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I wish the author would have mentioned at least what section of the FairTax bill he is discussing here.

`SEC. 801. DETERMINATION OF FINANCIAL INTERMEDIATION SERVICES AMOUNT.

`(3) IMPLICITLY CHARGED FEES FOR FINANCIAL INTERMEDIATION SERVICES-

the gross imputed amount in relation to any underlying interest-bearing investment, account, or debt.

`(B) GROSS IMPUTED AMOUNT- For purposes of subparagraph (A), the term `gross imputed amount' means--

`(i) with respect to any underlying interest-bearing investment or account, the product of--

`(I) the excess (if any) of the basic interest rate (as defined in section 805) over the rate paid on such investment; and

`(II) the amount of the investment or account; and

with respect to any underlying interest-bearing debt,

the excess (if any) of the rate paid on such debt over the basic interest rate (as defined in section 805); and

the amount of the debt.

Almost all interest paid is higher than the Fed fund...That's how banks make money. What ever interest you're paying on whatever loan you have, including mortgages, if it's above the fed fund rate (as determined monthly) you would also pay 30% tax on the difference under the Fairtax plan.

Thanks, I see what you are getting at; I wish that the author had actually mentioned section 801 in the article.

Having thought about it, it appears that the author of the original article is probably correct on this point also.

It appears to me that in fact 801 is probably worse policy than simply computing the imputed value of the sale because of the excess interest charge and charging the FairTax on that hypothetical sale value. By charging 30% on the putative excess of interest on each payment, that means that the borrower is paying an extraordinary penalty for any interest rate above the section 805 "basic interest rate".

Means if the Fed prime rate is 4% and my mortgage interest is 7%,the Fair Tax would be 30% on the excess of 3% or .009 added to my interest cost each month

How about the guy that has 18% credit card rates

He would be paying 30% on excess of the prime rate of 4% or 30% on 14% or an additional 4.2% added to his 18% monthly payment