The Fair Tax!

[GHook93]

There should definitely be a discussion on the fair tax. It has been the main campaign of the likely Republican VP candidate. It expresses it in very general terms whenever he speaks. The following article explains it better than anywhere else I have seen. I am pro-fair tax, as long as there are some exceptions to medical, real estate, education (and maybe to Municipal and Federal Bonds) and the rate was sent in stone at a btw 28-31% including both State and Federal taxes.

Is the Fair Tax really fair? - MSN Money

We now have an income tax -- a tax on what the courts have called an accession to wealth, clearly realized, over which you have dominion.

Which ranges between 10%-35%, depending on the income you make.

The Fair Tax is a whole different game. Instead of taxing income, this tax would hit consumption. Its proponents want to substitute what's often described as a flat 23% national sales tax on nearly all goods and services. But that 23% figure is a mirage. You'd actually pay 30% at the cash register,

No more income tax! Meaning this would repeal the 16th amendment (which was created in 1909), to which many believe is unconstitutional. The liberal author is incorrect later in which he says the tax will be around 36%, when you combine the State tax. I heard if it was made into a law it would set the taxes at flat rates. Federal between 23-25% and State between 5-6% = 28-31%!

The Fair Tax would include a complicated rebate system to shield the poor. According to Huckabee, "All of us would get a monthly rebate that will reimburse us for taxes on purchases up to the poverty line.

Ways to protect the poor who benefit most from the current tax system and would be hurt the most by the fair tax!

Here are the plus (and some are significant, especially #2) to the economy:

(1) Retail prices could fall. Fair Tax supporters say 20% of all prices today represent the hidden income and payroll taxes embedded in the price of everything we buy. (2) Eliminating corporate income taxes and capital-gains taxes would make the United States a more desirable place to do business. Cut transaction costs, and you encourage more people to get into the game. (3) There would be reduced losses of tax revenue from the underground economy. (4)Illegal immigrants, many of whom do not report income or pay taxes, would be forced to pay their share of the Fair Tax. So would the 40 million foreign tourists who visit the U.S. each year. (5) Social Security and Medicare taxes could be eliminated. These regressive taxes are probably the largest tax burdens on lower-income taxpayers. The Social Security Administration will get 6.2% of all wages and salaries up to $102,000 in 2008. Medicare gets an additional 1.45% from all wages and salaries. (6) The Fair Tax would minimize the congressional tinkering and behavioral manipulation that permeates our current tax code. Special benefit provisions and lobbyist-generated deductions and exclusions would be gone. (7) Substituting the Fair Tax could mean that the Internal Revenue Service could be disbanded. (That might sell the deal.) (8) Savers and investors are the biggest winners! A consumption tax gives savers something like an unlimited-deductible individual retirement account. There would be no tax hit until the dollars were actually spent. While the money was saved or invested, it would grow fully tax-free. Financial companies would get an enormous windfall. Most of their expenses are payroll-related, and, relatively speaking, they spend little on goods and services. Much of their profit is generated by investments. That wouldn't be taxed until spent.

Sounds great especially #2. Face it we need to find a way to compete with China, India and the 3rd world's slave labor. Eliminating the all the taxes that Corporations pay would be HUGE. This would bring the corporations back, including many of the manufacturing jobs. Look no further than the fastest growing economy in the world (Dubai) to see the effects of eliminating the corporate tax. Many, many corporation, including many large US corps have relocated there. No corporate taxes is a huge draw to corporation. I see a similar positive effect with the fair tax.

The fair tax would encourage investing and financial responsibility (savers), because that is who is most positively effected!

[GHook93]

Like all plans it has the pitfalls, but most have rational ways to overcome them!

(1) How much must pretax prices go down before you're comfortable paying an additional 30% on your home purchase, kid's tuition and doctor appointments? Increasing the cost of buying a home by 30% would not stimulate the housing market. On a house currently selling for $200,000, a 30% tax means you have to borrow $60,000 more just to get in the door. That doesn't make a lot of sense.

Very true, but what the author fails to see is that there can't be any exceptions. I am sure that there will be exceptions to the that sale of real estate, mandatory medical/Dental services and for education. Some exception could eliminate this problem, which is probably its biggest downfall,

(2) Arguments that the Fair Tax would eliminate the underground economy are less than persuasive. Add a 30% federal hit to a 6% state sales tax, and you have created a golden opportunity for smuggling. Look at what happened to cigarettes when states increased their prices with higher sales taxes. They're now marketed out of the trunks of cars. Those cheating on their income taxes would cheat on their sales taxes. Just substitute the term "black market" for underground economy.

Big deal the black market is already here. The liberal author also makes the assumption that the tax will be at 36% btw Fed and State. I heard it would be between 28-31% written into the statute!

(3) The idea that the Fair Tax would eliminate complexity in the tax code also fails to recognize reality. Special interests would almost certainly hire lobbyists to propose exemptions for such things as home purchases, medical services and education. I spent some time in Washington, D.C., and I never met a lawmaker who wanted to run for re-election on the platform of hitting housing, medical services and education with a 30% tax.

And this is bad because? Medical, home purchase and education (as a few possible others) should be made as exceptions.

(5) The poor would get little from the Fair Tax because they really don't pay income taxes under our current system. For 2008, if you're married with one child under 17, you have no tax on your first $31,400 in income. The Fair Tax can't beat a zero tax liability. Any real savings would come from the elimination of Social Security and Medicare taxes.

As stated above the poor can receive tax credits to fix this.

(6) Bush administration economists have projected that the Fair Tax would actually increase taxes for those making more than $30,000 and less than $200,000. That's because a flat 30% rate on their gross consumption would suck more dollars than a graduated rate on taxable income, after deductions, exemptions and the like. Taxpayers in that range would lose the benefit of the 10%, 15%, 25% and 28% rates on their taxable income.

The same administration that said it was a good thing to go into Iraq?
Don't forget the liberal author is going off the assumption that the fair tax will be around 36% btw state and Fed. Without the exceptions names and the rates set in stone there is no way to back these predictions. But he fails to leave out that with the increased number of corporation coming back to America, wages and job availability would increase.

(7) Transition rules -- the rules that would apply as one shuttered income taxes and started up the Fair Tax -- would cause chaos. Consider your Roth IRA account. You've already paid income taxes on those dollars. You wouldn't be happy when you spent the money and had to pay a tax again.

Sh1t happens and I would be upset personally. But the positives outweigh this.

(8) Somebody would have to enforce the sales tax law or it would have no teeth. So, in practical effect, the plan would not eliminate the IRS. The plan would just convert its function from income-tax compliance to sales-tax compliance. Some agency would have to step in.

No sh1t, but its easier to go after corporations, than individuals.

(9) Would the national sales tax be enough to raise as much revenue as our current system? Yes, if the rate was high enough, no if it wasn't. I'd bet everything I have that the rate wouldn't remain fixed.

Well current one isn't paying for everything! The only way for it to create enough to pay for it is a flourishing economy and for us to substantial cut taxes. America could easily make a fair tax of 29% combined btw Fed and State work, if the economy was flourishing and we cut spending right along with it!

(10) The biggest losers: Municipal bond holders (a) Tax free Bonds: A subgroup of the wealthy -- those who escape income tax under the current system by investing in federal-tax-free municipal bonds -- would be big losers here. Under the Fair Tax, current tax-free dollars would be hit when they were spent. That would decrease the attractiveness of such investments and potentially increase their cost. Higher interest rates for state and local projects would result in increased costs for schools, bridges and jails that are normally financed with tax-exempt bonds. Or it might mean higher state and local income and real-estate taxes to cover those costs.

Obviously they could still be tax free or at least a reduced tax (5-6% State tax). Problem solved

(b) Real Estate: Home values -- and people who work in the real-estate industry -- would suffer. So would those who sell high-priced goods. Cars, appliances and high-ticket items like, say, Tiffany jewelry, could immediately become 30% more expensive. Would the corporate income and payroll tax savings be enough to offset this addition cost? It's arguable, and economists disagree. Personally, I have my doubts.

Real estate would be an exceptions. High ticket products would be shell shocked at first, but they would adjust to it with time. Remember the retailers' costs would go down, so they could reduce prices also.

(c) My biggest fear is the inability of Congress, no matter which party is in control, to control spending. We raise more tax money today than ever before in our history. The problem is that we increase spending faster than we increase tax revenues. We may end up with both an income tax and a national sales tax. Wouldn't that be a kick in your wallet?

Very rational fear, but there are way to safe-guard against it. Tax limits set out in the statute for both state and Federal. Time threshold for abandoning the plan and a time limit for when it needs to be abandoned or renewed.


I personally am for the fair tax. I see the benefits of eliminating the corporate, medicare, SS and income tax well out weigh the pitfalls.

[GHook93]

It seems like I am the only person that liked this idea. I guess it really doesn't matter since Huckabee is done.

[Milton Bradley]

Would a fair tax plan work?

A Fair Tax: Apportionment

[tivodan1116]

I just want to say the whole deal about cheating the system is unfounded.

In an income tax, it takes ONE person to cheat: The taxpayer (or person filling out the forms)

In a sales tax, it takes at least TWO - the buyer and the seller.

Societal pressures to be a "good citizen" inherently make it harder to cheat when that action depends on a conspiracy. It's easier to cheat on your taxes sitting alone in your home office than it is standing at the checkout counter with other people around.

[GHook93]

Quote by: tivodan1116 I just want to say the whole deal about cheating the system is unfounded. In an income tax, it takes ONE person to cheat: The taxpayer (or person filling out the forms) In a sales tax, it takes at least TWO - the buyer and the seller. Societal pressures to be a "good citizen" inherently make it harder to cheat when that action depends on a conspiracy. It's easier to cheat on your taxes sitting alone in your home office than it is standing at the checkout counter with other people around.

Cheating on taxes is always going to be around no matter what the system is. What I like is this tax scheme makes American a much more popular place for Corporations. Its a perfect Capitalist way to compete with China and India, while raising our wages and standard of life in the process. It has flaws no doubt, but the pluses outweigh the minuses!

[GHook93]

People don't believe this, but Corporations are not the enemy! Liberals yell that corporations do this negative and do that negative thing, but when a corporation closes their doors do to over-regulation or taxation or a need to move a more competitive location, they cry and say please don't go we need you. Corporations in many sectors are forced to move operations overseas or over the border! The ones that remain have their pick of the litter on skilled workers, while maintaining the flexibility to pay them less.

What is the solution? Finding a way to attract corporations to come and stay in America. The more corporation that come and stay in America, then the more jobs that open and the more leverage the American worker obtains.

How can we attract corporations? America will never and shouldn't compete with China, Mexico, India and the 3rd world at their game. Which is low to slave wages, low to no envirnomental regulations, no worker protections and no workplace safety standards. We need to take note from other successful states and countries. Ireland is booming in the corporate sector, because their low corporate tax - I believe is 11.5% (vs our 35%!). Dubai has the fast growing corporate sector in the world due to its 0% corporate tax. Locally IL has been able to maintain and attact corporations to the state because of its low corporate tax, which is opposite to CA who is chasing corporations out of the state with its high corporate tax!

So how does America lower its corporate? You guessed it, The Fair Tax! The fair tax would lower the corporate tax rate to 0% and lower purchases by corporations to 0%. Corporation would be flocking to American. The trade war (which we are losing to China) would tip back in our direction.

See the FAQ on the benefits of the fair tax!
Americans For Fair Taxation: Frequently Asked Questions

[ironeagle]

I don't lik it at all. Why not just a flat payroll tax? It's simpler and promotes economy better. 23% sales tax won't cure anything people just won't buy products anymore.

[Zeebadee]

You'll never see a "fair tax" system such as you describe for the simple reason it isn't fair to older people, and that's a rather large bloc of voters.

Older Americans have saved all their lives for retirement, paid taxes on all that they've earned and saved. Now you want to come along and create a new system that taxes the same money, when they spend it, that they've already paid taxes on.

Nice try, but you'll never get the votes.

[SoylentGreen]

(b) Real Estate: Home values -- and people who work in the real-estate industry -- would suffer. So would those who sell high-priced goods. Cars, appliances and high-ticket items like, say, Tiffany jewelry, could immediately become 30% more expensive. Would the corporate income and payroll tax savings be enough to offset this addition cost?

Wouldn't be a fair tax then would it.
The rich get to buy trinkets that are tax free while a working mother has to X% more to buy her family dinner.

[grandpa]

Quote by: SoylentGreen Wouldn't be a fair tax then would it. The rich get to buy trinkets that are tax free while a working mother has to X% more to buy her family dinner.

If the government was interested in fairness, it wouldn't have been implimented the way it was.

Grandpa h.

[GHook93]

Quote by: ironeagle I don't lik it at all. Why not just a flat payroll tax? It's simpler and promotes economy better. 23% sales tax won't cure anything people just won't buy products anymore.

(1) A flat tax will cure nothing and make the poor pay the same rate as the rich.
(2) The problem that needs to be changed in America is making America attractive to corporations and specifically to the manufacturing sector. The only legislation that can do it is the fair tax. Check out the site!
(3) People have to buy products! In fact they will have more money to buy products and they will be cheapers! No income tax means you have choices of where to buy. Corporations push the corporate and payroll taxes onto the consumer. No corporate or payroll taxes, then they push nothing onto the consumer and the prices are less!
(4) With the rebate systems, the tax is fair to all.

[GHook93]

Quote by: Zeebadee You'll never see a "fair tax" system such as you describe for the simple reason it isn't fair to older people, and that's a rather large bloc of voters.

It is very fair to old people and the poor. Soon social security will be reformed to something not even the old people understand anymore; therefore that won't be much of a hurdle anyways. For the poor, they will actually be much better off, since more skilled manufacturing jobs will be available. With 0% corporate, payroll, SS and taxes on corporate expendures, corporations would flock to America! Your concerns are addressed in the fair tax FAQ!

How does the prebate work?

All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services’ poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.

Americans For Fair Taxation: Frequently Asked Questions Answers

How does the FairTax protect low-income and lower-middle-income families and individuals?

Under the FairTax Plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most. In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

Quoted by: Zeedee Older Americans have saved all their lives for retirement, paid taxes on all that they've earned and saved. Now you want to come along and create a new system that taxes the same money, when they spend it, that they've already paid taxes on.

What about senior citizens, retired people, and anyone on a fixed income?

As a group, seniors do very well under the FairTax. Low-income seniors are much better off under the FairTax than under the current income tax system. Some erroneously believe that people who live exclusively on Social Security pay no taxes. They may not know it, but they are paying hidden corporate income taxes and employer payroll taxes whenever they buy anything. Under the FairTax, seniors pay $0.23 out of every dollar they choose to spend on new goods and services. Plus, seniors, like everyone else, receive a monthly prebate, in advance of purchases, for taxes paid on the cost of necessities which more than pays for all of the taxes they would pay if they received the average Social Security benefit amount and spent it all. If seniors choose to work, they are freed from regressive payroll taxes, the federal income tax on wages, and the compliance burdens associated with each. They pay no more hidden taxes on goods or services, and used goods are tax free. There is no income tax on their Social Security benefits. The income tax imposed on investment income and pension benefits or IRA withdrawals is repealed. Pension funds, IRAs, and 401(k) plans had assets of $12 trillion in 2004. An income tax deduction was taken for contributions to most of these plans. All beneficiaries and owners of these plans expected to pay income tax on them upon withdrawal, but are not required to do so under the FairTax. All owners of existing homes experience large capital gains due to the repeal of the income tax and implementation of the FairTax Plan. Seniors have dramatically higher home ownership rates than other age groups (81 percent for seniors compared to 65 percent on average). Homes are often a family’s largest asset. Gains are likely to be in the range of 20 percent. The FairTax makes the economy much more dynamic and prosperous. Consequently, federal tax revenues grow. This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.

Quoted By: Zeedee Nice try, but you'll never get the votes.

True, but just because a great idea doesn't get the votes doesn't mean its not great. Contrary, just because a poor idea (say the vote to go to war with Iraq) got the votes doesn't take away the fact that its a poor idea!

[grandpa]

Quote by: GHook93 (1) A flat tax will cure nothing and make the poor pay the same rate as the rich. (2) The problem that needs to be changed in America is making America attractive to corporations and specifically to the manufacturing sector.

In other words, lower our standards into oblivion. Actually, what we need to do is stop catering to the super-rich -- you know, the types who come into a place and take most of their money and stuff. I fail to see why "the rich" should have so much control that we have to cater to them. In fact, I don't know why we need a wealthy governing class to begin with.

The following strikes me as a bit unfair, and rather idiotic/dangerous:
"The world's 500 largest industrial corporations, which employ only five hundredths of 1 percent of the world's
population, control 25 percent of the world's economic output. The top 300
transnationals, excluding financial institutions, own some 25 percent of the
world's productive assets. Of the world's 100 largest economies, 50 are now
corporations-not including banking and financial institutions. The combined
assets of the world's 50 largest commercial banks and diversified financial
companies amount to nearly 60 percent of The Economist's estimate of a $20
trillion global stock of productive capital."
An Economic System Out of Control

Grandpa h.

[GHook93]

Quote by: SoylentGreen Wouldn't be a fair tax then would it. The rich get to buy trinkets that are tax free while a working mother has to X% more to buy her family dinner.

Corporates push corporate, payroll, SS and expenditure taxes onto the sale of the price. Take those out and the price goes down. If people have no income taxes then that is more money in their pockets!
Also see the probate systems. You get rebates for the tax dollars you spend!

How does the FairTax affect wages and prices?

Americans who produce goods and earn wages must pay significant tax and compliance costs under the current federal income tax. These taxes and costs both reduce after-tax wages and profits and are then passed on to the consumers of those goods and services in the form of price increases. When the FairTax removes income, capital gains, payroll, and estate and gift taxes, the pre-FairTax prices of these goods and services will fall. The removal of these hidden taxes may also allow wages to rise. Exactly how much prices will fall and wages will rise depends on market forces. For example, in a profession with many jobs and too few to fill them, wages will likely increase more than in fields where there are too many employees and not enough jobs.

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 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.

[GHook93]

Remember the old saying, "What's good for GM is good for America!" Well it should be modified, whats good for Domesitic Corporations is Good for America."

(1) No corporate, payroll, SS and expenditure taxes instantly makes America the best place to incorporate, even for the manufacturing sector that we have consistently losing to China, India, Mexico and the 3rd a world.

(2) These taxes were pushed onto the consumer, therefore prices would immediately fall

(3) How does this affect U.S. competitiveness in foreign trade?

Because the FairTax is automatically border adjustable, the 17 percent competitive advantage, on average, of foreign producers is eliminated, immediately boosting U.S. competitiveness overseas. American companies doing business internationally are able to sell their goods at lower prices but at similar margins, and this brings jobs to America. In addition, U.S. companies with investments or plants abroad bring home overseas profits without the penalty of paying income taxes, thus resulting in more U.S. capital investment. And at last, imports and domestic production are on a level playing field. Exported goods are not subject to the FairTax, since they are not consumed in the U.S.; but imported goods sold in the U.S. are subject to the FairTax because these products are consumed domestically.

(4) It makes small business more affordable and competitive. No more will the large corporates get extremely unfair tax benefits over the little guys. Now they both pay the same, which is 0%!

[GHook93]

Quote by: ironeagle 23% sales tax won't cure anything people just won't buy products anymore.

Is consumption a reliable source of revenue?

Yes, in fact, consumption is a more stable source of revenue than income, as shown in Figure 3. The chart compares the yearly changes in the tax bases for the income tax (adjusted gross income -- AGI) and the FairTax (personal consumption expenditures -- PCE) for years 1974 to 2004. PCE has always grown from year to year, whereas AGI dropped from 2000 to 2001 and from 2001 to 2002 -- two years in a row. The higher growth rates of AGI in boom years result in overspending and then when the economy slows down either budget cuts are needed or, what is more often the case, taxes are raised or the budget deficit increases.

Figure 3: Stability of the tax base
1974 to 2004
[IMG]C:\Documents and Settings\mk123sl\My Documents\My Pictures\Consumption Stats.gif[/IMG]

[GHook93]

Quote by: grandpa In other words, lower our standards into oblivion.

NO, no, no, no! That is exactly what the fair tax is not doing. Basically the fair tax will not effect corporate, environment and worker protection regulations. Rather it would attract corporations by 0% taxing plans. Basically it lets us bake our cake and eat it too!

Actually, what we need to do is stop catering to the super-rich -- you know, the types who come into a place and take most of their money and stuff. I fail to see why "the rich" should have so much control that we have to cater to them. In fact, I don't know why we need a wealthy governing class to begin with.

The super-rich will always be catered, well because they are rich!

The following strikes me as a bit unfair, and rather idiotic/dangerous: "The world's 500 largest industrial corporations, which employ only five hundredths of 1 percent of the world's population, control 25 percent of the world's economic output. The top 300 transnationals, excluding financial institutions, own some 25 percent of the world's productive assets. Of the world's 100 largest economies, 50 are now corporations-not including banking and financial institutions. The combined assets of the world's 50 largest commercial banks and diversified financial companies amount to nearly 60 percent of The Economist's estimate of a $20 trillion global stock of productive capital." An Economic System Out of Control Grandpa h.

Corporations are not the enemy. They keep an economy strong and people employed! Trust me without them, we would be much worse off!

[Zeebadee]

Quote by: GHook93 It is very fair to old people and the poor. Soon social security will be reformed to something not even the old people understand anymore; therefore that won't be much of a hurdle anyways. For the poor, they will actually be much better off, since more skilled manufacturing jobs will be available. With 0% corporate, payroll, SS and taxes on corporate expendures, corporations would flock to America! Your concerns are addressed in the fair tax FAQ!

You still haven't addressed the fact that seniors would be paying taxes again on money that they've spent years to save, and have already paid taxes on when they earned it.

[grandpa]

Quote by: GHook93<