The Fair Tax, Post #2: What Effect Will It Have on the Middle Class?
A week or two ago, we introduced the “Fair Tax” as a topic of interest here at the Warren Reports. That post concerned the "Fair Tax" generally; we promised three follow-up points to discuss specific points of interest about the Tax. This is the first of those follow-up posts - an analysis of the regressive nature of the "Fair Tax."
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Chapter 12 of Neal Boortz and John Linder’s “The Fair Tax Book” is titled “The Opposition. Where Will it Come From?” The chapter anticipates three “main arguments” against the “Fair Tax” plan – 1) it would lead to new forms of evasion, 2) there would be high transaction costs, and 3) the tax would be regressive.
The authors promise to address “these arguments one by one.” First, they discuss how the “Fair Tax” will limit tax evasion; next, they minimize the impact of the transitions costs of switching to the “Fair Tax.” And then the chapter ends. That’s right - the authors raise the issue of regression and then don’t address it. But we shouldn’t be surprised by this fact; the authors do not try to convince us that the “Fair Tax” is not regressive because they can’t.
Sales taxes, such as the “Fair Tax,” are the paradigmatic regressive tax. There is a set of essentials that everyone needs to buy and these things take a proportionately larger share of your income as you make less money. So the burden of taxing these items obviously falls dis-proportionately on the poor and Middle Class. But don’t take my word for it – check out links here, here, here, and here for more information on the regressive nature of sales/consumption taxes.
Let’s break this down simply. Apparently, the total taxes collected aren’t going to change under Boortz and Linder’s “Fair Tax.” So the same amount of money has to be collected. Today, the top quintile of U.S. households in terms of income pays an effective tax rate of roughly 27%. This rate rises to about 30% and 33% for the top 5% and top 1% of all incomes, respectively. Under the “Fair Tax,” the absolute highest tax rate ANYONE could pay is 23% - and this would be if they spend every last penny they earned! Clearly, the effective rate that these high income earners pay will be much lower than 23%, as they save some of their incomes. (In fact, the effective rate will go down as income rises.) Who do you think is going to make up the difference between what the wealthy currently pays and what the wealthy would pay under the “Fair Tax” system? That’s right – everyone else.
Advocates of the “Fair Tax” aren’t silly – they know these concerns exist. Thus, they’ve developed two main arguments that cloud the issue and attempt to counter the notion that the “Fair Tax” is regressive through a series of misdirections:
1. “Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses and expensive jewelry.” That’s straight from a "Fair Tax" website. And it’s so overly simplistic that it’s laughable. In and of itself, the fact that the wealthy spend more does not prevent a tax from being regressive; THE ISSUE IS NOT THE AMOUNT SOMEONE SPENDS, IT IS THE PERCENTAGE OF THEIR INCOME THEY SPEND. And as demonstrated above, the share of the wealthy’s income that is taxed will go down and the share of total taxes that the wealthy pay will – by definition – go down. That’s the very definition of a regressive tax shift.
2. We’re going to give everyone a “prebate.” This, of course, makes sense – everyone gets back the cost of a basket of essentials, so that, ostensibly, they are not taxed on things they need to survive. This is a humane gesture, but it’s not superior to the current tax structure, where a large proportion of households are exempted from paying taxes (in addition to their being an ostensibly progressive tax structure). And it adds in all sorts of administrative problems. For instance: How do you calculate the size of this basket of essentials? How do you make certain that everyone gets their “prebate” check? The bottom line is simple – this is just the barest of gestures to make the notion of the “Fair Tax” politically palatable. The “Fair Tax” is shifting the tax burden from the wealthy to those further down the income ladder, with the burden falling the hardest on the people directly above the arbitrary poverty line that is established by the amount of this “prebate.” (Another question to ponder: Do you want the administration that developed the “Fair Tax” to determine what constitutes a basket of essentials?)
So, it’s pretty clear that the “Fair Tax” WOULD BE regressive, despite Boortz and Linder’s empty assertions that it is not. That’s the dirty little secret that they don’t want out of the bag – beneath all the bluster about “busting” the IRS and abandoning the income tax, the “Fair Tax” will be affecting a substantial tax burden shift from the wealthy to the not wealthy. But that’s not surprising, given who developed and who is supporting the plan. Again, Boortz and Linder are right to point the finger at the tax system as being unwieldy and in need of reform. But they use the stated goal of simplicity to urge a revision of the tax code that leaves poorer people stuck paying more.
Finally, one note of interest to readers: I know in my column I said the “Fair Tax” would be 23%. This is a little misleading; 23% is a “tax-inclusive” number. Purchases would actually be taxed 30% - i.e. if you bought a $100 item, it would cost $130. The 23% number is $30/$130. This is all explained here (check out Question #47).
Finally, one note of interest to readers: I know in my column I said the “Fair Tax” would be 23%. This is a little misleading; 23% is a “tax-inclusive” number. Purchases would actually be taxed 30% - i.e. if you bought a $100 item, it would cost $130. The 23% number is $30/$130. This is all explained here (check out Question #47).
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You have done an excellent job of explaining the unFair Tax Act. We had a blog going a few weeks ago, that if anyone is interested could be brought up with the search that is on this website.
On bad thing, with the radical tax, is you can pay taxes on money you don't earn if you use your credit card. The rich would not have to do that.
Also, some believe that the governmrnt would decide it would be easier to use a smart card for your purchases. Then they will decide you need to use the smart card for every purchase not just until you use the rebate, to keep track of the sellers. There goes your privacy.
The rebate and the tax inclusive mumbo jumbo is just to fog up the subject. Bottom line, a couple after spending about $20,000 will pay 30% taxes on everything they buy that isn't used, even a new house.
They would have you believe prices will go down 7% so you are only paying 23% even though you pay 30%.
They want to radically repeal the law allowing income taxes, before seeing if the sales tax would work.
The rich will pay a small percentage of their money. They will buy their big items before the tax kicks in.
It is a radical idea whose time has not come..
September 15, 2005 2:39 PM | Reply | Permalink
A question --
The "Fair Tax" proponents assume that the price of goods and services will fall by some amount because sellers will no longer be paying income and other(?) taxes (I've seen estimated price reductions of 20-22%).
What taxes will sellers avoid? Their share of FICA, presumably. Corporate income taxes paid by large corporations (small businesses don't pay income taxes)? Where's all the tax savings to sellers coming from?
Has anybody got a link to a calculation?
September 15, 2005 2:54 PM | Reply | Permalink
You mentioned that the FairTax organization will have free reign with what to use for the prebate in the "basket of goods" that they choose. Not so. That "basket" is called the poverty level, and it is already set every year by the Health and Human Services. I'm surprised you missed that with your wealth of research that you quote from the www.fairtax.org site.
By the way, Mr. Boortz in his book does explain how a consumption tax may be regressive, but the FairTax is not. It may not be explained in the same chapter, but he doesn't skip over it. However, what makes it progressive is the monthly rebate that everybody would be able to spend anyway they want, and payroll taxes. The most regressive tax that exists at this moment will be removed...SS taxes and medicare taxes. That was conveniently left out of the article above.
Also, for the 23%/30% doubters, please find the following article at http://us4fairtax.blogspot.com.
Many opponents of the FairTax argue that volunteers of the Americans for Fair Taxation and many proponents of the H.R. 25 plan are liars. This just is not true. The opposition claims that the 23% sales tax rate is actually a 30% rate in disguise. While, the H.R. 25 FairTax plan will charge 30% at the register, I argue that this is not deception.
Let us define some terms here: Sales taxes are typically quoted as a tax-exclusive rate and income taxes are normally quoted as tax-inclusive. Tax-exclusive is defined as what the rate is after you paid for an item. Such as, you go to the register to pay for a $100 item, but the total comes to $107. The 7% sales tax was excluded from the price until you had to pay for it. Although 7% on the $100 item is $7.00 – that same $7.00 is 6.54% of $107.
Tax-inclusive is defined as what the rate is, inside the total amount (gross pay). Assume you bring home a $1,000 paycheck, but really only get $800 take-home pay. The 20% was calculated on your gross pay of $1,000 – not the $800 that you actually have to spend. That same 20% within all of your pay, would be 25% on your take-home pay.
This can make a huge difference in what rates that are quoted. Everybody is used to the old (current) way of doing things: income taxes that are taken out of our paycheck. The advocates for the FairTax are trying to compare apples to apples when they are quoting 23%. A 23% tax-inclusive sales tax is comparable to a 23% tax-inclusive income tax in this case.
It would be fine and rather true to quote the FairTax rate as a 30% rate. However, what does that say in your mind? As an example, to someone who is in the 28% marginal income tax bracket, this would seem like a bad deal. Not so, just by comparing these simple rates, alone, the FairTax is actually a better deal. Because, if you compare your income tax rate as a tax-exclusive rate similar to the 30% sales tax, the rate is 28% marginal rate is actually 38.89%. In addition, the 38.89% does not even include the payroll taxes (Social Security and Medicare) that are taken out of the paycheck. For this income bracket, that rate would be an additional 4.67% (tax-exclusive). Tack on the other 4.67% that your employer is paying to the government (instead of giving you a raise). Oh, and don’t forget about that 28.21% (tax-exclusive) in average embedded corporate taxes and compliance costs. Voila: 76.44%! No, ladies and gentlemen, this absolutely is not an exaggeration. Believe it, because it is true: some of us pay 76% to the government. With the FairTax, that 76.44% will be reduced to 30% (At the VERY MAXIMUM).
Here’s a breakdown of the marginal tax rates for the current income tax compared to the 30% FairTax rate:
7.65% payroll taxes = 8.28% plus another 8.28% that your employer pays
10% = 11.11%
15% = 17.65%
23% = 30.00%
25% = 33.33%
28% = 38.89%
33% = 49.25%
35% = 53.85%
So, what it all boils down to, for all of the Conspiracy Theorists, is that you can say that the rate is 23% compared to the tax rate that you pay now in the current system (tax divided by net pay). On the other hand, you can list all the higher tax-exclusive income tax rates and compare them to the 30% that you want to quote.
There is also one minor thing in this. When the FairTax is enacted, purchasers will not have to calculate an item based upon its retail price plus the tax. They will want to know the whole price at the register. Nobody will have to figure out what the tax is on that $7.21 item. They will go to the register already seeing on the price tag, a price of $9.37. The 23% tax equals $2.16 divided by $9.37. Since $9.37 will be on the price tag, wouldn’t the 23% rate be the relevant rate anyway.
What it all boils down to is that if you disagree with the FairTax, it is not due to a deceptive tax rate. It is something else, so mention that, but not the rate.
September 15, 2005 7:20 PM | Reply | Permalink
. . .a consumption tax system will derive its base from everyone that purchases anything . . . . jmklei0
Is the "Fair Tax" a consumption tax, only, or is it a sales tax?
In other words, does "purchases anything" include purchases of real estate and commodities and intangibles such as stocks, bonds, and derivatives?
September 15, 2005 7:56 PM | Reply | Permalink
Something that always bugged me about this tax plan is that it puts millions more Americans on welfare, dependent on monthly government payments to get by.
Sure, economically it looks the same as a minimum personal income tax deduction. But getting a monthly check from the government because you don't have enough money? If I were getting those checks, it would sure feel like welfare to me.
September 15, 2005 8:51 PM | Reply | Permalink
He either has not really investigated FairTax, or he is intentionally trying to mislead people.
Perhaps he has some vested interest in the current system?
There are millions of people in the United States that pay state and local Sales Taxes everytime they go to Wal-Mart, but have never paid $0.01 in Income Taxes, FICA taxes, and Medicare Taxes.
It is not a Zero-Sum game - there will be millions of new Federal Taxpayers to the system that have never paid before.
Chris, if you are going to write 2 more "articles" on the FairTax, at least try to give a balanced argument based on facts.
"poorer people stuck paying more." - unbelievably idiotic statement.
September 16, 2005 8:51 AM | Reply | Permalink
"There are millions of people in the United States that pay state and local Sales Taxes everytime they go to Wal-Mart, but have never paid $0.01 in Income Taxes, FICA taxes, and Medicare Taxes."
You know, it's absolutely fascinating to watch slimy, dishonest arguments like this one pop up in all the hack efforts by national sales tax fantasists, in the exact same breath that they indignantly proclaim that poorer people won't be stuck shouldering more of the tax burden.
Who exactly do you think these people shopping at Wal-Mart who don't pay income taxes or FICA taxes are? Wealthy Americans?
We're talking about illegal immigrants, EITC and TANF recipients, and the homeless, bub. Why don't you just come right out and say it? Say you don't think these people deserve to pay a lower percentage of their income in taxes than Bill Gates. Then we can discuss the whole idea honestly, rather than you trying to hide behind all the fairyland fairness rhetoric.
Sure, this scam does shift some of the tax burden onto tourists. It's utterly and fantastically dishonest, however, to imply that the tourism sector will fill the revenue gap when corporate taxes are eliminated and the wealthy all pay less than 23% of their income in taxes.
A 30% sales tax on all purchases also makes the US a much less attractive destination for tourist dollars, with a likely non-zero effect on overall profits and jobs in the tourism sector.
So, yes, by all means, let's have a fair and open discussion of this "Fair Tax". The brighter the light shined on this scam, the uglier it looks.
September 16, 2005 10:59 AM | Reply | Permalink
OK bub, let's talk about your categories of people. First the EITC and TANF and homeless you speak of HAVE paid taxes and quite possibly STILL pay taxes. So they are not what the writer was talking about.
Now, shall we discuss your first category, illegal immigrants? Do you think they should be able to break the law by entering this country illegally? Do you think they should be able to make money to send outside the country and not pay taxes? Do you think they should be able to enjoy all the benefits of living in this country without paying taxes? Would not those benefits rightly belong to this countries citizens first?
How about a couple more categories. How about drug dealers and prostitutes? They don't pay taxes today. Would you put them in that same category?
"Say you don't think these people deserve to pay a lower percentage of their income in taxes than Bill Gates."
If your talking about the amount of tax paid, I agree. If your talking about tax rate, no I don't. I think EVERY citizen deserves to pay exactly the same tax rate. The United States was designed to be a classless society. Bill Gates will pay much more in taxes than the working poor and that's what matters. The tax paid is proportional. Besides, when the prebate is applied, those who consume less pay a lower effective rate. The President's Tax Commission has stated that the FairTax is the only proposal which TOTALLY untaxes the poor.
September 16, 2005 9:30 PM | Reply | Permalink
http://www.fairtax.org/ has a biased “for the tax” website.
They say seniors won’t have to pay taxes on the sale of their home. No one does that now, so they must mean to reinstate the tax on selling homes.
One example is of a married couple,with two children and a mortgage with an income of $65,000. According to Fair Tax’s figures, this family’s Social Security and Federal income taxes combined would be $10,772 under the current system.
Taxes would be $19,500 under the unFair Tax system. (30% of $65,000 is $19,500.) The $5902 prebate brings the unFair Tax down to $13,598. That still shows the couple paying $2,826 less taxes under the current tax system. So, they come up with a savings of $1,530 on your mortgage under the unFair Tax’s system.
I suppose the banks will call everyone and say “Hi, we have decided you don’t have to pay us as much money on your mortgage. It will be $7,470 instead of $9,000. You will save $1530 a year. (I would have to see that in writing and notarized. ) It would not happen.
So if you deduct the $1530 from the extra Fair Tax cost of $2,826, that will bring the extra Fair Tax cost down to $1,296.
Keep in mind that not everyone has a mortgage, so they wouldn’t save on their mortgage. Also, not every couple has two children so the prebate will be less for them.
They add $9,046 as a savings to you on what you buy. After all, according to them, businesses will save that much in taxes and compliance. (Sure they will lower prices. They have fought to get their taxes lowered to give the savings to us. Uhuh. For how many days?)
They have to torture the figures to make the unfair tax come out ahead. To think the Fair Tax is better than the current system, you would have to have absolute faith in the banks, businesses and the government. You would also have to put your intellect aside.
We have to deal with reality. The chances are slim that your mortgage will go down and that businesses will pass their tax savings on to us. The prebate can be lowered or raised and so can the tax rate. This bill is iffy, iffy, iffy.
This is the best they can come up with? Pitiful.
September 17, 2005 5:54 AM | Reply | Permalink
Actually, Social Security is not a tax. It is a contribution all of us pay to protect us if the worst happens. It pays a monthly check to our children if we die while they are young. It pays us a monthly check if we become too disabled to work. And it pays for our necessities when we retire. It is not regressive because it works like life insurance Anyone that buys life insurance pays the same amount on say $50,000. The more we earn the more we pay. The more we pay, the more we draw when we get old. There is an adjustment giving more to the lower wage earners. If not, the government would have to give them welfare when they retire.
The rich should be surcharged to pay back the bonds in Social Security. They have enjoyed tax breaks while the government used those bonds to pay the expenses. They have profited from the people and the infrastructure in this country. The government protects them. They get more benefits from all tax money spent than the rest of us.
If the truth were known, the backers of the new Tax Act know it won’t work. They hate America’s safety nets, especially Social Security. They want to trash it and repeal the 16th amendment to make it illegal to tax income. There goes our matching Social Security, if they get by with calling it a tax.
The people in power now, ran under the Republican ticket, but they are not conservatives. They are radicals. They want to destroy and dismantle all government except military. They are deliberately trying to run up the deficit so they will not have the money when Social Security needs it. It is the old "starve the beast" scheme.
The middle class would spend all their income. The CEOs earning 10 million a year would probably spend a hundred thousand a year at the most. So their tax rate would be like 1% where the middle class would be paying a 30% tax rate.
A couple making $65,000 is paying a tax rate of around 16.4% on federal income taxes and Social Security taxes combined. Then they pay no federal taxes on anything else. So at the very least they will have their taxes raised by 6% up to almost 14% with the Fair Tax.
September 17, 2005 7:22 AM | Reply | Permalink
Some of the taxes business would save would be FICA, the Social Security and Medicare tax, plus they wouldn't have to pay the unemployment tax for their workers.
Part of what they say they will save is compliance costs that they pay to their tax accountant. The first thing they will drop will be health insurance and other employee perks, because they will no longer be deductible.
30% is the starting tax. They can adjust it. Also, excise tax stays on alcohol, tobacco and firearms and whatever else is under excise taxes. They could raise those high taxes even more. We will still pay taxes on services like Doctor’s office visits and telephone and those type of taxes.
We will still have to have donations and insurance and uniforms and whatever taken out. Only two lines or boxes will be eliminated on payroll. They are the Social Security (FICA) and Federal income tax withheld boxes. We would still pay property taxes.
We would still pay state taxes on payroll...except they are pushing to repeal amendment 16 which will make it illegal to tax income, so I suppose eventually state taxes will all be sales tax too.
Imagine what the taxes would be if state taxes are collected as a sales tax, too. We pay about 7% income taxes in our state. So add 7% state, 30% federal tax at the counter, plus we have a 9% local sales tax now. So everything we buy, we would pay 46% taxes on it.
Plus the property taxes and excise and service taxes would stay. The service taxes would be 30 percent too, like physicians and hospitals etc.
Some say they will be able to control us with taxes. For instance raise the price of firearms and bullets so high that no one can afford them. Like they are doing with cigarettes now. They could tax “unhealthy food” like steaks and candy.
People on Social Security have paid taxes on Social Security when they earned it, when they paid it in, even though they didn't spend it and it hasn't been tax deductible.
They say they will get more money because a lot of people don't pay taxes on everything they earn. It would catch criminal activity spending. But, it is debatable on how much they would really catch.
Repealing the estate tax is in the bill, so that could take more taxes away than a lot of new small earnings being taxed could bring in.
Too much of the Fair Tax is based on trust. Need I say more?
September 17, 2005 7:41 AM | Reply | Permalink
You do not examine legislation in the light of the benefits it will convey if properly administered, but in the light of the wrongs it would do and the harms it would cause if improperly administered. -- Lyndon Baines Johnson, U.S. President
http://www.jpfo.org/fairtax.htm has analysed the Fair Tax and has made some good points.
September 17, 2005 7:51 PM | Reply | Permalink
That statement is Orwellian.
The true payroll tax on $1,000 is closer to 16% for someone making $52,000. That is the FICA contribution and the federal income tax. Those are the only two taxes the FairTax would replace. So you would get home with $840. (state taxes should be ignored because the FairTax will not replace them.)
If you spend $1000 at the counter, you will pay $300 in FairTax taxes. So you really had $700 in spendable money.
You would have $150 more per paycheck at the end of the day with the current system after the first $20,000.
Also, we would pay taxes on items we don't pay taxes on now. Like rent or the purchase of a new home.
This whole issue has been dreamed up by the Bush Bagdad Bob Dream team.
We need a change in taxes, but FairTax will increase the taxes for the middle class.
September 19, 2005 2:02 AM | Reply | Permalink
The true payroll tax on $1,000 is closer to 16% for someone making $52,000. That is the FICA contribution and the federal income tax. Those are the only two taxes the FairTax would replace. So you would get home with $840. (state taxes should be ignored because the FairTax will not replace them.)
If you spend $1000 at the counter, you will pay $300 in FairTax taxes. So you really had $700 in spendable money.
You would have $150 more per paycheck, at the end of the day, with the current system after the first $20,000.
I was figuring the first line on a what a couple would pay after filing taxes.
If you are single, that would probably be a federal tax and Fica contribution of 17.4% payroll taxes, so you would have $126 more per paycheck after the first $10,000 with the current tax system. A couple earning $52,000 would have $150 more per paycheck after the first $20,000. (30% x $42,000 is $12,000 Fair Tax taxes. 17.4% x $52,000 is $9,048 for a single person.
Keep in mind, most people have more withheld from payroll on federal taxes than they actually owe. There are deductions for mortgage interest, dependent care, 401ks, medical care and some expenses.
Since posting I have read the mortgage payment will be deductible. Not just the interest but the principle too. For the first 20 years the house payment is mostly interest anyway. The 30% Fair Tax on a new home would add a lot to the cost of homes.
I would like to know where they are getting their info as far as what is deductible and what isn’t. I have read the bills S. 25 and H.R. 25 and they read to me like not everyone will get the prebate. The bills say the amount a qualifying family gets is based on income and size of family.
The bill says the prebate will be paid by Social Security. It isn’t clear if it will be paid out of the amount they allow for Social Security or they will just use the offices of Social Security. The bill also says ”The old-age, survivors and disability insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 12.4 percent tax on the Social Security wage base.”
That is fine now, but what about when the boomers retire? The Fair Tax will have to be raised even higher.
Some figure FICA on some of the Fair Tax blogs as 15.3% whenthey are comparing payroll taxes with the Fair Tax. They are including your employer’s part. They should not do that because we are paying 7.65%. You would not get that employer match as a raise either if the income tax is done away with.
Not all federal taxes come from income. Employment tax, is paid by the employer for unemployment. The estate, gift, investment and capital gains tax have been taxes on profits, not worker's income. All those taxes will be repealed.
I also misunderstood about the mortgage. What they are saying is that your yearly mortgage payment is deductible, not just your interest payment as it is on the current system.It will get to the point that you can't buy or sell without the prebate CARD.
You can read the bill yourself. It is H.R. 25, S.R. 25 and S.25 One is the house and the other is the senate bill. They are at http://www.thomas.loc.gov. The house bill is dated 2003 and the Senate bill is dated 2005. They have had this in the works longer than 2003. You can use their new bill search to find them.
Here is the link for H.R. 25.
http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.25:
Think about this. If it is going to save the businesses and the wealthy that many taxes, then who will pay those taxes?
How do we know that this right wing author, Bootz, knows what he is talking about and what he is omitting?. How do we know that it won't be changed for the worse after passage,under this administration, which are not to be trusted?I wish someone would post besides me. I am learning as I post. It would be nice to know where someone thinks I am wrong or right. Could it be the Fair Taxers don't have the facts to answer some of the questions?
September 20, 2005 6:20 AM | Reply | Permalink
Anyone who believes the FairTax to be regressive holds a dangerous (and anti-American) philosophy. Namely, that a person's income does not really belong to that person... that the government (or anyone else) has a right to dispose of that income. These anti-American fools actually believe that it would be wrong under the FairTax for a wealthy man to choose to restrict his spending in order to save money (for whatever reason). NO, they say, WE MUST SOAK THE RICH! We must penalize productivity! They do not seem to understand that our current tax system is so oppressive to the ambitious newcomers (the poor with vision) that it entrenches the power of the rich. They unwittingly fight for a caste system reminiscient of old world feudalism.
The FairTax is not perfect. However, it is much better than the current system. I stand behind the FairTax not because I believe it to be without flaws, but because our current system is hopelessly beyond repair and the FairTax is the best tax reform proposal that I've yet seen. I support the FairTax because it provides to the individual the FREEDOM to choose their own federal tax liability. It enhances LIBERTY... for everyone.
September 27, 2005 10:42 PM | Reply | Permalink
I wish I had been in on this conversation a little earlier. If you spend $1000 at the cash register, you will actualy end up paying $230 in taxes. You got to spend $1000 so thats what your spendable income was.
Under the current system if you MAKE $1000, at the very least you will TAKE HOME as "spendable income" $780 (22% tax bracket).
Even if we use your math to compute spendable income.... under fairtax you would spend $1000 and pay $230 (23% inclusive tax). You would thus have "spendable" money of $770. Under the current system you earn $1000 and pay AT LEAST $220 income taxes so that you have spendable income of $780... but WAIT!!! when you go to spend that $780, you will unavoidably pay some portion of the cost of whatever you spend toward embedded corporate taxes and tax compliance cost. This amount averages about 20-24%. So you will pay ANOTHER $156-$190 in tax costs when you purchase UNDER THE CURRENT SYSTEM... thus leaving you with around $600 of what you call spendable income.
GET THE IDEA OF EMBEDDED TAXES THROUGH YOUR HEAD!! the fairtax simply REPLACES the existing embedded taxes and does away with regressive payroll and income taxes.
September 30, 2005 7:00 AM | Reply | Permalink
Thats already happening under the current system...When you buy a good or service... about 20-24% of the cost of that good or service is a tax related expense. In essence you pay the taxes of companies who produce the good or service when you buy their product. You think they are paying taxes out of their bottom line? NO!!! They trump up prices to include the desired profit they want and charge you whatever tax they will need to pay to achieve that profit.
Thus when you buy something currently on a credit card, you are basically financing taxes. THE ONLY REASON YOU PEOPLE DONT LIKE THIS NEW TAX IS BECAUSE IT EXPOSES TAXES THAT THE GOVERNMENT HAS HIDDEN SO WELL FOR SO LONG. You are actually just pointing out things that are already happening under the current system as a reason not to adopt this new tax. At least with THIS tax system people would be more conscious of the true nature of taxes.
They want to radically repeal the law allowing income taxes, before seeing if the sales tax would work.
It is not necessary to repeal this ammendment in order to pass the fair tax. The repeal of federal taxes can be done without the repeal of the 16th ammendment and the fairtax can coincide with state and local taxes as they currently exist.
September 30, 2005 7:10 AM | Reply | Permalink
Also.. do you just not believe in capitalism? Just ask me or do a little research about price levels related to tax breaks. In order to gain competitive advantage, companies are just itching to "pass the savings on to you". Its capitalism at its finest.. and it works wether you believe it or not.
And do you not realize how easily the current system can be manipulated? Tax rates, tax breaks, tax cuts, tax hikes... all part of every day life. How can you argue the fair tax sucks when the current system is even MORE succeptible to tax policy change.. sometimes without even the consent of the people?
October 7, 2005 7:05 AM | Reply | Permalink
It DOES NOT work like insurance. There is no gurantee that you will ever collect on that money. By the time I retire, there may be no money left... who knows? If I die, no one will receieve my portion of the benefits. Making absurd charges about the "evil" republican party gets us nowhere for tax reform. Every word you utter is pure nonsense.
Where do you get your numbers!??! How do you even think that someone earning $10million will only spend $100,000? Buy one car and groceries for a year and youre already there. Buy a home or property or anything else, and youve already spend double, triple, or quadrouple that amount! Again... NONSENSE! You obviously have no economic education, no sense of reality in our current market, or just refuse to realize that what you say is a brilliant display of your absolute IGNORANCE.
October 7, 2005 7:14 AM | Reply | Permalink