Fair Tax Pros and Cons
April 16th, 2007In a follow-up to yesterday’s post about the Fair Tax debate, here is a summary of what I have been able to determine are the major pros and cons of the Fair Tax (or national sales tax) as it is currently written:
Pros:
1. Federal income taxes would be completely abolished. According to Fairtax.org, this would include all ancillary taxes on personal income such as estate, gift, capital gains, alternative minimum, self-employment, Social Security, Medicare, and payroll taxes.
2. With the repeal of federal income taxes, the IRS (Internal Revenue Service or Income Robbery Service, depending on one’s perspective) would have much less power to snoop into the personal and private financial lives of American individuals. Ideally, the IRS would simply cease to exist.
3. The Fair Tax would be “progressive” in the sense that it would avoid taxing financially challenged (i.e., poor) people for basic necessities. This is accomplished by means of a “prebate”, which according to Fairtax.org would be $2,348 per year for a single person or $6,297 per year for a family of four.
4. The Fair Tax is calculated to be “revenue neutral”, meaning that all current government services would continue to be fully funded because the money that is raised from this national sales tax would be equal to the amount of revenue that is lost due to the repeal of federal income taxes. Programs such as Social Security, Medicare, etc. would be unaffected.
5. Because this tax system is consumption-based rather than income-based, people could exercise a certain amount of control over how much tax they pay. Since the tax is only applied to new (not used, secondhand, etc.) items at the point of sale, a relatively frugal person could avoid paying taxes on most things, and might even make money because of the “prebate”. Meanwhile, wealthy people who choose to live “high on the hog” without paying attention to their spending choices would probably pay more tax.
6. Since the Fair Tax only taxes consumption, it would not punish businesses for expanding and creating more jobs, investing in research and development, or donating to charity. Also, the individuals who create and maintain those businesses would have more disposable income to expand and compete in international markets (assuming that they make relatively wise choices, see the point above).
7. The base price of goods and services (that is, their cost of production before adding any taxes, profits, etc.) would be lower because the embedded costs of the current income tax system would no longer be a factor. This would partially offset the increase in the total price of new products and services that would result from the Fair Tax.
8. From the standpoint of government revenue collection, the “problem” of tax evasion would be reduced because people who currently resist paying income taxes and/or derive their income from black market sources would be taxed automatically at the point of sale whenever they purchase new goods and services. Moreover, the government would no longer need to spend taxpayer money in order to chase down income tax evaders.
9. A national sales tax such as this would be much more transparent than the current tax system. There would be no more loopholes, special exemptions, payroll taxes, embedded costs, or other factors that allow people under the current system to avoid realizing how much tax they are actually paying. With the amount of taxation clearly visible to the general public, people (hopefully) would be less likely to tolerate wasteful spending, corruption, and inefficiency in government, resulting in lower levels of taxation and a stronger economy overall.
Cons:
1. The retail price of new goods and services would increase. Although the actual cost of these items would arguably remain the same due to the elimination of embedded income taxes mentioned in Pro #7 above, the initial “sticker shock” of apparently higher prices could have a dampening effect on the economy.
2. If the income tax is not fully repealed as promised OR a future president and/or Congress decides to re-instate some portion of the income tax code under the guise of a “national emergency” or something similar, we could end up with a national sales tax AND an income tax, which would be disastrous for our economic freedom.
3. The actual rate of the national sales tax would be 30%, not 23% as the Fair Tax proponents claim. This difference is due to the deceptive language that the proponents use to describe the tax rate calculation. Not only is this deception insulting, but it also makes it easier for the government to raise the tax rate in the future because people will think that the current rate is lower than it actually is.
4. Unlike the income tax brackets, this national sales tax proposal is not indexed for inflation, meaning that as inflation increases the base price of goods and services, the amount of sales tax that you pay will also increase.
5. People who have paid into the Social Security system and/or private savings accounts for retirement will be effectively double taxed when they begin withdrawing their money and spending it. This is because most of the money that people have managed to save up to this point already has been taxed under the current system.
6. Because tax rates would be simplified under the national sales tax system, this could ironically make it easier for the government to raise the tax rate on certain items that it deems “unhealthy” or “dangerous”. If this occurs, things such as fatty foods, cigarettes, firearms, and an indeterminate number of other politically unpopular items could wind up being taxed at exorbitant rates, which would certainly go against the spirit of a “fair” tax system.
7. If the Fair Tax is sufficiently high (like 30% or more), this could encourage more people to enter the black market in order to avoid the tax. This could cause crime that is often associated with black markets to escalate and effectively criminalize otherwise ordinary people.
8. The “prebate” that is built into the Fair Tax system could actually do more harm than good in the long run because it would effectively put all Americans (except those without Social Security numbers) on the government dole, and this could create problems with dependency and the “free lunch” mentality as experienced by recipients of current government welfare programs.
9. The Fair Tax does nothing to solve the underlying cause of high taxation, which is excessive government spending. As long as the federal government keeps spending taxpayer dollars on things that it has no business being involved with in the first place, it will continue to require high taxes in order to finance its expenditures, including the increasing cost of the national debt. Simply changing the method of taxation is not going to change the root causes of unfair taxes.
UPDATE 11/04/09: For a more thorough education on the Fair Tax issue, you can look at The Fair Tax Book: Saying Goodbye to the Income Tax and the IRS
Another highly recommended book that was published more recently is called FairTax: The Truth: Answering the Critics
For the other side of the argument, there is a book called Fair Tax: A Wolf in Sheep’s Clothing
Your firet con about the cost of goods increasing fails to incorporate the fact that the “hidden” taxes on retail items has been eliminated.
Retail goods today include corporate taexes, salaries of tax lawyers and accountants, the employer portion of the social security tax is also added to the cost of retail goods with the current system. And thes taxes that are added to the retail goods is a cascading tax that goes all the way back to the raw materials of the retail goods, the manufacturing of all the components. These “hidden” taxes only apply to products made in the USA not in foreign countries so foreign products are cheaper due to not having any US taxes imposed. If we had the “fair tax” then our manufactured products would be cheaper or at least the same to produce as the “made in china” products.
Therefore stop misleading people with your false statements about the increase in products and services. You just don’t get it.
I think ‘Highly Intelligent” needs to read the entire article. He/she makes a point that current retail costs incorporate hidden taxes. Certainly, if these hidden taxes were eliminated, the retail cost of our products would be significantly lower.
Indeed, the original author of the article states, “The base price of goods and services (that is, their cost of production before adding any taxes, profits, etc.) would be lower because the embedded costs of the current income tax system would no longer be a factor.”
However, you must advance to the next step - production costs are projected to be lower, but then the “fair tax” (an accumulation of all current hidden taxes) must be added to arrive at the final retail price. This translates into higher retail costs. The benefit? we’d know what we’re paying and could have some control over the amount we pay.
The book (FairTax: The Truth: Answering the Critics) devotes most of its pages to answering the many criticisms often raised about the FairTax proposal. With few exceptions, it thoroughly addresses all nine of the “cons” listed in this post. As with any plan the size of the FairTax proposal there are bound to be problems and things that require closer scrutiny, but this sort of dialog does not forward the debate in any meaningful way. As it is, considerable sums of money have been spent in the employ of scores of respected economists in both academia and the business world to do a very impressive amount of peer-reviewed research that the FairTax is based on. Disputing the conclusions drawn from this research, and offering alternative thesis’s in an intellectually honest way is where we need to take this debate. Compiling a list of supposed shortcomings and offering nothing but unsupported personal opinion simply falls short of the sort of discussion we should be having about this important idea.
I do not propose to be any sort of scholar or authority on either the current tax system or the fair tax plan, however, I do know that the current system favors the “haves” and punishes the “havenots”. For example. Did you know that only the first $97000 of your income is subject to “income taxes”? Any amount above $97000 is taxed at a lower tax rate. Currently 15%. It is, at its core, overly convoluted and antiquated. So much so, that even those that are considered professionals in the tax field cannot make heads or tails of much of the tax code. That being the case, how is the “average Joe” supposed to understand and make it work to his advantage? In my opinion, almost anything would be better than what we have now. And the Fair Tax makes about as much sense as anything I have heard of to this point. I pay about $250.00 per week in payroll taxes. Thats $13000 per year. Add that to the $2348 from the “prebate”, and I would have an extra $15348 per year of spendable income. I think that money would be better managed in my hands rather than the governments hands given their ridiculous track record.
Something else to think about for those that think the Fair Tax would not generate enough revenue to maintain the current programs. i.e. medicare, social security…etc. All the drug dealers, pimps, prostitutes, street hustlers, bootleggers and the like, none of which pay into the current tax system, would instantly be paying the same rate as the hardest working person you know. Now, if that is not “Fair”, I do not know what is.
RedRon
I think you’re all a bunch of retards.
If someone chooses to live here, then he/she needs to contribute. If you want the benefits, then you can pay for them, too. Everyone buys “things,” so, everyone will pay tax. No more hiding or evading the law. Consider illegal immigrants and lazies who don’t pay taxes.
I am often in agreement with the idea of a fair tax and I was with “Anonymous” on the expectations of huge tax revenue generated from illegal activities but I was much suprised when I read that “The Internal Revenue Service estimates that over two-thirds of underground income comes from legitimate wages, salaries, profits, interest, and pensions that simply aren’t reported…The volume of such mundane transactions greatly exceeds the underground income generated by drug dealers, prostitutes, or illegal gambling.” This includes lawnmowing, manual labor and other sorts so only about a third of the blame, and I’m not siding with scum, should be directed at criminals.
Schiller, Bradley R.. The Macro Economy Today. 11th. New York: McGraw- Hill/Irwin, 2008.91
I have listened to the points of the fair tax for several months now, and am in the process of reading the book. So far, and based on what we have now, this fair tax proposal would open up our economy to the world’s capital. We would be the new “tax haven” around the world and would not have needed a “bailout” for our latest woes (Thanks to the politicians). Can you imagine having control over OUR own money now? To some people, that may seem scary since it appears we have been heading towards a Roman Style Patronage system for years. Why do we allow the Government to TAKE our money, waste our money (Obama thinks 18 Billion of waste is minuscule), and cheer when they decide to send a portion of it back to us? We need to take the current Tax Code away from the politicians so they can’t use it as a Carrot or a Stick to sway votes. Each State should compete for our residency with the same incentives by being more responsible with the taxes they do receive. More inhabitants would create more tax revenues for the infrastructure improvements. It is so simple of a plan that the current politicians will never endorse it.
who care’s?
How do we support our military, build roads, bridges, maintain our sewage systems? Who pays the salaries of the government employees?
@chorti7:
This particular proposal is supposed to be “revenue neutral”, which means that it is designed to generate the same amount of funding that the current tax system does. Therefore, things like military, infrastructure, etc. will continue to be funded just as they are now. As for government employees, frankly we could use fewer of those anyway, but that is probably a topic for another article.
I think it is funny that the proponents assume the cost of the goods leading to the final user will decrease. We live in a free market an the sellers will get as much as they can, whether they are paying “tax attorneys and accountants” or not. The price will be determined by what they think and can get, regardless of the costs and related expenses.
Another thing, do you really think that the government is willing to give up this ability to manipulate the behaivior of the masses? Taxes, and the lack thereof, make people do things. Certain deductions/credits encourage home ownership, education, charitable contributions, etc.
Ain’t gonna happen….
For someone who titles themself highly intelligent, they really cannot spell. Use spellcheck next time you care to expound on a topic!
wbgcpa -
Companies will charge “whatever they think we will pay” but when the items don’t move the prices will come down even at a loss.
I don’t think the government is willing to give up the ability to “manipulate the masses.” But what exactly is the problem with taxing things at different rates. If I wanted a gun, or liquor or a twinkie for that matter, I wouldn’t cry about spending a couple extra bucks for them. Conversely we could help the poor immensely and the general public as well by taxing fresh produce and certain packaged goods LESS than other items, thus providing incentives to live a healthier life. We could tax things like cars more and hybrids less and on and on and on.
The only problem would be for utilities since most consumers can’t choose their own, and any tax on the company goes directly to the consumer. Which is why they should be regulated but that’s another story. Of course these “powers” could be used for evil but that’s why we vote right?
In the Cons section number 3 the author states that the real rate would be 30% and not 23%. I read the same information he did and without the liberal blinders and found that statement to be very misleading. What the opponents will tell you is that when the real cost for an item is $100 the retailer will add $30 to the cost making it a $130 item and in effect a 30% tax. Lets say a retailer believes someone will pay $130 for am item. He rings it up for a total price of $130 and then he give 23% of that to Uncle Sam. That would be $29.90 in tax ($30 to round it up). 23% of the price you paid for your item was the tax. The opponents want you to think the proponents and creators of the fair tax are being misleading about it but they stated it exactly as it should have been stated. The only part of this that can be considered Con is that it is money we would have to pay to government. There is where the statement “Freedom isn’t free” fits, even in the monetary sense.
the con about the tax rate being 30% instead of 23% does not really make sence because these taxes will be collected at the check out. so if i buy $100.00 of stuff i will pay $23.00 in tax even if the store buys the products then sells them the cost should not be more then $123.00 because the tax has already been payed and the items become second hand that are not taxed.
to: wbgcpa
You are correct, we do live in a free market society, somewaht. If I sell widgets and you sell widgets and the Fair Tax is implemented each of our costs to make those widgets will go down by the same amount. (the embedded income taxes we used to pay). Now if I am greedy, I will keep my price the same so I can make more money, right? But if I see an opportunity to lower my sales price because my cost went down, I can sell more widgets than you can. But then you will lower your price too in order not to lose market share. Oh, so that means through competition, the price of widgets will decline proportionately and adding back the sales tax means there is virtually no change in the end cost to the consumer! Oh yea, and you and I as widget sellers are still making about the same gross profit margin but selling more widgets because our customers have more money in their pocket!
No, computer, you are the retard. Now, seriously is that the best comment you can think of. I guess so. You obviously don’t have anything intelligent to say. So, I don’t know why you even bothered posting any thing. So, why don’t you come back when you have something intelligent to say, that is if you have a brain.
I agree with computer! In every blog I’ve read on this, everyone fails to reduce the initial cost of the item. If you reduce a $100 item by 23% you get $77. If you take 30% of $77 you get $23.10. Add the two add you get $100.10! This is 7th grade math for God’s sake! There is a big uproar about the poor! If they work, their tax goes away and they break even. For the welfare group, just raise their check by 23% instead of a “prebate”. Yes, 23% of 100% is equivalent to 30% of 77%. About the IRS, Someone needs to over see the retailers and the black markets. Shift the responsibilities to the IRS. There are areas where we may get hurt. The stockmarket hit I took is far greater than any double tax hit would be. I am all for it. Just don’t baffle it with BS.
Thank all of you,
KAL
I have just finished reading the book The Fair Tax and it addresses all 9 of your cons of a fair tax system. It’s much easier and transparent than our current tax structure and it eliminates anyone from not paying taxes and fairly. The prebate actually takes care of the problems of people on lower income and this system encourages people to do a better job of climbing the ladder of success and at worse case sceanrio encourages people to live within their means and thereby eliminating poverty. It causes billions of increased revenue to the Federal Government just from illegal money earned and spent at the point of sale for which very little is currently being collected, never mind what would be saved by getting rid of the IRS. Basically from a business perspective, you’re eliminating the middle man (the gov.) from choosing their own price to pass on to the consumer (us) in the form of taxes. There is general conception that our law makers are trying to what’s best for us as needed, and instead what they are actually doing is planning what they decide we need and what we should be able to afford to pay for it with no regard for our opinion. Congress is out of control mostly because most of it’s members have been there so long, they either never have been in business or they’ve forgotten or just don’t give a damn.
FAIR TAX is the only way to prevent the communists from controling each and every american.They will not be able to control you.Also people will save lots of money from buying and selling used items like cars et.c.
Hey, we pay sales tax in CA now plus hundreds of other taxes
The eliminating only of the property tax is worth voting for the Fair Tax. With only one tax will be realy easy to control where the money is spent by the government.
poopy!
what about state taxes. much of our property taxes support our school system. does the fair tax eliminate the state and property tax?
This was a great article. Unfortunately, the Fair Tax constitutes a major shift in control from us..to the people. That is something that we will not tolerate. We are smarter than you, and we know what’s best for you. Yes we know that you vote. Big deal. We just tell you what you want to hear and then do the opposite. That’s called ’standard operating procedure’. We are really good at it. We have been in office so long that it’s become second nature. Oh, and don’t bother trying to get our term limits shortened, we just won’t vote on it. That’s how we roll, and what are you gonna do about it?
the problem is it’s entirely consumption driven. look at the economic downturns we’ve suffered the last decade. our economic system is flawed in that it needs consumption to grow to keep from imploding.
I fear a consumption led tax would result in the cyclical imploding of a tax system badly needed for national defense and various other infrastructure needs for the health and well being of all americans.
Also I believe the wealthy will find a way out of paying the consumption tax by buying non-american goods. And the lazy folks that don’t want to work will just live on the prebate and buy on the black market. Which would leave the working class to carry the burden.
you suck corey
@wwfk:
My understanding is that the FairTax is supposed to be a replacement for federal income taxes, which are the taxes imposed on us at the national level. State taxes would be unaffected.
These folks are nuts I tell ya…
http://www.house.mo.gov/news.aspx?id=250
you are also forgetting to include that by eliminating the department of the IRS that deals with income taxes it would free up 50-80 million dollars of revenue. plus anyone who buys anything who is not from this country, drug dealer, pimp, or prostitute who in the past had no taxable income would now pay income tax just like the rest of us hard working Americans. The best advantage though would be with all the embedded taxes taken off the cost of producing goods in America it would make it roughly the same price as making the same item overseas ( if you calculate in the cost of shipping.) so companies could than bring those jobs back home. this is predicted to put an extra 500 - 800 million dollars in to the economy within 5 - 10 years. I suppose I don’t have to say i support the fair tax plan. people are always going to complain about taxes i just think this makes the most sense, no loopholes
This sound like Brian’s Tax from the mid 1980s in Canada. A Sales Tax was to be the savior of the people of Canada, now they have the GST or the Gouge and Screw Tax as well as income tax.
Jerry
Now that’s what I’m talkin about Jerry. Trick these silly folks into what they think is going to be a “Fair Tax”, then in the middle of night, re-enact to old system on one of those ear mark thingies. That gives me goose bumps just thinking about it. We’ve managed to give our pitbull of an IRS the power to arrest, seize property, and find guilty anyone it pleases without a trial. Could you imagine what it would be like if we could manage to get everyone coming AND going?
One problem with the fair tax I have never seen addressed is multiple taxation.
My husband is a self employed contractor. He buys most of the material he uses for his customers projects at retail stores, like Home Depot and Lowes. He could not get them at contractor only outlet, since they do not exist. So he pays the tax at check out, like you do, when he buys the material for a job, passing the cost on to the customer and has to charge them the fair tax for the entire cost of the new fence, deck, etc he has just built for them, including the material he has already paid the tax on and charged them for.
Most home builders get alot of their material from retail outlets. How do they not pay the tax. To solve problems like this I see simplicity going out the window for business.
I’ll say, this discussion is more interesting to me with every new spending bill that is passed. I’ve been trying to get my arms around the entirety of the Fair Tax, and I gotta say, the more I get into it, the more it looks like our current system. I suppose the problem is that anything “fair” will never fly with our government, so as a result, we will always have to settle for “concessions” in order to get any meaningful legislation passed. Now as I write that I see that I am mistaken. We need a mandate the size of the one our current congress believes it has.
“One problem with the fair tax I have never seen addressed is multiple taxation.
My husband is a self employed contractor. He buys most of the material he uses for his customers projects at retail stores, like Home Depot and Lowes. He could not get them at contractor only outlet, since they do not exist. So he pays the tax at check out, like you do, when he buys the material for a job, passing the cost on to the customer and has to charge them the fair tax for the entire cost of the new fence, deck, etc he has just built for them, including the material he has already paid the tax on and charged them for.
Most home builders get alot of their material from retail outlets. How do they not pay the tax. To solve problems like this I see simplicity going out the window for business.”
It is ok for contractors to pass on the taxes they had to pay for materials, as long as its in the contract. Your husband will still be paying the tax on his personal items. No one is exempt.
Hey all,
Ok, I think the fairtax would suck and everyone will hate it……AT FIRST! For about 1-3 months the companies prices will stay the same and when that first company slashes prices and the others follow suite then we will be paying about the same for our goods and services like the book says. To the lady whose husband is a self employed contractor and is concerned about the fair tax….he will be saving so much money under the fair tax. Self employed americans pay more in taxes than people that work for another company. No more savings accounts just for taxes and quarterly trips to the accountants to pay into our failing system. When he buys his supplies at Homedepot or Lowes he has already paid his taxes. DONE. Cashiers are a lot cheaper than H and R block any day! Your husband will get the same amount per job as he does now or more because he isn’t putting away 25-30 % into a bank to give to Comrade Obama. Understand it is you and your husbands bread and butter, but ma’am, with all due respect. Do your homework. You and him will be 100% better off.
To jimbob:
You used improper grammar when accosting the author over his incorrect spelling. Your comment, “For someone who titles themself highly …” should be, “For someone who titles himself highly …”.
RAF
Why not simply eliminate the Federal Income Tax and reign in government spending??? This give the power of the purse back to the people to make financial decisions (charities, savings, education ect.) and not the government. This would be more akin to the founders tax plan. That makes more sense to me. For more information please watch this video…..http://video.google.com/videoplay?docid=-1656880303867390173
RedRon
You are mistaken on the comment about the first 97,000 being taxed a t a higher rate. Did you mean your fisrt 102,000 is included in the medicare/SS tax then everything abouve that is free and clear of that particular tax? Google Tax Rate go to the first selection in the search. Gives a good look at our tax structure.
Flat Tax is the best way..
a very important aspect that the fair tax that is not talked much about is that the cost to all america of the K Street lobbyist. Companies that hire and pay these lobbyist millions of dollars write this off with their corporate accounts advising theme. In effect, we the people are paying for the special interest, to keep our politicians corrupted and that is why many do not support the fair tax. Their elected office they serve we are all in a hidden way paying for. in the meantime our polical system keeps getting more and more corrupt. Like Will Rogers said many years ago that the US TAX CODE WILL EVENTUALLY TURN OUR NATION INTO A NATION OF LIARS AND CHEATS. A NATION OF LIARS AND CHEATS EVENTUALLY CANNOT STAND. The fair tax is the answer. We need to keep up the good fight and remind our frends and famaillies that our nation is at stake here.
I have paid taxes on the money I have saved. With the Fair Tax I will pay taxes again when I spend it. That does not seem fair to me. I think a better idea is to remove all deductions from our current tax system.
Fair Tax is plainly visible to the public.
This is replacing a tax system that is largely covert.
All people will look at their store receipts and understand the cost of gov’t.
This TRANSPARENCY will produce the biggest results.
The above listed “cons” are minor or not completely thought through. Two cons that are valid are:
(1) older Americans whose savings has already been taxed (as income), will be taxed again when they spend. There are many ways to mitigate for this.
(2) transition will be difficult. With current economic crisis, should phase in in 2010, begining with 2% in Jan10, rising by 2% each month to 23% in Dec08 and thereafter. This will jump-start the economy as everyone runs out to make major purchases (cars, homes, etc ….) will go through the roof. If economy heats up too much, accelerate the phase-in.
Our Government and all that support them are crooks. I am a 20 year Combat Veteran and ashamed to be called an American. As Americans what power do we have to make changes? None! Speak out and be heard, gather in great numbers to force change? Ha! You will feel the wrath of your government, they will turn on you like rabid dogs. We need morality and persons willing to make the right decision for our country not just their bank account.
I’ve been interested in the fair tax for some time. The only thing I’m waiting to see is in any given year what the IRS collected in taxes under our current system compared to what would have been collected under the fair tax. I realize this may be difficult, if not impossible, to come up with exactly but I would think someone should be able to get very very close. That it would give all of us something tangible to look at and see which of the two may be the better option. Am I off the chart here or are there more who have the same question?
the fair tax will lead to higher sales tax which will in turn lead to more importing of goods from countries with lower prices, locking up our ports, lowering standards of “checking” items before they come into the US and allowing some camel humping son of a sheet head to sneak a dirty bomb into the US, killing Americans. therefore, if you accept the fair tax you’re a commie terrorist.
I was just wondering how many IRS jobs will be lost with the fair tax?
I can’t see gov’t allowing more job losses.
I can see the validity in a few of the cons. But to suggest that everyone who thinks this is bad idea is stupid is just plan silly. Everyone is entitled to their own opinions. This Tax idea seems like it should work given the following.
Companies lower their product price in adjustment to the new system thus making each product cost the same when the tax is introduced.
If all taxes that were eliminated really add up to what the new tax would cost.
The thing is that we would pay the same amount for a product, we would just have more money to be spending. Spending money is good for economy.
The cons are the most unmitigated distortions that I have read. This person simply wants the status quo for the congress and the lobbyists.
First to Rain - Under the Fairtax, every business would have a tax exempt ID number just like the current state tax systems. Even at Lowes you wouldn’t pay the sales tax for any product that would be re-sold. This concept is nothing new. At Lowes today, if a company has their tax exempt ID number on file and certifies the products being purchased are for resale, can purchase goods free of sales tax. That’s exactly how it would work under the fair tax.
Currently however the construction industry is a bit different because as Rain said, the way it works now is that IF the contractor pays the sales tax at the point of purchase THEN they do not collect the sales tax on those materials from the homeowner. Under the fair tax if the product is “consumed” ie. a gallon of milk then it would be taxed but if it’s an investment, ie. new house, a fence to go around the yard of the new house, college education, or a hundred million dollars to create 5,000 new jobs then the investment is not taxed.
Can you imagine what the US economy would do if business owners didn’t have to waste a combined $600 billion in tax planning? The US Economy would become the world’s new tax haven. Companies from all over the world would pump their dollars into our economy. The $11 trillion (that’s 11,000 billion) that is being held by US citizens over seas would come back to the US economy. Millions of new jobs would be created.
The principles of supply and demand would continue to be in place. Turning that off is like trying to turn off the law of gravity; therefore prices might go up and down at first but would level out to whatever the market demanded. Wouldn’t that be fantastic if companies started to make, what the brain dead libs call “obscene” profits? That just means opportunity for more businesses to enter the industry and create more jobs. For Rain that would mean lots more rich people could buy those really expensive rot iron fences and low and behold Rain and her husband would have so much work that they could raise their prices and make some of those obscene profits and employ 50 more workers to install all of the fences. That’s because trickle down economics is a true principle just like gravity that you cannot turn off.
Free market capitalism is the best system the world has ever known. Under the fair tax our dying country with its dying economy would come back to life and once again the American dream would be a reality for hundreds of millions of people. Yes, the transition would be tough, and IRS jobs would be lost, and accountants would have to spend their time helping business grow in lieu of filling out tax forms, and yes April 15th would just be another beautiful Spring day but in the end it would save our republic. How in anyone’s mind (unless you’re bent on seeing the destruction of the US) could the process not be worth the final reward?
hog wild - The answer to your question is simple - the first year it would be the same becuase the 23% tax rate is set by dividing total taxes paid divided by the total spent on retail goods and services. The good news is that as the economy takes off due capitalism, americans no longer being penalized for working and investing, the trillions of dollars from foreign investors, the trillions in foreign banks coming back to america can only mean on thing, revenue to the government would increase. We could finally have a shot a not only balancing the budget but of actually paying back the trillions in debt. The US could also have a chce of being able to fund future liablities such as social security, medicare, and all of the liberal causes that have thus far destroyed our republic and our economy.
Michael - There are at least 5 reasons that you and others with savings will not be taxed twice. Please read the bill or the books.
1. First and foremost, you need to understand that currently all of the taxes that are paid to the government are embeded in every product that you currently buy. Under the fair tax, the price of goods wont change. Under the current system you are paying an average of 23% embeded tax in everything you now buy. Seeing the amount itemized on the receipt wont change that. In reality you are being taxed twice right now. Under the fair tax you would only be taxed once. This is why even people with hundreds of millions in savings and investments, even though they may have already paid income tax on the earnings are overwhelmingly in favor of the fair tax.
2. The prebate will reimburse you each month for the sales tax paid up to the poverty level.
3. You will no longer pay income tax on the gains that you see from your savings and investments. Which means you can reinvest 100% of your capital gains without having to give any money to the feds. In other words, the savings you have will grow even faster.
4. Under our current system, a significant portion of any of that savings that you dont spend before you die gets taken from your children by the death tax also know as the inheritance tax. Under the fair tax your beneficiaries would not be taxed whether you gave it to them now or whether they inherit it after you die.
5. Currently any retirement benefits are subject to income tax. Under the fair tax, social security benefits, retirement, divends etc are not taxed.
Once you add up the benefits, under the fair tax, americans who save are actually the biggest winners. In fact thats one of the primary benefits of the fair tax is that saving and working is rewarded whereas right now the government penalizes hard work and savings.
I feel comfortable in stating that Con number 3 should not be included in this article. The reason that 23% is used instead of 30% is to compare the plan to the current income tax which is deceptive. If you make $200,000 and pay $50,000 in tax you have spent 25% on tax by the lingo of our tax laws. However, with an income tax the government has claim to that $50,000 so in reality your income is $150,000. Therefore you’ve actually paid over 33.33% of your income in taxes (50000 / 150000). The fair tax only uses the deceptive lingo in comparing its system to the income tax system. The fact that the number is 30% based on the sales price of the goods purchased is found at fairtax.org as the site makes the distinction using the terms “tax-inclusive” and “tax-exclusive” and the creators of the site have posted articles attempting to clarify this point on multiple occasions (http://www.fairtax.org/site/News2?news_iv_ctrl=1541&page=NewsArticle&id=8248). The author did not do their research on that one…
Also, in regards to the price of goods increasing I would like to add some additional thoughts. It is worth noting that various industries may be affected differently by the fair tax. It is possible for some industries to actually see decreases in prices while others see increases.
I would also like to make another point in favor of the fair tax for those who are concerned that the fair tax may not be fair to the poor. It is true that refundable credits are not built into the fair tax, as they shouldn’t be as the receivers of EIC and other refundable credits have not earned that money but someone else has. However, regardless of whether you agree with me on the last point, those currently receiving EIC are not necessarily negatively impacted because they will be receiving some, all, or more than the income that is taken from them under the income tax through medicare and social security withholding (these are paid for as a part of the national sales tax as well). This helps offset not getting refundable credits. Consider: someone making about 20000 with 1 kid would get about 2200 in EIC. Not paying into social security or medicare gives back over 1500 of this amount that they would not longer receive. Someone who makes 20000 but doesnt have children would see a total gain as they would not be eligible for EIC. The same applies to all Americans that don’t get EIC.
Another positive aspect of the fair tax: All non-Americans visiting or living in the country would help pay the tax when purchasing goods. Therefore, they help pay for our system to the extent they enjoy it, just as Americans do. This removes part of the tax burden from Americans as well.
And with that, I’m off my soap box…..
yeah ryt……
stop PROVING
start IMPROVING
….God Bless
I disagree that the fairtax does nothing to fix the root cause of the problem. By making it very clear how much is being paid be each and everyone, people will be motivated to stop wasteful spending! Right now, tax day is a celebration for many folks because they get a check!!!!
You want real change? It doesn’t come from politicians it comes from us at the grass roots level. If you haven’t read the two books by Neal Boortz and John Linder “The Fair Tax Book” and “Answering the Critics” you shouldn’t be allowed to comment on this subject. I’m not saying this to be mean or disruptive. If you have read these two books you would understand how ignorant and uninformed you actually sound when you make the comments you do about the Fair Tax Act of 2009. All I or anyone else asks is that you read the two books first before commenting. I spend more time correcting people who are spreading incorrect information than I do introducing people to what is going to change our nation and allow us to take back control of our country. I’ve been spreading the word for almost a year now and I have never run into anybody, once I’ve explained the system to them correctly, that hasn’t become an instant supporter. If everyone in the United States was informed and knew exactly how the system works there would be a revolution overnight and this bill would be passed by the end of the month in the House and Senate. There’s no doubt in my mind. I applaud the comments of those who explained the embedded tax and how the opponents try and twist the 23% tax into more than what it actually is, it’s refreshing to see it explained correctly. The Fair Tax is for everyone poor to rich. And for those who hate the rich get over it they are always going to be rich. Deal with it. Truth be told most of them don’t even pay taxes like you and I do, read the books I’m not going to explain that one. The comment about people looking at April 15th, tax day as a day to get money back was right on. Most of the citizens here have that mentality they think they are getting extra money. If you knew how much money was being pulled out of your paycheck every week it would make you sick, literally. I’m a retired veteran from the military. Last year I paid more in taxes from my current job than I made off my entire military retirement for last year. That’s why I tell everyone I know or meet about the Fair Tax. It starts by reading and understanding the books. If you truly understand how the system works I won’t be able to hold you back you will want to tell everyone you know about the Fair Tax Act of 2009. After we get this bill passed we can move on to the next phase of taking back our country…..Term limits for the House and Senate….don’t think it’s possible? Ask Thomas Paine and John Adams about the impossible. You want real change?….Not just change of scenery… real change starts at the grass roots level…you and I united as a nation coming together to better our country.
Basic math says it is not 23%. It is not 30% either. It is actually less. What we pay today in embedded income taxes of corporations would lower the cost of products. Yes companies will keep products at the same price trying to get more money, but one company will eventually lower their price to sell more product and you’ll see prices drop. It will be less than 23% when it is all said and done. The Fair Tax is simple answer to complex problem. And washington politics becomes weekend, by not having a complicated tax code to hold over our heads.
i would love to understand this stuff is there anyone out there who would like to educate me on this??? i’m serious, thanks
Under the current tax system anything u buy Has on average of 23% hidden tax in what u bought. Plus u have to paid about 6% sales tax.
Under the fair tax system anything u buy willnot have hidden taxs.
U will pay 23% on that product or service.
1.So u are actually paying the same or less depending on what u are buying.
A vehicle has a 23% hidden taxs.Plus u paid sales tax.
So if u buy a car under the current system If the car is $15,000 dollars U have to paid sales tax. Which the sales tax would equal $900 dollars. ( if at 6%)
The total cost of the car will be $15,900
Under the fair tax system the car price would go down. The $15,000 care will have the hidden taxs which equals 23% took out.
Thats 15,000 x 6% = $11,550 x 23% (fair tax) = $14,206.50
Total cost of car $14,206,50
How about we compare the total cost of the car under the two tax systems
Current tax system $15,900 and Fair tax system %14,206.50.
U would save $ 1,693.50
So How does that increase the price of goods or services ?
@Taxmunch and others:
I have now updated the article to include links to some good resource books about the Fair Tax issue (two pro and one con). If you manage to find any others, feel free to mention these and I will include them in the list.
I’m 100% for the Fair Tax. Yet we need a balance budget amendment to go along with it. To prevent this bill getting passed and we have a deficit equal to the obama deficit. I’m for eliminating most government departments,privatizing medicaid,medicare,social security, and welfare, bringing some of the 700 US bases home, and bringing all the departments you keep back to the size it was in 2000. If we did this we could probably get it around a cool 15% and that’s it. To get it at 23% first off we need to go back to the 2007 budget and cutting from there. Which would probably be the most practical thing to do. In my mind the easiest way to getting this thing passed would be through making it temporary. Make it so that if it doesn’t work out it can easily be reversed. To get it passed it’ll require a president who’s willing to support it and conservative to moderate congress. Lets say Huckabee won in 2008 and Pelosi and Reid were in charge. What would we do about that is the question. I believe the only way to get it passed from there would be 5 on TV debates. You get Huckabee and Pelosi on TV talking about it for an hour. Huckabee would win hands down do to his speaking skills compared to Pelosi bitching off with her plastic surgery loaded face. You get a senate debate where it would be lets say Jim Demint vs I don’t know Chuck Shumer. A congress debate where the debate would be John Linder vs one of Pelosi lap dogs. The fourth debate would be where you get the countries governors going head to head I would say Palin “who if Huckabee was elected would still be governor vs most likely Tim Kaine or maybe Blago. And than the fifth debate would be one where you get the experts in you get someone who’s not in politics like lets say Rush Limbaugh vs Michael Moore. I think that would be the best way to get this whole reform done. I mean this is just an example to show how when we win 2012 we can get this passed.
Well from what I hear is that this is a very heated debate. I’m a student in debate and I don’t want to state my personal opinion on here but just hear this:
The government has offered many plans before. Some were instantly put down. Others were debated heavily like this one. It’s obvious that the American public is losing faith in its own government. I believe that the government has good intentions for the American people, but is just sometimes plain dumb in executing many of its plans. So the real question is: do you trust the government?
Trusting the government so far has gotten us to where we are today. I’m not just talking about the economic recession and all the problems today, but rather everything that has led us up until today. This includes trusting our Founding Fathers, past presidents, and past decisions.
So trusting the government isn’t as fatal as everyone thinks. Perhaps this time, they will be able to come up with a quick, easy, cheap solution that will put an end to our problems. But by then, what if everyone had lost so much faith that they voted against this bill? America would be brought back to its pre-industrialized era with nothing but farmers and ranchers.
So again, the real question is quite simply:
Do you still have faith in our government?
Dillon
You can email me at hoangdillon@yahoo.com if you wish to argue with me. Feel free to criticize as I can only learn from my mistakes, although I would prefer you not use any profanity or harsh cruelty, but rather persuasion to alter my view on this topic right now.
I’m an old man. Just give me the Fair Tax
Just give us the truth, and that is…everyone thinks they know the answers, but no one is willing to admit the truth. A change is needed but surely not if it throws us into economic turmoil. For all those out there willing to say they KNOW, I ask them to join a bank we will set up pjust for them as members only, and they can openly support the currently proposed fair tax program all they want. However, all I ask is that they allow that bank hold there properties, savings, IRA’s and 401K’s in bond for any possible catastrophy that may occur once fair tax is imposed. If it works and we save all that righteous money they claim, we pay a fair interest rate to their accumulated bond and they profit greatly. Yet if it fails, they lose their investmnet to help counter the economic turmoil our country is thrown into.
Come on now know-it-alls! I agree we need change and reform, but I am tired of the idiots who have all the answers and no brains to make it work! If you are so sure its the answer, put your money where your mouth is. Hidden taxes from manufacturing in the US? Do you really think that with all the loopholes and tax credits and such that coperative America uses now, that when they lose those options, the consumer won’t have to pay for it in one way or another. As stocks drop during the climb from our current tax system into full fledged Fair Tax, we won’t ecperience a recession folks, welcome to another depression.
those folks that own all those stocks are gonna trash sell them the minute the market drops the day fair tax hits in affect. The peope with all their money in so many banks around our nation are gonna pull those funds to sit on them safely until the market mellows out. How do you think that affect started back in the 1900’s? The US has flood gates in affect to prevent that, but then look at our bank bailouts currently that rocked the world. If your gonna preach economic salvation, put your money where your mouth is and invest in our “I’m Right!” bank account, who knows? You could make a fortune 500 club next year after the Fair Tax is put into affect.
I don’t want to waste my time or yours with long nonsensical rhetoric over the fair tax. I simply can say, with out a doubt, this is the stupidest idea I’ve ever heard. If you like it, want it, you are a moron! This way of taxation wouldn’t help large poor families, young singles, small business or any one thats saved or invested a dime. Forget about the f___ing seniors and soon to be seniors would take. This coming from a non proffesional, white male from the Mid-West at the age of 35 who’s divorced, remarried with custody of 6 kids.
And I’ve read some of you supporters blogs and you guys are diluted and delusional! Any facts encompassing the big picture as well as details? NONE! More over whats wrong with America is not our representatives, it’s all you stupid idiots who believe them and have been going along with what they say. Yes, they are crooked and on the take, at least the majority are. Yes, they are out for their own party and own reelection. No, they don’t really care about you unless you support them with money or votes. Get a clue America!
WOW!
Nupilano jovitango sue no basico tienu taxato sin panuelos de gatosolas. No degetingo para chupalas bolas de una pingala y de la cricana. Pensalo bien y locomotivo de no sera visa ye pompusato. Todo no va para los ilegales no pagan if fucko taxato. Pensalo bueno y no veta culaso en la boca.
Wait until the babyboomers retire and spend their savings and the equity in their homes. Allready paid INCOME TAX on all that money. NOW PAY MORE TAX ON THE SAME MONEY, some idiots 30% sales tax.
Good plan for the government.
I don’t agree with CON”s 6, 7, 8 or 9. They are poor arguments!
6. The tax rate is to be “the same” on everything.
7. The black market “already exists” today.
8. The “prebate” would be fairer that the present welfare system.
9. The excessive government spending would be the same with any tax plan.
The best function of the Fair tax proposal is it’s exposure of the thousands of legislatively disguised taxes that few voters ever know they pay. Once it is combined so that everyone has to write a 23-30% check to Washington, Everyone will vote more intelligently, commerce would explode and the US would take back it’s world leadership. Life would be better for everyone over the long term.
What’s the mechanism for collecting from drug dealers, prostitutes,etc.?
Opponets seem to forget also that all the illegals would have to pay and that people that are now living for free would have to pay so there is so many MORE revenue streams that the cons don’t really add up. What does add up is that government does NOT want us to control our own money, they want to control it because without the control over us then they may have to work for our vote. Hmmmm….what a concept.
Frankly I agree with all the PROS and feel sorry for all the CONS.
@John D. George:
The basic idea is that drug dealers and other people who participate in the underground economy will eventually spend some of the funds obtained through their black market activities, after which they will pay the sales tax on their purchases. Currently most of these people do not pay income tax because they are not foolish enough to report their black market income. Therefore any tax that they end up paying under the new system would be a net gain in terms of government revenues.
If the Fair Tax is revenue neutral then the same overall amount of money has to be coming from the end consumers. So all you can say is that where ever anyone ends up paying LESS in taxes, others must be paying MORE.
So a fairer distribution of taxes will mean that most will see more taxes come out of our pockets while a few will fork over less taxes — because, after all, isn’t our current tax structure weighted where the top small percent of earners pay the majority of taxes?
to J Davis.
Obviously you have read a lot about the fair tax and I applaud you for that. The only thing that you said that I believe is incorrect is that one WOULD’NT pay tax on a NEW house, I believe they WOULD.(pg 160 of the Fair Tax Book by Boortz and Linder)
To the retirees.
When you buy anything now, you pay the same tax as you will with the Fair Tax. Remember EMBEDDED taxes will be taken out and the Fair Tax put in. What you won’t pay is income taxes on your retirement income, so you’ll come out ahead.
To david
It embarrasses me that you have the same first name as I.
You are incapable of stating your point without pseudo-vulgarity and name calling. Read the books, do some research and come back with intelligent comments and, maybe, someone will listen to you.