Fair Tax

[Whoozyerdaddy]

Linky

So lets get the discussion going.

No more income tax, no death tax, no AMT, no capital gains tax, no payroll (social security/medicare) tax, no federal gas tax, no federal tax period. Scrap the whole incomprehensible, gazillion page tax system and replace with with a simple sales tax.

You keep every penny you earn. You file no tax forms and only pay tax on what you spend. (More on that later)

Every citizen gets a "prebate" every month. The Gov issues a check to every head of household to counter the sales tax on essentials. This prebate is equal to what a family/person at the poverty line would pay in sales tax. So the poor are protected.

Everything is subject to sales taxes including services.

Sales tax only applies to new items. Existing home sales would be exempt, used cars, garage sales... etc.

Right now, according to the professor of economics at Harvard (and other people... harvard just has that "ring" to it) 22% of every retail purchase you make is made up of taxes and tax compliance costs. By eliminating those taxes, the cost of goods and services will drop by 22%. Therefore when you go pay for your items under the new sales tax the actual cost to you is more or less the same.

Why wouldn't companies exploit this to keep prices where they are and charge the 23% tax on top of their inflated costs and balloon profits? Simple. Competition. They have a perfect example in the book where congress missed a vote on the continuance of a tax on the airline industry. At first the airlines tried to keep prices at the same levels prior to the missing tax. It took only 10 days before all the airlines dropped the cost of the tax from their ticket prices.

It's completely fair because it's based on what you spend (after the prebate). It doesn't allow (or require) a rich person to hide assets. Make all you can. Pay taxes only on what you spend.

This is a hell of an idea.

Keep ALL (not more... ALL) of what you earn and pay about the same for things you buy now.

The economy expands.

The US becomes a tax haven for foreign manufacturers which in turn creates jobs.

And the BEST part.... your tax is printed at the bottom of your receipt. Everyone suddenly becomes aware of what thy pay in taxes, as opposed to the current system where it's "out of sight - out of mind". When people see the final number they will FINALLY start to demand accountability of their representatives for the money that is pissed away in Washington.

I think this is a great idea.

If you haven't read the book, go get it. It's a quick read. And it makes so much more sense than the system we have now.

 

[Dissipate]

No more income tax, no death tax, no AMT, no capital gains tax, no payroll (social security/medicare) tax, no federal gas tax, no federal tax period. Scrap the whole incomprehensible, gazillion page tax system and replace with with a simple sales tax.

You had me going there until the end. Why do any of these taxes need to be replaced?

How about none of those taxes, period?

 

[ntdz]

Very, Very interesting. I wish there was some sort of economic simulation that you could try all these great ideas out on. I'd be for trying this idea..at the very least it would eliminate the complications from having to pay all the taxes and all the man hours involved in that.

 

[Dissipate]

BTW, here is a video where Harry Brown debates the "Fair" tax.

Text (click the "This Week in Liberty" link on the right).

As a side note, I find the name "Fair" tax to be highly ironic. Do we call robbery, theft and extortion "Fair?" I know I don't.

 

[ntdz]

Originally posted by: Dissipate
BTW, here is a video where Harry Brown debates the "Fair" tax.

Text (click the "This Week in Liberty" link on the right).

As a side note, I find the name "Fair" tax to be highly ironic. Do we call robbery, theft and extortion "Fair?" I know I don't.

Government doesn't steal, it just takes more than it should

Some government services, such as police, protection, etc, are essential. Most of it, however, is worthless.

 

[umbrella39]

Not bad. I will have to do some thinking about the tax on services though. It is late and I did not have a chance to check the link. I will do tomorrow and post my thoughts. Quickly, if you call 9/11 because you need emergency medical attention, would that be something you would have to worry about being taxed at 23%? It's a service. A ride in an ambulance already cost a lot for people who don't have health insurance. Adding a tax no matter how much it would be of great concern as this would not be something a prebate wouldn't take into consideration I'm sure. Very curious indeed. Thanks for bringing it to our attention.

 

[Whoozyerdaddy]

Agreed. Taxation is necessary to a point. We need a military and police and fire protection and schools and roads, etc... As a society we need to pony up for that. Taxation in and of itself is not evil.

But our current tax system is punitive and counter-growth. What's more, it has created a whole generation (three actually) of sheep who don't pay any attention to how much they are actually taxed and instead focus on their "refund" as though it were a good thing.

Taxation is necessary. there are much better ways to do it than our present system and the Fair Tax looks like a great idea.

Again... Read the book. The first half of the book simply details our present system and how it came to be. The second half looks at the benefits of the Fair Tax. The first half is actually more of an eye opener than the second half.

 

[Whoozyerdaddy]

Originally posted by: umbrella39
Not bad. I will have to do some thinking about the tax on services though. It is late and I did not have a chance to check the link. I will do tomorrow and post my thoughts. Quickly, if you call 9/11 because you need emergency medical attention, would that be something you would have to worry about being taxed at 23%? It's a service. A ride in an ambulance already cost a lot for people who don't have health insurance. Adding a tax no matter how much it would be of great concern as this would not be something a prebate wouldn't take into consideration I'm sure. Very curious indeed. Thanks for bringing it to our attention.

According to the numbers you pay that right now anyway. It's embedded into the cost of the service. It varies slightly from industry to industry but on average, for every dollar you spend right now, 22% winds up with the IRS.

They way the fair tax works, the actual cost of goods and services stays more or less the same. If you erase 22% of a business' operating costs, the cost of their goods and services will drop by 22%. Enter the sales tax at 23%. The net difference is right about zero.

Edit: In the case of medical services, for every dollar spent, ~25% goes to the IRS and compliance costs so the FairTax actually creates a net gain to the consumer of 2%. Your ambulance ride would be slightly cheaper. Add to that the fact that you would now be effectively making 30-50% more (since you don't pay any income or payroll tax) and the net net net effect is that your ambulance ride is MUCH less than it is now.

 

[Moonbeam]

But, but, I already know how to keep everything I make via tax loopholes and creative accounting. Please leave well enough alone.

 

[Whoozyerdaddy]

Originally posted by: Moonbeam
But, but, I already know how to keep everything I make via tax loopholes and creative accounting. Please leave well enough alone.

Ha ha... This is a Fair Tax. Not a "loop-hole-the-crap-out-of-my-top-1%-income" tax.

Plus... even if you can creatively avoid the income tax you still pay capital gains on investments, dividend tax, and when you die... estate tax. And if you're an employee, you pay social security and medicare no matter what. There are no deductions for that. You wouldn't pay that under the FairTax.

 

[mc00]

Originally posted by: Moonbeam
But, but, I already know how to keep everything I make via tax loopholes and creative accounting. Please leave well enough alone.

care to share this loops holes ? lol
I know one" kids" lol well everyone know this one.

 

[assemblage]

I don't see sales tax happening. Lol, can't even get the Social Security tax converted into a savings account or a Thrift Savings Plan styled investment account.

I lived in Tennessee for a while and worked as a low wage cook for 8 years before the illegal mexican immigrants to the southeastern region. TN uses sales tax for state tax... aka no state income tax. It was lame. I think its about 12% now. Since I was poor, it really ate up a larger percent of my income than someone who made more money. I don't see anything fair about that. I think calling it the "fair" tax is misleading and similar to lieing or mixing poop with milk and calling it chocolate milk.

I'd like to see a flat tax. That's a fair tax imo. Then I won't have to see Democrats using class warfare so much and always sticking it to the higher wage earners.

 

[Whoozyerdaddy]

Originally posted by: assemblage
I don't see sales tax happening. Lol, can't even get the Social Security tax converted into a savings account or a Thrift Savings Plan styled investment account.

I lived in Tennessee for a while and worked as a low wage cook for 8 years before the illegal mexican immigrants to the southeastern region. TN uses sales tax for state tax... aka no state income tax. It was lame. I think its about 12% now. Since I was poor, it really ate up a larger percent of my income than someone who made more money. I don't see anything fair about that. I think calling it the "fair" tax is misleading and similar to lieing or mixing poop with milk and calling it chocolate milk.

I'd like to see a flat tax. That's a fair tax imo. Then I won't have to see Democrats using class warfare so much and always sticking it to the higher wage earners.

Under the fair tax you'd receive a prebate check every month to offset the costs of basic expenses. Low income people would effectively be exempt from taxation.

 

[KingofCamelot]

I like the concept, but doubt it will ever become a reality. A simple tax code system would cause a lot of people to lose jobs. What about tax firms? H&R Block would surely not be happy with a new simple tax system in which all the work is done without any effort.

 

[Whoozyerdaddy]

Originally posted by: KingofCamelot
I like the concept, but doubt it will ever become a reality. A simple tax code system would cause a lot of people to lose jobs. What about tax firms? H&R Block would surely not be happy with a new simple tax system in which all the work is done without any effort.

Oh yeah... there are pleanty of special interest groups, lobbyists, etc that would love for this thing to fail. Are you on their side or your side?

The basic operating theory is that politicians (left/right rep/dem) will always do whatever they think will get them re-elected. If there is no outcry from the public about this bill they won't do anything about it. If there is a loud cry (and this book is #1 on Amazon.com right now BTW) then they will absolutely take notice.

Look at the plan. It makes total sense. Plus, this is not new. The roots of this plan go back 25 years. The legislation has been floating around for over 10 years. Everytime it goes through congress it picks up more support. Right now it has 54 co-sponsors (bi-partisan co-sponsors).

I agree that it's not easy sailing for something this radical. The biggest pitfall to it is that the tax can't be taken from you invisibly through withholding. It's a line item at the bottom of every receipt you get. That means that everytime you buy something you get to look at your tax and go "HOLY CRAP!" Power to the people is against every "politician's" best interest. But it's good for you.

 

[Amplifier]

I'm against a simple tax system. It's simply too radical for our country to impliment, and it would fall apart quickly.

It's late for me but here is one example where the proposed tax system would become simular to the old tax system.

Small businesses will be against a simple tax system. Their relative capital purchases are frontloaded for the first few years in business. In our current system the startups can write those off to pay less in taxes. Without the deductions, starting up a company is more difficult. Government won't let this happen and as a result they will create grants for the small companies, which will be offset by raising the taxes, which will undermine the purpose of the system all together. Now multiply that by the many industries you/I/the government don't fully understand.

Write up your arguments for why this proposed system is the best thing ever, I'll be awake in ten hours.

 

[Red Dawn]

No taxes on used items like a House? Does that also mean that property taxes used for financing Schools and such would only be derived from new home sales? If so the existing or used Homes would be at a premium and their prices would skyrocket. It would also devestate the new Home Market and the Home building industry.

 

[tw1164]

Originally posted by: Red Dawn
No taxes on used items like a House? Does that also mean that property taxes used for financing Schools and such would only be derived from new home sales? If so the existing or used Homes would be at a premium and their prices would skyrocket. It would also devestate the new Home Market and the Home building industry.

the fair tax is only on a federal level (right?). You would still have all your state/local taxes. You would have to continue to pay your school/property taxes.

 

[Bowfinger]

Sales taxes are fundamentally regressive. They place the greatest burden on people with the lowest incomes because they are the ones who have to spend the greatest percentage of their income. If the government gives "prebates" to offset this effect on the poor, it merely moves the greatest burden farther up the income scale, to the lower middle class. Either way, the wealthy pay the least in proportion to their income.

Another problem with such a steep sales tax is it encourages people to evade taxes. The higher the price of an item, the more incentive there is to evade the sales tax. We already see this today on cigarettes, for example, where bootlegging is common and people in high-tax states slip across the border into lower-tax states to buy their fix. This will be magnified a hundred-fold when you start talking serious dollars.

We would also see a boom in bartering, not just to evade taxes initially, but also as a business model. For example, Shady Guy A trades a new, $10K retail diamond ring to Shady Guy B for a new, $10K plasma TV. Both "open" the items, then sell them as used, tax-free, for $11K -- above the normal retail price, but below the after-tax price. Each makes an extra $1,000 (above the original retail profit) by gaming the tax system.

In fact, now that I think about it, such a steep sales tax would hurt retail sales in general, and would probably damage the economy. Used goods would suddenly jump in value by 23% compared to new goods. There would be a surge in demand for used goods, and a corresponding drop in demand for their new counterparts. Retailers could justifiably complain about government interference in the free market. Americans would become less wasteful, a good thing in concept, except business depends on wasteful consumption. Production would drop due to lower demand, unemployment would increase, and the global economy would slump.

Finally, such a steep sales tax would also increase the incentive to steal and smuggle by 23%. There would be a surge in demand for off-the-books, tax-free illicit goods, with a corresponding increase in the number of enterprising capitalists willing to obtain them. One would expect to see a resurgence in organized crime, and an (ineffective) government "War on Theft" analagous to our current "War on Drugs". Welcome to Prohibition Release 3.0.

No thanks. I agree the income tax is a convoluted mess, terribly flawed, rife with loopholes for every special interest under the sun. It is, however, fundamentally the right approach. Much better to fix it than replace it with a fundamentally flawed system (which in a few years would be equally convoluted and rife with loopholes for special interests).

 

[tw1164]

Originally posted by: Red Dawn It would also devestate the new Home Market and the Home building industry.

But the buildlers would not have to pay any payroll taxes, or fuel taxes ($0.19 /gal ?).

 

[Red Dawn]

Originally posted by: tw1164

Originally posted by: Red Dawn It would also devestate the new Home Market and the Home building industry.

But the buildlers would not have to pay any payroll taxes, or fuel taxes ($0.19 /gal ?).

Yeah because there wouldn't be any Employees or Equipment needed if you aren't building homes.

BTW, If it was only on the Federal Level and not Local/State like you said then my original statement is moot.

 

[Cerb]

Politicians won't like it. It'd be fantastic. However, I bet we will end up in a world where taxes are meaningless (services are rendered, and services expected from each citizen, out of simple necessity) before something like this happens.

 

[Jmman]

I heard this plan discussed on a local talk show, and they had some of the developer's of this plan actually on the show. From what I have seen is very well thought out, and the only ones that really are opposed to it are politicians because it takes away some of their leverage. That being said, even accountants and the like are for this program since many of them have stated that business planning etc is much more profitable than tax planning. The plan is certainly intriguing if nothing else, but I doubt that enough support could be mobilized to get it passed.......

 

[NJDevil]

Originally posted by: ntdz
Very, Very interesting. I wish there was some sort of economic simulation that you could try all these great ideas out on. I'd be for trying this idea..at the very least it would eliminate the complications from having to pay all the taxes and all the man hours involved in that.

Wow, if we had that ... I wouldn't be studying economics right now, it'd all be figured out.

I'm very very very open to a new tax structure, such as a fair tax. The one thing that I require is that it provide as least as much revenue as it does today (if not more to balance the budget), and that it doesn't shift the tax burden towards those with less incomes.

What I don't get about this is how everyone who supports this idea says, "we'll all pay less taxes." That worries me, the deficit is already huge, I prefer to shrink it rather than expand it. Others say, we all pay less tax but get more revenue. This, makes me even more suspicious ... as we have a zero sum model (well, 3% or so from GDP growth). It's impossible for everyone to pay less tax and get more revenue.

If someone can present me with a site detailing how a specific plan would work, I would appreciate it. Our tax code needs restructuring, I just want to make sure it's not ridiculously catered to the rich.

Edit: I was reading through the site where I came across an interesting point. Rich people spend 10 million, and pay 2.296 million in taxes. Their effective tax rate is close to 23%.

That's what the site says, but in reality, their effective tax rate is much lower. If that billionaire's income is 50 million, and he only spends 10 million, then his tax rate is not 23%, rather it's about 4.6%. While the wealthy spend more money than the middle/lower classes, they also spend a lesser proportion of their income than the other classes. Since a lot of our tax income comes from the wealthy individuals, how does this plan make up for the loss in revenue?

 

[Codewiz]

I think our tax system needs to be scrapped. However this isn't going to fix loopholes.

The rich still won't pay taxes. They will simply import everything they buy. It will be cheaper and won't feed into our tax system.

There are problems with every system. It just seems that the system we have is pretty much completely broken.