Has this been discussed? I don't see why any taxpayer would not want this. Keep what you make and pay tax only on what you spend.
The Fair Tax (http://usgovinfo.about.com/cs/taxes/a/aafairtax.htm)
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October 27, 2004, 10:17 AM
Claire Wolfe and Aaron Zelman have done a good job of exposing some very serious flaws in the "fair" tax proposal:
The FAIRTAX: A TROJAN HORSE FOR AMERICA? (http://www.jpfo.org/fairtax.htm)
October 27, 2004, 11:43 AM
So they're just gonna tax everything at 23%?
I think I'm liking flat tax more.
October 27, 2004, 11:46 AM
A national sales tax would place almost all of the tax burden on the middle class. Those making multi millions would get away with a very small percent of the tax load.
For example say Tiger Woods makes 100,000,000, spends 20,000,000 banks 80,000,000 he would only pay tax on 20% of his income You make 50,000 spend 40,000 You are paying tax on 80% of your income.
I believe a flat percent (say 25%on all income over 25,000) no deductions, no write offswould be a good place to start.
October 27, 2004, 12:13 PM
Augustwest: The article you reference cites the price of houses. It fails to reckon that the price of houses is artificially high due to the current tax benefits. I think that the price of houses would skydive if the current tax benefits were removed. That creates a whole slew of opponents for this code: the banks and mortgage lenders who supplie the inflated amounts to buy current houses.
October 27, 2004, 12:26 PM
I can't remember the last time I went to the fair, why should I have to pay the fair tax? :scrutiny:
October 27, 2004, 12:48 PM
Point taken, and maybe housing is a poor example, but at the rate the Fed has been inflating the dollar in recent times, I can't see how prices won't continue to rise in other areas of the economy...
October 27, 2004, 01:20 PM
If we're all supposedly equal under the law, we should all pay the same amount in taxes.
The problem with my reasoning, of course, is that we're not all equal under the law.
October 27, 2004, 01:22 PM
We're likely to end up with both a national sales tax and an income tax.
Not much to say on this, other than they could institute a national sales tax at any time, without getting rid of income taxes. Tax rates can be adjusted at any time. If you say that they can just reintroduce the income tax, well, you're right. They're the legislature. Other than the limits placed on them by the president's veto and the court's overturning, the legislature can do whatever they pretty much want.
The rate of a national sales tax would be colossal. Remember, even the proponents admit they'd need a 23 percent tax rate to fund the current size of the federal government. However, they are starting out their new “fair” tax system with highly deceptive language.
23% inclusive. This translates to 30% of "raw price". Basically this translates to how the eurpeans do it. The sales tax is included in the published price. As least this way, when I buy a $19.95 DVD, when I pay I just pull out a $20 and get a nickel back. No having to remember to add 4.5% to the price or whatever.
It gets worse. A 1998 analysis by the William Gale of the Brookings Institute calculates that in reality (to pay all current government expenditures while also compensating for such factors as tax evasion), the national sales tax might have to run as high as 67 percent. AFT disputes that high figure. But they do not dispute that their initial “23 percent” tax rate would actually be achieved by adding 30 percent to the purchase price of goods.
Tax evasion? For a sales tax? That'd be pretty difficult, wouldn't it? And tax evasion doesn't happen for the income tax? 67% is a huge figure. Heck, income would probably rise, as all the illegal immigrants and "under the counter" workers would be paying federal taxes again.
There is no indexing with the sales tax. As goods become more expensive, you have only two choices: pay more in taxes or do without the things you need.
Well, from the original article,
The FairTax would provide every family with a rebate of the sales tax equal to spending up to the federal poverty level
And the poverty levels are adjusted annually.
Given the U.S. government's eternal spending spree, the mounting deficits, and a national debt whose true long-term obligations run into the tens of trillions, it's a virtual certainty that the federal government will inflate the currency in an attempt to keep Medicare and Social Security afloat and to keep its fiscal house of cards from collapsing. As your food, clothing, vehicles, and medical care get more and more expensive, you'll pay more and more and more sales tax.
I don't see how this would differ if you substituted "income tax" for "sales tax".
The FairTax is monumentally unfair to retiring Baby Boomers. People who have paid 1/4 or 1/3 of their income in taxes for 40 years will now have to pay an equally high tax on all the after tax income they've managed to put aside for their retirement
Aren't IRAs and 401(k)s pre tax income?
The national sales tax is subject to manipulation in even more direct ways than the income tax has been. Let's say that Congress or some powerful regulatory agency decides that fatty foods or sugar or potato chips are bad for you – wham! Suddenly there might a 200 percent tax on those items.
Like there isn't a national tax on cigarettes and alchohol right now? Again, Congress can do what it wants, whether it's getting the majority of it's income from sales tax or income tax.
The tax will be used to track your entire financial life. While H.R. 25 does not contain any requirement that every purchase be linked to an individual's ID, the trend toward tracking every purchase is growing. We expect that eventually, your “national ID cash card” will be required when you buy anything. Or giant databases will combine the records of your credit cards, store loyalty cards, radio-frequency ID tags on merchandise, government ID, etc. into one vast set of interlinked records, immediately accessible to – and subject to manipulation by – government agencies.
Again, not really on topic. Every state I've ever been in, and most cities, have all had sales tax and they don't track that individually. If anything, it's alot more anonymous than income tax.
*To be continued*
October 27, 2004, 01:34 PM
Firethorn: Your post indicates you see a lot of "chicken little" "what if?" stuff in the Zelman article. I also noted the non sequiturs. Imho, a 23% across the board sales tax would be an excellent trade for the convoluted taxation system we have now.
October 27, 2004, 01:36 PM
Adminsitrative costs for a federal flat sales tax would be significantly less than the costs of the IRS right now. most of the IRS would be done away with.
October 27, 2004, 01:45 PM
Therefore, the national sales tax will eventually be used to track – and manipulate – what we purchase. Instead of merely being profiled by Wal-Mart or Safeway, your buying habits will be available in detail to the Department of Homeland Security, the Department of Health and Human Services, the FBI, the Bureau of Alcohol Tobacco Firearms and Explosives, university researchers – you name it.
Can't they already do this by tracking checks & credit card trails? They don't need to collect any information from you to collect the sales tax, the company you bought it from reports that they sold the item and pays the tax.
Katherine Albrecht of the consumer-privacy group CASPIAN points out one way in which the social engineering and people-tracking aspects of the national sales tax might go together: As databases come to hold more information on each individual American, the tax could be manipulated to fit the person, rather than the item: “A welfare mother puts her RFID-enabled ID card under the scanner (or waves her RFID-chip implanted hand across the scanner) and the system says, 'Oh, you're a person who's taxed at the one percent rate.'” On the other hand, a person with a $100,000 salary flashes his card or waves his chipped hand and the system recognizes someone who's “rich” enough to be taxed at the 50 percent rate.
The whole IDEA is to simplfy the tax code. It would be a bigger nightmare to try this over the income tax. Unpractical, and would be fought in the legislature.
A national sales tax will create a huge black market. A punitive sales tax on everything you buy will lead to enormous black markets. You'll soon see gang violence and vast new prisons being built to house the millions of people illegally trading DVDs, cigarettes, canned foods, TV sets, and clothing. This will be true even if the underlying prices of goods drop – as the FairTaxers assure us will happen. If people can evade a 30+ percent tax – they will. Even if the price of items is 20 or 25 percent lower than today (a claim we'll examine in a moment) people will still want – and go after – their 30 percent black-market discount.
Like black market cigarettes and booze? People like public commercial stores. Whether brick&mortar, internet, or catalog, they'll charge the tax. And this is why they only charge for new items. Once the item is sold with the tax, it's no longer "new" according to the law. So they'd have to pose as a business in order to get "pre-market" non taxed items. Minor black market.
Although the tax is initially only to apply to services and new items, here's another projection: Swap meets, farmers' markets, gun shows, and garage sales will automatically come to be considered prime places for black market activity. Either the tax will eventually be extended to used items, or all such free markets will eventually be heavily regulated and patrolled – or banned outright as havens for the new anti-sales tax criminals and resisters.
As these items were generally bought through retail channels, the tax has already been paid, the goods are considered used, and tax doesn't apply. If congress changes it to apply to the used item market, then you have a point. As is, this tax system would help the reuse market, as used items would have a price advantage over new. Also, this assumes another liberal legislature looking to tax more things. Resistance to this would be huge.
Again, that's true as far as it goes. But merely because one form of tax “avoision” goes away doesn't automatically mean no tax avoision is possible. People who are motivated to keep their own money will always invent thousands of clever ways to do so; we're astonished at the FairTaxers' naivete in assuming there will be no black marketeering.
I assume tax evasion will continue. Sure, Black Markets will "grow", but income tax fraud/evasion will dissappear. Knock the F of of the BATF and put them in charge of enforcing the sales tax. They have the most experience, already dealing with items with a national tax.
The national sales tax will give government another reason to make cash purchases illegal. Because buying with cash will make it easier to evade the sales tax, taxing authorities will quickly conclude that buying with cash is a sure indicator of criminal activity.
Cash helps all sorts of 'illegalities' anyways. Buying illegal drugs, weapons, rino horns, ivory, babies, etc... I haven't heard any serious yells about making cash illegal despite this. Besides, the moment you walk into Walmart for something, you're paying the tax. Unlike now where you work in a bar "under the table", get paid cash out of the till, and get welfare because you're "unemployed".
This tax is designed to put every single American household on welfare. The FairTax is regressive – that is, the poorer you are, the more you pay, proportional to your income.
Well, as a consumption tax, if the poor consumes more, yes, they'll pay more. You have to include the ~$500 monthly "refund". This makes the tax into a standard progressive. Somebody who spends less than poverty make money, spend exactly poverty pay 0%, spend double poverty, pay effectively 11.5%. Spend 100x poverty, it'll round to the stated 23%. As far as putting every household on welfare, that's easier(and therefore cheaper) than trying to figure out who makes "enough" money to not get the check. It'd make being a fugitive harder, as you'd have $500 less to live on per month.
But the “rebate” isn't similar to the earned income tax credit because it's intended to go, month after month, to every American household. If the intent was really to avoid taxing essential spending to place less burden on the poor, one could simply not levy the sales tax on stable items like food, medicine, school supplies, or clothing.
What about a house, or utilities? Where do you stop? What's essential? They're trying to keep it simple. And at least some rich people spend tens to hundreds of thousands of dollars on just clothing, and some do it for food. So then you say "clothing less than x dollars". You're getting complicated again.
Some religious people will be penalized. The monthly rebate check is to be paid by the Social Security Administration, based on the number of SSN holders in a household. Tens of thousands of Americans (for instance, the Amish, or those who believe the SSN is the biblical Mark of the Beast) do not have social security numbers. Therefore, they would have to pay the heavy national sales tax without being compensated in any way. When we asked AFT how their proposal addressed this inequity, their reply was one sentence long: “There is no requirement that any individual apply for the rebate.”
Yep. Tough luck. Like how they loose out on medicare & social security. Do they even pay social security? Can I turn in my number?
A working-class religious family of four, forced to absorb $478.83 more than its neighbors for basic expenses each month simply to remain true to its faith, would have considerable incentive to make its purchases on the black market or otherwise go underground to survive.
If they're that religious, they'll make adjustments. Either lobby for a exemption for people without SS numbers, increase the price of amish goods, or something. Don't the Amish produce most of their own goods?
The economy would very likely collapse. Just before the FairTax went into effect, the economy would boom as Americans raced out to buy cars, electronic gear, or even to stock up on food. They would not believe that prices on everything would drop the very next day, or the very next week, after the sales tax was imposed. Their spending would reflect their quite rational fear that prices would simply jump 30 percent.
And prices would rise due to shortages until the tax went into effect, or stores would run out of items, and people will go home disappointed(for a couple days). Or you could put a line in where the tax increases .5% a week until it reaches the desired level. That'd be about a year for it to reach the proposed level. How much did the economy 'suffered' in florida with the hurricane?
The day the tax went into effect, the American economy would collapse. Eventually, the economy would restabilize, and some prices would drop, as AFT claim. But some industries producing high-ticket items, like the automobile industry, furniture manufacture, or construction, might never recover – even if removal of the income tax did allow prices to drop and Americans to keep more of their paychecks.
They seem to be assuming that enough 'big ticket' items are available to saturate the market for years. I say that the companies will "pre-sell" to their hearts content, to be delivered later. They'll have a windfall of cash.
October 27, 2004, 01:57 PM
Imagine: drug dealers, prostitutes, rich Massachusetts senators all would pay when they bought a TV or a boat or a Gulfstream jet.
At the least, it would be better than what we have now.
October 27, 2004, 02:16 PM
I would love to see this take place, but not to tax some less or more heavily than others. It has already been mentioned that families would receive rebates in relation to the poverty level, so taxing them less wouldn't be necessary.
Does anyone else see a large opening for a "Black Market" to evolve to avoid paying the sales tax?
October 27, 2004, 03:33 PM
You'll pay a higher sum for your new home. If the tax passes as written, new homes would suddenly become 30 percent more expensive than existing ones (because all new construction, but not existing homes, would be subject to the tax). Two homes could sit side-by-side – each with four bedrooms, two baths, and comparable features – and one would cost $50,000 or $100,000 more than the other, simply because it was being marketed by its builder, rather than a resident.
Actually, because new homes cost 30% more, the used home is worth more too. Current home owners will have a good value jump. Not 100% advisable, but you have to remember that workers will have ~40% more income. And these people seem to forget that it isn't that the cost of goods will go down, it's that everybody will have more income
No one would want new homes. Construction would dry up. The lack of new homes and the price differential between new and existing ones would in turn create demand for existing homes and push their prices up. Eventually, Congress might feel compelled to save the construction and building materials industries by imposing the sales tax on “used” homes, as well. Or the upward thrust of “used” home prices might, by comparison, make new homes desirable again. Housing markets would eventually stabilize, but only after traumatic disruption.
tramatic disruption, just like after a hurricane, toxic waste discovered in your back yard, they decide to build a prison next to your house, or any of the other thousand things that affect home prices.
Oh, and that tax applies to your remodeling supplies, too.
Only fair. And it makes it so you don't get a market where the construction crew will knock down all but one "wall" and rebuild a house (but it's still the old one!) like happens in florida due to the construction codes.
This process of constantly adjusting the tax in vain attempts to undo such unintended consequences will take place all across the economy – and go on for decades.
Like this doesn't happen with all the rest of the taxes? I'd hope the only adjustments would be to the raw % rate charge, and the poverty index. KISS, remember?
Claim #1: Goods would be cheaper. Proponents of the new tax say that their claimed 23+ percent tax rate wouldn't be so painful because goods would be cheaper. Without an income tax, businesses could charge less for the items they manufacture.
I'd say their workers would take home more money, but ok. They pay half of FICA/Social Security, so that's about 6% of their labor costs cut. I'd have to call my mom to see about other taxes(She's a business accountant and one of her tasks is payroll).
And what about products and services whose prices are already set (or “supported”) by the government? Americans already pay three times the typical world rate for sugar, for instance, solely because of government price supports. Neither the income tax nor free markets have anything to do with it. Would powerful industries with high-paid lobbyists urge the federal government or state governments to set their prices considerably lower? Not likely.
One of two things will happen: either the price controls are left in place, or they're gone, and the domestic sugar market would have to compensate. Which I don't think there is much of, I remember reading that despite the price controls, foreign sugar still beats domestic.
What the FairTaxers don't tell you is that it would do so by making one enormous class of goods cost 30 percent more than competing goods. Here's the plan: imported products, which would not benefit by the planned repeal of the income tax, would suddenly be that much more expensive than their domestic counterparts.
I agree with Kerry on this one! This eliminates the "tax savings" for outsourcing manufacturing!
Yet placing a 30 percent or higher penalty on foreign goods essentially forces us to carry U.S. companies on our backs – even when they're less efficient, less innovative, or produce poorer goods. Competition from overseas has often forced American manufacturers to improve their products (as Japanese autos did in the 1970s). Without competition, companies become complacent and sloppy – and their customers are the ones who ultimately suffer.
American produced goods have to pay the very same 30%, so the only difference would be any tarrifs (mostly eliminated?), and shipping (part of the cost of outsourcing). If an american company can't compete with that advantage, they deserve to be eliminated.
Claim #3: Ordinary Americans would be freed from record-keeping and tax filing. Initially – if indeed Congress were to abolish the income tax – this might be true. But not in the long run!
We believe her when she explains that this is how the law is intended to work. We simply don't believe this is the way the law will work in the long run. No, when a business is caught not charging sales tax, eventually the federal government will seek to make criminals out of business customers – who are, after all, “conspirators” in tax evasion, black marketeering, and racketeering.
But that's small potatoes. As this is an inclusive tax, you paid it to the business. They'd hit the business up, as they're the ones with the money. This clause is the same one states have for mail order. How many of you know that you're supposed to pay state sales tax on internet, catalog, and mail order purchases? They even have a form to fill out. The biggest tax evaders here? The home crafts market. They don't pay income tax much as it is. The sole propriator home improvement contractor (ever been offered a 20% discount for paying cash?).
As we've noted above, the possibilities for using a national sales tax as a social engineering tool or as a carrot/stick for corporations are plentiful. To hungry politicians those temptations will prove irresistible. No matter how a “pure” a national sales tax is initially, it will soon become as complex, punitive, and manipulative as any other mega-billion dollar cash cow.
The original income tax was easy, and was corrupted, this might be corrupted too, but it would be difficult in many ways to overcomplicate. We'd simply have to keep lobbying. And as the corporation is simply collecting the sales tax for consumers, they don't have the motive to cheat. Everything to lose, nothing to gain. They simply have to take their gross sales, and multiply by .23 to get what they have to give to the government. No deductions, no different rates, nothing.
October 27, 2004, 03:38 PM
A black market that already exists for:
All these items are federally taxed. Put the BATF in charge of enforcing the sales tax. You already have some evasion for state/city sales taxes, but they press on. A national one would be harder to avoid.
October 27, 2004, 03:50 PM
"A national sales tax would place almost all of the tax burden on the middle class. Those making multi millions would get away with a very small percent of the tax load.
For example say Tiger Woods makes 100,000,000, spends 20,000,000 banks 80,000,000 he would only pay tax on 20% of his income You make 50,000 spend 40,000 You are paying tax on 80% of your income.
I believe a flat percent (say 25%on all income over 25,000) no deductions, no write offswould be a good place to start."
What you fail to recognize is that the 80,000,000 that Tiger "banks" or invests then goes into businesses as Capital (stock, loans, . . .). Capital then helps businesses expand and grow. As businesses grow, new jobs are created, employees receive more money and benefits, see this flash presentation:
Also by your math, Tiger is paying $4,000,000 in tax.
Your person spending 40,000 is paying 8,000 in tax using a 20% rate. Right now in this country, 20% of the population is paying 80% of the taxes. Attacking Tiger for putting money into our economy is class warfare and is what stalls enormus economic growth. Tiger's 80,000,000 is also providing us all with a better economy. I don't understand why we look down on high earners in this country. No one ever got a job from a poor person.
I believe this system will expand our economy exponentially.
I would also like to point out that the Jewish association for firearms ownership article is wrong about having both the Sales tax and the income tax. Income tax was allowable by a constitutional ammendment. The national retail sales tax law would repeal the sixteenth ammendment, making the income tax unconstitutional.
October 27, 2004, 04:06 PM
Back when John Tower was the Senator for TX and I was still a Texan I wrote him suggesting that a National Sales tax might not be a bad idea and explained my reasoning.
Senator Tower wrote me back and stated that it was a good idea but that it would take a Constitutional Amendment to make it happen.
What did he know then that the Congress doesn't know now? It did take an amendment to make the income tax legal.
Any lawyers or constitutional scholars here that might address this issue...
October 27, 2004, 04:22 PM
Well, I did some preliminary arithmetic on my own income and spending and it looks like I would save about 66% on taxes with the National Sales Tax scheme, at a 23% rate, plus I would be able to save up to 20% more of my income than I'm currently saving. So it looks good. I'm skeptical, however, that the rate would remain at 23%, or that other taxes would not be imposed.
Has anyone done an evaluation of the big picture with regard to how much annual revenue this would generate to the federal .gov?
I would also suggest legislation that each year's budget may not exceed the actual cash receipts in sales tax for the previous year, or some equal lookback period. In other words, .gov may not spend more that it reasonably expects to collect. It needs to be a zero sum arrangement.
October 27, 2004, 04:34 PM
23% was supposed to be the break even point where we would generate exactly as much in revenue as we do now with our current system. Further research done by Harvard economists have begun to lower that number to 18 or 19%.
October 27, 2004, 05:35 PM
The 23% figure dates from before the Bush tax cuts and would raise federal revenues to the same level as it was before the Bush tax cuts. So 23% would effectively be a tax increase now.
There is significant tax overhead included everything we buy today. The way things work is when you purchase any goods or services everyone along the supply chain includes thier taxes in the prices they charge. If thier taxes go down they can either reduce thier prices and make the same amount as they do now after taxes or they can leave thier prices the same and have more after tax income. But in most cases compitition will force prices down. It is easy for me to believe that the current tax premium on goods and services is on the order of 20% to 25%. All you have to do to confirm this is talk to any businness owner and ask them. They will tell that if thier taxes increase they will raise the price of the products and pass this on to thier customers.
October 27, 2004, 06:03 PM
What's not fair, is 50% of wageearners paying for 96% of the government, while the other 50% pay 4%. (Guess which group is for more & more 'free stuff' from the government ?)
What's not fair is 20% of wageearners paying for 80% of the government.
(This is what we have now....) :fire:
October 27, 2004, 07:39 PM
A national sales tax would place almost all of the tax burden on the middle class. Those making multi millions would get away with a very small percent of the tax load. I guess we know what Bush will be proposing once he gets re-elected.
October 27, 2004, 07:47 PM
I like the idea of a flat rate income tax. Just seems to fit my simple mind.
Every year at a date certain before the end of the session congress would have vote on one tax rate for everyone and everything for the next year. Then every two years our politicians would then have to campaign and answer why that tax rate was chosen.
Seems accountability and consequences would be tightly linked.
October 27, 2004, 10:01 PM
I agree with the Fair Tax plan.
And I vote.
And I work.
And I pay income taxes and fees and surcharges and bonds and any other thing "Administrative Law" can dream up.
I'm for anything that lets me keep MY money and spend it as I wish.
October 27, 2004, 11:28 PM
Another good write up on the fair tax from boortz.com. Explains everything you need to know.
LET'S DEMAGOGUE THE FAIR TAX
Perhaps you noticed that in quite a few congressional races around the country Democratic candidates have been attempting to frighten voters into believing that the evil Republican candidate is going to burden them with a horrible new tax. More specifically, the wicked Republican is going to add a 23% federal retail sales tax on everything they buy .. and this is in addition to all the other taxes they're already paying!
Effective politics? You bet! Can you imagine how frightened some middle or lower income American would be at the prospect of paying another 23 cents on the dollar for everything they bought? If I believed that a Republican was going to do such a thing ... hell, I"D vote for the Democrat. And there aren't many things that could cause me to vote for a Democrat. A threatened beheading might do it, but I'm not even sure about that.
The big problem with this particular Democratic campaign charge is that it is simply not true. It's a lie. Not only is it a lie, but every single Democrat who has made this charge against their Republican opponent knows it to be a lie. In the Boortz book, that makes these Democratic candidates, and that includes Congresswoman Denise Majette running for the U.S. Senate in Georgia, and Inez Tenenbaum who is running against Republican Jim DeMint in South Carolina, bold, intentional, premeditated liars.
I've been studying the Fair Tax proposal in its various forms for 20 years. I am convinced that this plan to replace virtually all personal and corporate taxes with a national retail sales tax would bring a period of transformation and economic growth to America such as has never been seen before. On top of that, it would be a financial boon to the poor and the middle class.
First ... A Brief Overview
You can learn all of the details of the Fair Tax play by clicking on this link. In case you don't have the time, here's your brief overview.
The Fair Tax (HR-25) would eliminate all personal corporate and personal federal income taxes. It would eliminate all federal payroll taxes, including Social Security and Medicare. The Death Tax ... gone. Capital gains taxes ... gone. Gift taxes ... gone. Excise taxes .. gone. In the place of all of those taxes we would have one national retail sales tax on all purchase at the retail level. This means you would get 100% of your paycheck. The amount you place into an investment .. not taxed. The amount you put into a savings account .. not taxes. Money you give to your kids ... not taxed, neither to you nor to them. You make a consumer purchase, you pay the federal sales tax.
One more thing. The Fair Tax plan calls for the repeal of the 16th Amendment. That's the Amendment that brought us the federal income tax.
When the Fair Tax plan was first being developed it was believed that in order to be revenue neutral ... that is, to make sure that there is no decrease or interruption in the flow of tax revenue ... the national sales tax would be around 23%. I'm led to understand that soon-to-be-released research will show that the actual tax would be around 20% or slightly less. Since I've already run the numbers, we'll stick to the 23% figure for the purpose of this essay. Call me lazy.
So ... let's get on to the Democrat's charges that these evil, wicked, mean and nasty Republicans are plotting a financial Armageddon for poor and middle income Americans.
What Happens to Poor and Middle Income Americans?
OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right?
Remember ... right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly-named Earned Income Tax Credit, for example. So, how can these people survive if suddenly they're paying a 23% retail sales tax?
There's no doubt that any implementation of the Fair Tax would fail in short order if nothing were to change except that the poor would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.
Let's begin by considering two realities.
First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.
Second. There's that 22% in imbedded taxes buried in the cost of all consumer goods. This isn't my figure; it comes from respected economists. That 22% is sitting there in virtually everything Americans have to buy.. and that includes poor Americans. As soon as the competitive forces of the free market work their magic, and they always do, consumers, including the poor, will be paying at least 20% less for virtually everything they buy, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.
So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.
A practical example: Let's pull out the calculators. Let's say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than our poor mother would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities! Does that sound like such a rotten deal to you?
At this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. Perhaps you were educated in government schools, or you're just hard to convince. Sit down. Here's where I close the sale.
The folks who wrote the Fair Tax plan knew that burdening the poor with a 23% retail sales tax would doom the plan from the outset. They decided to devise a way were nobody, rich or poor, would ever have to pay the sales tax on the basic necessities of life. So, under the Fair Tax plan every consumer will receive a credit to their checking account or to a debit card equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households. Considering the number of checks and financial transactions of this type the feds undertake every single month, this is entirely "doable."
Here's an example of how the rebate payments would have worked in 2003.
You are now a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. It's clear .. you're better off, MUCH better off, under the fair tax plan.
But what about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest rebate payment would be to a single person with no dependents. That person would receive $172 per month.
Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.
OK ... let's add it up for America's lower income citizens:
1. They get their entire paycheck.
2. Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy.
3. They get a check from the federal government every month to rebate any sales taxes they had to pay.
Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.
If you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.
The Democrats who are using sponsorship of the Fair Tax proposal against their Republican opponents know the real story. They also know that for the most part the media doesn't understand the plan and will make no effort to learn the truth. Print this, copy it, spread it among your friends. Expose the lies of Denise Majette and Inez Tennenbaum and other like them. This tax reform idea is simply too good to allow it to be destroyed by desperate campaign lies.
October 28, 2004, 12:27 AM
Our current byzantine system, with flaws and all, is far better. Give me Flat tax!
I couldn't see going to fair tax where I would have to pay 23% on everything I buy+5.5% state sales tax+ either state income tax or a state version of the fair tax, + local and state property tax of which I could no longer deduct from my federal taxes. In the end, I would be paying the same amount of tax if not ALOT more, than I am already.
And what of savings and investments? I've already paid income tax on this money, and now I would have to pay an inflated sales tax to use it? Even the current capital gains taxes are far better to people who have considerable savings.
This tax system would screw the middle and especially uper middle class people incredibly hard, and without the requisite lubrication.
October 28, 2004, 07:00 AM
I support the concept of the "Fair Tax" (I hate the title though, because everyone has a different definition of "fair"). And it's been a big issue in the Senate race here in SC, at least as far as Lie-nez Tenenbaum bashing Jim DeMint goes.
As stated, HR 25 contains a Constitutional amemdment that would repeal the 16th, ending the income tax at the federal level. Ending the federal income tax wis a pre-condition for my support of any national sales/excise tax measure.
There's one thing I don't like about it, however, that was pointed out by a local talk-radio host: the so-called "pre-bate" of taxes paid up to pverty level spending. What this means is that everyone gets a check from Uncle Sugar every month, or quarter, or (insert time period here) so that they effectively pay no taxes on spending up to whatever the .gov says the poverty level is. Two problems with this, in my mind:
1) I don't like anything that makes people see the .gov as a benefactor. That makes people want more of it.
2) What's to stop Congress from playing class warfare with this the same way they do with the income tax? All they have to do is define "poverty level" as less that $100k a year per person, and everyone starts getting fat checks from Uncle Sugar except about 5% of the population.
If you're going to do this, get rid of the whole "pre-bate" mess. Everyone pays, no money from Uncle Sugar. The only reason the thing exists in the first place is to try to pre-empt the Left's complaints that this type of tax would favor the rich.
October 28, 2004, 08:29 AM
The only "fair" plan I see is to take the budget and divide amoung the # of poeple in the country equally.
Everyone pays the same amount.
Everyone gets one vote. Therefore, everyone should pay the same amount.
No tax breaks, no dodging, no black market.
It would drive down government spending immediately since people would then see/feel the millions we give to China, the money spent on tricycle research.
It would no longer be the "govt's money". It would be clearly stated on their bill. $20 to China.
People would demand change.
It's the only fair system I see.
I know Tiger Woods and Bill Gates would only pay the same as me. However, I think that is much better than the %40+ who now pay nothing.
If you want a Whopper or to see a movie you pay the same as the next guy. Should be the same for government.
My 2 cents.
October 28, 2004, 12:49 PM
I agree in prnciple with the Fair Tax, but there's one thing they need to change:
Rather than giving money back to everyone each year, which creates another federal bureacracy and continues the dependence on the government, just don't apply the tax to food items, housing under x dollars per month (depending on area), and clothing under x dollars.
The extremely poor, who really can only afford the bare necessities, would pay nothing. As soon as they want something more, like that 36 in. TV, they'd pay tax on it.
November 1, 2004, 08:01 PM
Just resurrecting the thread....
November 2, 2004, 12:48 AM
The one thought I have after reading all the responses to the feasability of scrapping the Income Tax in favor of the "Flat Tax" is , what about State and Local Taxing entities? Where do they get their operating funds from?
Will they scrap property taxes, lpcal income taxes, personal property taxes,etc. in favor of their own " Flat Tax"? Assuming the Feds cap their tax at 23% ,( BTW, God only asks for 10%) What stops the State or County from imposing their own 23% "Flat Tax" ? If my math is correct 23 and 23 is 46% and the subject of Health Care and Retirement programs has yet to be explored. I know that in the Sunshine State hardly a year goes by that County Govt. doesn't extort more money from it's Citizens, usually in the form of higher Property Taxes.
Same questions apply to a National Sales Tax, although on the surface it seems fair in that those who spend the most, pay the most. The major failing of this tax is its regressive nature, i.e. teh John Kerrys of this world can buy a car,House or Yacht, pay the 30% Sales Tax and not bat an eye or miss a meal. The same cannot be said of the Ralph Cramdens to whom the purchase of a Honda Civic calls for much soul searching and belt tightening to avoid busting the bank.
Either of these Tax Plans looks good in theory, however, both of them will impact the Middle Class and the poor much more than the Income Tax of today
November 2, 2004, 07:43 AM
HR 25, as written, incorporates a "pre-bate," which would be a monthly check from Uncle Sugar equal to what the taxes would be on spending up to the .gov determined 'poverty level.' (I.E., the taxes that would be paid if a person with a poverty level income spent that entire income on taxable goods and services.) This is supposed to overcome the 'regressive' nature of sales taxes.
Personally, I find the constant mention of 'regressivity' to be mainly a way of playing class warfare with the tax code. A fair tax system is one where everyone pays taxes at the same marginal rate, instead of one that punishes hard work and achievement with higher marginal rates in the name of 'progressivity.'
November 2, 2004, 08:42 AM
Please remember a progressive tax is a key component of marxist theology.
November 2, 2004, 09:23 AM
teh John Kerrys of this world can buy a car,House or Yacht, pay the 30% Sales Tax and not bat an eye or miss a meal. The same cannot be said of the Ralph Cramdens to whom the purchase of a Honda Civic calls for much soul searching and belt tightening to avoid busting the bank.
Just don't tax food, housing under x dollars/month, clothing under x dollars per piece, or cars under, say, 15k? Essentially, don't tax the absolute necessities, but tax everything else at the same rate. (If they'd get gov't spending to what it should be, 5% would be plenty.)
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