The Fair Tax

[Cedars]

This is not true in regards to the current Fair Tax bill introduced in the House of Congress which contains a Family Consumption Allowance. This allowance allows for a full rebate of the sales tax imposed up to the monthly poverty level, this level being one twelfth of the annual poverty level determined by the Department of Health and Human Services poverty guidelines. It further states that families which include a married couple will also have their poverty level increased by an additional amount that is equal to twice the poverty level for a family of one minus the poverty level for a family of two. For a married couple alone this means they would qualify for an additional $6730 annually in addition to the $13,690 they qualify for as a family of two. This couple would receive a full tax rebate on their first $1700 of expenses. If that's all they make and they spend all of it they'll effectively pay zero taxes, not a higher percentage as Fair Tax opponents claim.

 

Can anyone provide any real negatives with real research to support them?

 

I stand by my original statement about the calculation of poverty being incorrectly assessed in this country:

 

Historical Poverty Tables

 

I hate reading tax stuff; as with any legalize it gives me stomach aches. As I understand this, it means that I will pay 27% on my electric bill, phone bill, cable, movie rental, propane/natural gas, car fuel, etc.....

 

I am also under the impression I will pay 27% on my morgage payment or rental payment as I am receiving a place to live (a good/service).

 

`(14) TAXABLE PROPERTY OR SERVICE-

 

`(A) GENERAL RULE- The term `taxable property or service' means--

 

`(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--

 

`(I) intangible property, and

 

`(II) used property, and

 

`(ii) any service (including any financial intermediation services as determined by section 801).

 

But my landlord or bank will not pay 27% because he didnt receive a good/service from the property rental, he is not the end user. Additionally, the bank wont pay a tax on the income generated by the interest I pay them. And I will no longer have the interest deduction on my taxes because I wont be filling out taxes so the deduction wont exist. *note there seems to be some kind of exception for real estate bought before 1/1/09 but I dont believe this applies for rental units and I dont quite understand this so I may be reading it wrong.

 

Now I add up all the taxes I pay each month and take the yearly 'What is a po' person' total and divide it by 12 for the amount I am allowed to submit. So every single person (regardless of income) would divide 10,210 by 12 and get $850 plus .27% for a total of $1079 monthly credit (which is what I am). That is the monthly maximum I can claim as a refund. So if I buy a new car for $10K (haha) and pay 2700 in taxes, I can only get $1079 of that back and cannot claim any other sales tax rebate for that month right? (and this wont include the unrefundable state sales taxes I will pay).

 

But a two income family of $40K a year can buy the same car and get $1700 back. Just as I imagine. The better off thrive under this idea and the people who have less to begin with pay a higher percentage of their income to the feds.

 

This system screws single people and the poor greatly and improves life for the rich expoentially. Another windfall for the "I already got a bunch". Hardly a fair tax in light of my humble origins.

 

And I will finish up with I think a better approach would be to get rid of the exceptions/exemptions on the top level, including the super-rich not having to pay into S.S. I find it short sighted to believe 100-200 million people filling out monthly "gimme my money back" forms is a solution for the complexity in the taxes paid. Another HUGE bureocratic layer of involvment that instead of being a few months of the year encompasses each and every month of our lives.

[C1ay]

Hardly a fair tax in light of my humble origins.

 

That really depends on one's view of "fair". IMO, 100 people sharing the same road should all pay 1/100th the cost regardless of their value, worth, earnings, etc.. Others think it's fair for the one guy with 100 time more than anyone else to pay the whole cost by himself. I view this as a sense of entitlement, not fairness.

[Cedars]

That really depends on one's view of "fair". IMO, 100 people sharing the same road should all pay 1/100th the cost regardless of their value, worth, earnings, etc.. Others think it's fair for the one guy with 100 time more than anyone else to pay the whole cost by himself. I view this as a sense of entitlement, not fairness.

 

whatever....

 

Too bad you didnt address a single point in my response.

[Zythryn]

Because we don't know the details, it is difficult to say...

 

However, you don't pay any tax on your house unless you built it. As the tax on the construction of the house was paid by the original owner. After that the house is 'used' so no tax.

 

Now, I am not claiming that is the way it will work, just saying that is another way to read it.

 

In the 25% tax bracket, over a third of my weekly paycheck went to taxes. The most unfair tax of them all (SS) is the one that is really unfair to the poor and gives the rich a free pass (you don't pay ss tax above a certain income level, mentioned earler around 1.5M, but I thought it was closer to 100K).

 

All this aside, one of the reasons I think people are talking about all this more and more is that the current system is broken BADLY. I am of that belief so I am looking for another system that is less broken. Heck, even perfect (I don't expect to get there though).

 

I believe, if proper care is taken, a flat tax, or possibly NST would be more fair to the lower and middle class and be less abused by the higher incomes. In addition it would encourage investment and savings which is currently not encouraged very much, and less so when the dividend/capital gain low rates go back to higher levels.

[C1ay]

whatever....

 

Too bad you didnt address a single point in my response.

 

Whatever?

 

Think of a toll road. What's fair to the user's of that road?

 

A. Everyone pays the same toll per vehicle.

B. Everyone pays based on their vehicle weight.

C. Everyone pays based on their vehicle worth.

 

IMO, A or B is fair but C is out of the question. The points in your response reflect a view similar to C in this poll though, that everyone should pay a tax, or not, based on their worth. I disagree and pretty much assume that we'll end up agreeing to disagree.

 

It costs a certain amount to run the country, a country of the people, by the people and for the people. All people should bear the burden as equally as is possible. IMO, if two roommates share an apartment they split the rent, not proportion it based on each roommates worth or paycheck. Imagine being one of those roommates and both of you get the same paycheck. If you get a raise does that mean your roommate should now get a discount of his share of the rent? That he should be effectively entitled to a part of your raise?

 

The Fair Tax will tax some goods and services you haven't been taxed on before. It will also send you home with your whole paycheck and not a portion of it. It will exempt you on your necessities the same as everyone else. As a single person you will get the same tax credit as all single people. This means the single rich man worth 10 or 100 times your value will get the same $1079 tax credit as you. If he spends 10 or 100 times more than you he gets the same rebate you get, not a percentage of his spending. I fail to see your claim of getting screwed here.

 

Social Security is really something no one should pay into. It is an ill conceived, ill managed, negative investment. It is running out of money and taking away a few exemptions to it is not going to fix the catastrophic population bloom that's due to hit as the baby boomers hit retirement age. It should be privatized.

[HydrogenBond]

The value of the fair tax is simplicity in both practice and implimentation. The taxes are done for you at the cash register. Being one thing, it would be hard for polititian to mess with, like the curent kickback code. The more one needs and can afford to buy, the more tax. At the same time, tax revenue will be driven by demand or desire. I am not sure what it is driven by now, maybe fear and greed.

 

Because there will be an incentive to save and invest (tax free) and a hesitency to consume too much at first due to the new high rate tax, demand side economics will impact the economy.The supply side will have to react and create incentives to get people to part with their money, causing prices to drop. People are not going to spend much at first, to test the water. Businesses are going to be forced to pass some of their own tax cost savings on to the consumer. Eventually, the consumer will see a good deal and the economy will take off. With tax revenue based on demand, each tax dollar is connected to jobs.

 

If the govenement needs more money they will need stimulate the ecomony in way that will increase demand. This can be done if Uncle Sam is also required to pay the national sales tax, on anything it buys. That is a good way to teach them to be more efficient with their purchases. They will start buying $10 toilet seats instead of $500 ones to expand their purchasing power and meets the needs of their programs. The Uncle Sam tax is given back to the people as a rebate to stimulate demand, maybe around Thanksgiving Time. Or maybe quarterly to spread the demand boom over the seasons (holiday season, President's Day durable goods sales, summer vacations and related industries, etc.)

[C1ay]

The value of the fair tax is simplicity in both practice and implimentation. The taxes are done for you at the cash register.

 

This will also eliminate tax evasion, by both the rich and illegal aliens....

[Zythryn]

This will also eliminate tax evasion, by both the rich and illegal aliens....

 

 

Which is where the 'fair' part comes in:)

This is one of the reasons I like it so much. Eliminate the ease of evasion, loopholes and kickbacks.

[TheBigDog]

Everyone is being naive if they think this will eliminate tax evasion. "Off the books" cash sales where the taxes are discounted will be all the rage. It may reduce it, but it will not be eliminated.

 

I used to live next to a very large Hassidic population in Lakewood, NJ. There was a synagogue in Lakewood that ran a tax scam that was well known. Members would tithe to the synagogue. This was a tax deductible donation for the individuals. The synagogue bought foodstuffs in mass quantities, and handed them out to the members. This essentially made all food purchases for the members a tax deduction. Similar scams could be set up to evade sales tax if the non-profit that you are donating to manages to get into the supply chain at a “non value added” point, or in one of the “enterprise zones” that are bound to turn up to boost local economies by lowering federal sales tax in a locality.

 

I have not been a fan of the national sales tax idea, but intend to read the bill. It does look interesting.

 

Bill

[CraigD]

Think of a toll road. What's fair to the user's of that road?

I believe the term “fair” to be dangerously vague in use in discussions of public law. Tellingly, I believe, it appears nowhere in the US constitution. The term “just” is mentioned, though the only explanation of the term in a “founders’” document of which I’m aware appears in the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, …

In short, the closes definition of “fair” connected to theory of government of the US relates it to consent of the governed. The rest of US law, from the Constitution to the most recently enacted legislation, and the additional rules and regulations implemented to enact that legislation, can be considered an effort to assure that the government of the US takes no action not consented to by the People.

 

Arguments, then that “fairness” in government can be determined from abstract principles of formal reasoning are, I think, incorrect. If, extremely hypothetically, the People as one consented to being bridled and ridden naked through the streets by a hereditary priesthood, this principle of fairness would not be violated (though numerous parts of the Constitution clearly would), no matter how logically irrational such a practice would be.

 

With this principle in mind, I believe that current forms of taxation, entitlement, and other acts and functions of government, are “fair” is that they have our, the People’s consensus. Although most of us complain about inequity in taxes and entitlements, the large majority of us find the service of government acceptable, and what we pay for it, acceptable. When we don’t, the means exists to change it.

 

In 1913 (though minor controversy over this date exists), Americans gave their consent to a direct federal tax on incomes from any source, as enacted by laws passed under the Sixteenth Amendment, and to an rate of taxation of

• In 1913, 0% for net income under $3000/year, and between 1% and 7% (for income exceeding $500,000/year) for income over $3000/year
  
• During WW I, a top rate of 77% during WW I
  
• Between 1918 and 1961, a top rate varying between 25% and 94%
  
• From 1964 to 1981, a top rate of 70%
  
• From 1981 to 1986, a top rate of 50%
  
• From 1986 to 1991, a bottom rate of 15% and a top rate of 28%
  
• From 1991 to present, a bottom rate varying from 15% to 10%, and a top rate varying from 31% to 39.6%
  

(Source: the wikipedia article “Income tax in the United States”)

 

In 1935, Americans gave their consent to the idea that wage-earners would provide for the support of the the old-aged, the sick and crippled, widows, widowers, orphans, as enacted into law by the Social Security Act, a consent that, despite considerable urging by the present Executive, and some Congresspersons, continues to be strong.

 

It is possible, though I suspect unlikely, that The Fair Tax Act of 2007 will become US Law. I doubt it can withstand judicial review – the Sixteenth Amendment specifically allows Congress the power to “lay and collect taxes on incomes”, a power that I doubt could lawfully be extended to include sales. As with the 1913 income tax, I think The Fair Tax Act would require a Constitutional Amendment.

[C1ay]

With this principle in mind, I believe that current forms of taxation, entitlement, and other acts and functions of government, are “fair” is that they have our, the People’s consensus. Although most of us complain about inequity in taxes and entitlements, the large majority of us find the service of government acceptable, and what we pay for it, acceptable. When we don’t, the means exists to change it.

 

I tend to believe inequity and complexity are currently driving the efforts to change it. I believe the people's concensus is why the sponsors have grown from 1 or 2 when the Fair Tax Act of 2003 was first submitted to the 54 sponsors the current version has.

[CraigD]

Everyone is being naive if they think this will eliminate tax evasion. "Off the books" cash sales where the taxes are discounted will be all the rage. It may reduce it, but it will not be eliminated.

Although state sales tax evasion is not unknown, it’s much harder to get away with, particularly in high-volume retail businesses. I’ve know of one small grocery/variety store, which sold both taxable and non-taxable goods, who’s owner regularly pocketed the sales tax it collected in an effort to stave off bankruptcy. It went under about 20 years ago, to be replace by … a grassy lot.

 

I wouldn’t underestimate improvement in supply chain and banking government reporting capabilities since I had much acquaintance with the small-scale criminal merchant community of southern West Virginia, though – in addition to the internet, info tech has raised the ability threshold on off book/under the table crime considerably.

[Cedars]

It costs a certain amount to run the country....All people should bear the burden as equally as is possible.

 

The Fair Tax will tax some goods and services you haven't been taxed on before. As a single person you will get the same tax credit as all single people. This means the single rich man worth 10 or 100 times your value will get the same $1079 tax credit as you. If he spends 10 or 100 times more than you he gets the same rebate you get, not a percentage of his spending. I fail to see your claim of getting screwed here.

 

There is no accumulated wealth in the bottom 60 - 70% of people in this country. If you inflict this type of tax change you have the potential of negating up to ½ of the federal income. Additionally the average joe will have to pay the 27% plus (cuz that’s only the PROPOSED nat. tax rate and doesnt include state taxes) to accumulate any additional wealth. The money needed to run existing government has to come from somewhere. It will be nice that the wealthy will be able to afford time shares in places besides Morocco. You will see layer after layer of added taxes. The dreaded VATs will become commonplace on both the state and fed level and you will find ½ of your wages being eaten up in multi layered taxes disguised as user fees. I say this with confidence because it is exactly what has occurred in the countries that use a sales tax as their method of revenue. Be careful of what you wish for. If you really are serious about lowering the taxes on the average joe you need to get rid of more of the exemptions for the top 30-40% of wealth generating sources in this country.

 

Heres what I am talking about:

 

Wealth and Income Inequality in the USA

 

Mish's Global Economic Trend Analysis: Falling Family Incomes

 

Pay special attention to the stock market reality for the average family and insert “privatization of Social Security”.

 

Reasons for fed funding problem? They are not kidding in the above links about the rich getting richer and the wages stagnating:

 

Federal Spending Chartbook: Total Federal Spending and Median Income, 1962-2004

 

Federal Revenue Chartbook: Total Federal Tax Revenue per Household, 1960-2006

 

It is tempting to believe most will benefit under such a plan and have "oh so much more". But what is being proposed eliminates the obligations the very wealthy have now and allows them to hold more than the 80% of the wealth they already have. They wont pay taxes on income generated from selling stocks, you will pay to make them richer and at higher cost PLUS a 27% tax on top of your trading fees and whatever other transaction fees are required to accumulate their wealth. I am not saying things shouldnt be done to fix the system but until the median income rises with the rate of spending you wont get tax revenue equaling government spending trends, no matter how many people are newly employed at McDonalds or Walmart.

 

Heres a sample of what ‘smaller government’ has bought the average taxpayer:

 

In Washington, Contractors Take On Biggest Role Ever - New York Times

 

Above article wont be available forever I would guess, but this link references the information on contracting (the answer for reducing big government and creating tax payer benefit):

Household Debt: A Growing Challenge for American Families and Federal Policy - Income/Wealth Inequality - OMB Watch

[HydrogenBond]

No matter what type of tax code that is in place, there will be cheaters and scammers. The more complicated and extensive the tax code the easier it is to sneak around and cheat. As the tax code gets simpler cheating becomes far less diversified and easier to anticipate. If one has a hundred lines of code, that means a hundred fences people can balance on or cross over. If there is only one line of code there is only one fence to tetter on.

 

What is easier to defend, one hundred fences with one hundred guards or one fence with fifty guards? Currently, you have scammers hopping all the fences, many of which don't even touch each other. With the far tax, all the scammers will only have one fence to hop. If one scammer makes a hole in the fence, the rest of scammers will try to get on the same bus, making it easier for the guards to see where the holes are.

 

Members have already listed some of the possible loopholes in that lone fense. We already know where to place some of the guards.

[Michaelangelica]

The Stop Tax Haven Abuse Act was introduced last year by Obama, Carl Levin, a senior Democrat senator, and Norm Coleman, a Republican. They said the loss to America from offshore tax evasion “approaches $100 billion a year”.

Tax haven crackdown - Times Online

a VERY conservative estimate I would think

 

We are not talking about nondomiciles who are legally structuring their tax affairs,” said Chris Oates, tax partner at Ernst & Young

!!!

 

In the case of Liechtenstein, it wants a change to a system that gives almost complete secrecy to individuals deposting money. By handing money over to the trustee of a Liechtenstein foundation, individuals can hide their wealth from their national tax authorities. The country, which has some 35,000 residents, has 15 banks and more than 300 trustees, mostly lawyers, who administer thousands of trusts

Stephen Pallister of the law firm Charles Russell warned the crackdown could have unintend-end consequences.

 

“If these tax havens come under enormous political pressure we could see a move of funds to places like Mauritius, Singapore and the Caribbean.”

Tax haven crackdown - Times Online

IE The lawyer would have to move "unintented consequences"?

 

Interesting comment too

Andorra, The Channel Islands, Gibraltar, Isle of Man, Leichenstein, Luxembourg, Malta, Monaco and Switzerland, have become an anomalie in Europe.

 

While one can sympathise with the wealthy who are reluctant to see the state confiscate their assets, the present situation has led to the middle classes, and even the poor, facing ever increasing taxes by Governments desperate to raise revenue.The widening gulf between the rich who become richer and the rest of the population whose standard of living is falling can only lead to a social explosion.

 

Governments have no choice but to overhaul the tax systems.

Wealthy individuals hide their assets offshore primarily to protect their businessand families after they have passed on.

 

The solution is to remove tax avoidance schemes, abolish any wealth tax and reduce drastically inheritance tax while at the same time enforce a fairer distribution of wealth by capping the remuneration packages at the top and allowing salaried staff to benefit.

 

peterfieldman, paris, france