The Fair Tax

[HydrogenBond]

The fair tax amount to a national sales tax to replace income tax. The way the numbers crunch the tax will be roughly 27%, but only when one buys things new. Used stuff is exempt from the tax since it was already paid while it was new. The current federal income tax, social security tax and FICA, would be eliminated so one takes home their gross pay. If you don't buy anything new you pay no taxes. You still need food, gas, etc.

 

At the retail level the tax will be included in the price of the goods, so there are no smoke and mirror affects ($1.99 equals $2.26). The thinking is that the price will not change much, since businesses will reduce their tax burden (no income tax just a valued added tax) so less cost needs to be passed on to the consumer. The price goes down somewhat but back up somewhat due to the sale tax.

 

One big advantage is that being a sales tax, the tax free economies, like the blackmarket, illegal immigrants, under the table, etc., will pay their fair share of tax at the point of sale. This would take away arguments against offering help to illegals since they will be paying into the system.

 

Another huge benefits has to do with overseas accounts to hide money. Without an income tax, there is no need to hide the money. This would bring trillions of dollars back into the country. This would lower interest rates (increase the supply of money) and will create new jobs.

 

The downside is that it will initially create a lot of unemployment for the IRS and the tax prep industries. The cost savings for everyone else, means extra money for saving or for going back into the economy to create new jobs to reabsorb these people into other occupations.

 

The second downside has to do with polititians. The current tax code offers a way to pay back contributors. Just add/hide another line to the complex tax code, nobody will ever know unless you do your research. I am not sure how they will be able to hide kickbacks. But I believe in American ingenuity.

 

The only areas where there is uncertainty are the poor and retirees. The sale tax will bump the poor into higher brackets and will appear to double tax assets of retiree's, which have already paid tax. I believe this is addressed by making a tax floor for sales-tax exemption.

[Zythryn]

I have seen this idea with a sales tax monthly refund for those earning less than 20K a year.

 

I see a huge benifit to this type of tax in terms of lifting the level of compliance (due to simpler rules) and eliminating the loopholes many people use to lower their taxes.

 

I don't see this happening as the people in power are too tied to the current code laden with loopholes.

[Sacri Sankt]

sales taxes are hardly fair, they hit the poor hardest, particularly when the tax is on food and fuel.

[Fatstep]

That's why you should buy things under-the-table as often as possible :hihi:

[Cedars]

I dont think a national sales tax instead of income tax is an answer.

 

1. People would reduce the purchace of new items to avoid the tax, cars, homes, furniture, electronics, remodeling items, and accessories for these items (such as dvds, car stereos, bedding, tableware, etc)......

 

1a this would reduce further the manufactoring base and employment in these (and many unlisted) areas.

 

2. It would be an unfair burden to the newly independent (kids moving out on their own, recent graduates, divorcees, legal immigrants, etc) They are the people who have the least stuff to begin with so their purchace power will be more reduced than the persons who have had 30 years to accumulate needed items.

 

As I understand it, this will not zero out existing taxes paid to the state on sales of used cars, boats, motorcycles, etc so you need to add this "national sales tax" to your existing state taxes. There is no way the government is going to do this and not continue to charge taxes on existing items. The feds will foresee a drop in the income and they will establish new methods of extracting your hard earned dollars. They will call it by various names such as luxury tax, reinvestment tax etc. And why would they do this?

 

3. The demand for used cars, furniture, electronics will drive the prices of these items up further and reduce their supply as people keep items longer or to a state of complete uselessness. Additionally, those who already rely on these items because of their base income not allowing for the purchace of the item new will be further restricted from access.

 

There are things that should be done to the tax laws to close the loopholes. But a national sales tax seems to me to be counter-intuitive and would increase the burden on those who have the least to give, further than it is already compromised by those who have the most to give (able to compete in a free market).

 

A monthly tax refund does nothing to enhance a free market system by burdening the poorest with the most paperwork and only for those with enough in the bank to wait around for the government repay of the money the government shouldnt have taken to begin with.

 

It also opens the door for abuse by people being paid off to make a purchace for a weathier person and receiving a kickback on the tax cost saving.

 

One big advantage is that being a sales tax, the tax free economies, like the blackmarket, illegal immigrants, under the table, etc., will pay their fair share of tax at the point of sale. This would take away arguments against offering help to illegals since they will be paying into the system.

 

Your not suggesting that illegal immigrants, black market/drug dealers, under-the-table populations are a driving factor of the purchace power of the usa?

[Zythryn]

Cedars, there are a lot of assumptions in your reply. Many seem reasonable. However, do you have any sources for these assumptions?

Many of the European nations that have gone to a flat tax have not experienced negative results.

 

Your first assumption: "1. People would reduce the purchace of new items to avoid the tax, cars, homes, furniture, electronics, remodeling items, and accessories for these items (such as dvds, car stereos, bedding, tableware, etc)...... "

 

I would scratch out and replace with my assumption:

1. People would purchase more as the additional spending power of their paychecks would more than outweigh any increase in prices. Even if there is an increase in prices, it won't be as much as the national sales tax as companies won't be paying as much in taxes so prices will come down.

 

As far as I can tell, both assumptions are purely guesses. Both have grounding in rational extrapolation. And I don't have any documentation on the affects of the flat taxes in Europe. If you do, please share.

Actually, if anyone does, please share I would be very interested.

[CraigD]

sales taxes are hardly fair, they hit the poor hardest, particularly when the tax is on food and fuel.

Much as most states place 0% tax on the sale of non-prepared foods, I would hope that a well-designed federal sales tax would also place no tax on essentials such as food, medicine, and medical care. Additionally, in the same way that many kinds of employer-provided insurance, particularly health insurance, is currently accounted as a “pre-tax” deduction from pay, I would expect these services to have 0% tax. Unusual health care services such as “executive healthcare plans”, some of which cost more than $200,000/year, though affording excellent healthcare, might not be considered “essential”, and be subject to a sales/service tax.

 

Vehicle fuel, on the other hand, can be considered a cost of business – one usually need’s to operate a vehicle in order to travel to ones workplace, or to operate a self-owned business, so it cannot, I think, be considered “essential”, and should be taxed.

 

While the tax burden on the poor can be relieved by placing a 0% tax on essential goods and services, a higher, voluntary “progressive” tax can be placed on those able to bear it by taxing luxury G&Ss, such as exotic automobiles. As these G&Ss are already very expensive compared to their cost of production, as is common with low supply/high demand G&Ss, a high tax would not place an intolerable burden on the sellers or purchases of these G&Ss.

 

I’ve long considered a replacement of income taxes with sale and service taxes an interesting and promising idea. The main difficult I anticipate with such a scheme is that it could be difficult for federal accountants to anticipate revenues, as average household expenses vary more than average household income.

[Zythryn]

Well, I have one link so far. I am a bigger proponent of the flat tax than the national sales tax (which is basically a type of flat tax) for exactly the reasons mentioned by others, including Cedars.

However, I think the sales tax could be made to work without negatively affecting the poor. It would add complexities which is part of the thing we are trying to avoid.

 

For some good general info: A Brief Guide to the Flat Tax

[Fatstep]

Much as most states place 0% tax on the sale of non-prepared foods, I would hope that a well-designed federal sales tax would also place no tax on essentials such as food, medicine, and medical care.

 

Our state, North Carolina, places a 7.5% sales tax on things that are concidered "luxury items", I.E. gas, fresh foods, food at restaurants, clothing etc. We also have a 2% tax on everything the 7.5% tax doesn't cover, being things such as health care, prepared foods, and medicine.

 

A fair will never be enacted. It is too burdensome on so many people (the poor/poverous) that it would be just too controversial. Concidering taxes go up to 32% it would not be able to be lowered very much. The poors' taxes could go up as much as 8% which would be financial devastation to those who can hardly even pay their bills.

[Zythryn]

The flat tax proposals I have seen tend to have a bottom floor of $30,000 for families. This is far less tax than is currently paid by the poor. Please note, this is a flat annual tax, not a sales tax (fill out a postcard for your tax form:)).

 

If NC inflicts a 2% tax on essentials, I would move across the border;)

[Fatstep]

Actually, I lied.

 

If you have a prescription I am pretty sure there are no taxes, same for if you're in a hospital. If you are going to buy Advil or Claritin type drugs (over the counter) then there is the 2% tax.

[Cedars]

Cedars, there are a lot of assumptions in your reply. Many seem reasonable. However, do you have any sources for these assumptions?

Many of the European nations that have gone to a flat tax have not experienced negative results.

 

Your first assumption: "1. People would reduce the purchace of new items to avoid the tax, cars, homes, furniture, electronics, remodeling items, and accessories for these items (such as dvds, car stereos, bedding, tableware, etc)...... "

 

I would scratch out and replace with my assumption:

1. People would purchase more as the additional spending power of their paychecks would more than outweigh any increase in prices. Even if there is an increase in prices, it won't be as much as the national sales tax as companies won't be paying as much in taxes so prices will come down.

 

As far as I can tell, both assumptions are purely guesses. Both have grounding in rational extrapolation. And I don't have any documentation on the affects of the flat taxes in Europe. If you do, please share.

Actually, if anyone does, please share I would be very interested.

 

Well those are fair questions back at me Z. But they are not so much assumptions as my reaction to such a tax. I know I will reduce my purchaces in the above mentioned categories. A $100 dollar purchace now becomes $133. $27 goes to the feds and $6 goes to the state of MN (figured at 6% because the stadium isnt approved yet :shrug: ).

 

As far as Euro nations and negative results? You would need to ask Europeans for input on that.

 

From Wiki Sales tax

 

"Sales taxes are considered by some as regressive, that is, low income people tend to pay a greater percentage of their income in sales tax than higher income people, because they tend to spend a higher percentage of their income on consumable items. Others consider sales tax preferable since it taxes only consumption and may be an incentive for savings. In many locations, items such as non-prepared food or prescription drugs are exempt from sales tax to alleviate the burden on the poor."

 

People saving money are not purchacing. If products dont sell people get laid off.

 

Heres a snippet about the fraud inherant in the Euro system:

 

Annual fraud on European sales tax to exceed $100b Accounting Today - Find Articles

 

Heres something about the discussion on a Nat. Sales Tax in the US in the 1940s:

 

The Tax That Wasn't: Mid-Century Proposals For A National Sales Tax. (Copyright, 1996, Tax Analysts)

 

I havent seen much change in the idea as discussed then compared to now.

 

Heres a blog on the idea with links to its sources.

 

National Sales Tax @ Blogcritics.org

 

From the above link:

 

"Look, say Person A makes $18,000 a year ($1500/month) and person B makes $180,000 a year ($15,000/month). Both people need $12,000 ($1,000/month) worth of essential goods. Both people pay 25% sales tax, which comes out to $250 a month. A is paying 16.66% of their income to taxes, while B is paying 1.66 % of their income. The rebates don't really make up a difference, because A and B both receive the same discount."

 

And finally

 

"Even George W. Bush chimed a couple of months ago saying that this is an idea "that we ought to explore seriously", though him and his administration have since attempted to back away from those original comments."

 

Dubya likes it? Ok I am convinced. Its a bad idea :hihi:

[TheBigDog]

There is only one fair tax, and that is no tax. As soon as you begin collecting under any other scheme than zero somebody is getting shafted. But life is not fair, is it?

 

I like use taxes that are direct funds for their related needs. The gasoline tax that is used to maintain the road system is a great example. Those who use the roads contribute by purchasing fuel. Generally speaking, heavier cars cause greater wear and tear on roads, and heavier cars get poorer gas mileage. So there is a balance to the tax and what it pays for. It does not discriminate for rich or poor.

 

Bill

[Jay-qu]

Here its called GST, goods and services tax and we have been getting it at 10% for some time now..

 

As a concept it does appeal to me better than income tax, but only if you actually have an income, of which I have very little so it hits me harder than income tax..

[Zythryn]

Well those are fair questions back at me Z. But they are not so much assumptions as my reaction to such a tax. I know I will reduce my purchaces in the above mentioned categories. A $100 dollar purchace now becomes $133. $27 goes to the feds and $6 goes to the state of MN (figured at 6% because the stadium isnt approved yet :hyper: ).

 

That still doesn't necessarily predict behavior on a large scale. I for one would not curtail my spending at all. Part of the reason is the competitor of the company offering the $100 product for $133 would be offering it for $120, so I would buy from them instead.

This doesn't mean everyone would behave as I did, it also doesn't mean they would not.

This also only addresses a national sales tax, and not a flat tax. A flat tax would have no direct effect on the price you pay at the retail level.

 

I agree with you about the national sales tax bringing its own issues to the table which is why I prefer a flat tax to the NST.

 

As far as Euro nations and negative results? You would need to ask Europeans for input on that.

 

From Wiki Sales tax

 

"Sales taxes are considered by some as regressive, that is, low income people tend to pay a greater percentage of their income in sales tax than higher income people, because they tend to spend a higher percentage of their income on consumable items. Others consider sales tax preferable since it taxes only consumption and may be an incentive for savings. In many locations, items such as non-prepared food or prescription drugs are exempt from sales tax to alleviate the burden on the poor."

 

Great statement about sales taxes, and I agree. Which is why I like a flat tax. Either that or complicated exceptions need to be built in to the sales tax which gets us away from the benifits we are looking for.

 

People saving money are not purchacing. If products dont sell people get laid off.

 

Our savings rate has dropped to the lowest point in 73 years (as a nation). I think we could stand to encourage savings and get people off their reliance on social security (that is a different topic though:)).

 

Heres a snippet about the fraud inherant in the Euro system:

 

Annual fraud on European sales tax to exceed $100b Accounting Today - Find Articles

 

That is not the system I was speaking of. That is the Value Added Tax. I am talking about the flat tax used by a number of european countries. I am not claiming it is perfect or doesn't have any problems. However it has far more benifits and fewer problems than the current tax the USA uses.

 

Heres something about the discussion on a Nat. Sales Tax in the US in the 1940s:

The Tax That Wasn't: Mid-Century Proposals For A National Sales Tax. (Copyright, 1996, Tax Analysts)

 

I havent seen much change in the idea as discussed then compared to now.

 

Again, I agree with you that the sales tax has issues, which is why I prefer a flat tax.

 

 

"Even George W. Bush chimed a couple of months ago saying that this is an idea "that we ought to explore seriously", though him and his administration have since attempted to back away from those original comments."

 

Dubya likes it? Ok I am convinced. Its a bad idea ;)

 

Best argument for me not to like a national sales tax:hyper:

 

Seriously though, check out the flat tax that uses a post card as your annual tax return form, not the national sales tax. The wiki article has a lot of info on it as does the link I posted earlier. I would be interested in your thoughts on it.

[Fatstep]

 

 

Our savings rate has dropped to the lowest point in 73 years (as a nation). I think we could stand to encourage savings and get people off their reliance on social security (that is a different topic though:)).

 

 

 

 

Our country punishes us for saving, so why would you even do it?

This is my account under my parents' account.

I had ~$11,000 in my savings account @ 6.2% quarterly. I had to pay almost 5.8% in taxes on the amount I "make" every quarter, so that leaves me with .4% net, so little that there is almost no use in saving. Money Markets are the way to go. Taxes really do suck, and I'm not even 18 yet

[Zythryn]

Exactly Fatstep!!

That is one of the things the flat tax would help. We would encourage savings and investment rather than discourage it.