER EXPENDITURES | |||
| FOOD | |||
| Groceries | 861.5 | ||
| Food produced and consumed on farms | 0.4 | ||
| Alcoholic beverages purchased for off-premises consumption | 141.5 | ||
| Purchased meals and beverages | 821.6 | ||
| TEMPORARY ACCOMODATIONS | 151.7 | ||
| CLOTHING, FOOTWEAR & RELATED ACCESSORIES | 408.3 | ||
| HOUSING | |||
| Rent (actual and imputed) | 2,222.0 | ||
| Group housing | 2.0 | ||
| Household utilities and fuel | 364.8 | ||
| Purchase of new homes | 356.1 | ||
| Improvements to single-family homes | 251.8 | ||
| Brokers’ commissions on housing | 162.5 | ||
| FURNISHING, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENANCE | 572.6 | ||
| HEALTHCARE, INCLUDING NURSING HOME SERVICES | 2,933.2 | ||
| TRANSPORTATION | |||
| Motor vehicles, including net purchases of used motor vehicles | 446.0 | ||
| Motor vehicle operation | 705.0 | ||
| Public transportation | 160.8 | ||
| COMMIUNICATION | |||
| Telephone and related communication equipment | 30.8 | ||
| Postal and delivery services | 13.0 | ||
| Telecommunication services | 158.8 | ||
| Internet access | 70.9 | ||
| RECREATION | 1,203.6 | ||
| EDUCATION | |||
| Educational books | 11.2 | ||
| Higher education | 188.9 | ||
| Nursery, elementary and secondary schools | 50.0 | ||
| Commercial and vocational schools [1] | 27.0 | 27.0 | |
| FINANCIAL SERVICES & INSURANCE | |||
| Financial services | 708.6 | ||
| Insurance (most) net of benefits/losses paid out [2] | 211.4 | ||
| OTHER GOODS & SERVICES | |||
| Personal care | 285.1 | ||
| Personal items | 107.4 | ||
| Social services and religious activities | 203.2 | ||
| Professional and other services [3] | 178.8 | ||
| Tobacco | 99.2 | ||
| NET FOREIGN TRAVEL & EXPENDITURES ABROAD BY U.S. RESIDENTS | |||
| Foreign travel by U.S. residents (durable good purchases) | 93.5 | 93.5 | |
| Expenditures in the U.S. by nonresidents | 217.7 | ||
| Net (non-durable) expenditures abroad by U.S. residents | 9.9 | ||
| NONPROFITS | |||
| Gross output less receipts from sales of goods and services | 443.0 | ||
| Capital spending (net of capital) | 174.5 | ||
| Less: salaries and wages of nonprofits | (230.4) | ||
| INTEREST | 753.6 | ||
| REDUCTIONS | |||
| Less: state sales taxes | (437.7) | ||
| GOVERNMENT CONSUMPTION EXPENDITURES | |||
| STATE & LOCAL GOVERNMENT | |||
| Consumption net of education spending and capital consumption allowance | 1,119.5 | ||
| Investment | |||
| Gross purchases of new structures | 261.5 | ||
| Gross purchases of equipment | 57.4 | ||
| FEDERAL GOVERNMENT | |||
| Consumption net of capital consumption allowance | 835.5 | ||
| Subsidies | 81.4 | ||
| Investment | |||
| Gross purchases of new structures | 19.1 | ||
| Gross purchases of equipment | 161.0 | ||
| GROSS FAIR TAX BASE (BILLION $) | $11,401 | ||
| Estimated Revenues (billion $) | $2,964 |
Footnotes
Assumes 50% of line item is community college (not-taxed) and 50% is commercial/for-profit provided education (taxed).
Excludes health insurance net medical/hospitalization costs because under universal healthcare insurance premiums will go away for most.
Excludes 50% of total accounting and other business services that are assumed to relate to income tax preparation, which will go away under SeaChange.
Technical Appendix B:
Federal Fiscal Effect Estimation Methodology
Under the SeaChange proposal, all forms of income tax will be replaced with a 26% consumption tax. Appendix A details what will (and will not) be taxed. In addition, employers will pay a flat monthly amount per employee ($700 per full-time employee, $350 per part-time employee) which is, in essence, a contribution to the universal health care system. Those who are self-employed will pay an additional 4% for the same reason.
SeaChange also replaces most means-tested public assistance (eg. income security/welfare, housing subsidies, public housing expenditures, income tax credits) and unemployment compensation/insurance with a monthly universal basic income payment of $1,000 per adult and $300 per minor to U.S. citizens and legal permanent residents (LPRs) residing in the U.S. for at least 180 days during the year and earning less than $8,000 per month ($96,000 annually). For adults earning between $8,000 and $16,999 per month, the monthly payment is reduced by $100 per every additional $1,000 earned such that those earning $17,000/month and over (the top 2.5% of income earners) receive no payments.
The final component of the proposal is to expand Medicare to cover all U.S. citizens and LPR. We included the costs of doing so for those ages 0 to 64 and also removed current federal non-Medicare health care-related outlays (eg. Medicaid/CHIP, Veteran’s Health Administration) under the assumption that those currently covered under these systems would transition to Medicare-for-all. The additional cost of providing universal coverage to those 0 to 64 years old was estimated using the United States Medical Expenditures Panel Survey (2015) adjusted to 2018 $ using the Medical Consumer Price Index (CPI). [3, 4] Reductions in health care costs due to increased cost-efficiency from a single payer system and improved population health were conservatively calculated at 15% based on multiple sources. [5-7]
In line with other models, we estimate that consumption will increase by 25% of annual guaranteed income payments, and that employment will increase by 4% due to increased consumption. [8] These multiplier effects are included in the consumption tax and payroll tax line items, respectively.
The number of part-time vs. full-time employees was estimated using data provided by the Bureau of Labor Statistics. [9] Population estimates of resident U.S. citizens and permanent legal residents were calculated by subtracting estimates of the number of temporary authorized and unauthorized residents from Current Population Survey estimates of the total U.S. resident population. [10, 11] Population by individual income level data was sourced from Integrated Public Use Microdata Series (IPUMS) of the Current Population Survey. [12] All data on current federal government revenues and expenditures were pulled from Congressional Budget Office sources. [13, 14]
Technical Appendix C:
Estimating Income Effects on Low Income Americans
Households vary in composition (i.e. number of adults and number of children), income level and, for poor households, the value of assistance received. The table below demonstrates the direct impact of replacing monthly public assistance with a standard monthly guaranteed income payment of $1,000 per adult, and $300 per child in the household while also accounting for the impact of the proposed consumption tax on household costs of consumption. Single parent (generally, female) households are more likely to receive means-based assistance than two-parent households; thus, we focused our modeling on these households. The calculations below assume that 50% of absent parent guaranteed income payments (i.e. $500 per month) are garnished for child support under the new policy. (Note: even when these contributions are excluded, all but one of the households still experience an increase in purchasing power).
Table C-1. Policy Effects on Monthly Purchasing Power of Low Income Families: By Composition, %FPL, Level of Assistance
| % FPL | $ Amount of Monthly Assistance | Pre-Policy Monthly Income | Policy: Monthly Income | $ Impact on MPP* | % Impact on MPP |
|---|---|---|---|---|---|
| 1 ADULT | |||||
| 50% | $450 | 956 | 1,506 | 538 | 56% |
| 100% | 450 | 1,462 | 2,012 | 455 | 31% |
| 133% | 250 | 1,596 | 2,346 | 543 | 34% |
| 100% | 600 | 1,612 | 2,012 | 295 | 18% |
| 133% | 300 | 1,646 | 2,346 | 486 | 30% |
| 2 ADULTS | |||||
| 50% | 900 | 1,586 | 2,686 | 1,079 | 68% |
| 100% | 450 | 1,822 | 3,372 | 1,432 | 79% |
| 133% | 250 | 2,074 | 3,824 | 1,480 | 71% |
| 133% | 375 | 2,199 | 3,824 | 1,339 | 61% |
| 100% | 900 | 2,272 | 3,372 | 952 | 42% |
| 1 ADULT, 1 CHILD | |||||
| 50% | 900 | 1,586 | 2,486 | 879 | 55% |
| 100% | 900 | 2,272 | 3,172 | 752 | 33% |
| 133% | 450 | 2,274 | 3,624 | 1,054 | 46% |
| 133% | 500 | 2,324 | 3,624 | 998 | 43% |
| 100% | 1,000 | 2,372 | 3,172 | 646 | 27% |
| 1 ADULT, 2 CHILDREN | |||||
| 50% | 1,350 | 2,216 | 2,966 | 721 | 33% |
| 100% | 900 | 2,632 | 3,832 | 1,029 | 39% |
| 133% | 450 | 2,753 | 4,403 | 1,292 | 47% |
| 133% | 575 | 2,878 | 4,403 | 1,151 | 40% |
| 100% | 1,150 | 2,882 | 3,832 | 763 | 26% |
| 1 ADULT, 3 CHILDREN | |||||
| 50% | 1,675 | 2,721 | 3,446 | 690 | 25% |
| 100% | 1,256 | 3,348 | 4,492 | 926 | 28% |
| 133% | 628 | 3,410 | 5,182 | 1,329 | 39% |
| 133% | 837 | 3,619 | 5,182 | 1,092 | 30% |
| 100% | 1,675 | 3,767 | 4,492 | 480 | 13% |
MPP* = monthly purchasing power
The values of monthly assistance used for this exercise vary around the median combined monthly benefit calculated by Irving and colleagues (2015) of $404 per person and $449 per person for those below the federal poverty level (FPL). [15] Estimates are assessed for each household composition category for 50%, 100% and 133% of the FPL using the U.S. Department of Health and Human Services’ 2018 poverty guidelines. [16] Using data from the 2017-2018 Consumer Expenditure Survey, we estimated that households living at 50% FPL spend 95% of their current monthly income on necessities that are not taxed under the FairTax proposal; while households living at 100% FPL spend 75% of their monthly income on untaxed items; and those living at 133% spend 50% of their income. [17] These estimates are used to calculate the cost of current consumption under the policy (which will increase by 26% of spending on taxed items).
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