OK, now we have an actual issue to discuss. As with any proposed change to taxation, the first question one must always ask is, whose taxes will go up? If the change is to be revenue-neutral, and somebody will pay less, then someone else must necessarily pay more.
The Fair Tax concept is pointless. It’s a means to fix a problem- the complexity of the tax code- which can be fixed in much easier ways. Like simplifying the existing tax code.
I assume it would lower taxes on the rich and raise taxes on the poor and middle class? Isn’t that the whole problem that it’s trying to fix? That the rich shoulder an inordinate amount of the tax burden?
Hardly.
The Fair Tax replaces the current income tax system with a 23% national sales tax. Your income isn’t taxed, only what you spend at the retail level. Considering that what you pay at the retail level is just at 22% of embedded taxes, you’re looking at an extra 1 percent.
The working poor are protected under the Fair Tax plan. Each month, prebates are administered according to your annual income as well as household size. If you have low income, the prebates will cover the taxes on all commodity items (food, toilet paper, soap, etc.) at the retail level. In other words, the working poor won’t be paying tax on the necessities.
It’s not simply a flat tax because it has measures like mentioned above to offset any financial impact to a group susceptible to a tax increase, even if only 1%.
Easily the most researched tax solution in the history of the United States, the Fair Tax conducted survey of 500 foreign companies. Bill Archer asked CEOs what impact the FairTax would have on their future business decisions. Four hundred of the CEOs said they would build their next manufacturing plant in the US if the FairTax was passed. The other 100 said they would move their whole corporation to America.
That’s hardly the scope of the Fair Tax plan. It aims to replace the current tax code with a solution that doens’t punish productivity or hard work - if you’ve ever been an hourly employee and worked overtime in this country you know what I mean. It doesn’t want to burden businesses with tax compliance costs or individuals who spend an estimated 27 hours annually to file their income tax returns. It aims to get companies back in the U.S. by not forcing them to pay inordinate amounts of taxes just to operate in the U.S. - it’s the same reason DailmerChrysler went to Stuttgart instead of Detroit after the merger.
Do some research before you offer criticism. There are many goals to the Fair Tax plan. Simply replacing the complexity of the current tax code doesn’t even crack the Fair Tax’s top 10.
Try again, sir.
OK, so again, whose taxes go up under the Fair Tax plan?
Depends how much you spend on a non-necessity basis per year. If you don’t buy brand new TV’s, cars, computers, clothes, etc. you won’t pay any taxes. If you buy some of that, you’ll pay some taxes - which is about 1% more than what you pay on items right now due to the current 22% embedded taxes. If you buy a lot of that, you’ll pay more taxes.
Do you see the correlation?
Very, very conducive to helping the working poor get out of their situations because it a) won’t punish their paychecks or productivity - thus allowing them to save without losing a single cent to anyone when they get their paychecks and b) prebates cover all taxes for necessity items. They basically don’t pay taxes.
Will rich people pay more taxes? Probably. They seem to purchase a lot more than the rest. No?
Maybe I didn’t do a good enough job of explaining that the Fair Tax is revenue neutral - no one is required to contribute anymore because of what they earn or what they own. Now, as I noted, are rich people more inclined to buy new cars, tvs, homes, etc.? Yes, research corroborates that all day.
So, rich people will spend more and thus contribute more taxes but is it setup to require them to do such? No, it’s entirely voluntary.
I’d worry that the Fair Tax would set up a large black market-- it gives a large (23%) incentive to keep things off the books in order to avoid paying taxes.
Thats not what revenue neutral means.
23% is a pretty low-ball estimate of what would be needed. Total retail sales in the US in 2010 was ~4.5 trillion. US federal revenue was north of ~2.5 trillion. So more like 50%. Plus if you want to give rebates to lower class people, you’ll need the tax to be higher on everyone else. Plus the tax will suppress retail sales, so you’ll need to increase the tax futher to make up the difference. Plus many states already have sales tax, so the total sales tax will be even higher. So even 50% is probably a conservative estimate.
Plus the US economy is pretty consumption reliant. Adding a huge disincentive to consumers would be a poor idea for the US economy as a whole.
I always saw two jokers in the debt on Fair Tax.
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The emphasis on ‘retail’ sales. So would that mean that if I, a business owner (as I am) purchased say, 10 new PCs I wouldn’t pay tax on them?
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I always see exemptions for some things that I don’t think should be. What about stocks and bonds? Does the tax apply to them? (I mentioned that to my broker a few years ago and he was adamantly against it) Houses? What about for services? If I arrange a trip for my staff to a trade show do we pay it on air/travel/rental car?
I have my doubts.
I never attempted to define it? Sorry I didn’t do a better job of specifying that. Apologies.
From FairTax.org:
The study for the above figures can be found here.
Of course you would pay taxes on them. You’d have to purchase them from a retailer, would you not?
The purchase of stocks is considered a purchase for investment purposes and not personal consumption so they are purchased tax free. The service fees charged by the broker, however, are personal consumption and therefore subject to tax.
Depends on the services.
You’d pay taxes on the plane ticket, just as you would now. What do you mean by travel? Gas? Rental car has applicable taxes applied to it just as it does now.
The “Fair Tax” sounds good as a sound byte, but it is not practical. It taxes ‘retail sales’, right there it lets rich folks off the hook. My purchase of food is more of an investment in the future than your purchase of a stock. My purchase of an automobile enables me to carry on my business as an engineer even though I work for a salary. My house is an investment that provides shelter so I am available to my employer. “Fair Tax” is actually a selective tax system that lets the wealthy skate by free.
If it’s really a fair tax then it applies to all purchases equally: stocks, bonds, incremental derivative orders, food, shelter, transportation, company acquisitions and a bet placed on a Vegas Roulette wheel. Corporations could be allowed to deduct costs below the gross operating profit line.
Crane
Meanwhile, back on topic, I’m not sure why Palin is being dismissed as a contender. From Palin’s point of view she has an ideal political environment. She has the strongest name recognition and strong base support. Her goal is to build her celebrity, not to be President. The polls indicate that she will not win the general election so it all fits her need.
Add to that her ability to use the web (very low cost) and the enthusiasm of the Tea Party base, and you have a good potential for a Primary win.
Mormonism will be a minor issue in the general election but it is a show stopper in the Primary. I doubt that Palin will use it directly, but her swiftboaters will have a field day. A Palin/Romney primary battle will be far more fun to watch than Obama/Clinton.
Crane
Didn’t you just answer your own question?
I love that a majority of all the criticisms of the Fair Tax come from lack of comprehension of what it actually does and does not do.
From FairTax.org:
“Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after-income-tax and after-payroll-tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.”
Second, you would receive a monthly prebate to offset any tax incursions on the necessities. You wouldn’t be paying tax on food, toilet paper, soap, etc. and all other of life’s necessities. The prebate size is set in relation to where you are in regards to the poverty line. The wealthy, obviously receive the lowest prebates; the poor the most.
Furthermore,
"The poor actually pay less than zero-percent retail sales tax on their spending under the Fair Tax. Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes. Especially if they are frugal and buy mostly used products. On the other hand, the wealthy approach a maximum of 23-percent retail sales tax on their spending. "
So don’t buy a new automobile if you don’t want to pay the extra 1% tax?
Sigh, you really don’t know what the Fair Tax has in plan for you, huh?
Again, from FairTax.org:
"The FairTax has positive effects on residential real estate far beyond this narrow question. Today’s homeowners, if they itemize (and 70 percent 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 is $999.12 for principal and interest. On that same mortgage at a 5.25 percent interest rate, the monthly payment is $830.01. Over 30 years, the 1.75-percent decrease in interest rates in this instance results 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 prebate mean that people have more money to spend and have an increased opportunity to become homeowners. "
Looks like what you’d save on your mortgage would help you cover that 1% and then some, huh?
Most of those items are taxed by the Fair Tax - you should really research it.
Corporations, businesses, etc. are all given incentives to spur job growth and development under the Fair Tax. For example, under the Fair Tax, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. Many, many, many more examples of this.
Please, read before you comment.
Chronos,
Sorry, I should have said:
Meanwhile, back on topic, I’m not sure why Palin is being dismissed as a primary contender … Her goal is to build her celebrity, not to be President.
Crane
Abloy,
I have read the Fair Tax site.
- “Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor.”
That statement is true, but ridiculous in this context. The wealthy spend a small amount of their disposable income on food, clothing, housing and medical care. The Fair Tax would significantly decrease disposable income for the middle class, but have a negligible impact on the wealthy.
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Prebate is a bandaid on the failure of the Fair Tax scheme. If the system requires a prebate, then admit that your ‘point’ in 1. above is absurd.
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The point on the automobile is that your definition of investment is arbitrary.
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What mechanism will cause bank interest rates to fall under a flat tax? There’s no connection except wishful ‘thinking’.
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Specifics get fuzzy on the Fair Tax page. Your comments on encouraging job growth are fluff. Corporations get those deductions today - what’s new?
If you really want a fair tax then impose a small tax on gross income for individuals and corporations.
Crane
Really?
[QUOTE=FairTax.org]
Imagine a tax system that:
• Allows you to keep 100 percent of your paycheck, pension, and Social Security
payments.
• Frees up the time wasted on filling out cumbersome IRS forms.
• **Wipes out the income tax code and shuts down the IRS. **
• Makes taxation of income unconstitutional by repealing the 16th Amendment.
• Exempts all taxpayers from federal taxation up to the poverty level, through a monthly
rebate.
• Ensures that all Americans pay their fair share of taxes.
• Dramatically lowers tax rates for low-income and middle-income Americans.
• **Makes taxes visible by eliminating hidden income and payroll taxes in consumer prices. **
• Enables families to save more for home ownership, education, and retirement.
• Protects and ensures the funding of Social Security and Medicare.
• Leaves unchanged the amount of money raised by the federal government.
• Makes American products more competitive overseas.
[/QUOTE]
It’s 3 of their 12 talking points. Do some research before you… do whatever it is you’re doing.
In the interests of avoiding a total hijack, I won’t respond to any more flat tax posts in this particular thread, but I’ll be happy to participate if you wish to start a separate one.
Four out of 5 companies have manufacturing plants? I don’t have any figures that contradict you, but just off the top of my ass, that sounds dubious.
And 100% of CEOs find this plan to be corporate-friendly, huh? Interesting.