New National Sales Tax

[Skylark]

Anybody know if the new tax plan(s) proposed by King George will include a sales tax on real estate or equities?

[retire@40]

Beware of a National Sales Tax. *It's not the panacea that many people make it out to be. The less you pay now in income taxes, the more you will pay under a NST or Value Added Tax, either in real dollars or as a percentage of income. *Plus don't think the income tax will go away if they ever implement a NST or VAT. *It will be a NST/VAT on top of an income tax.

As an example, let's look at how Italy taxes it's citizens:

There is a 10%-20% VAT AND an income tax http://www.icsoftware.it/Tabelle/sca...2004&GO=Esegui

To help you decipher that chart, Italians use commas for periods and periods for commas. *

Da=from, A=to

Valori Annuali = Annual Income
Valori Mensili = Monthly Income

As you can see, their tax rates are much higher than ours. *Plus, they tax gas and diesel to death. *Gasoline is over $6 a gallon.

Quote:

Beware of a National Sales Tax. *It's not the panacea that many people make it out to be. The less you pay now in income taxes, the more you will pay under a NST or Value Added Tax, either in real dollars or as a percentage of income. *Plus don't think the income tax will go away if they ever implement a NST or VAT. *It will be a NST/VAT on top of an income tax. As an example, let's look at how Italy taxes it's citizens: There is a 10%-20% VAT AND an income tax http://www.icsoftware.it/Tabelle/sca...2004&GO=Esegui To help you decipher that chart, Italians use commas for periods and periods for commas. * Da=from, A=to Valori Annuali = Annual Income Valori Mensili = Monthly Income As you can see, their tax rates are much higher than ours. *Plus, they tax gas and diesel to death. *Gasoline is over $6 a gallon.

The good thing is... we're not Italy.

Check out fairtax.org for the real facts.

-Dagny

[Hyperborea]

Quote:

The good thing is... we're not Italy. Check out fairtax.org for the real facts.

Nope it's in the US where some organization supported by some unknown group is trying to pass off a 30% tax as a 23% one.

They go on and on about how it's "only" 23%. What they mean is that if you spent $100 total including the tax then you would have spent $77 on goods and had $23 collected for taxes. This is completely unlike how any other sales tax percentage is calculated. Let's do the math as normal humans do it. The tax rate = $23/$77 = 29.87%

Why the need for subterfuge?

[retire@40]

Quote:

Check out fairtax.org for the real facts.

I read some of the "real facts" on that website and the theme to the Wizard of Oz started playing in my head.

If you think 90% of the families in the US are going to pay 100% of all the taxes paid by current individual taxpayers, corporations, trusts, and estates, and that this will be at a 23% rate, and that the tax will only be on "new" goods and services, and that this revenue will pay for all government expenditures, you must be the wizard himself.

If I were a 50 year old multi-millionaire I would LOVE that sort of a tax. *I already made all my big purchases including 3 mansions, so I don't have to buy anything and I'm earning 6% on my $10mil which would mean $600,000 to me a year in tax free income.

Meanwhile I'm a 22 year old college graduate and I just started making $40K a year. *Oh, no I have to buy a car, furniture, clothes, and other household items. *My spending this year will be $30K but I also have to pay your 23% fairtax. *That means an extra $6,900.

So they guy making $600,000 pays no taxes and the guy making $40,000 pays almost $7,000 in taxes. *Boy, can't get any fairer can it?

Ooops, the 22 year old almost forgot he has to buy a house for $300K that will cost him $90K more in NST and no mortgage interest or real estate tax deduction the rich guy got when he bought his 3 mansions years ago.

[charlie]

I challenge you to read the complete list of FAQs
on www.fairtax.org before you reject the concept
out of hand. Don't let your preconceived biases
discard this idea before giving it a fair study.

Cheers,

Charlie

[retire@40]

Quote:

I challenge you to read the complete list of FAQs on www.fairtax.org before you reject the concept out of hand. * Don't let your preconceived biases discard this idea before giving it a fair study.

I did and that's why I think it's a joke. These are the same nutty tax protesters that twist things around to get to the answer they want when it comes to why the federal government has no real Constitutional authority to collect an income tax and that want to opt out of paying taxes because taxes are "voluntary." I've met with these people and I've dealt with them and I've seen them pay penalties and/or go to jail. This is just a different twist on the same subject.

What makes you think people will not pay a sales tax on used goods? Won't there be a built-in or "hidden tax" in all used goods since they won't be subject to a NST? There will be so much more demand for used goods to avoid a 31% NST that the cost will increase to bring new and used goods at par or close to par. These nuts start with a good premise, twist it around somewhere in the middle, then follow that false twist to a logical conclusion. Nice try, but smart people can see through that.

In one example on that website, how can payroll taxes be $1600 and how can the "cost of hidden taxes" be almost $3000 for an employee making $10K? By the way, I like how the federal rebate is conveniently $300 higher than the NST.

I can poke holes all over the plan on that website you mentioned, but I'm not going to waste anymore of my time on this stuff because I've wasted too much time over the years with these fruitcakes. It's like a cult and you can find them all over the Internet. They might be able to blow smoke in the face of the average person that doesn't understand the tax system, but they can't get away with their tactics with people who have even a basic understanding of the tax system.

[Cal]

Quote:

**These nuts start with a good premise, twist it around somewhere in the middle, then follow that false twist to a logical conclusion. *Nice try, but smart people can see through that. They might be able to blow smoke in the face of the average person that doesn't understand the tax system, but they can't get away with their tactics with people who have even a basic understanding of the tax system.

Unfortunately, this administration has discovered that people really don't pay attention to the facts. As long as they keep repeating over and over that people will pay less taxes under this new system, the sheeple will believe it.

[charlie]

You may call it a cult if you like but there is a bill
in congress with 50 co-sponsors to implement
this concept.

Read the website yourself, folks. Please don't be
lazy and take one biased opinion as your own
without reading the other side.

Cheers,

Charlie

[bruce1]

Sales Taxes can be really profitable for the government especially if applied to used cars as they are in Ontario. For example if I bought a new car for $20,000 at 15% which is what we pay in Ontario tax would be $3000. Suppose I sell the car in three years for $14,000 tax would then be $2100. The person who bought it from me sold it in another three years for $8000 and taxes would then be $1200. The total tax collected over six years on a cheap car are $6300. Now if that is done at 30% on an expensive car..... OUCH

Not that I would buy a new car

Bruce

[wabmester]

Quote:

You may call it a cult if you like but there is a bill in congress with 50 co-sponsors to implement this concept.

Charlie, do you really believe this is in your self interest? If you're like most of us here, you probably don't pay a lot in income tax. What could you possibly find attractive about such a proposal?

Do you really believe that if we stop taxing corporations, prices will magically drop by 30% on all of the goods we buy? I'm aware of plenty of corps that pay little or no tax, and somehow they keep charging whatever the market will bear.

[retire@40]

Quote:

You may call it a cult if you like but there is a bill in congress with 50 co-sponsors to implement this concept. Read the website yourself, folks. *Please don't be lazy and take one biased opinion as your own without reading the other side. Cheers, Charlie

You can't even answer the couple of questions I posed to you using the example on that website.

By the way, don't confuse ER with laziness and don't think most people on this board are easily convinced by one opinion or one website. Everyone here is smart enough to make up his or her own mind without you telling them not to be lazy.

[charlie]

Wab, the FairTax proposal claims that there is a 20+%
cost built into new goods and services due to the
cost of corporate taxes, corporate payroll taxes and
the cost of corporate income tax compliance all passed
on to the consumer. I have no way of knowing if
that is accurate.

There is no tax on used goods that have already been
taxed once ...... like used cars and houses.

My assumption is that the market place would cause
the cost of new goods to seek the proper level compared to used goods. Thus you would expect
the cost of new goods to fall somewhat. It would
also make US manufacturers more competitive in the
world market and thus help spur new US jobs.

According to FairTax. a couple would receive $4283
rebate to help pay for essential goods and services.
If this couple earned $40,000 per year they would
pay about $6000 per year in income and FICA taxes.
This would leave about $34,000 net for living expenses
under current law. Under the new national sales tax
system they would have $44283 to spend on goods
and services. The proposed tax rate of 23% is
actually 30% when you look at it as a "sales tax" as
apposed to an income tax. Thus the couple would
actually be able to buy $34,000 at current prices.

Thus a couple would just about break even if they
only bought NEW stuff all the time. They would do
even better if prices fell somewhat.

Most of the cheap bastards on this forum would make
out like bandits.

People like John Galt who buy long term bonds would
have a windfall profit if there is no tax on interest.

The removal of capital gains and dividend taxes would
spur the stock market upward.

The one thing that still bothers me is I see no benefit for
those retirees who have most of their money in after
tax accounts like CDs. This may be the killer.

As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal. As you
suggested, I don't pay much income tax currently,
but at age 70, I am in a RMD situation. I would expect
the value of my holdings to increase due to the windfall
increase of stocks and bonds, but it is hard to judge
if this would offset the possibly "higher" cost of
consumption.

One thing for sure, frugal people who don't care about
buying NEW stuff can control their own tax rate!!

This is a good topic worthy of honest discussion and
I look forward to hearing what others have to say.

Cheers,

Charlie

[charlie]

retire@40,

Let's assume a single person making $10,000 per
year only pays 7.65% FICA taxes. Thus his takehome
pay is $9235.

Under the FairTax approach, he has $10,000 plus
an upfront rebate of $2141 for a total of $12,141
to spend.

With a national sales tax of 30%, he can buy
$9339 worth of NEW goods and services at current
prices. Thus he wins.

This does not include the potential price decrease
of new goods and services due to the elimination
of corporate income taxes, payroll taxes and the
cost of IRS compliance. FairTax claims this cost
averages about 22 to 25%. There is an incentive
for corporations to pass some of this cost decrease
on to the consumer to gain market share.

[retire@40]

Quote:

Let's assume a single person making $10,000 per year only pays 7.65% FICA taxes. *Thus his takehome pay is $9235.

So all of a sudden the payroll tax goes down to $765 ($10,000 - $9235)? The example on the website said payroll taxes for the employee were $1600. This is part of the false twist I was talking about that is then taken to a logical conclusion.

Then as far as any kind of a rebate is concerned, they are all made up numbers to get to the desired results.

[charlie]

retire@40,

I do my own math and don't take the examples
on the website at face value. I don't know where
they got the payroll tax of $1600 .... and I could
not find your example. In any case, I know
a single person making $10,000 is not likely to
pay anything more than 7.65% FICA tax. If the
FairTax upfront rebate is as stated, then he wins
under YOUR example. Case closed.

Cheers,

Charlie

[retire@40]

Quote:

According to FairTax. a couple would receive $4283 rebate to help pay for essential goods and services. If this couple earned $40,000 per year they would pay about $6000 per year in income and FICA taxes. This would leave about $34,000 net for living expenses under current law. *Under the new national sales tax system they would have $44283 to spend on goods and services. *The proposed tax rate of 23% is actually 30% when you look at it as a "sales tax" as apposed to an income tax. *Thus the couple would actually be able to buy $34,000 at current prices.

So using this example, you show that the couple has $34K disposable income under the current tax system and that they would have $34K disposable income under the NST. This is contrary to the website that shows that everyone pays less taxes under the NST. So which is it?

[ESRBob]

Quote:

* As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal. *As you suggested, I don't pay much income tax currently, but at age 70, I am in a RMD situation. * .... This is a good topic worthy of honest discussion and I look forward to hearing what others have to say. *

Charlie,
I have been trying for years to figure out how I was going to get stiffed for having paid all those taxes to convert my IRA's to Roths -- maybe this is the way?

This is all so big a change for me it is like trying to contemplate the sun coming up in the west. I am intrigued by the idea, but it will take a lot of study to understand or develop an opinion on. As a result, it will be hard for lawmakers to get their minds around it and sell it to the public.

What about State and Local sdales taxes: all subsumed into this? (I need to go read the site).

My skeptical self is concerned that the only way a change of this magnitude will go anywhere is if politicians can find a way to mortgage our kids (or other disenfranchised groups) even further while buying votes today.

But I will keep an open mind until I have more facts. I do think we'll see a lot more about this in Bush's second term.

ESRBob

[charlie]

retire@40,

I don't like the way they showed the examples on
the website....... I think they included an anticipated
decrease in the cost of new goods and services to
make the comparison look better. The more fair
appoach is to make the comparison assuming prices
did not change. The comparison is still favorable and
we have a potential upside if prices fall.

Cheers,

Charlie

[Jarhead*]

Quote:

Wab, the FairTax proposal claims that there is a 20+% cost built into new goods and services due to the cost of corporate taxes, corporate payroll taxes and the cost of corporate income tax compliance all passed on to the consumer. *I have no way of knowing if that is accurate. * There is no tax on used goods that have already been taxed once ...... like used cars and houses. My assumption is that the market place would cause the cost of new goods to seek the proper level compared to used goods. *Thus you would expect the cost of new goods to fall somewhat. *It would also make US manufacturers more competitive in the world market and thus help spur new US jobs. * According to FairTax. a couple would receive $4283 rebate to help pay for essential goods and services. If this couple earned $40,000 per year they would pay about $6000 per year in income and FICA taxes. This would leave about $34,000 net for living expenses under current law. *Under the new national sales tax system they would have $44283 to spend on goods and services. *The proposed tax rate of 23% is actually 30% when you look at it as a "sales tax" as apposed to an income tax. *Thus the couple would actually be able to buy $34,000 at current prices. Thus a couple would just about break even if they only bought NEW stuff all the time. *They would do even better if prices fell somewhat. * Most of the cheap bastards on this forum would make out like bandits. People like John Galt who buy long term bonds would have a windfall profit if there is no tax on interest. The removal of capital gains and dividend taxes would spur the stock market upward. The one thing that still bothers me is I see no benefit for those retirees who have most of their money in after tax accounts like CDs. *This may be the killer. * As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal. *As you suggested, I don't pay much income tax currently, but at age 70, I am in a RMD situation. * I would expect the value of my holdings to increase due to the windfall increase of stocks and bonds, but it is hard to judge if this would offset the possibly "higher" cost of consumption. One thing for sure, frugal people who don't care about buying NEW stuff can control their own tax rate!! This is a good topic worthy of honest discussion and I look forward to hearing what others have to say. Cheers, Charlie * *

Charlie: My personal opinion, is the proposed changes would be a hard-sell for anyone currently retired.
I believe it would be much more appealing to a younger person that had a high income, and low consuption. (Cheap bastard on active duty).
In my own case (the only one I'm qualified to comment on), I have a pretty good sized net worth, and pay next to no taxes. I still have about 4 years before I'll be paying them back for allowing me to drop out for a while until RMD raises its ugly head.
I honestly think that the proposal has much more appeal to the high income w-2 type individual.
Whenever the guys I play golf with or fly-fish with (mostly retired), taxes very rarely come into play.
When i was on "active duty", this was always a sure fire negative conversation piece.
From a purely selfish, self-interest, stand-point, I am happy with the status-quo. For the long-term benefits to the country, and investments, in general, I'll leave that to the folks that have the expertise and the ability to extrapolate a massive change such as this into a scenario that makes sense.
Good question, though Charly.

P.S. Of course this comes from an indivdual that is far more concerned about his ability to make a good shoulder turn on his tee shot to maximize distance, then
spending much time on more important matters