FairTax
The following is an email exchange that this post was based on…
Thanks, I have heard of Fair Tax but have not investigated it thoroughly.
What this amounts to is a national sales tax, but I have problems with
this unless it is one part of a national tax strategy.
Some argue that it is fair because those who spend pay, but what about
those who have already attained masses of money — they can just sit
on it and avoid taxes. Does this help lock wealth in to the
wealthiest and penalize the middle class folks who try to rise higher?
This is the aspect I want to explore.
Interesting. Yes the wealthy can sit on their money, but if they wish to buy anything than they will be putting money into the system. That is, if they want to eat they will have pay taxes essentially.
But I think the other big issue surrounding FairTax is how to deal with those that can’t afford a 23% sales tax. The supporters say there are rebates, but the problem is affording it up front. So really you would need a program for those to get money up front, before they go out to get things.
I like the idea of it because it will encourage businesses and manufacturing companies to come back to and stay in the US. Since the FairTax will eliminate business taxes as well. The other nice idea behind it is that mafia, gangs, drug dealers, and others that commit crimes will be forced to pay taxes (which they aren’t currently doing). Because if they want to buy food they will have to pay the taxes for it. Which should also help reduce crime. Because one reason crime is so profitable is not having to pay taxes.
There are a few problems with the system, but if you’ve been paying your taxes I assume you agree… the system we have now is f***ed. Seriously, it one big clusterf*** of paper trails and wasted time and money.
As with most issues there probably isn’t a good solid one size fits all answer, but I do like some of the ideas of the FairTax system. Click here to learn more…
Welcome to my blog! Topics tend to focus on Science and Technology, but I throw in personal stuff too. I hope you enjoy!
(Got here googling “error 678″ which I didn’t get until...
August 9th, 2007 at 10:12 pm
While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan (*), its acceptance in the professional / academic community continues to grow (**). Failure to enact the FairTax - choosing instead to try to “flatten” a NON-FLATTENABLE income tax system - will result in an irrevocable economic meltdown. (*** Impossible, you say?)
Here is why the FairTax MUST replace the income tax. It’s:
• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn’t cause less-than-optimal business decisions for tax minimization purposes
• FAIR, loophole free and everyone pays their share
• LOW TAX RATE, achieved by broad base with no exclusions
• PREDICTABLE, doesn’t change, so financial planning is possible
• UNINTRUSIVE, doesn’t intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards, rather than penalizes, work and productivity
Its benefits are as follows:
FOR INDIVIDUALS:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy “at retail” - not “used”
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of “pre-FairTaxed” retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or “pre-bate”
• “Prebate” is “advance payback” for monthly consumption to poverty level
• FairTax’s “prebate” ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of “parasitic” Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates
FOR BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at “cash register”
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore “tax haven” headquarters can now return to U.S
• No more “favors” from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets
FOR THE COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations “set up shop” in the U.S.
• Tax system trends are corrected to “enlarge the pie”
• Larger economic “pie,” means thinner tax rate “slices”
• Initial 23% portion of price is pressured downward as “pie”
increases
• No more “closed door” tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow
(*) http://snipurl.com/taxpanelrebutted (.pdf)
(**) http://snipurl.com/econsopenletter (Lists every tax that FairTax will eliminate, together with the power they represent to pol’s and lobbyists.)
(***) Listen to an interview where Prof. Kotlikoff elaborates: http://snipurl.com/meltdowninprogress
The time for sitting around, pontificating, is over. We have NO CHOICE but to ACT: http://snipr.com/scrapthecode
August 10th, 2007 at 9:14 am
First of all thanks for your input Ian, I appreciate it. Below are my remarks to your comment.
Not completely true. There are loopholes, for instance, the rich could afford to purchase more items overseas instead of within the US. To avoid the high sales tax. Or they could simply sit on their money and hardly pay any taxes. FairTax might create a system in which the rich spend less (they already don’t spend much) and pay less in taxes than they do now. This would be bad for the economy since a lot of tax revenues comes from the rich.
LOW??? 23% is not low. You buy a $1000 TV and would pay an extra $230 in taxes. That’s a lot of money, not really a trivial amount. And I know they really aren’t paying all that much cause the other tax systems have been removed, but still it will throw off people’s budgets in the first few years.
This is one of the problems. How do you keep small Mom and Pop companies from chipping the plastic on items, labeling them used, and them selling them to people without taxes? This creates a huge overhead for the FairTax system.
Also you will likely see more garage sales, and used item stores popping up. Which is good, but I don’t think the FairTax estimates have thought about this. If more people buy used goods, then less taxes will be payed. Eventually you will likely wind up with a system where taxes come from perishable and essential goods. But I think people spend more money on crap they don’t need and this is what the FairTax estimates haven’t taken into account.
My favorite.
And the reason why FairTax is so appetizing!!
Since no one has ever tried a FairTax program, these estimates are fairly worthless. Truth is we have no idea what will happen, only best estimates/guesses. There are a lot of issues that would need to be worked out for the FairTax system to work. If there is one thing Economics have taught us, it is that humans will cheat if they have the opportunity, and if it benefits them.
August 10th, 2007 at 9:57 am
Visit OPERATION: OFF THE FENCE to learn the detail on the Fair Tax, and join the national grassroots movement of citizens.
August 11th, 2007 at 9:18 am
People always fail to mention the already imbedded taxes that exist in things we buy when talking about the 23% FairTax. These imbedded taxes are caused by our currect system and will be removed with inactment of the FairTax. The Fairtax is NOT added to current prices. It is a replacement for current taxes. Everyone who sets foot on American soil will pay the FairTax. That’s a whole lot fairer than 40% of the population who currently pay taxes.
August 11th, 2007 at 1:15 pm
That’s a very interesting point, and one that’s often overlooked.
I like the idea of a FairTax, but due to the ineptitude of our current system, how slow it moves, and our gov’s inability to try anything new I think we will all just have to put up with what we do now… fill out umpteen forms and curse!
August 11th, 2007 at 2:23 pm
Webs, Don’t know if you caught it, last weekend, but “This Week with George Stephanopoulos” showcased the FairTax in questioning to the GOP candidates:
youtube(dot)com/watch?v=CW4fa6Z_4Po
Pay close attention to Huckabee and Tancredo.
From the Democrat perspective, only Mike Gravel is levelling with the people (pay attention to what he says at the very end - IT SAYS IT ALL!):
youtube(dot)com/watch?v=ahabyIXtHOE
I reiterate, for YOUR benefit, “The time for sitting around, pontificating, is over. We have NO CHOICE but to ACT: http://snipr.com/scrapthecode ”
This is what YOU can do, Webs . . . right now. Next, you can begin to help spread the message.
August 11th, 2007 at 3:19 pm
Thank you for providing those videos Ian. I have not seen them and both were interesting. I really like the ideas Gravel brings up. But there is still ONE PROBLEM.
I have not seen anyone yet to have a response to the issues I brought up. I replied to your original post Ian, but no answers to my questions were found. And I have yet to read anything that answers my questions. And the problem is, the questions I am raising are the same ones others will raise, and Congress would, if it got that far.
Not having a solution for what is deemed used and what is deemed new is a HUGE issue and a major problem for the FairTax.
As I said, I like the FairTax, but it will never see the light off day unless those supporting it come up with some major solutions, and fast!
What I can do is what I have done, write about it in a fair and just way and analyze it. What I will not do is blindly accept it on the faith of others. Not my style man
August 11th, 2007 at 3:49 pm
Webs, Alright, you’re pressing questions that don’t have any “lock solid” answers. Those same questions exist right now for the current system. But let’s approach your questions this way:
LOOPHOLES: Why do you think the rich are NOT supporting Gravel? Why do you think FICA taxes are based on “earned income” and hit most wages from workers, but from which most rich escape? And, who do you think is sheltered by foundations?
FairTax captures current earnings - AND past-accumulations of money - when they are spent, and regardless of whom does the spending: the earner, or the inheritor.
TAX RATE: If the embedded cost of business taxes is 22% of current retail prices (avg, across-the-board), and embedded taxes will be removed under FairTax - that FairTax portion of new prices being 23%, where’s the problem?
The transition expected is about a year. In that time, the U.S. will become a tax-free zone for business, competition will flock here (off shore tax havens return; foreign businesses set up shop here). Families will have more spendable capital (whole paycheck + prebate), and that money will be spent more on goods and services than on interest to some financial service filling the gap between needs and income. Also, more charitable giving will be going on - not because “tax breaks” are lost (most Americans don’t itemize, yet give) but because they’ll possess the fruits of their labor and investment.
“USED” DEFINED: The FairTax plan doesn’t purport to be a “tax avoidance proof” system. One need only review theIRS reports to congress at gao.gov to read about how much income escapes taxation under the current system.
The FairTax is positioned for more efficacious enforcement because there are 90% fewer collection points. Further, states with sales taxes (most) already have strategies to pursue such frauds. Under the current system, ONE person can decide evasion; under the FairTax it will take TWO to evade: seller and buyer.
GDP GROWTH: Of course these are estimates. But the models have been reviewed by several sources. The amount growth is variable. But the direction of growth is unmistakable.
FINALLY, you’ve been given substantial information above. No one expects you to do ANYTHING on blind faith. (The trouble I find in the blogging world is that bloggers get entrenched in their position - and if they own the blog, their position is much more resilient to change, which is why I don’t have a blog and post at others’ blogs.)
August 11th, 2007 at 4:31 pm
Thanks for the comment. I will have to answer it later tomorrow. BBL
August 12th, 2007 at 4:37 pm
Ian, as I have said before I appreciate your comments. I don’t get many commentors, and I would be happy to see you leave comments in the future. I love having dialogs with people, and exchanges like these are important because as people we have the opportunity to grow.
The only position I am entrenched in is that of the importance of Science, Math, Logic, and Reasoning. Using any combo of those 4 brings issues like the FairTax to a new level of understanding. This is important because if our government went to a FairTax system we need to be damn sure it will benefit us, and that it is implemented correctly.
One method of doing this is to come up with every possible question there is with the system and answer them. The questions myself and others have posed elsewhere are important questions that need to be answered.
Blindly accepting something without asking questions is what leads to fundamentalism and the creation of a belief structure. This is what breeds Conspiracy theories and leads to believing in such theories. I am not necessarily saying this is what you do, but rather you should be careful because this is not the message you want to send out to others. I speak of this only because I used to believe in such theories and have some understanding of why and how people believe such things.
I like FairTax, but I will not support it till we have solutions to the answers being posed. The reason for this is I would be wasting time supporting something that will never have a shot because no one supporting the movement will take the time to come up with solutions. I just think there are some major issues to be worked out before we could move over to such a system.
And instead of spreading the message of the FairTax system, I think time would be better spent to answer questions or pose questions and seek solutions through dialog. Like this one.
The problem with questions that cannot be answered is that our government will not move forward unless there is an answer to those questions. Which is why I think asking the questions does more for helping FairTax than “Spreading the Word” does.
August 12th, 2007 at 9:16 pm
(1) http://snipurl.com/taxpanelrebutted
(2) http://snipurl.com/econsopenletter
(3) http://snipurl.com/meltdowninprogress
These - together with a scour of FairTax.org - make a compelling case to get off the fence.
Keep in mind, the country’s economic system is on the way down because politicians are not being held accountable for spending. This is due, in large part, because citizens really don’t see the AMOUNT OF TAXES that are being exacted from the fruits of their labor. IT IS CRUCIAL THAT THIS IS CORRECTED, AND SOON.