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The prebate is absolutly relevant, if you are making any effort to be honest. Everyone is handed a check that covers the first portion of a person's spending. Assuming it's on the first $20k of income, that check equates to $4600 (at 23% tax rate). So a person that makes exactly $20k pays exactly...zero in taxes, while anyone making less than that gets a welfare check. The person making $200k pays $41,400 in taxes, (.23% on $180k). So once again, the poor pay nothing or very little, and still, like now, get carried by the more successful. If anything, the "poor" (or rather working poor) are better off. Currently, even though they pay no income tax, and often get a check at tax time, they still pay payroll taxes. Those (if I understand correctly) are done away with with the Fair Tax.
Yes and the prebate only give $2,688 a year, (monthly at 224 per person.) Now you can argue that there are more with the payroll taxes too but I doubt that spending would not jump up. The reason why I said it isn't relevant to that specific post was because I covered what would happen as a 23% exclusive tax. As you'll see later, that prebate can go MUCH faster.
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Originally Posted by nicet4
No, but they will see their available income go up by a higher margin than just 23% which would more than cover the 23% tax.
What if rents double, triple or quadruple like they have in the oil lands of North Dakota?
But if they are working in the oil fields of North Dakota they are earning much more than minimum wage.
What point are you trying to make?
The 23% tax rate is inclusive to the price meaning it actually eats into revenue generated from the sale. Say you buy a $25K NEW car. Right now $25K goes straight to the company. Under the FairTax, 23% ($5,750) goes to the government leaving $19.250 to go to the company. The that is a loss of $5,750 because it now is taxed. If the automaker wants the revenue to stay the same, I've found it will jump the price up to $32,468, an increase of 7468. If the tax was external, the price would be about 1,500 less at $30,750. FYI at the 224 prebate, that is larger than the prebate. I did this is excel with goal seek.
As for rent, the $600 rent would need to jump to $779 and the $700 rent would need to jump to $909 to keep current revenue. To tie the prebate in, Mitch would only now have $45 left on his prebate each month at $779 and Paul would have $15 remaining. To keep constant with the names I've used. And this is just rent and new cars let's not even wonder what will happen with goods.
Yes and the prebate only give $2,688 a year, (monthly at 224 per person.) Now you can argue that there are more with the payroll taxes too but I doubt that spending would not jump up. The reason why I said it isn't relevant to that specific post was because I covered what would happen as a 23% exclusive tax. As you'll see later, that prebate can go MUCH faster.
Yes, the prebate is only $224 per person but you are missing the simple fact that FairTax is a replacement tax.
Let's say Mitch is single and $30.00 per hour working a 40 hour work week for a gross pay of $1,200.00 weekly.
From his $1,200 Mitch would have $190.50 deducted for federal income tax, $74.40 for social security and $17.40 for medicare for a total of $282.30 every week. Translated to 4.33 work weeks in a month Mitch already has $1,222.36 deducted from his pay every month.
You need to add Mitch's $224.00 to the $1,222.36 to see Mitch is receiving $1,446.36 additional money every month in his paycheck that he sees. This totals an additional $17,356.32 in a year which is substantially more than the $2,688.00 prebate only amount.
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The 23% tax rate is inclusive to the price meaning it actually eats into revenue generated from the sale. Say you buy a $25K NEW car. Right now $25K goes straight to the company. Under the FairTax, 23% ($5,750) goes to the government leaving $19.250 to go to the company. The that is a loss of $5,750 because it now is taxed. If the automaker wants the revenue to stay the same, I've found it will jump the price up to $32,468, an increase of 7468. If the tax was external, the price would be about 1,500 less at $30,750. FYI at the 224 prebate, that is larger than the prebate. I did this is excel with goal seek.
As for rent, the $600 rent would need to jump to $779 and the $700 rent would need to jump to $909 to keep current revenue. To tie the prebate in, Mitch would only now have $45 left on his prebate each month at $779 and Paul would have $15 remaining. To keep constant with the names I've used. And this is just rent and new cars let's not even wonder what will happen with goods.
The 23% tax rate is not inclusive it is an end user or sales tax.
If Mitch purchases a new car for $25,000.00 the tax will be added to that car at a 23% rate and we come up with $5,750.00 in taxes making the purchase price $30,750.00.
If you subtract the $5,750.00 from Mitch's $17,356.32 you can see that Mitch is still $11,606.32 ahead of game since federal income, social security and medicare taxes are no longer taken out of his check every week.
Here are the numbers.
Now let's suppose Mitch spends every last nickle all on taxable goods. Even with the 23% tax on taxable goods if Mitch spends it all he is still ahead by $5,930.90 per year.
If Mitch's rent is $1,000 which comes to $1,230 with the tax Mitch is still head of the game by $5,930.90-(12*$230.00)=$3,170.90 for the year or $264.24 every month from what he is paying right now under the current system.
Prices of goods will not go up,they will go down.
I am in the contracting business where 30% of my job cost is material and labor is $70%.
My material cost will go down because the cost of labor my suppliers tack on to cover the employers portion of social security and medicare will no longer be there throughout the pipeline. My supplier will pay less to the manufacturer because the manufacturer no longer has to include his costs of paying his portion of the social security and medicare taxes.
Assume you contract me to do some remodeling at your office.
Under today's system I would charge you $10,000.00 with $3,000.00 of that represented by my material costs.
Of that $7,000.00 approximately (I am not going to do the math in reverse but I will be pretty close so don't nit-pick about $5.23 or whatever it is) but the cost to me for for my portion of the employment taxes is approximately $525.00.
Your price, the price you pay, will be reduced approximately $525.00 on the overall job lowering it to $9,475.00.
Now you will have to pay taxes on that improvement of 23%.
$9,475.00*.23=$2,179.25 in taxes for a total of $11,654.25.
I know what you are thinking, you are thinking we're all evil corporatists and how we will simply pocket the money as ill gotten gains but I am here to tell you that sort of thinking is the most stupid thinking around. I have competition I work against every day and if I can take $525.00 off my price and still make the profit I am looking for that is exactly what I will do.
I will do that and so will every else in the contracting business.
Car manufacturers will as well. The $25,000 car will cost less and I beleive a lot less than you might think.
In America the labor costs involved in building a new car is around 10% of the total cost or in our case $2,500.00. But everyone needs to remember that 10% cost is manufacturing only and does not include the cost of development (anyone know of any automobile development engineers that work for free?) then there is the labor costs associated with building the parts that go into the car and so on.
How much would the car cost without social security and medicare taxes built in across the board? Nobody knows for sure but it wouldn't surprise me to learn it represented 50% of the total costs.
The price of the car would go down, competition would make it have to happen.
But all this isn't the biggest advantage.
The biggest advantage would be lowering our manufacturing costs to bring manufacturing jobs back to the United States. Imagine if we could produce products here for sale overseas without having to add in the cost of our federal and employment taxes.
Yes, the prebate is only $224 per person but you are missing the simple fact that FairTax is a replacement tax.
It is replacing all forms of income AND payroll taxes but we saw it actually lowers tax burden and even sends out a tax credit n the form of the prebate out to every tax payer. Mitch's prebate is paid by Paul.
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Let's say Mitch is single and $30.00 per hour working a 40 hour work week for a gross pay of $1,200.00 weekly.
From his $1,200 Mitch would have $190.50 deducted for federal income tax, $74.40 for social security and $17.40 for medicare for a total of $282.30 every week. Translated to 4.33 work weeks in a month Mitch already has $1,222.36 deducted from his pay every month.
You need to add Mitch's $224.00 to the $1,222.36 to see Mitch is receiving $1,446.36 additional money every month in his paycheck that he sees. This totals an additional $17,356.32 in a year which is substantially more than the $2,688.00 prebate only amount.
OK but where does what the replacement to the payroll taxes come from? You keep skirting that question. One of the problems I see from the FairTax is there is no true replacement to the current system. It's all dependent if more people pay taxes than they do in the current system. The drug dealers and illegals actually have to consume new goods or services to pay these taxes. If they don't, we wont see much benefit from it.
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The 23% tax rate is not inclusive it is an end user or sales tax.
How to Make 30 Look Like 23
Americans for Fair Taxation offers the following plain-language interpretation of H.R. 25:
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Americans for Fair Taxation: A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal consumption of new goods and services.
It is the parenthetical that is important, for it hides the real truth of the tax rate.
First consider the way in which sales tax is normally figured. A consumer good that carries a $100 price tag might be subject to a 5 percent sales tax. That means that the final bill for the item is $105. The 5 percent figure is the amount of tax that is charged on the original purchase price. But now suppose that instead of pricing the item at $100, the shop owner simply priced the item at $105, then sent $5 directly to the state. The $105 price would be a tax-inclusive sales price. But $5 is just 4.8 percent of $105. That 4.8 percent number, however, is relatively meaningless. You are still paying exactly the same 5 percent tax on the item.
The 23 percent number in H.R. 25 is the equivalent of the 4.8 percent in the previous example. To calculate the real rate of the sales tax, we have to determine the original purchase price of an item. We can begin with the same $100 item, keeping in mind that a price tag that reads $100 has sales tax already built in. If our tax rate is 23 percent of the tax-inclusive sales price, then of the $100 final price, $23 of those dollars will be for taxes, meaning that the original pre-tax price of the item is $77. To get $23 in taxes on a $77 item, one must impose a 30 percent tax. In other words, a 23 percent sales tax on the tax-inclusive sales price is equivalent to a 30 percent tax on the actual price of the item.
FairTax proponents object to the 30 percent number, claiming that critics use the larger number to frighten people. Americans for Fair Taxation claims that it uses the tax-inclusive number to make it easier to compare the FairTax to the income tax that it will replace (since most of us think of income tax rates on an inclusive basis). But we are not accustomed to thinking of sales taxes inclusively. The result is that many FairTax supporters (about 15 percent of those who wrote to us, for example) do not understand that the 23 percent figure is tax inclusive.
Our analysis of the FairTax used a figure of 34 percent as the basic exclusive tax rate. One e-mailer complained that our number was at least 10 percentage points “higher than [the FairTax] is” because we calculated it as an addition to retail prices. But our 34 percent number is not 10 percentage points higher than the legislation. A 34 percent exclusive number is equivalent to a 25 percent tax inclusive rate – only 2 percentage points higher than the FairTax bill. We think that, intentional or not, the use of the tax-inclusive 23 percent rate has misled a lot of FairTax proponents.
The Fair Tax Act and Inclusive Taxation
The Fair Tax Act may attempt to improve the current system, which favors the wealthy with loopholes and big deductions, by replacing it with a more equitable system of taxation. However, this may not be the case. While the downsides are troubling, what is most disturbing is how advocates present the plan.
First, let’s quickly review the current sales tax and what the change would mean. Everyone in this country is accustomed to paying what’s called an “exclusive tax” on their purchases. This means we see how much an item costs and then calculate the tax on top of that price. In fact, until I read about the Fair Tax Act, I didn’t know there was any other way to pay sales tax.
Since this is the crux of the Fair Tax plan, it’s worth addressing again. If you purchase an item for $100 that has a 23% tax, you would expect to pay $123 total. This would be an exclusive tax. However, the Fair Tax plan calculates their tax as inclusive. In other words, your $100 purchase already incorporates $77 for how much the item costs and $23 for the actual tax. But a $23 tax on a $77 purchase comes out to 30% the way we currently measure it.
In explaining the plan, it seems that Fair Tax proponents call it a 23% tax so the plan sounds better. And this makes me wonder, what else are they spinning, and why do they misrepresent a crucial aspect of their plan in the first place? If the people vetting the tax plan don’t understand why it’s misleading to talk about an inclusive sales tax, then I suspect other aspects of the plan will be misleading and possibly flawed as well.
On the other hand, if the ruse is intentional (which seems like the rational explanation), what else are they trying to sneak past us, and why? As if the length of the list of cons isn’t enough, this simple bit leads me to suspect that the Fair Tax is anything but fair, and that it’s just another ploy to get the rest of us to pad the pockets of the upper and corporate classes.
So based on these revelations, my question to you since you seem to know the law the best out of everyone, was the item always $77?
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Prices of goods will not go up,they will go down.
I am in the contracting business where 30% of my job cost is material and labor is $70%.
My material cost will go down because the cost of labor my suppliers tack on to cover the employers portion of social security and medicare will no longer be there throughout the pipeline. My supplier will pay less to the manufacturer because the manufacturer no longer has to include his costs of paying his portion of the social security and medicare taxes.
Assume you contract me to do some remodeling at your office.
Under today's system I would charge you $10,000.00 with $3,000.00 of that represented by my material costs.
Of that $7,000.00 approximately (I am not going to do the math in reverse but I will be pretty close so don't nit-pick about $5.23 or whatever it is) but the cost to me for for my portion of the employment taxes is approximately $525.00.
Your price, the price you pay, will be reduced approximately $525.00 on the overall job lowering it to $9,475.00.
Now you will have to pay taxes on that improvement of 23%.
$9,475.00*.23=$2,179.25 in taxes for a total of $11,654.25.
I know what you are thinking, you are thinking we're all evil corporatists and how we will simply pocket the money as ill gotten gains but I am here to tell you that sort of thinking is the most stupid thinking around. I have competition I work against every day and if I can take $525.00 off my price and still make the profit I am looking for that is exactly what I will do.
I will do that and so will every else in the contracting business.
Car manufacturers will as well. The $25,000 car will cost less and I beleive a lot less than you might think.
In America the labor costs involved in building a new car is around 10% of the total cost or in our case $2,500.00. But everyone needs to remember that 10% cost is manufacturing only and does not include the cost of development (anyone know of any automobile development engineers that work for free?) then there is the labor costs associated with building the parts that go into the car and so on.
How much would the car cost without social security and medicare taxes built in across the board? Nobody knows for sure but it wouldn't surprise me to learn it represented 50% of the total costs.
The price of the car would go down, competition would make it have to happen.
But all this isn't the biggest advantage.
The biggest advantage would be lowering our manufacturing costs to bring manufacturing jobs back to the United States. Imagine if we could produce products here for sale overseas without having to add in the cost of our federal and employment taxes.
Funny, the FactCheck article I linked earlier had a section on the falsness of lowering prices and lowering costs and in fact actually LOWERNG wages with the price.
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But the FairTax Will Lower Prices
Proponents of the FairTax point out that prices on consumer goods contain what are called “hidden taxes.” Under current law, corporations have to pay taxes on their earnings. Moreover, businesses have to pay social security taxes for each employee. The money to pay these taxes has to come from somewhere, and FairTax supporters argue that the cost is passed on to the consumer. In fact, the best-known proponent of the FairTax, talk-show host Neal Boortz, argues that 22 percent of the price of a consumer good is really a “hidden tax.” Get rid of corporate and social security taxes, Boortz argues, and consumer good prices would drop by 22 percent. Even with the 23 percent FairTax, prices stay the same, and with the elimination of income taxes, paychecks will get bigger. Everyone gets a raise and the federal government still gets its revenue. About 10 percent of the e-mail messages we received from FairTax proponents trumpeted this kind of magic act. It is easy to understand the confusion on the issue, as Boortz himself made similar assertions in the hardcover edition of his book. (He later issued a corrected version in paperback.)
A bit of critical analysis shows that this cannot be right. The FairTax is revenue-neutral. That means that for every tax dollar collected under the current system, the FairTax has to collect a dollar. If the FairTax exactly equaled embedded taxes, then it could not possibly be revenue-neutral, since embedded taxes do not take into account personal income or estate taxes. The FairTax rate would have to be high enough to replace embedded taxes plus income and estate taxes.
Chris Edwards, the Cato Institute’s director of tax policy studies, points out that prices do not really matter; corporate, payroll, income and estate taxes currently generate approximately $2.4 trillion, and a revenue-neutral FairTax would still require that taxpayers pony up $2.4 trillion. Nor is it clear that the 22 percent embedded tax figure is particularly meaningful. David Burton, chief economist of the Americans for Fair Taxation, calls it "simplistic" to think that the entire cost of corporate taxes is borne by consumers. Cato’s Edwards suggests that while consumers do pay at least part of the costs, producers also bear some of the burden. That is, employees pay part of the costs of hidden taxes (in the form of lower wages), and corporate shareholders pay another portion (in the form of lower returns on their investments).
So yeah prices fall but because it is expected labor will in fact lower and not just in payroll taxes.
The idea of the FairTax is an idea that is nothing new. It is an idea to replace ALL taxes the US federal government collects including Social Security and Medicare with a national sales tax. I am against it and want to know off there are actually people who support it and why they do if that is the case.
I would be for this.
1) You can exempt necessities like food, medicine and education.
2) It encourages savings as income and interest are not taxed until spent (so everyone now has an IRA like account that can grow pre tax).
3) Everyone supports the system they benefit from (including illegals and criminals) but the level of support goes up as your spending goes up. The people supporting the government the most will be the ones with the most disposable income.
4) You get to pretty much eliminate the IRS as there will no longer be individual income tax returns.
Why are you opposed to such a system? The average person wouldn't pay more taxes under such a system. People who now pay no taxes however would pay more but they should. Money that is now given back to the lowest income families can be shifted to welfare programs and they can get the money that way. What I really like about such a system is control. As a consumer I control what I spend so I control what I pay in taxes. I also like that illegals and those working under the counter and criminals also pay into the system. Right now they don't.
This would be a tax shift for most people. It does burn the illegals and criminals who have been paying nothing though but we should.
The only jobs I see being eliminated this way are IRS agents. What's not to like?
Last edited by Ivorytickler; 05-28-2014 at 03:48 AM..
1) You can exempt necessities like food, medicine and education.
2) It encourages savings as income and interest are not taxed until spent (so everyone now has an IRA like account that can grow pre tax).
3) Everyone supports the system they benefit from (including illegals and criminals) but the level of support goes up as your spending goes up. The people supporting the government the most will be the ones with the most disposable income.
4) You get to pretty much eliminate the IRS as there will no longer be individual income tax returns.
Why are you opposed to such a system? The average person wouldn't pay more taxes under such a system. People who now pay no taxes however would pay more but they should. Money that is now given back to the lowest income families can be shifted to welfare programs and they can get the money that way. What I really like about such a system is control. As a consumer I control what I spend so I control what I pay in taxes. I also like that illegals and those working under the counter and criminals also pay into the system. Right now they don't.
This would be a tax shift for most people. It does burn the illegals and criminals who have been paying nothing though but we should.
The only jobs I see being eliminated this way are IRS agents. What's not to like?
There are several reasons that I don't like it and I have NO tie to the IRS or K-street lobbyists.:
It has to be truly neutral to the current tax system. We lose all lose income and payroll taxes through the FairTax proposal, that sounds good to everyone right? WRONG! While we get a bigger chunk of our paychecks let's remember that payroll taxes go to specific programs like Social Security and Medicare. Now they come out of a general fund. Add in the prebate, that prebate does't grow on trees, somebody's taxes pay for that. As I've said several times, the tax base actually pays LESS from 23% than even the 15% income and payroll taxes, throw in the prebates and the tax burden increases. Somehow that downfall needs to be recouped. That has been proven several times on this thread where a person who pays 15% of their income in taxes and payroll actually make out less if they pay for say 80-100% of their income. Now people do look to immigrants, drug dealers and travelers to cover the shortfall but would they really match the shortfall particularly from the percentage of tax savings by the rich on this program? This comes from a fact check article on the FairTax:
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Chris Edwards, the Cato Institute’s director of tax policy studies, points out that prices do not really matter; corporate, payroll, income and estate taxes currently generate approximately $2.4 trillion, and a revenue-neutral FairTax would still require that taxpayers pony up $2.4 trillion. Nor is it clear that the 22 percent embedded tax figure is particularly meaningful. David Burton, chief economist of the Americans for Fair Taxation, calls it "simplistic" to think that the entire cost of corporate taxes is borne by consumers. Cato’s Edwards suggests that while consumers do pay at least part of the costs, producers also bear some of the burden. That is, employees pay part of the costs of hidden taxes (in the form of lower wages), and corporate shareholders pay another portion (in the form of lower returns on their investments).
Why not just exempt food and medicine from the tax? Wouldn’t that be fair and simple?
Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after-income-tax and after-payroll-tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.
Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.
Basically, the slippery slope and the fear of lobbyists has shut off exemptions for the FairTax unlike sales taxes around the nation. Instead they offer the prebate (which comes OUT of taxes.)
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Why not just exempt necessities from the FairTax instead of providing for a prebate?
The prebate is the most equitable and most efficient way to make the FairTax progressive. If the FairTax were to exempt necessities, the tax rate would have to be 20 percent higher than the FairTax rate with a prebate.
So basically you get it in a way but as I mentioned when rent has the tax, food has the tax, gasoline has the tax, the prebate runs out sooner rather than later. The payroll taxes would increase it but it would lead to another bulletpoint.
Prices will fall, but at YOUR expense. What do I mean by that, let's go back to the fact check article section I quoted earlier.
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Cato’s Edwards suggests that while consumers do pay at least part of the costs, producers also bear some of the burden. That is, employees pay part of the costs of hidden taxes (in the form of lower wages), and corporate shareholders pay another portion (in the form of lower returns on their investments).
Simply put, while prices will fall it is because you can be offered a paycut to cover it. I guess there goes the increase from no payroll taxes
The IRS WON'T be fully removed. Let me repeat that, the IRS WON'T be fully removed. One of the biggest talking points in favor of the FairTax is to remove the IRS which has always been framed as an evil group that takes away your money, whether it is for PACs like Nixon, Clinton and Obama have been accused of or the little man. Even WWF made a character of an evil tax collector named Irwin R Schyster.
However the IRS would actually NEED to exist. This comes from a recent article in Forbes:
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As to the elimination of the IRS, while the IRS might not need to audit incomes anymore, some agency needs to collect all the sales taxes, ensure retailers are sending in the full amount, and handle all the mechanics of the prebate. The prebate requires this federal agency to know everyone’s family size and have a bank account or other method of sending out the prebate each month. So while individuals will have less interaction with the federal tax agency, there will still be some. For retail businesses, their interactions with federal tax officials will be at least as much as now, if not more. Certainly tax compliance will be much simpler with only total sales needing to be reported, not all manner of business expenses, but a federal tax agency will still be required.
The IRS will be smaller but it will still need to exist to make sure sellers are sending the taxes out (like they do with the current sales taxes in the counties) as well as issuing the prebate to individuals. Let me repeat, the IRS WON'T be fully removed.
The middle class and elderly bare the brunt of the law. The poor get off good with the prebate at least but the middle class and elderly can expect a tax increase and not just in the tax rate. Here's a chart from the same FactCheck article:
This shows the tax burden shifts off the rich and towards the middle class. The following comes from the same Forbes article I used earlier.
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Finally, while Fair Tax proponents often act like nobody loses under the Fair Tax that is simply not possible. If the Fair Tax is implemented in a revenue neutral manner (collecting the same amount of total revenue as all the taxes it replaces), and some people win then other people must lose. Poor people pay roughly no tax either way, so the Fair tax would be neutral for them. The very rich will assumedly pay less since they spend a lower percentage of their income and spend more overseas. Thus, the suspicion is that the middle class will be paying more.
What about the elderly, they face a tax increase too... Here's more from the same Forbes article.
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One other group pretty sure to pay more is the elderly. The elderly have paid income tax while earning income, and under the Fair Tax would suddenly pay high consumption taxes right when their income drops and their spending increases. In the long run, this is not a problem, but early in a Fair Tax regime, the elderly definitely are losers.
So basically we see that a majority of the tax base faces an effective tax increase under the FairTax.
Another thing is it is entirely based around spending. Let's remember, the rich currently do save a significant chunk of their income currently. The middle class and the elderly do not. This comes from Money Crashers.
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Depending Too Much on Spending. Paradoxically, this tax is dependent on spending, but at the same time discourages it. Plus, since many wealthy individuals already invest on their own and in other businesses, they may be further motivated to do so. Those moves could benefit the economy overall, but since these activities would be non-taxable, the national burden shifts to the lower economic classes.
It doesn't remove the state income taxes and sales taxes. This change is at the federal level, not the state level. Unless states change as well your income will be taxed at a higher amount on the state level. This comes from the same Money Crashers article I listed earlier
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Making State Income a Bigger Burden. Though federal income tax would go away, state income tax would remain, and of course it would no longer be deductible against federal taxes. The effect would be a great burden on residents of high income tax states like California. Moreover, unless you live in a sales tax free state, like Oregon or New Hampshire, you could pay your state’s sales tax on top of the Fair Tax and on top of your state’s income tax. For a family living in Los Angeles making $100,000, this would be well over 40%!
Basically as it is right now your income tax federally is able to be deducted from state tax. Unless it is changed to the FairTax (which would be hard to do due to a reduced if not eliminated IRS) that deduction is gone. Further more, there is double taxation as you have a local sales tax as well as the federal FairTax on new goods.
Evasion of the tax. This sounds counter-initiative to the philosophy of the law doesn't it? The proposal is to increase the tax base with including the drug dealers and (illegal) immigrants who don't pay taxes as well as travelers and international snowbirds. However there are several incentives in it.
Buying used. People can still buy used and if anything would pay state sales taxes (depending on state tax legislation.)
Black market. There is still an incentive to buy black market goods. Illegal drugs will continue to be tax-free. It might also increase the items sold on the black market b those who want to escape the FairTax.
Don't believe me, another Forbes article from two years ago claim the 23% on the end user hurts too much and goes as far to say it will fail as it stand and would only work as a Value Added Tax (VAT.)
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It would certainly be possible to make a consumption tax work. It’s certainly possible to have a value added tax, or VAT, at that 25% or so rate. There are other ways of constructing consumption taxes as well: although they would require the filing of tax returns and that’s one of the things the Fair Tax is trying to do away with.
The basic and simple problem is that trying to charge 25% or so in one single step at that point of final retail sale is too high a tax rate for it to be regularly achievable. You would almost immediately have a spate of long firm frauds. Plus a general move towards a grey, cash based, economy which simply ignored the existence of the tax.
This is precisely why those countries which do have a high consumption tax rate do it as a VAT, not as a sales tax. For in a VAT you collect the same amount, plenty of EU countries have VAT rates of around 25%. It’s just that you collect that 25% of the final retail price in slices, a bit from each part of the manufacturing, wholesaling and retail chain. And given that everyone gets to deduct the VAT they have paid out from the VAT they have collected we also find that each stage in the chain is ensuring that the previous stage provides the correct paperwork, greatly easing the task of tracking and capturing that full amount.
If the Fair Tax was constructed as a VAT I am sure that it would both work and be a good thing. However, as currently constructed, as a sales tax, I am sure that it would fail. Just too many people would dodge it.
Now let me say something in closing, by shooting down the FairTax I am not trying to be a paid off talking head saying nothing, I am looking critically at it. For the proposal to work, it needs to be revenue neutral to replace the existing income AND payroll taxes. I think we all need to think critically about it before we stand for or against it. I think after reading these reasons and proof for the reasons, make the anti-FairTax stance at least understandable.
The Fair Tax is a libertarian sham that uses phrases like "Abolish the IRS" to conceal the fact that the plan shifts taxes off of the investing rich to the consuming poor.
Any proponent of the fair tax is either incredibly narcissistic, or simply uninformed.
The Fair Tax is a libertarian sham that uses phrases like "Abolish the IRS" to conceal the fact that the plan shifts taxes off of the investing rich to the consuming poor.
Any proponent of the fair tax is either incredibly narcissistic, or simply uninformed.
Oh no, theres also the third option. Dumb.
Look I've discussed this with these folks, they go on and on with fantasies about how it would work.
And make no mistake, they are living in a fantasy world where they expect things to work EXACTLY as they describe.
1) You can exempt necessities like food, medicine and education.
2) It encourages savings as income and interest are not taxed until spent (so everyone now has an IRA like account that can grow pre tax).
3) Everyone supports the system they benefit from (including illegals and criminals) but the level of support goes up as your spending goes up. The people supporting the government the most will be the ones with the most disposable income.
4) You get to pretty much eliminate the IRS as there will no longer be individual income tax returns.
Why are you opposed to such a system? The average person wouldn't pay more taxes under such a system. People who now pay no taxes however would pay more but they should. Money that is now given back to the lowest income families can be shifted to welfare programs and they can get the money that way. What I really like about such a system is control. As a consumer I control what I spend so I control what I pay in taxes. I also like that illegals and those working under the counter and criminals also pay into the system. Right now they don't.
This would be a tax shift for most people. It does burn the illegals and criminals who have been paying nothing though but we should.
The only jobs I see being eliminated this way are IRS agents. What's not to like?
It also burns renters; if they spend the same amount as a homeowner, they will enjoy less consumption than the homeowner while paying more tax than the homeowner. If the renter's consumption is equal to the homeowner's consumption, the renter will pay more for the same consumption while also paying more tax.
IMHO - the way to a "Fair Tax System" is to consider all revenue from all sources to be taxable income. Then remove the cap on taxable income for Social Security as well as institute a progressive rate income tax on all income over the 85th percentile. That would make the people that actually control our government pay for the privilege and let the rest of us have more money to save, invest or spend.
Look I've discussed this with these folks, they go on and on with fantasies about how it would work.
And make no mistake, they are living in a fantasy world where they expect things to work EXACTLY as they describe.
For these folks its a religion.
Our tax system is not going to change.
Maybe a credit here and there or, a change in standard deductions......but, that is it.
Why keep beating yourselves up???
Learn the codes.....make your own luck.
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Sorry for the Novella
