Simulating the dynamic macroeconomic and microeconomic effects of the FairTax

America's aging coupled with high and growing old-age health and pension benefits augers for much higher payroll taxes, with damaging effects on the U.S. economy. This prognosis is supported by our analysis of a detailed dynamic life-cycle general equilibrium model. The FairTax, which proposes to replace the federal payroll, personal income, corporate income, and estate tax with a progressive consumption tax, offers a potential alternative to this dismal economic future. According to our simulation model, these policy changes would lead to major improvements in the U.S. capital stock, long-run real wages and the well-being of the majority of Americans.