Fair Tax

[Hacp]

If you create a list of taxable and non taxable items, you open the door for tax lobbyists; plus, it is much simpler to tax everything and issuing a prebate to offset the tax on spending up to the poverty level.

With the prebate, everyone receives the same amount which is based on their family size and not their income. Since the wealthy are buying stake instead of hamburger and their electric bills are probably much higher, you would be giving the wealthy a larger tax break if you were to exempt such items.

So the government is favoring couples with children now? Expect a lot more octo-moms with the new prebate checks every month.

You can't have fair without making the tax rate the same for everyone, which means no prebate. No government favoritism for the poor, the married, or people with children.

 

[wiseoldowl]

No, you don't need two to cheat on any fair tax system.

Google 'VAT fraud' and you'll the various methods employed, and it's big money too.

Otherwise, with a 'fair tax' only levied at retail level cheating becomes even easier.

An example:

Let's say it's a sales tax of 25% (many would argue to be revenue neutral it might be higher, particularly if you start exempting items and giving prebates)

For a $100 bucks I start a new corporation (you could do this without incorporating but this way it's easier to conceal your identity)

I open a store in a town somewhere. I sell products basically at cost. So, I sell a lot. I collect the 25% fair tax on these products. With my low costs (+25%) I sell about $500K worth of product.

While I collect the fair tax I do not remit it, so I keep $125K (25% of $500K) tax free.

Move, do it again etc.

One reason the VAT system taxes at every level, is to track products at every level. When the gov loses track of products fraud as I described above becomes very easy, likelwise for 'black market' operations.

As a CPA, I've seen occasions where local businesses go years without remitting the sales taxes they collect. I can think of one that got away with it completely.

I don't think that currently many 'steal' the sales tax, but as that rate becomes higher the temptation becomes greater.
-------------------

One thing that bothers me about the fair tax that no one mentions - the weathy are getting a huge exemption. They've already bought a ton of stuff, and it will never be taxed to them. People without much in the way of material possessions now will be hit with a tax on everything they buy.

That strikes me as unfair, and just another way to cement the existing the upper class and prevent others from reaching that level.

Fern

Number one; the FairTax is not a VAT.

Number two; do what you suggest and you will no longer need to worry about taxes. You will actually be receiving free room and board for about 20 or 30 years.

 

[werepossum]

I really don't understand this idea of a "pre-bate".
The only thing that is accomplishes is more government bureaucracy.

There is a system in place with sales tax to not tax the "necessities of life". This cost nothing to implement and accomplishes the same thing.

Average annual expenditures is roughly $49,000 for 1 consumer unit consisting of 2.5 people.

If you eliminate the income tax that is roughly $63,000
~12% is spent on food
~34% housing
~11% retirement
~6% health care

So "essentials" cover roughly 66% of expenditures the remaining are on "luxury" items.

34% of $63,000 = ~$21,400 spent.

There are roughly 307,000,000 Americans so that equates to 123,000,000 consumer units each which could spend 2,632,200,000,000 total per year.

Now, the current federal budget is 3.5 trillion.

As you can see, this wouldn't work because if you taxes 100% of discretionary income, still cannot pay for the cost of government with a fair tax.

This figure also doesn't include state/local spending.

For the first part, I think the drafters recognized that no such tax scheme could ever win any liberal support. Imagine three families making $20K, $75K, and $200K annually. Their rents or mortgages are perhaps $5K, $15K, and $30K. Thus by making "the necessities" tax free, the richer couple is provided a "gift" (in progressive parlance, all things belonging first to government in the progressive world view) worth six times as much as the poorer couple gets. Same thing with other "necessities", not to mention when the progressives really get started on their "necessities" list. Cell phones, home phones, automobiles, health insurance - the list of possibilities is literally endless. Therefore those who drafted the FairTax came up with the prebates as the most fair way to unburden the poor while protecting the system from typical government class warfare and constituency sinecures.

For the second, you've just pointed out the inherent problem with government today. Discretionary income MUST fund government, no matter how it is seized. This is why we now borrow roughly half of every dollar we spend. Between the FairTax and the income tax, the former has much lower administrative costs than the latter, so its deficit between tax revenue and spending is at least potentially smaller.

 

[Patranus]

For the first part, I think the drafters recognized that no such tax scheme could ever win any liberal support. Imagine three families making $20K, $75K, and $200K annually. Their rents or mortgages are perhaps $5K, $15K, and $30K. Thus by making "the necessities" tax free, the richer couple is provided a "gift" (in progressive parlance, all things belonging first to government in the progressive world view) worth six times as much as the poorer couple gets. Same thing with other "necessities", not to mention when the progressives really get started on their "necessities" list. Cell phones, home phones, automobiles, health insurance - the list of possibilities is literally endless. Therefore those who drafted the FairTax came up with the prebates as the most fair way to unburden the poor while protecting the system from typical government class warfare and constituency sinecures.

For the second, you've just pointed out the inherent problem with government today. Discretionary income MUST fund government, no matter how it is seized. This is why we now borrow roughly half of every dollar we spend. Between the FairTax and the income tax, the former has much lower administrative costs than the latter, so its deficit between tax revenue and spending is at least potentially smaller.

So letting people keep THEIR money is now a gift?

 

[Fern]

Number one; the FairTax is not a VAT.

I should think my understanding of that obvious. In fact, I'm pointing out that the fair tax's difference leaves it more vulnerable to fraud, as well as increases the motive for such.

Under a VAT system, the merchant planing fraud would have already paid a huge portion of the VAT on the products (s)he bought for resale, thereby greatly reducing the motive and gains from such fraud.

Number two; do what you suggest and you will no longer need to worry about taxes. You will actually be receiving free room and board for about 20 or 30 years.

Of course.

However merely making something illegal will not prevent it from ocurring, as we all know. But implementing a system that renders fraud so easy, and with such a huge payoff is unwise, it simply provides far too much incentive and that's never advisable.

As is it now, we see lots of problems with assigning simple merchants this type of fiduciary duty (collecting and holding onto the government's money and later remitting). Businesses that collect tax withholdings from employees and sales taxes and do not seggregate the money into seperate banks often get into trouble by using those funds for their short term needs. Some accidentally, others purposefully. Even those who seggregate will access those funds when under pressure.

Personal income taxes are likely around a trillion $'s. Under a fair tax system you'll be turning thousands of businesses, the vast majority of whom are small 'mom & pop" shops into individual collection agents for the federal government. That's a hell of a thing to administer and a big responsibility to spread all over creation.

Fern

 

[Fern]

Would one of you who follow the FairTax briefly explain what happens to corporate income taxes, and social security taxes?

Will (C) corps still be subject to income taxes?

Does the fairtax rate cover social security, or must we still w/h on wages and require tax return filings for the self-employed?

If the fairtax amount includes SS, how would we calculate benefits etc?

TIA

Fern

 

[Jhhnn]

One of the lamest and most regressive commerce killing tax schemes ever.

Let's say I want to buy a new car. Local taxes are ~8%, plus licensing fees, plus 23% "Fair Tax"- For a $20K auto, I'll need at least $7K up front on a zero-down loan, or pay interest on paying taxes... A loan like that would be very expensive, for sure, given that the potential for loss is large- the vehicle would depreciate nearly 50% of the loan the moment I drove it off the lot...

What this really means is that those at the very top of the economic foodchain would pay even lower taxes than they do now. In 2007, the top 400 filers paid 17% on incomes averaging $263M apiece- Very little of that income would be spent on taxable items, and anybody with any sense at all should realize that...

The people who finance the deception known as "Fair Tax" know that quite well, which is why they're hoping the electorate is dumb enough to go for it... Greed at the top is what's killing the economy, and has been for 30 years.

 

[theamericans075]

Fairtax shifts the tax burden squarely on the middle class and would be a disaster, everyone else in the world, including Somalia, laughs at us for electing people that believe in it.

 

[Fern]

-snip-
Let's say I want to buy a new car. Local taxes are ~8%, plus licensing fees, plus 23% "Fair Tax"- For a $20K auto, I'll need at least $7K up front on a zero-down loan, or pay interest on paying taxes... A loan like that would be very expensive, for sure, given that the potential for loss is large- the vehicle would depreciate nearly 50% of the loan the moment I drove it off the lot...

Excellent point.

Fern

 

[wiseoldowl]

doesn't obama want to extend amnesty to illegals currently in the US?

Let's hope not!!!!!!!!! But, then again, he is doing everything he can to bankrupt our country.

 

[wiseoldowl]

[QUOTE There are roughly 307,000,000 Americans so that equates to 123,000,000 consumer units each which could spend 2,632,200,000,000 total per year.

Now, the current federal budget is 3.5 trillion.

As you can see, this wouldn't work because if you taxes 100% of discretionary income, still cannot pay for the cost of government with a fair tax. [/QUOTE]

Government spending is a completely different issue. Our current tax system also does not come close to covering the $3.5-trillion budget. The FairTax is just a better way of collecting federal revenue. It will stimulate our economy because American investors will have no reason to invest off shore and once foreign investors realize their investment will be tax free, they will be standing in line to invest in the US.

The FairTax would create the greatest economic stimulus we could ever hope for. More investing, creates more jobs which results in more spending which creates more federal revenue; maybe even enough to cover this ridiculous $3.5-trillion budget.

 

[razor2025]

Fair Tax is just like the lottery... it's a perfect idea for those who can't do basic math.

 

[Jhhnn]

[QUOTE There are roughly 307,000,000 Americans so that equates to 123,000,000 consumer units each which could spend 2,632,200,000,000 total per year.

Now, the current federal budget is 3.5 trillion.

As you can see, this wouldn't work because if you taxes 100% of discretionary income, still cannot pay for the cost of government with a fair tax.

Government spending is a completely different issue. Our current tax system also does not come close to covering the $3.5-trillion budget. The FairTax is just a better way of collecting federal revenue. It will stimulate our economy because American investors will have no reason to invest off shore and once foreign investors realize their investment will be tax free, they will be standing in line to invest in the US.

The FairTax would create the greatest economic stimulus we could ever hope for. More investing, creates more jobs which results in more spending which creates more federal revenue; maybe even enough to cover this ridiculous $3.5-trillion budget. [/QUOTE]

Heh. More of the same trickledown jingoism, just in a different dress.

 

[werepossum]

So letting people keep THEIR money is now a gift?

In progressive terms, yes. Missed the squealing about government "giving" money to the richest Americans via the Bush tax cuts? To some degree this is caving to those progressives (which is useless; witness TheAmericas075 and Jhhnn whilst we all ponder the wisdom of Somali tax policy) but it also recognizes the reality that payroll taxes are quite regressive on the poorest working Americans. I think the prebate is a compromise between politics and the need to remove taxation from these people.

Fern, as I understand it (and admittedly I haven't studied it thoroughly because I think it has no chance of passing under any circumstances short of impending economic collapse) no corporation would pay any income taxes, but all would pay on anything they purchase for their own use - ski chalet for the execs, new copier, engineering services, etc. But again I'm hardly an expert. Payroll taxes go away for everyone; there is no federal withholding whatsoever. I believe SS would become a flat payout, same for everyone, which would suit me just fine. Right now some people get hardly anything (i.e. single or divorced people who worked or earned little) whereas others get, well, a little bit more for all their additional "contributions".

The idea behind the FairTax is that goods will not be more expensive because the FairTax replaces the embedded taxes. I think in reality American-made goods will become cheaper, but not enough to offset the FairTax - but remember you also have the payroll taxes (almost fourteen percent I think) suddenly added to your pay. Presumably people suddenly making an additional 13+% would find a way to save up enough for the down payment on a new automobile. (After all, if you buy a car worth 20% of your salary then two years of just the payroll tax would buy it outright, including the whole FairTax adder.) If not, I suppose instant gratification will have to be accomplished with a used car and a big helping of wealth envy instead. Doesn't really matter; even if a particular class of Congress critters would vote away their biggest weapon against us - and we had a president who would sign it - we've become far too wealth-envious and covetous of our neighbor's ass and handmaiden (or houseboy in the case of Republican politicians) for the people to allow such a tax. As long as politicians promise us goodies paid for by "someone else", we'll keep voting them in.

Funny how morality has declined in this country, though. Nowadays keeping the fruit of your own labor is considered greed, whereas banding together to pay armed men to take another wealth and make it ours is not. This has happened in less than a century.

 

[ShawnD1]

Funny how morality has declined in this country, though. Nowadays keeping the fruit of your own labor is considered greed, whereas banding together to pay armed men to take another wealth and make it ours is not. This has happened in less than a century.

That is wise. Were I to invoke logic, however, logic clearly dictates that the needs of the many outweigh the needs of the few.
-Spock

 

[wiseoldowl]

Government spending is a completely different issue. Our current tax system also does not come close to covering the $3.5-trillion budget. The FairTax is just a better way of collecting federal revenue. It will stimulate our economy because American investors will have no reason to invest off shore and once foreign investors realize their investment will be tax free, they will be standing in line to invest in the US.

The FairTax would create the greatest economic stimulus we could ever hope for. More investing, creates more jobs which results in more spending which creates more federal revenue; maybe even enough to cover this ridiculous $3.5-trillion budget.

Heh. More of the same trickledown jingoism, just in a different dress.[/QUOTE]

“More of the same trickledown jingoism” this is a very intelligent response. FairTax bashers make such statements when they have no logical rebuttals.

 

[Jhhnn]

FairTax bashers make such statements when they have no logical rebuttals.

So it's not a variant of the failed principles of trickledown economics?

The rationale you laid out is the same as that used to keep cutting top echelon income taxes for the last 30 years. You merely offer a different way to do more of the same, which will obviously yield more of the same results- shift the tax burden onto the middle class almost entirely. Your argument in based on false premises, rendering logical rebuttal both impossible and unnecessary.

You offer that we can all ride unicorns to glory. When I say there are no unicorns, you say that I need to rebut the idea of riding them.

 

[wiseoldowl]

One of the lamest and most regressive commerce killing tax schemes ever.

Let's say I want to buy a new car. Local taxes are ~8%, plus licensing fees, plus 23% "Fair Tax"- For a $20K auto, I'll need at least $7K up front on a zero-down loan, or pay interest on paying taxes... A loan like that would be very expensive, for sure, given that the potential for loss is large- the vehicle would depreciate nearly 50% of the loan the moment I drove it off the lot...

What this really means is that those at the very top of the economic foodchain would pay even lower taxes than they do now. In 2007, the top 400 filers paid 17% on incomes averaging $263M apiece- Very little of that income would be spent on taxable items, and anybody with any sense at all should realize that...

The people who finance the deception known as "Fair Tax" know that quite well, which is why they're hoping the electorate is dumb enough to go for it... Greed at the top is what's killing the economy, and has been for 30 years.

Two important things critics fail to consider when comparing our current tax system to the FairTax when it comes to the ability to purchase a high ticket item. One, they fail to consider the increase in spendable income. Two, they fail to consider that prices will come down as the result of the elimination of corporate taxes, payroll taxes, capital gains taxes and all the compliance costs associated with the record keeping for these taxes.

Let’s compare our current system to the FairTax. Let’s compare the ability for a family of four to purchase an auto that currently cost $20,000 under both systems.

Let’s say you are a family of four and your current gross income is $50,000 per year. If you take the standard tax deduction, your after tax spendable income would be $43,241. If you dispute this figure go to the 2009 tax tables and work it out. Don’t forget to deduct 7.65% for Medicare and S.S.

Under the FairTax, you would have your entire $50,000 plus a prebate of $6702 for a total spendable income of $56,702.

Under the FairTax it is estimated that prices will come down by 15% to 20% once all existing taxes and compliance costs are removed. I will be very conservative and say they only come down by 10%.

So the price of a $20,000 auto now will be $18,000 adding the consumption tax of $5400 the final selling price would now be $23,400.

Under our current system it would take 46.25% ($20,000 divided by $43,241) of your spendable income to purchase the auto; and under the FairTax it would only take 41.27% ($23,400 divided by $56,702).

Even if the price didn’t come down at all and the $20,000 car would now cost $26,000, it would still take a smaller percentage of spendable income (45.85% verses 46.25%) ($26,000 divided by $56,702).

 

[werepossum]

That is wise. Were I to invoke logic, however, logic clearly dictates that the needs of the many outweigh the needs of the few.
-Spock

As a rule I tend to avoid debating the wisdom of fictional characters, but I'll point out that "wants" quickly become "needs" when someone else is paying.

 

[wiseoldowl]

So it's not a variant of the failed principles of trickledown economics?

The rationale you laid out is the same as that used to keep cutting top echelon income taxes for the last 30 years. You merely offer a different way to do more of the same, which will obviously yield more of the same results- shift the tax burden onto the middle class almost entirely. Your argument in based on false premises, rendering logical rebuttal both impossible and unnecessary.

You offer that we can all ride unicorns to glory. When I say there are no unicorns, you say that I need to rebut the idea of riding them.

Rather than just stating the FairTax will shift the burden to the middle class, show me some figures to prove your statement.

 

[wiseoldowl]

We all know government spending is running rampant. But we have no idea how much our current tax system really costs us individually. We can look at our personal tax return, but that doesn’t include all the hidden taxes and compliance cost that is passed on to us in everything we buy.

The FairTax is not designed to reduce government spending; that is a completely different subject. The FairTax is just a more transparent, fairer way to collect taxes.

As far as the high cost of government, one thing the FairTax will do is to remind us every time we make a purchase. That cost will appear on every sales slip we receive. Under our current system, tax preparation time is the only time we are really directly reminded of the high cost of government and then it is not a true indicator because it doesn’t reflect embedded taxes.

The FairTax doesn’t directly address government spending, but it will constantly keep us aware of the fact. This constant reminder will encourage more Americans to become involved in the process of reducing government spending; involved by putting pressure on their representatives to start doing something about it.

 

[Siddhartha]

Those who spend the most will pay the most taxes.


Let me break it down for you......

POOR FAMILY is a family of 4 bringing in 4000 per month.
RICH FAMILY is a family of 4 bringing in 40000 per month.

You have necessities in life which every group needs (food, utilities, etc). For the sake of simplicity lets assume that those necessities total 20k per year for a family of four.

At a sales tax rate of 18% that would mean 3600 dollars in taxes are paid yearly on those necessities. That amount breaks down to 300 dollars per month that they would spend and that amount would be reimbursed to all families of 4 monthly.


Subtracting 20k for necessities leaves 28k of disposable income for Poor Family and 460K of disposable income for Rich Family.

So who do you think is going to spend more after that?

If Poor Family spends EVERY NICKEL THAT THEY HAVE that means they will pay 5000 dollars in taxes that year.

If Rich Family spends EVERY NICKEL THAT THEY HAVE that means they will pay 82,800 in taxes that year.


The idea is to tax people based on what they purchase that they do not need to live and believe me the BIG CONSUMERS in this country and every other is not the poor and middle class.

Thank you for your answer.
The reason I asked the question is with the new, who is taking a hit. Who is the plan more "fair" for?

I am curious about how the tax burden shifts for everyone. Will the rich pay more or less taxes? Will the poor or middle class pay more or less taxes?

 

[Deudalus]

One of the lamest and most regressive commerce killing tax schemes ever.

Let's say I want to buy a new car. Local taxes are ~8%, plus licensing fees, plus 23% "Fair Tax"- For a $20K auto, I'll need at least $7K up front on a zero-down loan, or pay interest on paying taxes... A loan like that would be very expensive, for sure, given that the potential for loss is large- the vehicle would depreciate nearly 50% of the loan the moment I drove it off the lot...

Once again complete and total failure of reading comprehension.

The 8% is gone due to the fact that the Fair Tax includes state taxes as well.

 

[Deudalus]

Thank you for your answer.
The reason I asked the question is with the new, who is taking a hit. Who is the plan more "fair" for?

I am curious about how the tax burden shifts for everyone. Will the rich pay more or less taxes? Will the poor or middle class pay more or less taxes?

Well consider it this way.

Necessities will be made tax free either through pre-bates or through actually paying no tax at the register for them. So ask yourself which class spends the greatest percentage of their income on necessities?

The whole purpose of the Fair Tax is to tax people based on the purchases that they make which are NOT NECESSITIES.

Obviously the rich spend more money on things that are not necessities so they will be taxed at a higher rate.

 

[wiseoldowl]

Once again complete and total failure of reading comprehension.

The 8% is gone due to the fact that the Fair Tax includes state taxes as well.

You and I are both FairTax fans. But I must disagree with you on the state sales tax. It will not be included in the 23% federal tax. If a state has a sales tax, it will still be added separately from the federal sales tax.