Replacement tax proposal at www.fairtax.org

[ajf3]

Hey all,

Didn't see a thread on this... fairtax.org seems to be the frontrunning tax replacements program.

On a talk show this morning they were talking about it and said that Bush actually used verbatim exerpts from it when talking about the new, simplified tax system that he wants.

Supposedly, it has a good bit of grass-roots and congressional support.

So, what do you all think?

 

[Chadder007]

I agree with it. I think it will be great and uber simple.

 

[conjur]

It will hit those with lower income much more than those with higher income. Unless a credit is issued back for those making under, say, $40k/yr or higher if they have a family.

 

[imported_tss4]

Originally posted by: conjur
It will hit those with lower income much more than those with higher income. Unless a credit is issued back for those making under, say, $40k/yr or higher if they have a family.

Well it does actually say that it gives a credit equal to the amount that would be taxed up to the poverty level. So in theory poor people would not be taxed. Those in the lower middle class would probably be taxed less. Those in the upper middle class and above would be taxed less based on the tax rates themselves. I'm a little worried about the middle class though. If the poor are paying less and the upper middle class and above are paying less, some one has to make up the difference. Its just math. The rate is higher for the middle class. I suspect that even with the poverty tax credit that everyone gets, the cumulitive taxes are more for the middle class under this plan. I guess middle class america hsa to decide if its worth it for a "simpler" system.

 

[imported_tss4]

Looks like it would hurt the housing market too, since there's no such thing as a mortgage deduction anymore. That's a pretty big discount on home prices that would disappear.

 

[ajf3]

Reading through it, I think I'm on board too! No more tax returns?

The actually predict the housing market will boom due to more take home pay - take a read at the faq there.

 

[conjur]

Originally posted by: ajf3

Reading through it, I think I'm on board too! No more tax returns?

The actually predict the housing market will boom due to more take home pay - take a read at the faq there.

They can predict all they want but if someone is going to have to pay an extra $4-5k on, say, buying a new car or an extra $20-30k on a new home, it's going to hurt.

 

[ajf3]

They can predict all they want but if someone is going to have to pay an extra $4-5k on, say, buying a new car or an extra $20-30k on a new home, it's going to hurt.

Thats the point your missing. You might be paying an extra 4-5k on a car when you buy it, but you haven't been taxed on the money you're using yet. When you buy that car now, you probably already paid several thousands of dollars in taxes on the money you use to buy it. PLUS - the market price of the car will actually fall due to the lower overhead the corp who built it has - and the fact that they don't have to pay corp taxes to build it.

You're paying it one way or the other - this way is just better due to simplification.

 

[imported_tss4]

Originally posted by: ajf3

Reading through it, I think I'm on board too! No more tax returns?

The actually predict the housing market will boom due to more take home pay - take a read at the faq there.

That doesn't make any sense. If the house is effectively 25-30 percent higher since there's no take deduction, then even if your paying a few percent less in taxeses the house still cost a lot more per month.

You may have 27% more take home pay but your house is 27% more pluss the 25-30 percent increase due to lack of tax credit. Look, I understand the appeal of this system, but it doesn have some down sides. It will cost less in certain situations and more in others. That is mathematical fact since its revenue neutral.

 

[ajf3]

Oh - I agree, some will pay more and some will pay less - it won't be an exact match.

I do have some questions about housing myself... ie, they say no tax on used goods. Would that apply to a pre-owned house that you buy? Would current mortgage be exempted from the new tax, since the purchase was already made? Dunno...

I suspect that higher-wage homeowners who itemize will probably pay a higher amount under the new system, but it will allow lower-wage potential homeowers to buy a house. Being in the prior category, I think I'm comfortable with that.

My parents had a mortgage most of their life and never itemized since they didn't make enough for it to be benficial - those type would make out better.

What about the home mortgage deduction? The FairTax has positive effects on residential real estate far beyond this narrow question.

Today?s homeowners, if they itemize (and 70% do not), pay their interest with post-Social Security/pre-income tax dollars. They then pay their principal with post-SS/post-income tax dollars. Those who do not itemize get no advantages at all. Under the FairTax, all homeowners make their entire house payment with pre-tax dollars.
With the FairTax, mortgage interest rates fall by about 25 percent (about 1.75 points) as bank overhead falls; this is a huge savings for consumers. For example, on a $150,000, thirty-year home mortgage at an interest rate of 7.00 percent, the monthly mortgage payment would be $999.12. On that same mortgage at a 5.25 percent interest rate, the monthly payment would be $830.01. Over 30 years, the 1.75-percent decrease in interest rates in this instance would result in a $60,879 cost savings to the consumer.
Finally, first-time buyers save for that down payment much faster, as savings are not taxed.
Under the FairTax, home ownership is a possibility for many who have never had that option under the income tax system. Lower interest rates, the repeal of the income tax, the repeal of all payroll taxes, and the rebate mean that people have more money to spend, and have an increased opportunity to become home owners.

 

[imported_tss4]

"savings are not taxed. "

I can see where this might be able to offset some of the loss of mortgage deductions to encourage home buying.

So would 401k's be a thing of the past under this tax system. Why not just invest directly since savings wouldn't be taxed?

I agree with your analysis that those that itimize a lot would pay more taxes. I would fall into that category too. Ran some quick numbers looks like I would pay about 4-5% more. But I think it would be a hard sell for bush though since he draws a lot of support from the upper middle class.

 

[ajf3]

...don't forget though - no more social security payroll payments either. If you didn't take that into account, you may be on the + side of the change.

 

[imported_tss4]

No, I took that into account. But thanks, I may still have forgotten something.

 

[cjchaps]

So, what would be the incentive for people or companies to make charitable contributions?

 

[conjur]

Originally posted by: ajf3
They can predict all they want but if someone is going to have to pay an extra $4-5k on, say, buying a new car or an extra $20-30k on a new home, it's going to hurt.

Thats the point your missing. You might be paying an extra 4-5k on a car when you buy it, but you haven't been taxed on the money you're using yet. When you buy that car now, you probably already paid several thousands of dollars in taxes on the money you use to buy it. PLUS - the market price of the car will actually fall due to the lower overhead the corp who built it has - and the fact that they don't have to pay corp taxes to build it.

You're paying it one way or the other - this way is just better due to simplification.

But, the point you're missing is that most people spend what they get. When it comes time to buy that car, they won't have that extra $4-5k and will end up financing that amount.

 

[Codewiz]

Originally posted by: cjchaps
So, what would be the incentive for people or companies to make charitable contributions?

I know a lot of people do it for tax reasons but I have never had enough to itemize so it was never a reason for me.

 

[kranky]

Originally posted by: conjur

Originally posted by: ajf3
They can predict all they want but if someone is going to have to pay an extra $4-5k on, say, buying a new car or an extra $20-30k on a new home, it's going to hurt.

Thats the point your missing. You might be paying an extra 4-5k on a car when you buy it, but you haven't been taxed on the money you're using yet. When you buy that car now, you probably already paid several thousands of dollars in taxes on the money you use to buy it. PLUS - the market price of the car will actually fall due to the lower overhead the corp who built it has - and the fact that they don't have to pay corp taxes to build it.

You're paying it one way or the other - this way is just better due to simplification.

But, the point you're missing is that most people spend what they get. When it comes time to buy that car, they won't have that extra $4-5k and will end up financing that amount.

And if they buy a used car instead, there is no tax at all. I'd love to have that option!

 

[irwincur]

Ran some quick numbers looks like I would pay about 4-5% more.

Don't forget the drop in costs by 20% for goods and 25% for services. That is the amount we currently pay in hidden taxes. As they say, corporations don't pay taxes, the pass them to consumers with higher prices, or to their workers with lower wages. So prices drop, wages increase, so you will come out ahead.



This is brilliant, and painless. If Bush can implement this, it may turn out the be the best thing America has ever done for itself. The 'free' savings would also tie with required SS private acounts also, and provide a lot of money for future retirement. They go hand in hand, and I expect that this is on the agenda.

No so many people would be hating Bush after he fixes the tax code and SS once and for all. We cannot continue with this wasteful government New Deal mess.

 

[kranky]

Originally posted by: cjchaps
So, what would be the incentive for people or companies to make charitable contributions?

My guess is that most contributions aren't made solely for a tax deduction. It's nice, but not the main reason. If this tax plan was implemented, I could easily maintain the same level of giving even without the tax deduction. In fact, this plan would be a home run for me, considering there would be no tax on used goods and I don't get very much in the way of a mortgage interest deduction.

 

[imported_tss4]

Originally posted by: irwincur

Ran some quick numbers looks like I would pay about 4-5% more.

Don't forget the drop in costs by 20% for goods and 25% for services. That is the amount we currently pay in hidden taxes. As they say, corporations don't pay taxes, the pass them to consumers with higher prices, or to their workers with lower wages. So prices drop, wages increase, so you will come out ahead.



This is brilliant, and painless. If Bush can implement this, it may turn out the be the best thing America has ever done for itself. The 'free' savings would also tie with required SS private acounts also, and provide a lot of money for future retirement. They go hand in hand, and I expect that this is on the agenda.

No so many people would be hating Bush after he fixes the tax code and SS once and for all. We cannot continue with this wasteful government New Deal mess.

Woow here. You're using magic numbers. That 20% HAS to be made up somewhere, otherwise its not revenue neutral. Think that through for a sec. If your taxes go down, the someone has to have there's gonig up for it be revenue neutral.

Like I said, I don't disagree that there is some appeal here, but the site insinutates that everyone has lower taxes which is just impossible if its revenue neutral. Someone will come out a loser. Its probably going to be those that itemize.

Since, those people are generally part of Bush's core supperters, this seems like a difficult sell. But, then again, he's sold tougher policies allready. So you never know.

 

[assemblage]

Unless the certain common and necessary items receive reduction of expemption of the sales tax then poorer people get a greater portion of their income taxed. But that's difficult to manage. I've had my share of purchasing rice,beans, spaghetti and raman noodles to see the "food stamp" person buying baby back ribs and other expensive items. Clothing is needed, but not a $300 pair of pants, but what about a $300 suit for a big&tall guy? 7 pairs of underwear or 14? Special tax treatment on items and politicians is not a trustworthy mix. I can see TV's being considered a necessary item... 32", not plasma of course.

Tax refunds for low income earners doesn't cut it. I heard a proponent of sales tax claim that a sales tax will collect money from "drug dealers" who don't pay anything in taxes. In reality the "drug dealers" are those who make money without paying income tax on their earnings because they report low or zero income. They'll get a refund I guess.

In the short term a move to a sales tax will really hurt the economy. Goods with 35% tacked on becomes a lot more expensive. Even though many will have more in their paycheck, they won't be eager to buy. The price of goods will decrease, but it'll take a little while. Who knows for sure maybe it'll be excellent in the long term. That's some major economic uncertainty.

 

[imported_tss4]

quote:
Tax refunds for low income earners doesn't cut it. I heard a proponent of sales tax claim that a sales tax will collect money from "drug dealers" who don't pay anything in taxes. In reality the "drug dealers" are those who make money without paying income tax on their earnings because they report low or zero income. They'll get a refund I guess.
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Everyone gets the tax refund. Actually, the drug dealer would get texed under this system while he wouldn't under the current system. Under the current system he has no income therefore he doesn't get taxed. Under the proposed system, he would get his tax refund that everyone gets based on the poverty level. He would use his illegal money to buy things in excess of the amount spent for the poverty level. When he goes ands spends that money on a lexus, he just payed 23% tax on that income. 23% more than he paid under the current system.

I do agree that in the short term the economy would likely slow as people adjust to a radically different tax system. It also seems that this new system would tax tourists quite a bit too, since they would pay the 23% at purchase time.

 

[irwincur]

Woow here. You're using magic numbers. That 20% HAS to be made up somewhere, otherwise its not revenue neutral. Think that through for a sec. If your taxes go down, the someone has to have there's gonig up for it be revenue neutral.

These numbers are in their FAQ about ten times.

 

[ajf3]

They'll get a refund I guess.

Everyone gets the same monthly refund. If you are a housewife without a job you get the refund. If you're a 50M+ CEO, you get the same refund as the housewife. When they give the refund, they don't ask/care how much you make/spend. It's just a calculated average that everyone gets based on the first $XXX dollars up to the poverty level.

What they do care about is business that sell new goods. Just as they collect state sales tax in most cases, they'll also collect and remit federal sales taxes - not tracked back to any inividual specifically, just tracked along with the "sale" they made.

 

[imported_tss4]

Originally posted by: irwincur

Woow here. You're using magic numbers. That 20% HAS to be made up somewhere, otherwise its not revenue neutral. Think that through for a sec. If your taxes go down, the someone has to have there's gonig up for it be revenue neutral.

These numbers are in their FAQ about ten times.

No need to get hostile, we're having a civil discussion for once. Its not in their faq about ten times. They don't actually show the numbers. Just because a tax was hidden doesn't mean it doesn't get paid. If its not collected anymore, then it has to be made up somewhere else. If my taxes go down, even slightly, someone has to have theirs go up for it to be revenue neutral as claimed. It appears that my taxes would go up slightly. I'm not opposed to that as I am upper middle class and feel my class should bear the responsibility. But in any fair and balanced discussion of this new tax system, you have to acknowledge the fact that there will be winners and losers if its revenue neutral. When you read all of it, this system actually looks quite progressive despite being a consumption tax. Being a liberal, I'm quite happy with that. I'm a little suprised that the republicans would be for it, though. But perhaps, we've found some common ground after such a bitter election.