Deductible
Deductibles are typically used to deter the large number of claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles. For example, health insurance companies offer plans with high premiums and low deductibles, or plans with low premiums and high deductibles. One plan may have a premium of $1,087 a month with a $6,000 deductible, while a competitive plan may have a premium of $877 a month with a $12,700 deductible. The consumer with the $6,000 deductible will have to pay $6,000 in health care costs before the insurance plan pays anything. The consumer with the $12,700 deductible will have to pay $12,700.
Predicted effects of the FairTax
Like the home mortgage interest deduction, charitable giving receives preferential treatment under current tax law allowing individuals to deduct the donation, to certain charities, from taxable income. Someone paying a 25% income tax rate would receive $250 back from the government for a $1,000 donation. While there is no deduction for payroll taxes and most do not itemize the deduction for full benefit, this encourages households to donate more of their income to charity than would otherwise be the case. As the FairTax would only tax new retail purchases, donations to charity would be made with untaxed income (comparable to a deduction on both income and payroll taxes). The FairTax would also remove the prohibition of political speech by non-profits, therefore removing the threat to non-profit status. Taxable property and services purchased by a qualified non-profit or religious organization 'for business purposes' would not be taxable.