26 replies to this topic

[Kurb]

http://www.fairtax.org/site/PageServer

Well Kurb, WTF is a Fair Tax ?

The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed. A prebate makes the effective rate progressive

he FairTax is replacement, not reform. It replaces federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.

Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate. The FairTax rate after necessities is 23% and equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated.

Oh, ok. Well WTF is a Prebate?!

Under the FairTax, all Americans consume what they see as their necessities of life free of tax. While permitting no exemptions, the FairTax (HR25/S13) provides a monthly universal prebate to ensure that each family unit can consume tax free at or beyond the poverty level, with the overall effect of making the FairTax progressive in application. There is no marriage penalty as the couple gets twice the amount that a single adult receives.
While everyone pays the same tax rate at the cash register, the prebate results in effective tax rates (annual taxes paid divided by annual spending) that increase as the level of spending increases a progressive tax rate structure. For example, a person spending at the poverty level has a 0% effective tax rate, whereas someone spending at twice the poverty level has an effective tax rate of 11.5%, and so on.

But Kurb, my (liberaltard/conservatard) sources say it will hurt the poor/economy...
Well that is covered here.

How does the FairTax protect low-income families and individuals and retirees on fixed incomes?

Under the FairTax Plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today.
Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most.
In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

Other FAQ's
http://www.fairtax.o...pagename=FAQs#3

[Delhommey]

My biggest concern is the biggest thing the Fair Tax has going for it is less red tape, but the rebates would end up just as convoluted as tax exemptions are now in a matter of years.

[Kurb]

My biggest concern is the biggest thing the Fair Tax has going for it is less red tape, but the rebates would end up just as convoluted as tax exemptions are now in a matter of years.

My concerns are similar.

For it to work, it can't be tinkered with.
First damn thing I see the .gov doing is allowing bigger "prebates" to certain groups to buy votes and adjusting the National Sales tax upwards.

[Darth Biscuit]

For it to work, it can't be tinkered with.

Then it won't work... no way congress won't tinker with it, even if you could get them to pass it in the first place.

[g5jamz]

Then it won't work... no way congress won't tinker with it, even if you could get them to pass it in the first place.

That's why when it's rewritten, it should be made into an amendment so that states have a say in this due to the feds needing the states to help in getting the revenue. Amendments are hard to pass...remove...or amend later.

[Jase]

My wife and I pay over 20% of our pre-tax income to childcare.

Doing the math, it seems like the "consumption" tax on this item alone will end up being more than we'll pay in net federal income taxes this year.

And somehow I doubt it'll be considered a "necessity" and therefore exempt.

What say you.

[Inimicus]

Since everything seems to hinge around how much money is spent instead of how much is earned, how do you track individual or household spending?

It seems to indicate that I would need to account for all of my spending to earn a prebate.

[Kurb]

My wife and I pay over 20% of our pre-tax income to childcare.

Doing the math, it seems like the "consumption" tax on this item alone will end up being more than we'll pay in net federal income taxes this year.

And somehow I doubt it'll be considered a "necessity" and therefore exempt.

What say you.

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[Jase]

[SZ James]

No thanks.

I don't want the burden shifted to the middle class.

@Mickelson and the WSJ:

[Kurb]

No thanks.

I don't want the burden shifted to the middle class.

@Mickelson and the WSJ:

Explain

[SZ James]

i'm all for simplifying everything. the fairtax proposes some briefly-tempting things like simplicity and "fairness".

the transition would be crippling(cost and lost jobs) that wouldn't be worth it.

and shifting the burden by having a glorified consumption tax most def affects the middle income and poor bracket the most. the fairtax FAQ mentions no income tax but they will get it one way or another.

/liberaltard rant

[SZ James]

(Continued from Page 3)
Not all consumers will be effected equally by these changes. We'll next look at who will win under a national sales tax and who will lose. Changes in government policy never effects everybody equally. Americans for Fair Taxation estimates that the typical American family will be over 10 percent better off than they would be under the income tax. Even if you believe these claims, not all individuals and families are typical, so some will benefit more and some will benefit less.
Who might lose under a national sales tax?

Seniors. People do not earn income at a steady rate during their lifetime. The bulk of most people's earnings occur before the age of 65. People over the age of 65 have vastly reduced incomes and live off the savings they earned while employed. A switch to a sales tax will be in effect taxing them twice. They've already paid a lifetime of income taxes and now they have the opportunity to live off of their savings and consume, they'll be taxed on that consumption. Unless special consideration is given to the current generation of seniors, they will end up paying a disproportionate share of taxes.

The Poor Generally the working poor pay very little (if any) income tax. However everybody needs to consume to survive. The poor get hit twice under such a scheme. Currently the poor pay little tax, where now they'll have to pay taxes on their consumption, so their total tax bill will rise dramatically. The poor also spend a larger proportion of their income on consumption goods to survive, so they'll pay a larger percentage of their income in taxes than wealthier individuals. The FairTax advocates realize this, so their plan includes sending each American family a rebate or "pre-bate" check each month to cover the necessities of life. The size of the checks will be designed so that a family right at the poverty line would not pay a cent in taxes. Of course, the higher the allowance made for the poor, the higher the tax rate everyone else will pay in order to cover federal spending.
Economist William G. Gale at the Brookings Institute has determined that most low income families will pay more taxes. "Under the Americans for Fair Taxation proposal, taxes would rise for households in the bottom 90 percent of the income distribution, while households in the top 1 percent would receive an average tax cut of over $75,000."

Families Currently the income tax has all sorts of deductions for small families such as earned income credits and child care credits. These would disappear with the elimination of the income tax. A sales tax, other than for purposes of the rebate, would not distinguish between families and individuals. Gale states that the "enactment of a broad-based, flat-rate consumption tax like the sales tax ... would hurt families with incomes less than $200,000, because of the loss of tax preferences, but would help families with income above $200,000, due to the dramatic reduction in the top tax rate." Given that the rebates are given based on the poverty line, and the poverty line does not dramatically increase between a one-person and two-person family, this is not surprising.

IRS Employees and Income Tax Lawyers Part of the appeal of the proposal is that it will make the IRS irrelevant.

Next we'll look at who wins under a change to a national sales tax.

(Continued from Page 4)
Who might win under a national sales tax?

People who are inclined to save A consumption tax can be avoided by not consuming. So it makes sense that people who do not consume a lot will benefit from the plan. Gale admits that there are savings for a large portion of the population, stating "If households are classified by consumption level, a somewhat different pattern emerges. Households in the bottom two-thirds of the distribution would pay less than currently, households in the top third would pay more. Still households at the very top would pay much less, again receiving a tax cut of about $75,000".

People who can shop in other countriesThis includes people who take a lot of overseas vacations and Americans living near either the Canadian or Mexican border who can do their shopping in those countries to avoid taxes.

People who own businessesThe sales tax will only be charged on goods bought by individuals and not by firms. Owning a business gives you an advantage as you can buy some goods for personal use and claim that they are for business use.

The wealthiest one percentAs stated they will see an average tax cut of $75,000 per person.
The ability to get such a tax plan implemented will depend on the political power these different groups hold. It also may not be political feasible because of some flaws in the proposal. There are a few basic flaws with the FairTax proposal:

The 23 percent tax rate quoted is a tax-inclusive rate. However tax rates are normally quoted as a tax-exclusive rate. The FairTax plan has a tax-exclusive rate of over 30 percent, which may be difficult to sell to voters.

The ease of tax-avoidance and tax-evasion Since consumers can either make their purchases in another country, or claim their purchases as business expenses, the tax may not generate the necessary amount of revenue.

The desire for exemptions Many desirable goods would be subject to the FairTax. Health insurance is one such good. It is likely that various political interests would suggest that certain goods not be taxed. It is likely that some of these appeals would be successful. If they are successful however, the tax rate would have to be raised even higher, or large deficits would occur.

The possibility of having both an income tax and a sales tax The national sales tax is desirable because it replaces income taxation. However there is nothing restricting the government from having both a nation sales tax and an income tax. Repeal of the 16th amendment would make income taxes illegal, but repeal seems incredibly unlikely. If the government was able to tax income, they probably would.

Like the flat tax before it, FairTax is an interesting proposal which is unlikely to ever be implemented. While implementation of the FairTax would have several positive (and a few negative) consequences for the economy, groups that lose under the system would make their opposition felt. The constant need of government to offer rebates and refunds to segments of the population would cause the rate to rise to levels which are politically unfeasible. It is, however, an interesting idea worth discussing.

sorry about the formatting


http://economics.about.com/cs/taxpolicy/a/fairtax.htm

e:just click the link instead

[PhillyB]

how would this affect the revenue stream?

[Kurb]

how would this affect the revenue stream?

From my understanding it is "revenue neutral" same amount of cash flows into the Government as before.

Such I find hard to believe. I know HOPE I for one would have a good bit more cash in pocket if a consumption tax was in place.