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The FairTax is a proposal to replace the federal personal income tax, the federal corporate income tax, the federal payroll (FICA) tax, the federal estate tax, the federal gift tax, and the federal generation-skipping tax with a federal retail sales tax, assessed at a single rate. The FairTax also provides a rebate to each household based on its demographic composition. The rebate is set to ensure that households living at or below the poverty line pay no taxes on net. This paper compares average and marginal labor income and saving tax rates under the current federal tax system and the FairTax. As specified in H.R. 25/S. 25, the legislation that would implement the reform, the FairTax’s tax rate is 23 percent. This tax rate is measured on a tax-inclusive basis, meaning that a dollar’s expenditure would yield 77 cents in consumption after payment of the retail sales tax. Although Gale (2005) questions whether a 23 percent tax-inclusive rate would suffice to maintain real federal spending and also cover the FairTax rebate, a recent analysis by Bachman, Haughton, Kotlikoff, Sanchez-Penalver, and Tuerck (2006) based on CBO 2007 projections indicates that less than a 3 percent scale-back of non-Social Security real federal expenditures would be needed to accommodate a 23 percent FairTax rate. As a share of GDP, these expenditures have risen by ove