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?
Most of that is quite hard to answer as the Fairtax does not treat people as groups based on income or wealth savings. For the poor - those at or below the federal poverty line - the short answer is that they make out like bandits because they are freed from all federal taxes, including the very "regressive" payroll taxes. The long answer is a bit more complicated, because since the Earned Income Tax Credit would also go away, the poorest people might not see much of a net advantage. In my opinion that is as it should be; such things should be handled by the states, as living expenses (and therefore the true poverty line) in rural Tennessee or Mississippi are radically different from those in urban New York or California.
For the rich, people like Warren Buffet, with very high incomes but comparatively low spending, will also make out like bandits. Conversely, trust fund babies like the Kennedy clan and high spenders like Paris Hilton will take a big hit as their expenditures near or exceed income, will be taxed at a higher rate, and can't be sheltered in tax-free municipal bonds. (Speaking of which, I can see municipalities taking a bit of a hit as well, as they will have to offer higher interest rates rather than tax-free earnings.) In general people whose income is primarily from capital gains (most rich people) will tend to pay higher rates if their expenditures are anywhere near income, and will pay less if their expenditures are significantly less than income. High earners whose income is primarily from wages (young doctors, celebrities, and professional athletes come to mind, but most of these people probably have tax shelters now) will see a tax break.
For the middle class, you'll get an immediate raise (your payroll taxes, roughly 13% - 14%) versus an immediate tax rate of 23% on new purchases. If your effective tax bracket (after deductions and exclusions) is roughly 10%, you'll theoretically break even. If your effective tax bracket (after deductions and exclusions) is over this level, you'll theoretically get a tax break. But within these generalities there will be significant differences in effective tax rates. The person that buys a new automobile will pay a higher effective rate than if he bought used. The person that buys American will pay a lower effective rate than if he bought imported goods. In theory the embedded taxes equal the FairTax, but that obviously isn't completely true because the income and payroll taxes are also being replaced and thus the effective embedded tax on a particular product varies with your income (and type of income - $100K of capital gains is taxed significantly less than $100K of wages.) Plus, marginal companies importing Chinese goods have very low embedded taxes compared to successful companies making goods in America - Caterpillar, for instance, would become much more competitive with imported equipment, whereas WalMart would be largely unaffected. So in reality, each individual's tax rate will vary considerably - but based on his or her choices, not on government's idea of who who should win and who should lose.
Forgot to add, state taxes are not included; the FairTax is strictly federal. Also, if actually implemented the FairTax might now be more like 30% because of our wild spending over the last decade, much lower tax revenues during the last couple years, and presumably continued high federal spending. However one way or another government must and will take the money. People who believe a federal government composed mostly of millionaires (or millionaires to be) is going to soak it to millionaires are in my opinion simply foolish, only people struggling to become millionaires will be hit hard. The truly wealthy will always have their shelters.
Facebook
Twitter