The Fair Tax Act, Part XXXVIII
Section 512 creates guides for several interest rates based on length of term, mirroring to some degree the way capital gains taxes are categorized now. These rates are going to be determined and used for the sake of providing reference rates for moneylenders and such if they don’t have references already (in which case they use the old references).
`SEC. 512. APPLICABLE INTEREST RATE.
`(a) In General-
`(1) FEDERAL SHORT-TERM RATE- In the case of a debt instrument, investment, financing lease, or account with a term of not over 3 years, the applicable interest rate is the Federal short-term rate.
`(2) FEDERAL MID-TERM RATE- In the case of a debt instrument, investment, financing lease, or account with a term of over 3 years but not over 9 years, the applicable interest rate is the Federal mid-term rate.
`(3) FEDERAL LONG-TERM RATE- In the case of a debt instrument, investment, financing lease, or account with a term of over 9 years, the applicable interest rate is the Federal long-term rate.
`(b) Federal Short-Term Rate- The Federal short-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any one month) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 years or fewer.
`(c) Federal Mid-Term Rate- The Federal mid-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any 1 month) on outstanding marketable obligations of the United States with remaining periods to maturity of more than 3 years and not over 9 years.
`(d) Federal Long-Term Rate- The Federal long-term rate shall be the rate determined by the Secretary based on the average market yield (selected by the Secretary and ending in the calendar month in which the determination is made during any 1 month) on outstanding marketable obligations of the United States with remaining periods to maturity of over 9 years.
`(e) Determination of Rates- During each calendar month, the Secretary shall determine the Federal short-term rate, the Federal mid-term rate and the Federal long-term rate which shall apply during the following calendar month.
This appears to be pretty formulaic and will probably be a robotic process. The IRS does something like this today: Look here for an idea.
