The Fairtax and embedded taxes

[Bob Moss]

[ QUOTE ]
Even if the poor paid the entire 23 percent FairTax, they would be better off than now, but they don't. The FairTax provides a rebate of all tax paid on spending up to the federal poverty line to everybody. This cancels out all taxes for those living at or below the poverty line, $25,660 a year for a married couple and two children.


For the same family earning twice the poverty line ($51,320), half their taxes are rebated, yielding an effective rate of 11.5 percent. And even at triple the poverty level, $76,980, their effective rate is only 15.3 percent, still far better than the 28.4 percent the poorest of the poor pay now.

[/ QUOTE ]

I thought this system was supposed to be simple. This is already far more complicated than it should be, and it certainly will not be getting simpler over time.

Some percent of the tax will be refunded each year. So, that means we have to save ALL of our receipts for everything we buy, or get screwed? And the gubmint holds onto that money in the meantime, robbing me of interest or investment returns. The refunds are based on income, so... they will still be keeping track of our income? You can't get rid of the IRS if you want to do that.

This is all on top of the plainly obvious fact that income taxes are never going away, so all this does is provide another easy way for the feds to rob you.

The only upside to this plan I see is if you could just pay your tax, throw away your receipts, and be much more free from government meddling. But I highly doubt they'll make it that easy.

[TomCollins]

[ QUOTE ]
[ QUOTE ]
Even if the poor paid the entire 23 percent FairTax, they would be better off than now, but they don't. The FairTax provides a rebate of all tax paid on spending up to the federal poverty line to everybody. This cancels out all taxes for those living at or below the poverty line, $25,660 a year for a married couple and two children.


For the same family earning twice the poverty line ($51,320), half their taxes are rebated, yielding an effective rate of 11.5 percent. And even at triple the poverty level, $76,980, their effective rate is only 15.3 percent, still far better than the 28.4 percent the poorest of the poor pay now.

[/ QUOTE ]

I thought this system was supposed to be simple. This is already far more complicated than it should be, and it certainly will not be getting simpler over time.

Some percent of the tax will be refunded each year. So, that means we have to save ALL of our receipts for everything we buy, or get screwed? And the gubmint holds onto that money in the meantime, robbing me of interest or investment returns. The refunds are based on income, so... they will still be keeping track of our income? You can't get rid of the IRS if you want to do that.

This is all on top of the plainly obvious fact that income taxes are never going away, so all this does is provide another easy way for the feds to rob you.

The only upside to this plan I see is if you could just pay your tax, throw away your receipts, and be much more free from government meddling. But I highly doubt they'll make it that easy.

[/ QUOTE ]

You don't need to save receipts. You should read the plan. Everyone gets a certain amount of tax prebated to them. If you buy used goods, you make out well. It assumes you spend $x per year. If you spend more, you don't get a bigger prebate. If you spend less, you don't get a smaller one. This may result in some people getting a net positive from the government (the very poor).

[IsaacW]

[ QUOTE ]
[ QUOTE ]
Even if the poor paid the entire 23 percent FairTax, they would be better off than now, but they don't. The FairTax provides a rebate of all tax paid on spending up to the federal poverty line to everybody. This cancels out all taxes for those living at or below the poverty line, $25,660 a year for a married couple and two children.


For the same family earning twice the poverty line ($51,320), half their taxes are rebated, yielding an effective rate of 11.5 percent. And even at triple the poverty level, $76,980, their effective rate is only 15.3 percent, still far better than the 28.4 percent the poorest of the poor pay now.

[/ QUOTE ]

I thought this system was supposed to be simple. This is already far more complicated than it should be, and it certainly will not be getting simpler over time.

Some percent of the tax will be refunded each year. So, that means we have to save ALL of our receipts for everything we buy, or get screwed? And the gubmint holds onto that money in the meantime, robbing me of interest or investment returns. The refunds are based on income, so... they will still be keeping track of our income? You can't get rid of the IRS if you want to do that.

This is all on top of the plainly obvious fact that income taxes are never going away, so all this does is provide another easy way for the feds to rob you.

The only upside to this plan I see is if you could just pay your tax, throw away your receipts, and be much more free from government meddling. But I highly doubt they'll make it that easy.

[/ QUOTE ]
The FairTax actually implements a "prebate" where the tax is refunded before it is paid. If you consume less than the poverty level you actually pay a negative tax rate. No receipts are required as the tax on poverty-level consumption is paid to each household each month. The FairTax act also explicitly repeals the income tax (along with other taxes).

[The Truth]

Question: fair tax rate = 23% (23% of all spent income is taxed)


Rich people pay 30%+ in income tax. This includes saved and invested income. They also pay embedded taxes the same as poor people.



So, the rich people are getting a tax break, yes or no?

[The Truth]

I am reading everything I can at fairtax.org, and I can't figure out where the extra money is coming from. They claim everyone gets a tax cut. The rich get a tax cut. The poor get a tax cut. The middle class gets a tax cut, but, wait, we generate 10% more income from the fair tax than we do from taxes that will be eliminated.

WTF?


I realize that people that don't pay taxes now, illegals and tax cheats, will pick up some of the slack. Is this population really that large?

[The Truth]

After much reading, it looks like there is no clear consensus as to where the tax burden will be shifted. Many suggest that the middle class will pick up the tax burden.
Proponents of the fairtax note that the fair tax will be levied onto a broader base than the income tax (11.4 trillion as opposed to 9.7 trillion, but this assumes 100% collection under fair tax). The broader base does not fully account for the lower taxes recieved by the upper class. It appears that the proponents of the fair tax argue that everyone will be taxed at a lower rate. Considering they expect the goverments income to be slightly higher as a result of the fair tax, this doesn't seem possible.


The fair tax is progressive on consumption and regressive on income. The argument here is whether or not consumption = income.

There are some other more basic pros and cons.

The fair tax could help the us economy etc. Fairtax.org to read about some more positives.


Some negatives in this article at mises: http://www.mises.org/story/1975





I would REALLY like to end the IRS, and the fairtax has some huge positives. But, I am not confident that the fairtax is our solution. Someone, please convince me [img]/images/graemlins/smile.gif[/img]

[bobman0330]

[ QUOTE ]
After much reading, it looks like there is no clear consensus as to where the tax burden will be shifted. Many suggest that the middle class will pick up the tax burden.
Proponents of the fairtax note that the fair tax will be levied onto a broader base than the income tax (11.4 trillion as opposed to 9.7 trillion, but this assumes 100% collection under fair tax). The broader base does not fully account for the lower taxes recieved by the upper class. It appears that the proponents of the fair tax argue that everyone will be taxed at a lower rate. Considering they expect the goverments income to be slightly higher as a result of the fair tax, this doesn't seem possible.


The fair tax is progressive on consumption and regressive on income. The argument here is whether or not consumption = income.

[/ QUOTE ]

A few more variations.
-Not only does FT broaden the tax base, it also increases the tax rate on some types of income. Right now, dividends and long-term cap gains are taxed at 15%. The portion of that that's spent will go up to 23% under FT.
-There are also some timing considerations that might favor FT. Consider taking out a loan and buying a car. Under the current system, you pay no tax at the time of purchase, and only pay income tax as you earn money to repay the loan. Under FT, you would (I assume?) pay 23% up front on the proceeds of the loan.
-Honestly though, the real problem is that consumption and income are just different tax bases. It's hard to generalize about how FT would affect a person making $75k a year. For a kid just out of school with student loans to pay off, it's a huge windfall. For someone who's buying a new car on credit, or in general spending most of his income (or accruing debt), it's harsh.

Anyways, I'm against it because I want to be a tax lawyer. This would really screw up my plans.

[GoodCallYouWin]

Well, income tax is much easier to dodge than the sales tax, so a large amount of income will come from that.

[TomCollins]

[ QUOTE ]
I am reading everything I can at fairtax.org, and I can't figure out where the extra money is coming from. They claim everyone gets a tax cut. The rich get a tax cut. The poor get a tax cut. The middle class gets a tax cut, but, wait, we generate 10% more income from the fair tax than we do from taxes that will be eliminated.

WTF?


I realize that people that don't pay taxes now, illegals and tax cheats, will pick up some of the slack. Is this population really that large?

[/ QUOTE ]

The economy is not a zero sum game.

Drop out the costs of complying with tax laws and you have a lot of extra economic activity.

[John Kilduff]

[ QUOTE ]
[ QUOTE ]
I am reading everything I can at fairtax.org, and I can't figure out where the extra money is coming from. They claim everyone gets a tax cut. The rich get a tax cut. The poor get a tax cut. The middle class gets a tax cut, but, wait, we generate 10% more income from the fair tax than we do from taxes that will be eliminated.

WTF?


I realize that people that don't pay taxes now, illegals and tax cheats, will pick up some of the slack. Is this population really that large?

[/ QUOTE ]

The economy is not a zero sum game.

Drop out the costs of complying with tax laws and you have a lot of extra economic activity.

[/ QUOTE ]

Costs of bureacracy of IRS itself are huge, and costs of income tax compliance for businesses and individuals are gargantuan in man-hours. Armies of accountants and other specialists must be paid just in order to comply with income tax regulations. Someone (besides me [img]/images/graemlins/wink.gif[/img] ) please look up and post the total costs. All I know is it is a staggering figure.