Fair Tax

[RickBulow74]

I had just finished reading the Fair Tax Book by Neal Boortz and Congressman John Linder for the 100th time, and agree that we need to get rid of the IRS and the Income Tax in favor of a fair tax which will allow every worker to keep ALL of their paycheck, lower interest rates, and bring businesses and jobs back to the United States. I urge all to visit www.fairtax.org and really study the pages within.

[cariad]

Well, not living in the US, and finding that site is down, your posts poses more questions than answers. A basic question first how to Boortz and Linder propose to raise money for government/state funded activities?

cariad

[_ID_]

I think I know what some of the pricipals of fairtax are. However correct me if I am wrong.

As I understand it, fair tax, taxes a certian percentage of all income of all people and buisnesses. So if you earn $1 per day, or $1 Billion per day, the fair tax would tax the same percetage from each. Say 28% like it is now if you don't claim any exemptions.

Now that is as I understand it, of course I could be WAY off base.

V/R
ID

[mkemse]

Here is the detailed answer to Fairtax for those interested:
For those who find this to complex to understand, I am simply answering a question nothing more

The FairTax (H.R.25/S.25) is a proposal for changing United States tax laws to replace all federal personal income taxes, payroll taxes, corporate taxes, capital gains taxes, self-employment taxes, gift taxes and inheritance taxes with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. The FairTax would be levied once at the point of purchase on new goods and services. The plan would abolish the Internal Revenue Service (IRS) and create a federal "Sales Tax Bureau" to oversee collection of the tax by existing state sales tax administrations.[1] While the FairTax replaces taxes like FICA, it does not remove or change government funded programs such as Social Security, Medicare, and Medicaid.

The legislation would apply a 23% federal sales tax on the total transaction value of new retail goods and services; in other words, consumers pay to the government 23 cents of every dollar spent (sometimes called tax-inclusive). The assessed tax rate would be 30% if the FairTax were added to the pre-tax price of a good like traditional sales taxes (sometimes called tax-exclusive).[2] Today's income tax structure contains embedded tax costs in goods and services. Production prices are expected to decrease after these taxes and compliance costs are removed.[3] The FairTax is designed to be revenue-neutral — that is, it would not result in an increase or reduction in overall federal tax revenues. However, the tax rate required for revenue-neutrality is disputed.

The effective tax rate for any household would be variable due to the fixed monthly tax rebate. Monthly payments would compensate for taxation on purchases up to the poverty level.[4] This is intended to "untax" necessities and could reduce the effective rate to zero or a negative value.[2] The FairTax's allocation of the tax burden is a point of significant dispute.[5] The plan's supporters argue that it would broaden the tax base, be progressive and start taxing wealth, while opponents argue that a national sales tax would be inherently regressive and would decrease tax burdens paid by high-income individuals.[4] The FairTax is expected to have positive ramifications for tax burden visibility, tax compliance cost (efficiency), economic growth, international business locality, U.S. international competitiveness, and could have challenges with an underground economy and the permanent repeal of income taxation

[_ID_]

Ok, my misunderstanding. This is what would be called a Value Added Tax (VAT) in Germany. I have experience in dealing with this tax. They include it directly in the price of the products, so it isnt sticker shock at checkout. However, seeing the cost savings of having to pay VAT and not having to pay it. I would rather keep the system we have now, and revamp how the taxes are levied, rather than try to start over.

V/R
ID

[fantassy]

Hey man, I've got a job interview with the IRS this week. You're trying to run me out of a job before I even got it !

On a more serious vein, our tax code has become so complicated because the government uses taxes to provide incentives for behavior. In theory, not a bad idea. We want to encourage home ownership and support the construction industry, so we allow deductions on mortgage interest. We want to encourage education, so we provide tuition tax credits. Of course, politics always warps theoretically good ideas by allowing special interest to purchase laws in their favor. Seems to me, we need to reform Congress far more than we need to throw out the the IRS code. Considering how much lower our taxes are here in the US compared to the rest of the industrialized nations, I don't see a pressing need to throw out our tax system. If you want to complain about high taxes, talk to the Aussies or the Europeans - they know about high taxes. Of course, that's also how they fund some of their better social services.

fantassy

[cariad]

So, as I understand what has been said so far, the suggestion is raise the same amount of tax, just by a different method.

This is a debate which is as old as taxation. Moving to a system of indirect taxation such as being proposed here means that there is an inverse relationship between the percentage of income a person is taxed on and their ability to pay.

Keeping figures simple here - if the 'fairtax' is set at say 30%, a person with a high income who say spends 50% of their income, will have an effective tax rate of 15%, leaving them with a large residual income for investment, which is obviously good for the economy. A person on a low income, who has to spend every bit of it on essentials will be taxed at an effective rate of 30% regardless of how low that income is, which, unless there is the provision of an infinite government funded safety net could lead to a level of poverty which should be unacceptable in a first world country.

Even with the proposed tax rebate and zero rated items this is a method of taxation which favours those who already have.

Both systems of taxation work, which one supports is a question of ethics and politics.

cariad

[RickBulow74]

Let me reiterate something from my earlier post on the Fair Tax. Neal Boortz is only a syndicated radio talk show host who is a Libertarian and collaborated with Congressman John Linder, who is the author of the bill to eliminate the Income Tax in favor of the Fair Tax, and came up with the book.

For those of you who are in the United States, next time you get paid, take a good look at your paycheck, and you will notice that a good portion of what you MAKE (notice not take home but make) is taken away by FICA and the Federal government. With the Fair Tax, you will get to keep ALL 100% of the money that YOU make in your paycheck. Did you know that 7.65% of your paycheck goes to support Social Security (which needs to be privatized but that is for another thread) and Medicare by you and another 7.65% is paid into the same by your employer? With the Fair Tax, that will be abolished.

The Fair tax is replacement, NOT reform. All federal income taxes will be replaced with the Fair Tax. The Fair Tax will be collected only once, at the final purchase of NEW items. So all used items will be excluded.from being taxed.

From FairTax Frequently Asked Questions:
11. Why is the FairTax better than out current system? Our present tax system is one of the reasons that people are finding it so difficult to get ahead these days. It is one of the reasons the next generation may not have a standard of living as high as this generation. Cars replaced the horse and buggy, the telephone replaced the telegraph, and the FairTax replaces the income tax. The income tax is holding us back and making it more difficult than it needs to be to improve our families’ standard of living. It makes it needlessly difficult for our businesses to compete in international markets. It wastes vast resources on complying with needless paperwork. We can do better and we must.

12. Is the FairTax fair? Yes, the FairTax is fair, and in fact, much fairer than the income tax. Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses, and expensive jewelry. The FairTax taxes them on these purchases. If, however, they use their money to build job-creating factories, finance research and development to create new products, or fund charitable activities (all of which help improve the standard of living of others), then those activities are not taxed.

I apologize for not spelling it out more in my first post, and hope this helps in educating those of you on the FairTax. I will post more in time.

[_ID_]

Thanks for the clarification, and your view on it. However, anything that changes how we taxed is in my opinion is just reforming a system that is already corrupted so terribly that the intrested parties with the available capital will do what they can to ensure the tax they pay is less than that of the common citizen.

V/R
ID

[cariad]

...and ID, almost without doubt 'fairtax' will do just that.

There are clear advantages to indirect taxation, as pointed out by Boortz and Linder; but there also advantages to direct taxation. This is why most countries have a combination of both.

cariad

[Lady Dena]

Sorry, but I'm not buying it.

The basic problem with replacing the federal income tax with a federal sales tax is that 1. Sales taxes are inherently regressive, and 2. Replacing the income tax with a sales tax will not solve the problems the proponents intend them to solve.

Income taxes are taxes on income, while sales taxes are taxes on consumption. It is a well known and scientifically provable fact that people with lower incomes have to spend a higher percentage of their incomes on consumer goods than people with higher incomes. Low income people, who live paycheck to paycheck, would pay taxes on 100% of their income. High income people, who may have the luxery of investing half their income, would pay taxes on only 50% (or less) of their incomes. Although high income people may consume more in absolute terms than low income people, they consume less as a percentage of their incomes. Thus, the wealthy would be taxed less, as a percentage of their incomes, than poor people. Under the current system, the wealthy pay a higher percentage of their incomes in taxes than poor people.

Yes, some people do not like having to pay FICA taxes, but replacing FICA with a national sales tax would not solve that problem -- it would simply move it. People would bring home larger paychecks, but their large paychecks would have less purchasing power (since they would have to pay high sales taxes on whatever they buy with their "extra" money), so economically they would not be any better off. And the low income, paycheck-to-paycheck crowd would carry a disproportionately higher share of that burden, so they would actually be worse off.

Yes, replacing the income tax with a sales tax would encourage investment in theory (by not taxing money invested as opposed to spent), but it would also discourage consumption. So, if you make enough money, you could use some of that money to build a factory tax-free. The problem is that it wouldn't really be tax-free, since you would have to pay high sales taxes on any goods you buy in building that factory (more on that below). More important, once you build the factory, the market for anything that factory makes would be chilled by the high sales-tax rate you would have to charge. Thus, although the investment itself may be theoretically tax-free, the high sales tax in place would reduce the return on that investment. You would have less bang for the investment buck, and would thereby indirectly discourage investment even as you directly encourage it.

Yes, the income tax system currently in place is too complex, but that doesn't mean that complexity is an inherent feature of any income tax system. We could, theoretically, have an income tax system that is as simple as "everybody has to pay 20% of their income," with tax return forms no bigger than postcards. Our income taxation system is complicated because the government has chosen to complicate it in order to achieve certain social goals. It has chosen to encourage marriage by taxing married people at a lower rate. It has chosed to give tax credits to people with children. It has chosen to encourage study by giving a deduction for student loan interest. It has chosen to make a distinction between a "business expense" and a "personal expense," making the former deductable while the latter is not. It has chosen to make a distinction between "income" and "capital gains" (the latter is taxed at a lower rate). There is no reason why an income tax system HAS TO have these complexities; it just happens that ours does.

Similarly, there is no reason why a sales tax system HAS TO be simple. Many sales tax systems make a fine distinction between "consumer goods" and "non-consumer goods," so that the above-described factory can be built tax-free. Some tax different goods at different rates, to encourage the consumption of some goods and discourage others (i.e. high tax on tobbacco, no tax on food). Some make distinctions between "used" and "new" goods. Others make distinctions between sales by merchants and non-merchants (do you really want to make anyone who holds a garage sale have to pay a "fair tax." It is not hard to see how a sales tax system could become every bit as hiddiously complex as our current income system.

The point is that if you want to simplify the tax system, focus on simplifying the tax system. Changing from an income tax system to a sales tax system is neither necessary nor sufficent to simplify the tax system.

If the national sales tax you propose were enacted, then those of us who are furtunate enough to live near an international boarder would probably make our major purchases abroad. Or, do you plan on enacting a large tarriff (and therby violating the North American Free Trade Agreement) to prevent this sort of thing?

Finally, as unpopular as the IRS may be, simply changing the tax code and giving the federal agency responsible for administering it a different name does not amount to "abolishing the IRS" any more than renaming AFDC to TANF amounts to "abolishing welfare."

Well . . . that was a bit more than my two-cents worth. Sorry for the length of the post. I can only promise that in return for reading my rant, I'll read whatever rants you may have :-)

- Lady Dena

[RickBulow74]

I admit that some of the things about Fair Tax are complicated to understand for those who do not know what it is, but if you look at it and compare it to our current system. But the bottom line is listed in the thumbnail below.

I know that links to other sites are not allowed (either that or discouraged), but I posted a few things about it on my blog which if people will ask in PM or on one of my two Messenger services, I will provide the link to it for them.

[cariad]

Rick, the picture above of the two paycheques only shows half the story - should you not also have an illustration of how much more shopping, fuel and services would cost under the 'fair tax' proposal?

cariad

[RickBulow74]

cariad, it is true I should do that. I am looking for more illustrations that I can show. There is also a graph but it is too long to put in a post. It is my hope to open some people's eyes to an alternative tax method and also find out that the current tax system has flaws.

[tazzinnc]

The fair tax rocks, It encourages savings.
It takes out manipulation of the tax code and will remove tens of millions of dollars OUT of politics. 1 simple sales tax so everyone will see how much they pay in taxes.
The sales tax encourages people to actually earn more and NOT rely on government tax breaks.
The overall cost of things will not changes since the Fair tax is revenue nutral.
billions of dollars will be pumped back into the economy through reduced paper work on filing taxs.
Why should people that earn less than me, have to pay a lower percentage in taxes ?
Why should the government have the right to know how much money I earn ? It is none of their freakin business.

You increase the tax base thus allowing for a lower overall tax rate. You increase the tax base because all the drug dealers still have to buy stuff and currently none of their income is taxed. All the other illegals that buy TONS of stuff but pay no income taxes will now be paying into the tax base.
EVERYONE when they buy anything will see exactly how much the government cost them.
THIS in turn will encourage people to get their congressmen and senators to REDUCE spending so the tax rate can be lowered.

Most important, it gets rid of the average joe from having to file a tax form every April 15th, then HOPE they got it right less they have to pay penalties.

again I ask, why should tax rates different, treat everyone the same.
OH and latestly, it would make the US the worlds biggest tax haven and you would see many companies moving their corp headquarters back to the US, and many companies that have 'tax' advantage holdings overseas will move that money and JOBS back to the US.
You will see, in the first 2 years, the biggest job creation program in the united states.

yes I support the fair tax plan.. get rid of the IRS... no'vat' that is hidden in the cost of a product..
you spend 100 bucks, tax is 23 bucks. no exceptions for any product, cut out all those high paid lobbiest that manipulate congress with their money to change the tax code.