Aces High Bulletin Board
General Forums => The O' Club => Topic started by: Sabre on April 17, 2007, 04:20:12 PM
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Given that it is tax day once again, I thought I’d put in another plug for The FairTax Act (HR 25, S 1025) (see http://www.fairtax.org for details). I’d certainly be plenty happy to never have to file another federal tax return.
For those who don’t know much about this legislation, The FairTax Plan is a nonpartisan national grassroots campaign to replace the federal income tax system with a progressive national retail sales tax. It provides a "prebate" to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement and, through companion legislation, repeal of the 16th Amendment. This legislation has around 57 co-sponsors (plus the sponsor) in the House, and 3 + sponsor in the Senate.
Here is the summary of the bill, meant to generate dialog and reasoned, respectful debate…
The Act is called the “Fair Tax Act of 2007.” As of Dec. 31, 2008, it repeals all income taxes and payroll taxes, specifically:
• The individual income tax (including capital gains taxes and the alternative minimum tax)
• All individual and employer payroll taxes including Social Security, Medicare, and federal unemployment taxes
• The corporate income tax
• The self-employment tax (a self-employed person pays both the individual and the employer portions of Social Security and Medicare taxes)
• The estate and gift tax
Effective January 1, 2009 it replaces the above taxes with a national retail sales tax on all goods and services sold at retail. The tax rate is set to be revenue neutral – at the level necessary to replace the revenues generated by the repealed taxes.
A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal consumption of new goods and services. Exports and the purchase of inputs by businesses (i.e., intermediate sales) are not taxed, nor are used goods or any savings, investment, or education tuition expenses. The sales tax must be separately stated and charged on the sales receipt. This makes it clear to the consumer exactly how much they are paying in federal taxes.
There are no exemptions under the FairTax, meaning that no lobbyist, corporation, or individual can obtain tax advantages that are not available to the general public. Also, everyone pays the same rate, but those who spend more pay more total taxes than those who spend less.
The FairTaxSM provides every American family with a rebate of the sales tax on spending up to the federal poverty level (plus an extra amount to prevent any marriage penalty). The rebate is paid monthly in advance. It allows a family of four to spend $27,380 tax free each year. The rebate for a married couple with two children is $525 per month ($6,297 annually). Therefore, no family pays federal sales tax on essential goods and services and middle-class families are effectively exempted on a large part of their annual spending.
Funding for Social Security and Medicare benefits remains the same. The Social Security and Medicare trust funds receive the same amount of money as they do under current law. The source of the trust fund revenue is a dedicated portion of sales tax revenue instead of payroll tax revenue.
States can elect to collect the federal sales tax on behalf of the federal government in exchange for a fee of one-quarter of one percent of gross collections. Retail businesses collecting the tax also get the same administrative fee.
Strong taxpayer rights provisions are incorporated into the Act. The burden of persuasion in disputes is on the government. A strong, independent problem resolution office is created. Taxpayers are entitled to professional fees in disputes unless the government establishes that its position was substantially justified.
While the bill is simple to understand (as opposed to the 70,000 pages of the IRS tax code), it's implications for individuals and the economy are far reaching. Note some of the articles on the FairTax website, which discuss those implications, and why passing this bill would likely result in the largest economic expansion in the nation's history.
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Flat Tax
Gross income --> XXXXX
% rate --> .XX
Multipy ----->
Send to Treasury->XXXX
No exemptions, no deductions, everybody pays the same rate.
Now that's a simplified tax code.
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See Rule #5
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Originally posted by Blooz
Flat Tax
Gross income --> XXXXX
% rate --> .XX
Multipy ----->
Send to Treasury->XXXX
No exemptions, no deductions, everybody pays the same rate.
Now that's a simplified tax code.
Yup im all for that. Id even be willing to accept pay even more tax than i do now just for the fairness and simplicity of that system.
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I'm all for the flat rate tax as well. Especially if that rate is 0.00 for all tax brackets.
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Originally posted by Blooz
Flat Tax
Gross income --> XXXXX
% rate --> .XX
Multipy ----->
Send to Treasury->XXXX
No exemptions, no deductions, everybody pays the same rate.
Now that's a simplified tax code.
While certainly preferable to the current system, a flat tax still does not have many of the personal and business economic advantages of the Fair Tax. It does not, for example, address the issue of the underground economy, which can completely avoid federal taxes under the current system, but could not avoid it in under the Fair Tax plan. I encourage you to read more about the Fair Tax plan from it's proponents, as well as it's detractors. The websight has very compelling counters to the missinformation being spread by its detractors.
If you like the idea of the flat tax for its simplicity, you'll like the Fair Tax for the same reason. Plus, it let's you, the consumer, decide when and how much federal taxes to pay.
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There are no exemptions under the FairTax, meaning that no lobbyist, corporation, or individual can obtain tax advantages that are not available to the general public. Also, everyone pays the same rate, but those who spend more pay more total taxes than those who spend less.
And that right there is what will kill it. We are a society of special interests, and we hate not being special. Someone will find a way to put a rule in there just for their little group, and the whole mess will start all over again. Plus, there is no exemption for political contributions. Like that will fly.
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Auger: No doubt, this is an uphill battle against the lobbiests in Washington; they are deeply entrenched. That's why this is a grass-roots campaign. With the 16th ammendment repealed (part of the plan), it will be much more difficult to insert exemptions of any kind, as it would represent un-equal treatment, an consititutional no-no. Still, it will be up to the people to insure Congress doesn't try to slip back into it's old ways. On the other hand, with the simplicity inherent in the Fair Tax bill, it becomes much harder to hide manipulations...unlike the current system.
Asside from the difficulty of passing this legislation (difficult but not impossible), do you have other quesitons/concerns about the bill itself?
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Originally posted by Blooz
Flat Tax
Gross income --> XXXXX
% rate --> .XX
Multipy ----->
Send to Treasury->XXXX
No exemptions, no deductions, everybody pays the same rate.
Now that's a simplified tax code.
not really.
Number of people living here (legal or not, citizen or not)= N
What we want to spend next year = B
Send to treasury = B/N
This is a flat tax. You would be surprised how spending would be cut
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See Rule #7
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Mars01, correct me if I'm wrong, but Canada uses a value added tax, or VAT, which is quite different then a set sales tax such as the Fair Tax bill proposes. That and run-away entitlement programs is what is sucking the economic life out of Canada (and Europe, too).
Because much of the cost passed on to consumers under the current US system is due to costs that would be eliminated by the Fair Tax, these goods would generally go down in price due to market forces. In fact, anywhere from 18 to 25 percent of the retail cost of goods and services before state sales taxes are added is due to Federally imposed withholdings and taxes, accumulated at every stage before those goods or services reach the consumer. As soon as the cost of producing an item or service goes down, the competative market place will result in the price to the consumer going down ad competing companies fight for market share.
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I don't know Sabre, call me a cynic, your last post sounds good on paper but we all know the real savings will go strait to the CEOs and business owners pockets. Much like all the savings from out sourcing our manufacturing and software industries.
VAT or FTA it still puts the governments hand on my wallet every time I open it and sounds like it passes the tax directly onto the consumer. Where in your case above it is indirectly passed on by decision of the producer or retailer in offering price. Market forces can create an environment where profit margins are decreased to continue profitability and competitive pricing and in effect the producer/retailer takes the hit. Albeit this rarely is that case.
I just don't want the government taxing goods. It could get out of hand too easily and directly couples two things that shouldn't be combined, goods for sale and government revenue.
I am more behind the Flat tax than a Sales Tax. I live in a state that has a sales tax on selected items and it sucks!!
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Originally posted by mars01
See Rule #7
mars it was repealed after the civil war. uncle sam got himself in trouble and needed to pay for the spanish american war. the income tax was then voted in, I believe in 1913 with the ratification of the 16th amendment. yes, we the people of the early 20th century voted to be taxed and amended the constitution to allow the congress to tax us.
now we have the best most productive society on earth. this is in large part because our system of government works well. tax freedom day is april 30, 2007. that is the theortical day when we are through with our financial obligation to the government(s) and from there on out what we earn is ours to live with and spend as we deem fit.
compare our system and lifestyle to any other on earth and tell me we are not far ahead of the our fellow humans. I would not live anywhere else on earth, this United States of America is the best there is or has ever been.
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Personally I'm sick to death of our 67,204 page tax code* which no one is capable of being entirely conversant with and which the average American taxpayer violates in ignorance every year. I'm tired of having to spend time and money to make an "educated guess" as to how much I owe. I'm also tired of having to fork over 20% of my relatively small take-home pay to the state and federal government, and then continue to pay local tax, property tax, and sales taxes in addition to that. To put it frankly, I'm sorry Mr. Morbidly Obese Government, but I can't afford to support you, you spend too danged much.
I'd happily trade the current system for a flat or fair tax, hey I'd trade it for a poll tax, a window tax, a stamp tax, or even a system of local tax collectors paying a portion of their takings to the Roman government. But my suspicion is that neither major party will ever support a complete revamp of the tax code because the current system is too politically useful to both of them. Lets face it without a system that the Democrats can use to soak the "rich" and redistribute wealth and which the Republicans can propose cuts to on a regular basis, how on earth would anyone get votes? Neither party wants a fair system that can't be constantly adjusted or added to.
So I gripe and try to be content that someday rendering unto Caesar will end forever.
- SEAGOON
* for comparison, the average English translation of the Bible has less than 2000 pages.
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Originally posted by storch
mars it was repealed after the civil war. uncle sam got himself in trouble and needed to pay for the spanish american war. the income tax was then voted in, I believe in 1913 with the ratification of the 16th amendment. yes, we the people of the early 20th century voted to be taxed and amended the constitution to allow the congress to tax us.
Wrong. The 16th ammendment had nothing to do with congress' ability to tax us, but their ability to spend that tax money.
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Got to agree with you, Storch. However, I also think we can do better (I'm an optimist).
Mars01: Yours is a common concern, regarding whether reduced cost will translate to reduced price to the consumer. However, that is in fact how the US market works. While there are exceptions, the fact is that competition and other market forces (supply and demand, for example) are what drives the price of most goods and services. This is the rule, not the exception, as you suggest.
I will even give you and example. Not long ago, one of the major car manufacturers in this country decided to grab a bit more market share. So, they offered "employee pricing" to non-employees. Within two weeks, the other car companies had followed suit (under various names), including even foreign companies. Price fixing is illegal, and in any case is hard to arrange (no honor amoung theives, after all).
I encourage you to read up on this bill, as well as what people on both sides are saying. And remember, individuals and businesses shell out as much as $300 billion each year to comply with the tax code. Another $600 billion is lost due to business decisions made based on impact of the tax code. Add to that the $10-$12 billion annual operating budget of the IRS and you've got nearly a trillion dollars a year cost to collect taxes (which does not include the actual taxes paid).
Right now, we have a system that discourages savings and investment. The Fair Tax would reverse that, and put completely into the hands of each citizen to decide how much tax you want to pay to Uncle Sam.
Finally, the US would become a tax haven to the world, as the Fair Tax also eliminates corporate taxes (along with the gift tax, the death tax, the marriage penalty, medicare, and medicade witholdings). Did you know that companies in the US have to pay money into social security and medicare accounts for each employee, above and beyond what comes out of a worker's paycheck? That cost, like every other, is passed on to the consumer.
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Man, I’ve been advocating this basic concept my entire adult life, before I ever even heard or read anyone else propose it. The biggest difference between my idea and this is the sales tax rate would be a variable: Alcohol might have a 50% tax while milk might be 10%. A 2 person car that only gets 15 mpg might have a 50% tax while a 5 passenger car that gets 50 mpg might be 20%, etc. Basically luxury items are heavily taxed, while essentials are taxed considerably less.
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I am all for it, but how many jobs would be eliminated as a result in the accounting/tax profession?
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My father-in-law is a part time accountant; I guess this would put him out of business. He’s 87 though, plenty of time to learn a new trade.
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Originally posted by Mickey1992
I am all for it, but how many jobs would be eliminated as a result in the accounting/tax profession?
Think of all of the blacksmiths/horse shoers who were put out of business when automobiles took over… Accountants provide a valuable service only because our tax laws are inefficient and create a lot of unnecessary paper work. It would be a tough transition for them, but it would create a more productive society.
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23 Percent?
LOL... you've got to be kidding?
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Originally posted by midnight Target
23 Percent?
LOL... you've got to be kidding?
But look at what you don't pay:
• The individual income tax
• All individual and employer payroll taxes including Social Security, Medicare, and federal unemployment taxes
• The corporate income tax
• The self-employment tax
• The estate and gift tax
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Originally posted by midnight Target
23 Percent?
LOL... you've got to be kidding?
Uncle Sam takes 20.8% of every paycheck of mine as it is now, and that doesn't include capital gains or AMT. I will end up saving money considering that my mortgage payment won't be taxed.
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I would think that the largest group that would be against this plan would be retirees. Their income would remain the same and prices would suddenly jump 23 percent for any spending valued at greater than the poverty level.
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Originally posted by eskimo2
Man, I’ve been advocating this basic concept my entire adult life, before I ever even heard or read anyone else propose it. The biggest difference between my idea and this is the sales tax rate would be a variable: Alcohol might have a 50% tax while milk might be 10%. A 2 person car that only gets 15 mpg might have a 50% tax while a 5 passenger car that gets 50 mpg might be 20%, etc. Basically luxury items are heavily taxed, while essentials are taxed considerably less.
But then you would have the special interest groups back in the middle of it trying to change the rate of "their" tax.
shamus
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Hello Lasersailor,
Originally posted by lasersailor184
Wrong. The 16th ammendment had nothing to do with congress' ability to tax us, but their ability to spend that tax money.
I won't pretend to be an expert in tax or constitutional law, but I believe the 16th ammendment was actually necessary because the constitution as it was originally written forbade direct taxation that was not "in proportion to the Census or Enumeration herein before directed to be taken." In other words prior to the ratification of the 16th ammendment all taxation had to be proportional or related to the total tax burden of each state in the union. This was intended by the founders to ensure that states could not be taxed unequally, so that say Virginia tax payers shouldered a greater portion of the tax burden than New York tax payers.
A census therefore, had to be taken first in order to determine what the ratio was.
An income tax however, ignores proportionality or ratio from state to state, so if a lot of rich people live in NY and a lot of poor people live in WV then the tax payers of New York will proportionally pay a considerably larger amount of the total tax revenues taken in by the Federal Government than West Virginians. The 16th ammendment made this disproportionate taxation possible:
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
When the ammendment was passed in 1913 one of the main arguments was that proportionality wasn't a big deal because no one would ever be taxed more than around 2% of their income anyway, rates higher than that were widely considered to be confiscatory and tyranical.
- SEAGOON
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you beat me to it seagoon. that's exactly right.
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Originally posted by Mickey1992
I would think that the largest group that would be against this plan would be retirees. Their income would remain the same and prices would suddenly jump 23 percent for any spending valued at greater than the poverty level.
Many of them are, but it's because they haven't looked at the details. First, they like everyone else would receive a prebate check each month, to cover the tax up to the poverty-level. Like everyone else, they would be in control of what and how they spend after that. Remember too that used goods and services are not taxed. Likewise, their income would not be taxed (even though it's at a lower rate right now, some is still taxed). Also, as noted earlier, Finally, their estates would no longer be taxed when they die, and neither would cash gifts to family.
Eskimo: Your hearts in the right place, but playing with the tax rate based on what you buy would only re-introduce special interests back into the equation, as they lobby for a lowering of the sales tax on behalf of their clients. Remember, that's one of the reasons for doing this, to end special interest influence. It's called the "Fair Tax" because it applies equaly to everyone and everything. Their are better ways to encourage people to buy a Prius over a Ram Mega Cab.
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Originally posted by Sabre
Remember too that used goods and services are not taxed.
"The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn." - from the website
I hear people talking about repealing the Gift Tax frequently. Only annual gifts greater than $12K are taxed. Are there really that many people giving that much in gifts to family/friends? (and that's 12K PER PERSON. So you can give a gift to a family of 4 up to $48K in value and it won't be taxed).
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Hi Mickey1992,
Originally posted by Mickey1992
I am all for it, but how many jobs would be eliminated as a result in the accounting/tax profession?
It would ultimately even out. Americans pay billions each year in order to have their taxes prepared, that is money they can not spend on other goods and services, education, health care, etc. so other non-service sectors of the economy would benefit from the fresh capital that would be freed up.
Also keep in mind that the accountants who would suffer the most are the part-time "tax season" preparers. There would still be plenty of work for the professional bean counters in corporations, the financial sector, the legal system, and of course our ever-more-bloated government.
- SEAGOON
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Originally posted by Mickey1992
"The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn." - from the website
I hear people talking about repealing the Gift Tax frequently. Only annual gifts greater than $12K are taxed. Are there really that many people giving that much in gifts to family/friends? (and that's 12K PER PERSON. So you can give a gift to a family of 4 up to $48K in value and it won't be taxed).
Yep, I mispoke. Services are always "new." I meant to say, used goods would not b taxed.
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Not quite Seagoon. The key here was the SPENDING of the tax money. The government could collect all it wanted if and only if it could prove that it was spending it equally on everyone.
Because of how difficult it would be to SPEND our tax money, very little was collected. Very little was also collected because of the few things they needed to spend it on (as compared to the current state of affairs).
There was an income tax during the civil war, but it went away. I believe in the 1870's or 80's, there was another income tax. But someone sued the government saying that it was not being spent equally on everyone, and thus couldn't be levied. The man won the court case, and the tax went away...
That is until the 16th amendment which said that the government could spend the money however they saw fit, including not spending it on everyone. They key word in their is "Apportionment."
And as to rates higher the 2%, you only need to look at the tax rates during the civil war to see that what you said is not true.
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Lasersailor,
Originally posted by lasersailor184
Not quite Seagoon. The key here was the SPENDING of the tax money. The government could collect all it wanted if and only if it could prove that it was spending it equally on everyone.
Because of how difficult it would be to SPEND our tax money, very little was collected. Very little was also collected because of the few things they needed to spend it on (as compared to the current state of affairs).
As I said, I am not a law expert, but from what I could gather this evening going over the materials available on the internet and the books I have at home on the history of the US Government, the issue that lead directly to the passage of the amendment was the need to permanently change the stipulations in the Constitution dealing with aportionment according to population. So it dealt with the ability to raise revenue with a direct tax, and not the spending of revenue raised. Here for instance is the relevant section from the FindLaw entry on the caselaw regarding the 16th amendment:
The ratification of this Amendment was the direct consequence of the Court's decision in 1895 in Pollock v. Farmers' Loan & Trust Co., 1 whereby the attempt of Congress the previous year to tax incomes uniformly throughout the United States 2 was held by a divided court to be unconstitutional. A tax on incomes derived from property, 3 the Court declared, was a ''direct tax'' which Congress under the terms of Article I, Sec. 2, and Sec. 9, could impose only by the rule of apportionment according to population, although scarcely fifteen years prior the Justices had unanimously sustained 4 the collection of a similar tax during the Civil War, 5 the only other occasion preceding the Sixteenth Amendment in which Congress had ventured to utilize this method of raising revenue. 6
Regarding the Civil War income tax, which was about as popular as the draft, the highest rate was 10%, and it was repealed in 1872 by the Grant administration. A good article on it appeared in Prologue, the Magazine of the National Archives and is available here (http://www.archives.gov/publications/prologue/1986/winter/civil-war-tax-records.html), the article also makes the point that the Amendment was passed specifically to permanently circumvent the 1895 Supreme Court ruling against direct taxation not according to aportionment as well as the fact that 2% was the magic income tax number the populists campaigned on and which was in fact passed by congress and in force until the 1895 ruling declared the tax unconstitutional.
In any event, thank you for forcing me to go back and read about the history of the infernal income tax, it was definitely something I wouldn't have done otherwise.
- SEAGOON
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Here is an interesting rebuttle to the Fair Tax.
http://www.mises.org/story/1814
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Hi Silat,
Just wondering if you prefer the present tax system? If so, I'd love to hear a defense of the existing system and why we should keep it.
- SEAGOON
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The current system is extremely non-linear. Does not matter what kind of other tax system you replace it with, unless you'll keep the current no-linearity, the tax burden will shift to the "left" (I mean on the Tax vs. Income graph :) ), meaning that less you make more of the tax hit you'll feel, and more you make the more tax relief you'll get. All those tweaks with "poverty levels", "minimum income" and such, do not change anything in principle, and just screw the middle class by artificially protecting the left end of the spectrum.
Since a rich guy has one vote just like the poor guy, the majority will always prefer the current system (however complicated and evil it might be).
In addition, any system without special interests, tax credits, tax breaks and such, will takes politician's favorite toy away.
It will never happen.
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Originally posted by Silat
Here is an interesting rebuttle to the Fair Tax.
http://www.mises.org/story/1814
Silat: Thanks for the link. Here's my rebuttle to the author...
“FairTax advocates claim that their plan would repeal of the 16th Amendment."
Answer: No, they don’t. However, it is a necessary requisite to have congress state that the 16th needs to be repealed, before the repealing can begin. For the Fair Tax to be successful in the long run, repealing the 16th is absolutely essential, for the very reasons the author suggests.
“To repeal the 16th Amendment would require a constitutional amendment. Can Congress be relied on to pass a constitutional amendment that repeals the 16th amendment after a national sales tax has already been enacted?”
Answer: Of course it would require amending the constitution. As to whether congress can be relied on to do so; well, that requires that we, the voters, hold their feet to the fire to insure they follow through. The problem is, of course, that you can’t amend the constitution first, because that would cause in interruption in revenue collection while you waited for the Fair Tax bill to pass. The Fair Tax bill has to come first.
“Although the FairTax would eliminate the filing of all individual tax returns, the FairTax turns every business into a tax collector. Every small service business and every Internet business that does not currently collect state sales taxes will have to collect taxes for the federal government. Every doctor will now have to charge sales tax on his services. Where will this end? Will the neighborhood boy who mows lawns have to begin collecting federal sales tax on each lawn mowed? Will the neighborhood girl who baby sits have to do likewise?”
This is a bit of a red herring to me. Right now the IRS is responsible for collecting taxes from every business and individual. The Fair Tax would reduce the number of points of collection (and enforcement) dramatically; the FairTax reduces them by about 80 percent (145 million to 25 million). Because 45 our of 50 states already collect state sales taxes, the Fed would contract with state tax collection agencies to collect the federal sales tax. As far as the neighborhood boy or girl that performs fee for service jobs, how would that be any different than today when those jobs are done on a cash only basis? The weakness of this author’s entire case is displayed when he has to go to such a trivial case to make his point.
“The national retail sales tax rate under the FairTax plan is 23 percent. That is on top of state sales taxes that are currently collected by forty-five states. That is on top of the sales tax that many cities and counties also collect.”
Most people pay that much each year in federal taxes, especially when you include SS and medicare withholdings. The author conveniently ignores that.
“That is on top of the special taxes that exist on hotel rooms in most areas of the country. I suppose that a national retail sales tax would also apply to gasoline. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax. Does this mean that there will be an additional 23 percent tax on each gallon of gasoline?”
I believe the author is correct in that the Fair Tax does not eliminate a very few special taxes, such as the federal portion of tax on gasoline (I may be wrong, but I though hotel taxes were state taxes, and there fore not addressed by the Fair Tax). What the author fails to note or maybe realize is that hidden in the cost of that gasoline (and hotel room charge, for that matter) are 18-25 percent in hidden tax costs, i.e. the costs added to the product or service all along the way due to taxes eliminated by the Fair Tax. When the cost of producing/providing a product or service goes down, the price to the consumer generally goes down due to market forces.
To be continued...
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Continued from previous post...
“The FairTax will make it easier for Congress to raise taxes.”
Answer: In theory perhaps, but not in practice. Because of the simplicity of the Fair Tax, any change will be highly transparent to the People, especially since it would translate to immediate out of pocket loss to the consumer. The whole idea of implementing payroll deductions was to make it less obvious how much each change to the tax code would really affect you in the long run. If you had to pay your entire tax bill in a lump sum, even a small change would be immediately apparent to you. Transparency is one of the big draws of the Fair Tax.
“Under the FairTax system, there are no longer any Social Security and Medicare taxes. However, this does not mean that Social Security and Medicare will be eliminated. The inclusion in the combined percentage of the old-age, survivors and disability insurance and the hospital insurance rates means that the Ponzi scheme known as Social Security will continue as is—only the way it is funded will change.”
Answer: Yep. Status quo, except that you won’t have that money mysteriously deducted from your paycheck every two weeks. It’s called “The Fair Tax Bill”, not “The Fair Tax and Social Security Reform Bill.” The bloated and broken SSN system will still need to be tackled. So?
The "underground economy" that income tax advocates complain about will certainly increase under the FairTax system. Even if the highly dubious claim that there will be an "average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax" is true, not having to pay a 23 percent tax on an item is a tremendous incentive to make a purchase in the "underground economy."
Answer: The phrase “will certainly increase under the FairTax system” is unsupported by the author; i.e. it is his opinion. Tax evasion is rampant under the current system, simply because it is so complex. The author ignores the most obvious question: What is the motivation for businesses to sell “under the counter” under the Fair Tax system? Sure, the individual might like the idea of avoiding $23 percent of the cost of an item, but why would most businesses want to risk getting caught? Also, go back to the number of people/business the IRS must monitor and enforce right now, compared to what it would be under the Fair Tax system. Finally, one could argue that states should drop their sales taxes for the same reason. Obviously they haven’t.
“The claim that the IRS will be eliminated under the FairTax is bogus.”
Answer: No, it’s a fact that the IRS as a federal entity will in fact cease to exist. As the job of collecting federal taxes will be incredibly simplified and the number of collection points drastically reduced, a separate agency – with its attendant high cost – will be eliminated. A modest size, commensurate with its reduced monitoring and enforcement requirements, will be created within the Treasury department. This will come nowhere near the cost necessary to administer the current system. Plus, the huge burden to the economy of complying with the current system will be all but eliminated, a fact the author ignores.
The FairTax is progressive. What could possibly be fair about a progressive tax where some people have to pay a higher percentage than others merely because they are deemed to be "rich"?”
Answer: This one left me scratching my head. Under the current system, the top 50 percent of income earners pay 96 percent of the tax bill! The very lowest pays very little, and receives the Earned Income Credit, basically an income redistribution. I don’t hear him complaining about that. Under the fair tax, everyone, regardless of income receives the same prebate, and is taxed the same percentage on new goods and services. Will rich people pay more? In most cases, because they consume more. Do they pay more now? You bet.
“There is only one word to describe the fact that the federal government now spends almost $3 trillion a year: obscene. At least 90 percent of what the federal government spends is unconstitutional, wasteful, or against the limited-government principles of the Founders. The only thing the FairTax does is change the way the state confiscates the wealth of its citizens.”
Answer: Again the author is confused about the name, scope, or intent of the Fair Tax bill. It is not “Fair Tax and Government Spending Reduction Bill”, so his criticism here is irrelevant. Like the Social Security system, Government spending is in need of fixing, but the Fair Tax bill is not the vehicle to try to do so.
“As Congressman Ron Paul says: "The real issue is total spending by government, not tax reform."”
Answer: His real issue, but not the only issue. Let him push for SS reform and a balanced budget amendment if he wants (more power to him). Fixing any one of these major issues is hard enough; only a masochist would insist they must all be fixed with a single piece of legislation. Just fixing the tax system will be hard enough.
“Because the FairTax is a consumption tax, Murray Rothbard's conclusion about consumption taxes is apropos:
The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so.” “
Answer: If the Fair Tax did not have the prebate feature, this might be true. The current system is a much greater obstacle to advance your personal lot in life that the Fair Tax would be.
“The FairTax does nothing to tame the federal leviathan. The solution is nothing less than a drastic reduction or wholesale elimination of its revenue source. What is fair about allowing the government to confiscate 23 percent of the value of every new good and service? FairTax proponents may call it necessary legislation, but I call it highway robbery.”
Answer: Exactly what would the author suggest is fair about the current system? The Fair Tax is a lot fairer than the current system. It does not address federal spending (get your own bill to do that, buddy), as noted, but neither does it eliminate the source of federal revenue. It merely shifts how it collects it.
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I would think that there will be a lot of resistance from the stock and bond markets. Paying $123,000.00 for $100,000.00 worth of stock is going to upset a few folk.
shamus
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Silat: Thanks for the link. Here's my rebuttle to the author...
“FairTax advocates claim that their plan would repeal of the 16th Amendment."
Answer: No, they don’t. However, it is a necessary requisite to have congress state that the 16th needs to be repealed, before the repealing can begin. For the Fair Tax to be successful in the long run, repealing the 16th is absolutely essential, for the very reasons the author suggests.
“To repeal the 16th Amendment would require a constitutional amendment. Can Congress be relied on to pass a constitutional amendment that repeals the 16th amendment after a national sales tax has already been enacted?”
Answer: Of course it would require amending the constitution. As to whether congress can be relied on to do so; well, that requires that we, the voters, hold their feet to the fire to insure they follow through. The problem is, of course, that you can’t amend the constitution first, because that would cause in interruption in revenue collection while you waited for the Fair Tax bill to pass. The Fair Tax bill has to come first.
I had to stop reading to go to a meeting, but what you are saying we keep income tax rule on books and also institute Sales tax, with the hopes the politicians eventually repeal the 16th??
If that is the case, the whole Fair Tax deal is DOA. I will and would never trust todays politicians to do that and would totally expect to then be taxed both ways. No way. Fair tax might be a good idea, but if repealing the 16th doesn't come first forget about it.
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The current system is not kept on the books, but is dismantled by the Fair Tax system. Repealing the 16th amendment is necessary to prevent an income tax from being re-intituted. Of course, with the current system gone, including the IRS, it would be a rather large endeavor to recreate it from scratch. Not impossible though, hence the need to repeal the 16th.
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Originally posted by Shamus
I would think that there will be a lot of resistance from the stock and bond markets. Paying $123,000.00 for $100,000.00 worth of stock is going to upset a few folk.
shamus
Nope. Investments are not goods or services (though the broker fee is). There would be no sales tax on the purchase of stocks, bonds, or mutual funds.
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So you can buy and sell businesses and real property tax free.
shamus
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Originally posted by Sabre
Nope. Investments are not goods or services (though the broker fee is). There would be no sales tax on the purchase of stocks, bonds, or mutual funds.
Nor is there tax on the Capital Gains when the stock is sold. :aok
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What is there to keep someone from crossing the border to avoid paying the federal sales tax? I could save a lot on a $20K car if I bought it in Canada and drove it back to the US.
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You still have to register it here. They'd just require copies of the paperwork and tax you based on that.
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Originally posted by Mickey1992
Nor is there tax on the Capital Gains when the stock is sold. :aok
Correct. One of the economic positives of the Fair Tax is that it encourages savings and investment, instead of penalizing it. Plus, you can pass on your estate without paying a whopping death tax on stuff that was already taxed previously...unlike the current system.
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This is a bit of a red herring to me. Right now the IRS is responsible for collecting taxes from every business and individual. The Fair Tax would reduce the number of points of collection (and enforcement) dramatically; the FairTax reduces them by about 80 percent (145 million to 25 million). Because 45 our of 50 states already collect state sales taxes, the Fed would contract with state tax collection agencies to collect the federal sales tax. As far as the neighborhood boy or girl that performs fee for service jobs, how would that be any different than today when those jobs are done on a cash only basis? The weakness of this author’s entire case is displayed when he has to go to such a trivial case to make his point.
So it's not going to cost the government any money to police an collect the taxes from all the people selling goods??? Yes I agree what we spend on collecting taxes is atrocious, but how can you say Fair Tax collection won't turn into the same beast with a different coat?
I believe the author is correct in that the Fair Tax does not eliminate a very few special taxes, such as the federal portion of tax on gasoline (I may be wrong, but I though hotel taxes were state taxes, and there fore not addressed by the Fair Tax). What the author fails to note or maybe realize is that hidden in the cost of that gasoline (and hotel room charge, for that matter) are 18-25 percent in hidden tax costs, i.e. the costs added to the product or service all along the way due to taxes eliminated by the Fair Tax. When the cost of producing/providing a product or service goes down, the price to the consumer generally goes down due to market forces.
23% percent on our income, 23% or close to it on everything I buy could potentially dwarf what I pay on my income.
I believe the author is correct in that the Fair Tax does not eliminate a very few special taxes, such as the federal portion of tax on gasoline (I may be wrong, but I though hotel taxes were state taxes, and there fore not addressed by the Fair Tax). What the author fails to note or maybe realize is that hidden in the cost of that gasoline (and hotel room charge, for that matter) are 18-25 percent in hidden tax costs, i.e. the costs added to the product or service all along the way due to taxes eliminated by the Fair Tax. When the cost of producing/providing a product or service goes down, the price to the consumer generally goes down due to market forces.
Again you would think consumer price would go down if this were the case, but we have seen enough cases where that savings just ends up in someone elses pocket and our cost continue to increase. I.e. Levis jeans: Not one pair of Levis are produced in the USA anymore. All the manufacturing has been sent over seas for cost savings, now why didn't the price of Levis go down??
As for the second post, honestly I think you will see as big an organization and cost needed to police and wage the war on Sales Tax Evasion. I also believe there would be an underground market born as well. It is inevitable.
I appreciate this debate and the ideas, but I don't buy it. I would rather see a flat tax of sorts than coupling the purchase of goods with the funding of government.
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Mars:
I never said it would cost nothing to administer, only that it would be substantially less. 45 out of 50 states already collect state sales tax. This would be done the same way, and by the same mechanisms.
23% percent on our income, 23% or close to it on everything I buy could potentially dwarf what I pay on my income.
Please tell me how much of each paycheck you currently don't recieve due to federal withholdings? I know for me it's greater than 23 percent. Plus, everyone gets a prebate to offset a part of that 23 percent (for a family of four that amounts to around $6700 per year). Finally, you'd only pay that 23% on what you spend, not on what you earn, and only on new goods and services.
And prices would go down; that is how the free market works. Not for every item, and not necessarily instantly, but in general. Of course, I buy Arizona brand jeans, and they are much cheaper than Levis already :).
The underground market thing is going on already, as well as rampant income tax evasion. The simpler the system, the easier it is to monitor and police. Will Fair Tax eliminate all underground dealings? Of course not. No system is perfect, but I believe the Fair Tax to be far superior to the economic health of our nation than either a flat tax or the current system.