What's the solution for deterring tax evasion under the Fair Tax?

[BlahBlahYouToo]

The Fair Tax sounds awesome, but I'm wondering what they can do to stop tax evasion in black markets and the like.

 

[werepossum]

Really nothing special, but those same things are also avoiding state sales taxes in most states. Thus the enforcement mechanisms already exist at a state level, again in most states. But we'll always have some tax evasion. For instance, trading your labor for another's labor avoids the income tax and would also avoid the Fair Tax.

Still an awesome tax though.

 

[fskimospy]

So long as you and everyone you know is ready for a massive tax increase of course. (assuming you aren't in the top 5% of income earners or so.)

 

[BlahBlahYouToo]

So long as you and everyone you know is ready for a massive tax increase of course. (assuming you aren't in the top 5% of income earners or so.)

Enlighten me.
AFAIK, whether you come out ahead or not, it depends on how much you make and spend.
At least we now have the ability to control what taxes we pay based on how much we buy.

Theoretically, if you don't buy anything, you don't pay any taxes.

 

[ayabe]

Enlighten me.
AFAIK, whether you come out ahead or not, it depends on how much you make and spend.
At least we now have the ability to control what taxes we pay based on how much we buy.

Theoretically, if you don't buy anything, you don't pay any taxes.

The poorest of the poor and the richest of the rich will benefit from this plan due to the prebates that are included, the people in the middle will be squeezed to make up the difference(most of us are here in the 15,000-->200,000 range)

http://www.factcheck.org/taxes/unspinning_the_fairtax.html

 

[Linflas]

So long as you and everyone you know is ready for a massive tax increase of course. (assuming you aren't in the top 5% of income earners or so.)

What a horror getting the 41% that currently pay no federal income tax back into the system.

 

[Robor]

What a horror getting the 41% that currently pay no federal income tax back into the system.

I thought it was 47%? That's the number the outraged righties on this forum like to throw around.

 

[KeithP]

The Fair Tax sounds awesome, but I'm wondering what they can do to stop tax evasion in black markets and the like.

How about guaranteed jail time for tax evaders and their CPA in maximum security prisons ? A few news stories about these guys getting gang raped by 10 inmates in the shower should do wonders as a deterrent.

-KeithP

 

[Patranus]

I thought it was 47%? That's the number the outraged righties on this forum like to throw around.

I guess CNN also likes to "throw around" that number as well......

In any event, it is never going to happen. The liberals would have to implement massive new government spending programs to off set the "tax burden" places on that 50% of the population.

 

[BriGy86]

Enlighten me.
AFAIK, whether you come out ahead or not, it depends on how much you make and spend.
At least we now have the ability to control what taxes we pay based on how much we buy.

Theoretically, if you don't buy anything, you don't pay any taxes.

I'm a big fan of the fairtax but things would be insanely expensive at first. Just because you don't charge companies corporate income tax doesn't mean they will immediately lower the price on their goods.

As for circumventing it; people could buy from other countries to avoid the tax but I guess you could increase tariffs on international products.

The big problem is that hardly any current politicians will support it. Since this method of collecting the money forces them to re fiscally responsible and live in the real world like the rest of us where we don't have an endless supply of money.

 

[BlahBlahYouToo]

The poorest of the poor and the richest of the rich will benefit from this plan due to the prebates that are included, the people in the middle will be squeezed to make up the difference(most of us are here in the 15,000-->200,000 range)

http://www.factcheck.org/taxes/unspinning_the_fairtax.html

I see your point, but you still have control to a certain extent by shopping smart/less.

 

[BriGy86]

I see your point, but you still have control to a certain extent by shopping smart/less.

But everyone gets the prebate right? And just because you're middle class doesn't mean you can't buy used; that also includes used cars, boats and houses.

 

[Patranus]

But everyone gets the prebate right? And just because you're middle class doesn't mean you can't buy used; that also includes used cars, boats and houses.

Depends on how it is setup. If it is a pure VAT than buying used would take away the revenue. If it is a pure sales tax than you would still pay taxes on used items.

There are different versions of the "fair" tax floating around.

 

[BriGy86]

Depends on how it is setup. If it is a pure VAT than buying used would take away the revenue. If it is a pure sales tax than you would still pay taxes on used items.

There are different versions of the "fair" tax floating around.

According to this site used items are not taxed.
http://www.fairtax.org/site/PageServer

I like the Fairtax because it forces the government to live within their means like everyone else. Right now if they start running out of money no one seems to think that spending less is an option which i think is ridiculous.

 

[ayabe]

What a horror getting the 41% that currently pay no federal income tax back into the system.

Those people would actually be getting more than they already do due to the prebates.

Read up on it, it's a total sham meant to shift more of the tax burden to working stiffs.

 

[BlahBlahYouToo]

Those people would actually be getting more than they already do due to the prebates.

Read up on it, it's a total sham meant to shift more of the tax burden to working stiffs.

never mind, pulled #'s out of my ass.

regardless, we can still get $$ from illegals who are currently paying no income tax.

 

[werepossum]

I'm a big fan of the fairtax but things would be insanely expensive at first. Just because you don't charge companies corporate income tax doesn't mean they will immediately lower the price on their goods.

As for circumventing it; people could buy from other countries to avoid the tax but I guess you could increase tariffs on international products.

The big problem is that hardly any current politicians will support it. Since this method of collecting the money forces them to re fiscally responsible and live in the real world like the rest of us where we don't have an endless supply of money.

The FairTax was designed to be revenue neutral, in that the embedded costs of the taxes would come out and be replaced with the same amount of sales tax. However this really only applies to American-made goods, as foreign-made goods are not currently taxed at the federal level (due to the various Fair Trade laws, our tariff system has been dismantled.) So if the FairTax is set at 25%, then foreign-made goods goods would go up 25% and American-made goods would likely remain at the same level (dropping 25% as the embedded taxes are removed, but adding 25% for the FairTax) or even go up slightly as they become more competitive with foreign-made goods. Unlike a VAT, these costs do not cascade and require very little actual infrastructure to collect. To counter those increases, you would receive all your salary, including the income tax currently withheld and at least your half (about 7% currently I believe) of the payroll taxes. The employer's "contribution" might or might not go to you depending on how competitive your job is. Note that self-employed people would automatically stop losing the entire 14% they now pay and that the very high earners would receive less because of the cut-off on payroll taxes. Note also that your savings would not be taxed at all, not until some future time when you spend them. Note also that used goods would become a better bargain, leading to less landfill space required.

It's a brilliant tax system that would return manufacturing to the USA and bring lots of foreign investment, but let's face facts; Congress is never going to vote away one of its most fearsome powers, the ability to single out one group of taxpayers or one industry or even one company to punish or reward with the tax code.

 

[dullard]

BlahBlahYouToo, you nailed one of the biggest problems with that tax. As it is now, most people's income and payroll taxes are double reported. Meaning both you and your employer send the info to the IRS. It is quite easy to spot tax fraud with a double report system. Of course, that doesn't help people who have their own buisness, as only one entity reports that income. So, those who are self employeed still have lots of possibilities for fraud. But at least most people are double reported.

With the fair tax, you only have one entity reporting the tax. It is ripe with fraud capability. Black markets are bad now with a sales tax in the few percent. Wait until you are hit with a 30%+ sales tax* (in addition to your local and state sales taxes). The incentive to have a black market will skyrocket. Look into cigarette black market sales for examples of what happens with higher sales taxes.

Same goes with the grey markets. Buy your stuff online from a company out of the US. Bingo: you probably will never pay any tax, at all, no matter what you spend or what you earn. You'll spend some locally on food/shelter, but either that is exempt or will have a prebate. You still end up paying no taxes. Now repeat with everyone else and you'll soon see a major problem.

I have yet to see a credible plan to stop those potential abuses.

The other issues with the fair tax is the massive tax increase on the middle class (mentioned above, so I won't repeat it) and the chaos it'll do to many markets potentially devistating our economy. Think housing. Think your next house purchase being taxed* at 30+% and what that'll do to property prices. For comparison this recent housing crash only dropped prices by 29% for the national average (maximum peak tin July 2006 to the bottom in Jan 2009). And finally, think about the recent states financial problems in their tax crunches in a recession and think what that'll do to the whole US if we base it on something so potentially variable as consumption.



* I use 30+% for a reason. Total US consumer and business spending is $10.15 trillion and total US federal spending is $2.98 trillion. Thus, to pay for all the spending with just sales tax, it'll require a 2.98/10.15 = 29.4% sales tax rate (not including the state or local sales taxes). But, add in any prebates and the tax rate must increase to pay for the prebates. Depending on the prebate size, Federal sales tax could easilly be 40% or higher. Now ask yourself this question: is your federal tax rate higher or lower than 30+%?

 

[dullard]

Not to say that I don't think the problems can be hashed out. Just the final product is NOT what people are thinking it'll be (I often hear a 17% sales tax rate mentioned for example). And the transition turmoil will eventually subside. But ultimately, the shift of the tax burden to the middle class is unlikely to ever be solved. If you want the middle class to pay substantially more tax, (ie people making roughly $35k to $175k a year or families making roughly $50k to $225k), then you should be for the fair tax. If you are in that middle class, you probably should be against the fair tax.

 

[fskimospy]

The 25% number is wishful thinking however, it would appear that the number is closer to 35%. According to the President's Advisory Board on Tax Reform, the number required would actually be 34%. (others say 30-31%) This panel was under President Bush by the way.

The rich will pay substantially less, and with the incentives we all get the very poor will likely pay less as well. The middle class will be the recipient of a colossal tax hike if we switch to a flat consumption based tax. If you're middle class as I assume most of us are, feel free to support the fair tax if you wish to be taxed considerably more heavily.

 

[irwincur]

But it would bring those that are currently operating in the black market (example: drug dealers) into the tax fold. For example, Joe the drug dealer does not have a legitimate job, he pays no taxes. Yes, at the high end of the scale, the IRS will eventually find Joe. But, I have know plenty of low level dealers over the years that have operated for a long time without even raising any suspicion. Pretty much the only time you get caught is when you are actually buying something expensive - large cash transactions are now tracked, too many and the IRS will come knocking when they realize that you don't have a job. Hence, most black market dealers are actually busted by the IRS and not the authorities - this is why RICO is often used for drug dealers, gangs, and such. It is hard to make a straight criminal case unless you catch them red handed, easier when you know they are not paying taxes on income that they are spending or investing.

So, with a Fair Tax, Joe at least starts paying taxes on all purchases, large and small. So in some ways the black market- even though it will grow, will also be contributing something. In the traditional system those people contribute nothing.

That being said, my opinion is still out on the Fair Tax. In theory it works, but few things work the same in theory and in reality. That being said, states with similar tax schemes are relatively successful financially when compared to those with income and propery tax schemes. However, these tend to be high tourism states that get a lot of their sales tax income from out of state visitors.

 

[irwincur]

It should also be noted that the rich may not necessarily pay less. It is a use system, if you buy a $10 million yacht, you will pay taxes on it. Likewise, an expensive house will cost more than an inexpensive one. Rich people spend more money, in general.

The only rich people it helps are the little old lady's with millions in the bank that live in a $100,000 house and spend almost nothing.

It should also be noted that under the current system, if you are rich, you are probably paying a fraction of what you should. These people can afford accountants and bankers that can easily lower your taxable income. Business owners all do it to a certain degree, using the company to buy a car or paying distributions instead of getting hit with payroll taxes. These are all ways to reduce your tax load while increasing your personal financial benefit. It may be a percent here or there, but it definitely adds up.

 

[Patranus]

It should also be noted that under the current system, if you are rich, you are probably paying a fraction of what you should. These people can afford accountants and bankers that can easily lower your taxable income. Business owners all do it to a certain degree, using the company to buy a car or paying distributions instead of getting hit with payroll taxes. These are all ways to reduce your tax load while increasing your personal financial benefit. It may be a percent here or there, but it definitely adds up.

It should also be noted that under the current system, 47% of (eligible) Americans pay no taxes or get a tax credit and are not paying any faction of what they should.

 

[ElFenix]

Now ask yourself this question: is your federal tax rate higher or lower than 30+%?

not quite (it's close, no spouse, no house, no kids = screwed on taxes) but then again you didn't account at all for the fact that a very large portion of federal spending is financed through debt. how does it at all make sense to compare a tax rate with a fully financed federal budget to a tax rate on a debt-supported federal budget?

It should also be noted that under the current system, 47% of (eligible) Americans pay no taxes or get a tax credit and are not paying any faction of what they should.

that's bullshit and you know it.

 

[irwincur]

It should also be noted that under the current system, 47% of (eligible) Americans pay no taxes or get a tax credit and are not paying any faction of what they should.

I completely understand that as well.