The FairTax - gaining steam!
- Thread starter gindie
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I have not made up my mind re the fair tax, but for discussion sake, here are some observations.
First if you do not buy the theory that the embedded tax of 23% will result in prices decreasing by 23% before the tax is added back, the plan will not make sense. If you think the theory is true, then many objections to the fair tax are eliminated. IE, if a person buys an item for $10 before the fair tax and it still costs 10 with the fair tax, nothing has changed even if you are in retirement and using cash that was previously taxed. You are still spending $10. In addition , all your interest and dividend income is not taxed so you have more money to spend.
Relating how government spends money to how it collects money is irrelevant. These two concepts are not tied together today and I wouldn't expect them to be under a fair tax system. Likewise people not paying taxes under the current sysem is no different than not paying under the fair tax system.
The fair tax advocates beleive the IRS will disappear entirely. Unfortunately it will be replaced by a new organization that will have to police fair tax collections.
First if you do not buy the theory that the embedded tax of 23% will result in prices decreasing by 23% before the tax is added back, the plan will not make sense. If you think the theory is true, then many objections to the fair tax are eliminated. IE, if a person buys an item for $10 before the fair tax and it still costs 10 with the fair tax, nothing has changed even if you are in retirement and using cash that was previously taxed. You are still spending $10. In addition , all your interest and dividend income is not taxed so you have more money to spend.
Relating how government spends money to how it collects money is irrelevant. These two concepts are not tied together today and I wouldn't expect them to be under a fair tax system. Likewise people not paying taxes under the current sysem is no different than not paying under the fair tax system.
The fair tax advocates beleive the IRS will disappear entirely. Unfortunately it will be replaced by a new organization that will have to police fair tax collections.
Quote: "In general the art of government consists in taking as much money as possible from one class of citizens to give to the other." [Voltaire]
and buy votes, of course!
We stand a better chance of getting the 23% Fair Tax (talk about a euphemism) PLUS the income tax and the social security tax and the estate tax, and etc. etc. etc.
and buy votes, of course!
We stand a better chance of getting the 23% Fair Tax (talk about a euphemism) PLUS the income tax and the social security tax and the estate tax, and etc. etc. etc.
Heck, we're still paying for the Spanish-American war...Ed_The_Gypsy said:
I don't think prices of new goods would go down 23% ..... but the
desire to gain market share would give companies an incentive to
pass a good percentage on to the consumers. The price of used
goods would rise a little, IMHO, to a level in balance with new goods,
but think of the incentive to be frugal and buy 2nd hand. It might
help blunt the trend toward a throwaway economy. I am old enough
to remember the days when people used and re-used and made do.
There is a chance (it needs much more study) that the one time
capital gain in stocks and bonds coupled with some drop in the
price of new goods would offset the tax....
Think of the positive impact on our position in the world economy.
American goods would suddenly become much more competitive and
there would be an incentive to expand the production of more
manufactured goods at home and thus produce more jobs.
The collection process would not add much to the federal bureaucracy.
Many states already have a sales tax in place .... thus the infrastructure
to collect the national tax. Those that do not could be given an incentive
to put one in place.
As for the prebate, everybody would get it .... rich or poor. For
example, a family of 4 would collect $465 every month to offset
the increased cost of goods.
By the way, the effective tax rate is 30% of the price before taxes
or 23% of the total price including the tax. This is confusing to the
max. The fair tax people insist on comparing the tax to the income
tax instead of looking at it like a sales tax. This is a mistake, IMHO,
and will not help their argument.
For what it's worth, I am still neutral on the whole idea ..... in the
information soak mode. I just thought it would be fair to help
balance some of the negative criticism.
Check here for more info:
http://www.myfairtax.org/faq.html
Cheers,
Charlie
l
desire to gain market share would give companies an incentive to
pass a good percentage on to the consumers. The price of used
goods would rise a little, IMHO, to a level in balance with new goods,
but think of the incentive to be frugal and buy 2nd hand. It might
help blunt the trend toward a throwaway economy. I am old enough
to remember the days when people used and re-used and made do.
There is a chance (it needs much more study) that the one time
capital gain in stocks and bonds coupled with some drop in the
price of new goods would offset the tax....
Think of the positive impact on our position in the world economy.
American goods would suddenly become much more competitive and
there would be an incentive to expand the production of more
manufactured goods at home and thus produce more jobs.
The collection process would not add much to the federal bureaucracy.
Many states already have a sales tax in place .... thus the infrastructure
to collect the national tax. Those that do not could be given an incentive
to put one in place.
As for the prebate, everybody would get it .... rich or poor. For
example, a family of 4 would collect $465 every month to offset
the increased cost of goods.
By the way, the effective tax rate is 30% of the price before taxes
or 23% of the total price including the tax. This is confusing to the
max. The fair tax people insist on comparing the tax to the income
tax instead of looking at it like a sales tax. This is a mistake, IMHO,
and will not help their argument.
For what it's worth, I am still neutral on the whole idea ..... in the
information soak mode. I just thought it would be fair to help
balance some of the negative criticism.
Check here for more info:
http://www.myfairtax.org/faq.html
Cheers,
Charlie
l
Austin_Explorer
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I agree that this plan has almost a zero percent change of passage. It's just too radical. But I think the naysayers here are overlooking some of the positives. Some of these points have already been made:
1. The IRS may be replaced by some other bureaucracy, but I don't see any reason why this new org would be bigger than the current IRS. There are fewer points of contact. Collection and reporting are fairly straightforward, because...
2. Most states already collect sales tax anyway. It's nothing that most business don't already do. Now they just collect more that the state passes on to the Fed.
3. Taxing new items only encourages more frugal living, something that most LBYM-types here should agree with.
4. American made goods become more competitive on the World market and here. Right now American goods have costs associated with them in the form of corporate and personal income taxes. What happens when those items are exported under the new tax proposal? No taxes. That makes the goods we sell abroad cheaper. Conversely, what happens to goods made overseas in part to avoid high labor and tax costs in the US? Those items are taxed at the point of sale here just like US goods. This somewhat lessens the financial reasons for off shoring (yes, I know this does not solve the problem entirely). But the accounting games that companies play would become moot (i.e. foreign subsidiary sells product to US subsidiary for cost very near the sales price. This results in lower US taxes and the profits appear on the balance sheet of the foreign subsidiary where taxes are lower.)
Some things to think about.
1. The IRS may be replaced by some other bureaucracy, but I don't see any reason why this new org would be bigger than the current IRS. There are fewer points of contact. Collection and reporting are fairly straightforward, because...
2. Most states already collect sales tax anyway. It's nothing that most business don't already do. Now they just collect more that the state passes on to the Fed.
3. Taxing new items only encourages more frugal living, something that most LBYM-types here should agree with.
4. American made goods become more competitive on the World market and here. Right now American goods have costs associated with them in the form of corporate and personal income taxes. What happens when those items are exported under the new tax proposal? No taxes. That makes the goods we sell abroad cheaper. Conversely, what happens to goods made overseas in part to avoid high labor and tax costs in the US? Those items are taxed at the point of sale here just like US goods. This somewhat lessens the financial reasons for off shoring (yes, I know this does not solve the problem entirely). But the accounting games that companies play would become moot (i.e. foreign subsidiary sells product to US subsidiary for cost very near the sales price. This results in lower US taxes and the profits appear on the balance sheet of the foreign subsidiary where taxes are lower.)
Some things to think about.
There's just too much shoddy on the surface for me to give the fair tax people the benefit of the doubt. I just typed up about 5 obvious flaws in the arguments for the fair tax proposal.
But I realize that this is not necessary. This is why the fair tax will not work:
- THERE'S NO FREE LUNCH. Calculate your current federal income, SS, and Medicare taxliability, and compare that to the amount of tax you would pay under fair tax. Make sure you include employer's contribution, and the fair tax rebate (if you have no kids, thats $2142/single $4283/married. Post your answer here.
When I do the math, under fair tax, I would pay only 35% of my current federal tax liability. Who's making up the other 65%?
In order for Fair tax to be revenue neutral for me personally, the rate would have to be 65%. This is obviously way down on the Laffer curve, where you are seriously impacting consumer spending (and thus the economy) and inviting all sorts of tax dodges (i.e. massive bartering, laundering of new goods to used, classifying personal purchases as business-to-business, etc.)
Either the 30% fair tax is not revenue neutral, or, it will be highly regressive.
But I realize that this is not necessary. This is why the fair tax will not work:
- THERE'S NO FREE LUNCH. Calculate your current federal income, SS, and Medicare taxliability, and compare that to the amount of tax you would pay under fair tax. Make sure you include employer's contribution, and the fair tax rebate (if you have no kids, thats $2142/single $4283/married. Post your answer here.
When I do the math, under fair tax, I would pay only 35% of my current federal tax liability. Who's making up the other 65%?
In order for Fair tax to be revenue neutral for me personally, the rate would have to be 65%. This is obviously way down on the Laffer curve, where you are seriously impacting consumer spending (and thus the economy) and inviting all sorts of tax dodges (i.e. massive bartering, laundering of new goods to used, classifying personal purchases as business-to-business, etc.)
Either the 30% fair tax is not revenue neutral, or, it will be highly regressive.
I can't imagine why anyone would be so much enamored by this administration to believe that this proposal is good for them -- unless they are one of the billionaires it actually helps. No billionaire left behind seems to be the Bush motto.
Let's think about this for a minute . . .
I. Today, when the consumer buys an item, he/she pays:
1)manufacturing, distribution and sales cost of item,
2)state sales tax,
3)corporate profit margin,
4)corporate taxes encountered by the corporation along the way,
II. Under the new system, when the consumer buys an item, he/she pays:
1) same as 1) above
2) same as 2) above (assuming the states maintain their revenue stream)
3) same as 3) above (assuming the corporation maintains the same profitability)
4) sales tax that includes:
a) sales tax to make up for existing medicare taxes,
b) sales tax to make up for existing ss taxes,
c) sales tax to make up for existing personal income taxes,
d) sales tax to make up for existing investment related taxes,
e) sales tax to make up for existing inheritance taxes,
f) sales tax to make up for existing corporate taxes,
g) sales tax to compensate for the new sales tax prebate.
And we believe the actual cost the consumer pays will go down because the cost of collecting this new sales tax is going to be so much cheaper than the cost of collecting these other taxes. I think there is some faulty reasoning going on here.
But even if it were true, notice that items 4a, 4b, and 4c all transfer the tax burden away from salary taxes to consumption taxes. This is not a smart thing for retirees to favor.
:
Let's think about this for a minute . . .
I. Today, when the consumer buys an item, he/she pays:
1)manufacturing, distribution and sales cost of item,
2)state sales tax,
3)corporate profit margin,
4)corporate taxes encountered by the corporation along the way,
II. Under the new system, when the consumer buys an item, he/she pays:
1) same as 1) above
2) same as 2) above (assuming the states maintain their revenue stream)
3) same as 3) above (assuming the corporation maintains the same profitability)
4) sales tax that includes:
a) sales tax to make up for existing medicare taxes,
b) sales tax to make up for existing ss taxes,
c) sales tax to make up for existing personal income taxes,
d) sales tax to make up for existing investment related taxes,
e) sales tax to make up for existing inheritance taxes,
f) sales tax to make up for existing corporate taxes,
g) sales tax to compensate for the new sales tax prebate.
And we believe the actual cost the consumer pays will go down because the cost of collecting this new sales tax is going to be so much cheaper than the cost of collecting these other taxes.
I think there is some faulty reasoning going on here.But even if it were true, notice that items 4a, 4b, and 4c all transfer the tax burden away from salary taxes to consumption taxes. This is not a smart thing for retirees to favor.
:
Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Martha said:
The problem with the estate taxes (besides the double taxation most people hate) is that it if a very inefficient tax.. it almost costs as much to 'collect' as it brings in...
Remember, the tax is only paid by high net worth people and they hire good tax accountants and attorneys that will fight to pay the least amount.. so the IRS has to hire good people to challenge them etc. etc... You can get more money with less cost if you tax something else.
We file a lot of estate tax returns through my office and with some accountants we work with regularly and my impression is that it does not in any way cost as much to collect the tax as the tax brings in. Audit issues we run into generally concern business valuation issues. For most personal assets, the tax is fairly straightforward.
I also do not see the estate tax as a double tax for several reasons. Those who inherit get a stepped up basis. Inotherwords, any gains were never taxed. Also, without the tax government will have to get the money elsewhere, so you will pay the tax before you die, but in another form. And you are dead--the tax only effects those who inherit, who never paid any tax on those assets. Why should they get a tax break at the expense of everyone else? Why should my income taxes be higher just so Paris Hilton can get some free money?
I also do not see the estate tax as a double tax for several reasons. Those who inherit get a stepped up basis. Inotherwords, any gains were never taxed. Also, without the tax government will have to get the money elsewhere, so you will pay the tax before you die, but in another form. And you are dead--the tax only effects those who inherit, who never paid any tax on those assets. Why should they get a tax break at the expense of everyone else? Why should my income taxes be higher just so Paris Hilton can get some free money?
retire@40
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Texas Proud said:
I think you are making up the facts and then you are believing them.
Patrick
Full time employment: Posting here.
((^+^)) SG said:
:
Really? Well my pension is all before-tax $$, so I would have to pay income tax on that. Ditto with my Deferred Comp $$. In fact, I can't think of any income I'll have when retired that won't be subject to the income tax under the current system. At least with the sales tax I'll get to decide when/if I'm going to pay it. And the system is already in place in most states to collect sales taxes. What is the budget for the IRS? Patrick said:
Don't forget the tax would have to cover services too. Think what a big sales tax would do to your health care costs.
I just can't see how a national sales tax could raise enough money. Plus it is too darn regressive.
We significant income taxes last year and were in the highest bracket. I don't have a problem with that. It doesn't seem unfair to me. We were fortunate to be in that position.
Patrick said::
$11 Billion, out of a $2.4 Trillion budget. 0.4 %.
Doesn't include all the private compliance costs, but those estimates are all over the place. $2000 per household? Come on!
I have yet to see anyone state here:
what percentage of their current federal taxes they would personally pay under Fair Tax of 30%
what the FairTax rate would be in order to be revenue neutral for them personally.
That's all the math you need to do to see that it's hooey.
You apparently are not very familiar with the graduated income tax system and basic deductions. Very few retirees end up paying as much tax after retirement as they did before. This is common knowledge and discussed in most retirement planning articles and books. It has been discussed on this board a number of times. In fact, many retirees on this board have commented on what a pleasant surprise their reduced income tax bill in retirement was. Some have even mentioned that they have been able to avoid all income tax after retirement. There may be some exceptions, but I don't know of any personally.Patrick said::
Your control of when to pay sales tax does not seem much improved over your control of when to pay income tax. If you don't buy anything, you can avoid sales tax. If you don't earn anything you can avoid income tax. Neither option is reasonable.Patrick said:At least with the sales tax I'll get to decide when/if I'm going to pay it.
But this is a federal tax, not a state tax. There is no federal sales tax system. And looking at the budget of the IRS without looking at the income is nonsensical. What is the ratio of taxes collected to cost?Patrick said:And the system is already in place in most states to collect sales taxes. What is the budget for the IRS?
Patrick
Full time employment: Posting here.
((^+^)) SG said:
Wrong! I am very familiar with it. And I guess I am the exception, because my income tax will not be lower when I retire.
What a nonsensical statement! Of course it is very much improved. Now I have ZERO choice. With sales tax I can choose to buy or not, the decision is 100% mine. Simply piggyback on the current state systems. The same people collect the cash and send it to the Feds. Got to be cheaper than the IRS!
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
5% fed tax rate in 2004 - 11th year into ER.
Get the flat tax down to that rate - and maybe we can talk turkey.
BTY - 10% sales tax in New Orleans.
Heh, heh, heh - I'm sure some number crunching studies will be coming - if the book keeps selling. Like hula hoops and the tech bubble - these things have a life of their own.
? - How are the Russian's doing with their flat tax - anybody heard
Get the flat tax down to that rate - and maybe we can talk turkey.
BTY - 10% sales tax in New Orleans.
Heh, heh, heh - I'm sure some number crunching studies will be coming - if the book keeps selling. Like hula hoops and the tech bubble - these things have a life of their own.
? - How are the Russian's doing with their flat tax - anybody heard
retire@40
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Patrick said:
I don't believe the federal government can force the states to collect federal taxes.
Patrick
Full time employment: Posting here.
retire@40 said:
I believe the feds can force the states to do just about anything they want. Just look at highway funds.
Texas Proud
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retire@40 said:
Let me be a bit more specific than Patrick.. no, the Feds can not MAKE the state collect taxes and in fact they probably do not need to do it as mostly it is deposited in the banks anyhow....
But, to you post... The Feds can vote to withhold any funds to a state if they do not abide by their 'request' and most states do not want to get off this dole... remember when all the states (except one) decided that the 55 MPH speed limit was a good thing even though most did not... the only thing they withheld was highway funds and it got all states in line.
WanderALot
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I was reading about a similar debate elsewhere and someone made a good point. A big appeal of the flat tax is simplicity, because our current tax code is way more complicated than it should be. Critics of the flat tax think that a reasonable flat tax either won't generate enough revenue or that it's too regressive.
So, why don't have a progressive flat tax without all the millions of deductions? In other words, why does the term "flat tax" have to imply a SINGLE rate? Why not have 4 or 5 rates like we do now (obviously lower rates than now) but just eliminate all the different deductions so that we can actually simplify the system!
We can still generate a decent amount of revenue, reduce tax compliance costs and also the transition to this system will be a LOT easier than a national sales tax.
Above all, this wouldn't penalize me when I get into the ER stage of my life!
So, why don't have a progressive flat tax without all the millions of deductions? In other words, why does the term "flat tax" have to imply a SINGLE rate? Why not have 4 or 5 rates like we do now (obviously lower rates than now) but just eliminate all the different deductions so that we can actually simplify the system!
We can still generate a decent amount of revenue, reduce tax compliance costs and also the transition to this system will be a LOT easier than a national sales tax.
Above all, this wouldn't penalize me when I get into the ER stage of my life!
T
TromboneAl
Guest
You're right, Wander, that the idea of a simple tax has become linked together with a single rate. They don't have to go together, but they do.
Some of the deductions are necessary. For example, if I made $100,000 but I had $90,000 in expenses, I'd sure want to be able to deduct those expenses.
Other deductions are there to influence our behavior. Want people to save more or become farmers? Give a deduction for that.
Finally, humans apparently have some innate need to make things complicated. The concept of "design by committee" probably is to blame. Cell phone plans, health insurance, anything. Here is an example, from the California fishing regulations.
Some of the deductions are necessary. For example, if I made $100,000 but I had $90,000 in expenses, I'd sure want to be able to deduct those expenses.
Other deductions are there to influence our behavior. Want people to save more or become farmers? Give a deduction for that.
Finally, humans apparently have some innate need to make things complicated. The concept of "design by committee" probably is to blame. Cell phone plans, health insurance, anything. Here is an example, from the California fishing regulations.
