Recently, I’ve been seeing a lot of news about the so-called Fair Tax, which is being championed in one form or another by people like Mike Huckabee and Ron Paul. All of this talk about overhauling the federal tax system has gotten me to thinking about what effect such a system would likely have on our consumer-oriented economy.
I will start by admitting that I haven’t read much about the Fair Tax, just what’s out there in the popular press. I should also note that I’m not necessarily against the idea of changing our tax system — it’s pretty archaic as it is, and could stand a good bit of improvement. I should also note that I’m not an economist. But, at least on the surface, there are some things that worry me about the Fair Tax.
The Fair Tax
For starters, here’s a (very) brief synopsis of the Fair Tax, as I understand it:
Under the Fair Tax, the current tax code would be scrapped and replaced with a federal sales tax. Things like income tax, Social Security tax, and Medicare tax would no longer exist. Same goes for the Alternative Minimum Tax (AMT), capital gains tax, and estate tax. Instead, everyone would pay a flat sales tax of 30% on nearly everything that they buy, including food, clothes, and health care.
It should be noted here that Fair Tax proponents like to think of the percentages in a slightly different way. Rather than viewing it as the additional percentage charged, they prefer to think about things as a percentage of your spending. Since a $1.00 purchase would cost you $1.30 (ignoring state sales taxes), this is sometimes referred to as a 23% tax since $0.30 is 23% of $1.30.
Anyway, because sales/consumption taxes are inherently regressive (i.e., they hit those that live paycheck-to-paycheck harder because 100% of their income is subjected to the tax), every household in the United States would receive a check to cover their taxes up to the poverty level. The argument here is that, for most people on the lower end of the economic scale, this would result in a more progressive tax system, with people closer to the poverty line spending less on taxes than people with higher incomes (and thus more spending).
The problem
Setting aside the issue of whether or not the Fair Tax is actually fair (this has been the subject of a lot of debate), let’s talk about the downstream impact on our economy. For better or worse, we live in an extremely consumer-oriented culture, and our economy is driven by one thing above all others: spending.
Think about that for a minute… Right now, our economy is stalling out and, in recent years, economic slowdowns have been dealt with in two major ways: (1) slashing interest rates, and (2) offering tax rebate checks. Both of these moves are intended (at least in part) to stimulate spending, thereby helping to get the economy back on track.
Taking that at face value (i.e., that increased consumer spending is what keeps the economy humming), I find it hard to imagine that we’d be able to transition to something like the Fair Tax without doing serious damage to our economy, at least in the short term. Why? Because American consumers are highly price-sensitive, and our current income tax system is relatively invisible when it comes to making day-to-day purchases. But if you start adding 30% to the cost of an item at the checkout counter, people will think twice before buying a random geegaw or doodad.
Given that consumer spending is so central to our economy, anything that has the potential to put the damper on our spending seemingly has the potential to drag the economy down. This isn’t to say that less spending (and thus more saving) would be bad for individual Americans — quite the opposite. But I’d imagine that, at least at first, there could be a good deal of economic pain if we were to overhaul the tax system in this way.
What do you think?
I don’t know too much about the Fair tax - but like most, I think we need an overhaul done with our tax system. You are probably right that it would put a damper on the economy for a while, but do you think it would be worth it - if it yielded a long-term benefit?
Comment by ChristianPF — Jan 29th 2008 @ 1:19 pm
Ron Paul does not support a Flat Tax. See this link and on the right side click on the video on Taxation.
http://www.ronpaul2008.com/issues/debt-and-taxes/
Comment by BKLNYC — Jan 29th 2008 @ 1:25 pm
Comment by nickel — Jan 29th 2008 @ 1:33 pm
>> But if you start adding 30% to the cost of an item at the checkout counter, people will think twice before buying a random geegaw or doodad.
But you forget that you take home a whole lot more of your paycheck. People will be able to control more (through choosing what to buy) what they pay in taxes. So I don’t think the 30% increase of the cost of new goods will be that much of a disincentive.
What is exciting to me is that used items have no tax.
An additional good thing is that foreign purchasers will be paying the taxes also.
Comment by Steven — Jan 29th 2008 @ 1:56 pm
Also, if you are in the 25% bracket and pay about 8% in sales tax, a 30% flat tax would result in a shortfall of 3%. This is basically a simplistic calculation, but it illustrates a challenge of how to price the flat tax so that it does not shortchange the tax revenue.
Comment by Andy — Jan 29th 2008 @ 1:58 pm
You can’t forget the affects of IRAs, 401(k)s, and their Roth counterparts and how they would be affected by a drastic change. The money in tax deferred accounts hasn’t been taxed via income tax yet, would it end up being tax-free? Or would it immediately get taxed at your current marginal rate? The Roths have been taxed and promised to be tax free afterwards, then a 30% consumption tax afterwards?
Comment by Justin — Jan 29th 2008 @ 2:03 pm
@Andy: That 25% plus 8% sales tax ignores state income tax. Would states still be taxing income under this new tax system? Would states still tax sales in this system?
I find it hard to believe that states would stop both, or either. Add that 8% sales tax to the 30% sales tax and … yay?
Comment by Justin — Jan 29th 2008 @ 2:06 pm
I tend to agree with Steven. While the initial “sticker shock” of everything costing 30% more, I think that would largely be offset by the 30% larger paycheck. If someone is used to getting $1,500 every two weeks, when they start getting $2,000+ paychecks I think that would alleviate some of the pressure to not spend money because they appear to cost more.
I do agree there would be a short-term effect, but just take gas prices for example. Last year the price of gas jumped nearly 40%. People bitch and moan about it and talk about how they are going to cut back on consumption, but after a few months people forget about it and continue on their ways. Demand is virtually unchanged.
So at first there might be a cut in spending when they flip the switch so to speak, but in a matter of months getting used to more take home pay, people will begin to not even realize things cost 30% more.
Comment by Jeremy — Jan 29th 2008 @ 2:08 pm
I have many questions about the Fair Tax, but like most people, I think the tax system needs an overhaul in a bad way.
People don’t bother to look at how much money is being taken out of their check in taxes - they base their financial situation on take home pay. But if they suddenly got that extra money on their paychecks, would they know how to be responsible about it?
Would the government have to pay the new sales tax on everything it purchases? How much is that going to change our national budget?
What about the possibility of a black market? I see that as a very real problem, especially in areas that have high local sales taxes. It’s 10% around here, which would be a total of 33% or 40% (the difference being how you classify the Flat Tax - as 23% or 30%).
Also, it strikes me as a bad sign that 2 out of 5 commenters on a blog devoted to personal finance get “Fair Tax” and “flat tax” confused. If we can’t get the lingo down, how much more confusing will it be to the country as a whole?
Comment by Deborah — Jan 29th 2008 @ 2:11 pm
Steven said:
But you forget that you take home a whole lot more of your paycheck. People will be able to control more (through choosing what to buy) what they pay in taxes. So I don’t think the 30% increase of the cost of new goods will be that much of a disincentive.
A lot of people are going to be in for a big shock when the 30% tax rate kicks in. Worse, people overburdened with debt will really get stressed when they discover that the interest on their debt payments is taxed!
Renters will freak out when they discover even their rent is now taxed.
I see a large initial drop in spending - if nothing else, a lot of people will need to spend their “extra” money just to pay down the debt and shake off the “tax-on-interest” demon.
Spending will recover but it will take a hit at the start.
Comment by Minimum Wage — Jan 29th 2008 @ 2:12 pm
It’s a great thing and everyone should read more about it. One thing people don’t talk about is that corporate taxes would also be cut. That corporate tax is always passed onto the consumer, usually around 25%. If you take that tax off the price then add the 30% fair tax, you’re pretty much paying the same thing. The best part is that if you don’t buy lots of things, you won’t pay lots of tax. That sounds fair to me. You also have people that are currently not paying taxes but using government services (medicare, medicaid, welfare, public schools, etc.) are now contributing to those things they are using. I’m also a strong supporter because I work in multiple cities and states and have to pay taxes everywhere which SUCKS at tax time…this would get rid of that. No more April 15:)
(Tourists that pay heavy sales taxes can usually get reimbursed…as you’ll find out if you visit most European countries and some South American cities as well. So the fair tax would probably not curb tourist spending.)
Comment by Carolyn — Jan 29th 2008 @ 2:12 pm
I agree with you…you’re not an economist.
Comment by FMF — Jan 29th 2008 @ 2:21 pm
Changing the tax system like this would really be hard to do. What would happen to the IRS employees, corporate accountants, tax lawyers, not to mention the tax perparer industry (HR block, el al). There is a lot of money sloshing around. Also i’ve never really understood a good argument about what would happen to the tourist industry. Seems like it a German tourist would pay German taxes, and then come to the USA to pay for goods and services +30% taxes. How could that be good?
I think we’ll find that if this goes anywhere, there will be a lot of resistance, and in the end, we will have a patch or some other crappy solution.
Last thing… politicians like giving benefits to small constituencies by giving tax breaks (ie tax rebates for Green Energy). A simplified tax system like this, would take away an important tool that these people use to tweak the system.
Comment by mlathe — Jan 29th 2008 @ 2:24 pm
There are three areas of thought on this issue that need addressing before I’d throw my support behind the “fair” tax:
1 The notion that the price of all goods will go down due to businesses passing along tax savings.
2 How to determine Social Security benefits if not by income.
3 Addressing how businesses expense the items they purchase and how that affects the economy in the long term.
1. How do we determine if the price of goods will go down appreciably and the business owners don’t just decide to keep the extra profit. Also, any business that makes money by consuming goods (raw material) is at a disadvantage to businesses that make money without consuming goods (banks, insurance companies).
2. Social security bases your retirement benefits on your earnings. Do they now track your spending instead? Sorry you’d get a bigger retirement check if only you’d have spent more money. Should have bought that Winnebago.
3. I’m a business person myself and am of the opinion that MOST businesses pay no or virtually no income taxes to begin with. I keep my businesses primarily for the tax write off. Face it, by the time a business pays all its expenses, depreciates all their assets and sends money to the shareholders, there is no money left for Uncle Sam to tax. 35% business tax? 35% of what? Sure there is a large expense in the form of payroll taxes paid for employees; I’m just not sure any of that would get passed on to consumers in any meaningful way.
Also, businesses expense all equipment they purchase. If I own a construction company and purchase bulldozers every 5 years (based on a deprecation schedule) then what happens when my tax structure shifts from income avoidance to consumption based? Now instead of a tax write off, I get charged 30% extra for purchasing a bulldozer. All of a sudden, it’s cheaper for me to hire a mechanic than it is to buy new equipment. Good news if you’re a bulldozer mechanic, bad if you’re a Caterpillar shareholder.
Comment by Ernesto — Jan 29th 2008 @ 2:39 pm
IMHO, calling the 30% tax only 23% is slight of hand. Might as well be honest about how the number is being generated. Which is why I think they describe it as 23%. Its a lower number which people can feel better about than the 25% of the larger tax bracket or the 30% value of true tax amount.
Comment by Dave — Jan 29th 2008 @ 2:52 pm
I think one part of the Fair Tax is that an item is only taxed once, and only once. This event happens in the retail market. Ie a person buys a table. The wood and nails used to build the table would not be taxed, but the end product would be taxed. Furthermore when the table is sold in a private sale (ie used on Craigslist), it is not taxed, since it was already taxed before. This is supposed to give biz an incentive to invest. By that Truck or Bulldozer, you won’t pay taxes on it. One thing i don’t understand is if a biz owner buys his wife a company car (no taxes!), but she doesn’t use it for company biz, how will the government catch this?
Comment by mlathe — Jan 29th 2008 @ 2:53 pm
Quick comment since I’m still at work and can’t read all of the comments right now. But a big thing that the comments I did read are missing is that the tax is on the final goods and services. All of the products we buy today have taxes imbedded along the way at each point of manufacture. So the studies on this show that the prices we would end up paying would be a percentage or two above what they are now. This would also make the US one of the biggest corporate tax havens in the world because they wouldn’t pay corporate taxes. This would in turn bring companies back to the US so they could get in on the savings and bring lots of jobs with them.
The other problem I’m seeing is that everyone is hung up on this 23% vs 30% figure. The reason they go with the 23% tax is that they are replacing a tax system that uses that same format for reporting. So if you use the fair tax supporter number a person who earns $60,000 a year in the 25% bracket pays $15,000. Now the non fairtax supporter would have to look at it as someone who earns $60,000 would pay the same $15,000 but it would be about a 33% tax since the $15,000 is 33% of $45,000 that they take home.
Must have a disclaimer in here. I’m oncall this week and my brain is fried already so numbers might not add up right but the ideas should still be sound. If not, I’ll try to catch up once I get home.
Comment by Owen — Jan 29th 2008 @ 2:58 pm
One other quick note. The prices would be embedded in the price so you wouldn’t have a product that is $5.00 and then add 23% or 30% (depending on which one you want to use). The price is just going to be 5 bucks.
Comment by Owen — Jan 29th 2008 @ 3:05 pm
I read the “Fair Tax Book” a while back, and the thing that struck me is that the authors seemed to imply that it was going to magically generate more income by removing the taxes along the way, so the retail prices of items would go down, thereby offsetting a portion of the “sticker price” with the tax included. So the government would get the same amount of money, but all the people would have more, except the IRS auditors and tax lawyers and who cares about them.
That last bit about no one feeling bad about thousands of people suddenly out of work was the part that got to me.
While I think that a system like this is probably a more efficient way of managing the tax system, I don’t think it’s something that is going to make a huge difference in the day-to-day lives of most people.
Comment by morydd — Jan 29th 2008 @ 3:28 pm
Everyone seems to be forgetting that under the FairTax all corporate taxes are eliminated and companies will be given a tax rebate on any items currently in inventory. Since companies will no longer have to pay taxes, they have more money to throw around, and the Law of Supply and Demand dictates that prices will fall. That coupled with the fact that FICA taxes are eliminated, and companies will be able to pay their employees more, should eliminate any fear of “sticker shock”.
Comment by Kevin — Jan 29th 2008 @ 3:28 pm
Nobody can explain the fair tax like Neal Boortz! try boortz.com
Comment by scott — Jan 29th 2008 @ 3:50 pm
owen has it right…calling it a 23% tax (v. 30%) is using the same math that is used currently to report income tax rates.
taxes always discourage the behavior to which they are attached…so if it’s a choice between taxing income and taxing consumption, the choice seems obvious.
and I usually keep my cynicism about the poor to myself, but for all the people concerned about how this will adversely affect the “hard working Americans”:
a woman that I work with, who makes substantially less than I, and is receiving a tax “refund” for five grand in a few weeks because she’s a single mom…yesterday she casually mentioned that she has a 52″ TV…glad to see where my income tax dollars are going.
Comment by pharmboy — Jan 29th 2008 @ 3:57 pm
I’ve read that a national sales tax is on its way, whether we like it or not? Why, since politicians on neither side of the aisle have the chops to raise income taxes to the point necessary to bring our nation’s entitlement programs (I.E., Medicare, Medicaid, Social Security, etc) back into solvency … they will instead look to the less politically painful solution of a national sales tax. Of course, this will be years, if not decades, down the road, as no one in Washington does anything until its too late (consider the climate for the ’stimulus’ checks).
This is why Roth IRAs / Roth 401Ks are a BAD IDEA … you’re paying in after-tax dollars NOW, for the promise of a tax-free withdrawl. No one has promised you that there wouldn’t be a national sales in the future, though. A tax break in the hand is better than two in the Bush (HA ha).
Comment by Colin McConnell — Jan 29th 2008 @ 4:04 pm
@Colin: If there is a national sales tax, how does that make a Roth worse than a tax-deferred account? You will still have to pay the national sales tax with the tax-deferred money, as well as the income tax that will still be around.
Comment by Justin — Jan 29th 2008 @ 4:08 pm
Justin - With the Roth you are paying tax upfront in the hopes that it is tax free when you take it out. If they put the tax on purchases you are essentially getting charged twice for what you put in. I would like to think that the growth in the account would make up for having to pay on what you put in but that’s probably just me. The other thing is that for the Fair Tax to work the income tax would have to be repealed which is why you see the tag lines “make April 15th just another day” and Let’s put the IRS out of business.
Comment by Owen — Jan 29th 2008 @ 4:16 pm
You state that that you do not know much about the Fair Tax and then you proceed to make comments and assumptions about it. Cost of goods will not go up by 23 or 30% or whatever. Embedded taxes on the manufacturing process will go away and the net is that while the tax on retail goods will go up, prices will go down. There is much more, please become more educated before you write about a subject.
Comment by Dan Carter — Jan 29th 2008 @ 4:18 pm
Carolyn said:
The best part is that if you don’t buy lots of things, you won’t pay lots of tax.
Actually, since rent is taxed and the purchase of an existing home is not taxed (and thus mortgage principal is not taxedl), many renters will buy fewer things than the homeowner down the block, yet pay more tax.
What do you say to a renter with no hope (FarTax or not) of buying a home? Why should I have fewer things than my neighbor yet pay more tax than he does?
Comment by Minimum Wage — Jan 29th 2008 @ 4:53 pm
mlathe said:
I think one part of the Fair Tax is that an item is only taxed once, and only once.
Not exactly. If you buy an existing rental property, the tax has been paid. It is an established accounting principle that the purchase price of the property is equal to the present value of the future rent stream - you are buying precisely the future rent stream.
Therefore, the tax has already been paid on the rent, and the rent should not be taxed a second time.
Comment by Minimum Wage — Jan 29th 2008 @ 5:00 pm
Ernesto:
Payroll taxes (Social Security) taxes disappear under the FairTax. Benefits are not affected.
Comment by Minimum Wage — Jan 29th 2008 @ 5:03 pm
Dan Carter said:
You state that that you do not know much about the Fair Tax and then you proceed to make comments and assumptions about it. Cost of goods will not go up by 23 or 30% or whatever. Embedded taxes on the manufacturing process will go away and the net is that while the tax on retail goods will go up, prices will go down. There is much more, please become more educated before you write about a subject.
Do you seriously believe rents will go down?
There is NO evidence, anywhere, ever, that rents have gone down as a result of any tax cut, not even California’s huge 57 percent property tax cut of Proposition 13.
Comment by Minimum Wage — Jan 29th 2008 @ 5:09 pm
Here’s something to think about:
Landlords will have to register their rental properties with the tax collector.
A homeowner with spare rooms to rent? You think they’re gonna register? You think the tax collector will ever find - and pursue - them?
Comment by Minimum Wage — Jan 29th 2008 @ 5:12 pm
Maybe the economy NEEDS to slow down. Why are we so obsessed with “growth” anyway? Sure it wouldn’t be best for everyone’s wallet’s if the stock market just quits going up by 8-10% a year, but I think what we’re doing is unsustainable anyway.
We are trying to consume the whole world, and eventually it will have to plateau–probably when population growth slows because we can’t produce enough food anymore.
Perhaps if people were incented to spend/consume less and save more, it would be a good thing for humanity, for the environment, for everyone.
(I’m in a philosophical mood today, obviously)
Comment by Meg — Jan 29th 2008 @ 6:25 pm
@Minimum Wage:
Are you sure rent will be taxed? I’m not sure, but, as you point out, it doesn’t make sense that rent would be taxed. If the backers of the FairTax movement really wanted to make it fair, it seems they would think of these issues and not tax rent.
Comment by Rick — Jan 29th 2008 @ 7:51 pm
Yes, services are taxed and that includes rent.
Comment by Minimum Wage — Jan 29th 2008 @ 9:40 pm
I am on the fence about the fair tax. There are definitely downsides to it, as well as to our current system.
The proposal seems to be less regressive than current FICA taxes, which would be good.
Comment by Dan — Jan 30th 2008 @ 12:45 am
“That coupled with the fact that FICA taxes are eliminated, and companies will be able to pay their employees more, should eliminate any fear of “sticker shock”.”
Do you really think that companies will pass FICA (or any other) savings on to their employees? Call me a skeptic, but I don’t think they will.
Comment by Jerry in OC MD — Jan 30th 2008 @ 7:03 am
I want to make sure it is noted that although prices of goods will increase based on the tax, the cost of producing the goods will DECREASE about the same amount resulting in all goods costing about the same.
The reason this can happen is only the final consumer pays the tax, and the corporations don’t need to spend millions hiring tax lawyers.
If you believe this, then the fair tax makes a whole lot of sense.
Comment by Money Conversations Guy — Jan 30th 2008 @ 8:22 am
I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.
Comment by Brandon — Jan 30th 2008 @ 8:42 am
Comment by nickel — Jan 30th 2008 @ 8:45 am
Brandon - One thing that might happen is that American goods would be purchased more because they would take advantage of not having the embedded taxes and quite possibly would end up being cheaper than a foreign made tv even if purchased in Canada. The other thing is that perhaps Sony would move some manufacturing to the US in order to take advantage of not having corporate taxes which would mean no embedded taxes.
Comment by Owen — Jan 30th 2008 @ 9:22 am
I am a supporter of the fair tax, and have a little insight into the whole thing for us all. What we’re all forgetting, or don’t realize is that about 20-30% (depending on who you ask) of the price we currently pay for goods is an “embedded tax”. Remember: businesses don’t pay taxes, they pass them on to us in the price of their goods or services. So, the thinking is that since this new Fair Tax would increase competition, and remove federal income taxes on businesses, the price of goods SHOULD come down by 20-30%. Then tack on the Fair Tax, and VIOLA…you have a net price increase of 0%. So that pack of gum that costs $1.00 BEFORE the Fair Tax is enacted SHOULD cost $1.00, AFTER the fair tax is enacted. BUT…we all get to take home our whole pay check. AND…we get that refund check from the government every month. SOUNDS GREAT TO ME.
My only concerns are: 1. For simplicity’s sake, let’s say I make a gross salary of $1,000 per week, and my take home pay is $750 per week under the current tax system. My employer knows that I live off of that $750 and that somehow I make it work. What’s to stop them from cutting my pay down to $750 and keeping that other $250, which is what the government used to take for medicaid and social security and income taxes, for himself? Multiply this by every employee in the company and someone has just created one hell of a raise for himself/herself.
2. The increased competition in the US will be GREAT for business and theoretically great for us, the consumer. BUT…if the businesses ally and decide not to drop the prices collectively, we’re right back where we started…with the government meddling in business. Theoretically, this would make the US the most friendly place to do business in the world…but then we’ve got some of the most corrupt CEO’s in the world too. This concern is not nearly as worry-some to me as number 1.
Comment by Ryan — Jan 30th 2008 @ 10:19 am
Jerry in OC MD, I think that companies will keep the 7.65% in FICA taxes they pay. However, the employees will still get the 7.65% in FICA taxes that are now withheld from their paychecks.
Money Conversations Guy, you make a good point. The resultant rise in prices will probably not be the full 30%. Corporations will be saving 7.65% in payroll taxes, as well as up to 38% in income taxes on profits.
Comment by Dan — Jan 30th 2008 @ 10:26 am
You know, I think before a new posting, maybe just a little research should be done, perhaps read the book, so that you can inform your readers about what the “Fair Tax” plan is really about, and not just what you read in articles by people that are against it.
This posting shows exactly what is wrong with this country today. People make an opinion based on what the news and media say, instead of doing their own research. Maybe as a whole we can stop letting our politicians run the country as they see fit, and realize that we are supposed to have a say in what goes on… Just a thought…
Comment by Chris — Jan 30th 2008 @ 10:46 am
Minimum wage,
You’re making my point for me: if FICA is not withheld from payroll, how does Social Security know how big of a benefit check to send you when you retire?
SS Benefits can range from $700 /month - $2600 / month depending on your earnings. Does the SSA track all your spending? Do your employers report how much you earned? What’s to keep your employer from lying to get you a bigger SS check? If either type of reporting is the case, you’re getting away from the government-free simplicity your hoping to achieve with the fair tax.
My fear is the fair tax will create a nation of liars and tax cheats. All for the sake of 30% off.
Comment by Ernesto — Jan 30th 2008 @ 11:24 am
Ryan, the fair tax is revenue neutral. The outcome you predict of prices being the same is impossible. Right now, a company only passes on the cost of its taxes in its goods. Under the fair tax, the company would also have to cover taxes that you and I no longer pay. The pre-tax price of goods will decrease, but the tax will bring the total cost higher than it is now.
Net effect: you take home more, things cost more, and no more headaches around April 15th. Most people won’t see a huge difference in their net income.
Ernesto, the government can just require employers to report all wage information. Cheating on your fair tax would be extremely difficult for an individual. I guess you’d have to convince a business to not collect it from you. There is far more lying and cheating under the current system.
Comment by Dan — Jan 30th 2008 @ 12:08 pm
A big part of the fair tax or national sales tax is that it will get rid of the hated IRS. That might be true but another government agency would be in charge of keeping track of how (and I would assume where, when, etc.) you spend money which seems just as bad to me if not worse. Tracking the spending and spending habits of all Americans seems way too big brother for me.
Comment by Sam — Jan 30th 2008 @ 12:51 pm
A big part of the fair tax or national sales tax is that it will get rid of the hated IRS.
My landlord will have to register his rental properties with the state tax collector - your tax collector will be in your back yard, not thousands of miles away.
Once the rentals are all registered with the state, it’s a short step to tighten regulations, like requiring annual inspections (paid for by the owner, or course - KA-CHING!).
I don’t want a government inspector in my home every year. Do you want a government inspector in your home every year? Didn’t think so.
Comment by Minimum Wage — Jan 30th 2008 @ 5:05 pm
30% federal sales tax? Goodbye Internet sale and Ebay, goodbye shipping industry. Such sales taxes are un heard of any where in the world? I pay less in SS, MA&MC, Federal and State combine? Why would I want to have a 30% sales tax alone? When I pay less now? Even if I put the present sales taxes…
And why would I wish to close the SS? I paid bunch of money to that and MA&MC, where they will go? We are not Europe with their negative population growth, I see this as a populist way to get a way with allot of stealing in the government and sticking us with an even more taxes.
I’m against it. If they wish to do something, think about cutting government spending, investigating and revisiting all the lobby/politico/economical deals… Question that is against us is where we go from here? Do we steal more and how…? Or we create a working raw model for the world to envy?
If it’s the first…, I pack my bags and leave, I have a place to go. If it is the second…, I may apply for Citizenship after all…
Comment by Nick — Jan 30th 2008 @ 5:35 pm
44. (Minimum wage,
Do your employers report how much you earned? What’s to keep your employer from lying to get you a bigger SS check? )
Why would your Employer beef up your SS? He has to pay more too… Are you out of you mind? Have your seen Employer to pay more when he can pay less? It is business not a charity…
And how would you call the next institution of tax collecting doesn’t matter at all. This can work just fine if it is cleared from the clutter. Taxes are good, otherwise forget police, firefighters and good roads. GREED is bad… next ting you know there will be tax for the air we breath.
Comment by Nick — Jan 30th 2008 @ 5:50 pm
A big part of the fair tax or national sales tax is that it will
get rid of the hated IRS.
The replacement entity will be as big as IRS, just with a different
name. I like the concept of FairTax, but its current form is not a
viable tax code replacement.
Let’s call the replacement entity SRI to signify that it is meant to
be the anti-thesis of IRS. It will be responsible for tax collection
from retailers and rebate distribution.
Under FairTax, tax is collected only by retailers. While there are
less retailers than individuals, the amount of work needed for each
retailer has to increase because the retailers are now the
single-point-of-failure. SRI really has to work hard to reduce the
number of frauds retailers do because now each fraud has higher
potential of deprives government of incomes. Considering that even
businesses in heavily-regulated industries can do and some are doing
‘creative accounting and financing’, the chances of business doing
‘creative tax collection’ is considerable.
SRI will also have to guard against tax rebate fraud. They will have
to monitor even more individuals than IRS ever will: children,
homeless people, and people who do not currently pay income tax. They
will have to think of a way to distribute rebate checks for monadic
people (homeless or those who keep on the move). And are they going to
monitor the birth and death of everyone so as to reduce the
possibility of fraud (e.g., dead people keep receiving rebate check)?
How big do SRI have to be for that? How does this promote a small
government?
There is also the reality of globalisation and realisation that we are
not the world. Purchases (goods or services) from abroad cannot be
taxed. As a matter of practicality and cost, you cannot inspect all
imported goods. Inspecting imported services are even more difficult
and costly because they are not tangible things. Won’t that encourage
people to purchase international services, increasing the trade
deficit? International tourists will most likely be double taxed
(income tax by their government and then by FairTax).
All the above assume that we successfully transition to FairTax. But
how about the transition itself? What are you going to do with
deferred tax accounts? How will you close down the retirement accounts
since they are not needed anymore?
And the most important thing, IMO, is how to keep it away from special
interest groups. It is reasonable to claim that SIGs have been playing
a large part in complicating our current tax code. How to stop them
from tinkering with FairTax?
Comment by amx511 — Jan 30th 2008 @ 6:59 pm
amx511…
You are hilarious… are you in computer business? “Single point of failure”, networks perhaps. “Monadic”… you mean Nomadic right? It sounded like Moronic to me…
Please start speaking normal English; I have plenty of this style already without you there.
How would you call it, IRS - SRI if it does what it has been doing it would end the same way if the same people run it… “New whorehouse with old hooker doesn’t prosper”. One flat tax doesn’t mean there will be no other taxes… what about wheel tax, or car license fee? liquor and tobacco? Or anything else that is not a “sale”? Actually everything is a “sale”.
SRI will monitor children, is that a KGB type a thing? Imports cannot be taxed? Are you in your mind? Have you ever open US import/export duty tariff, do you know what are you talking at all? Double taxation…? Globalization…? What the hell? Globalization is good if you are rich… that is not the case anymore. The coin just flipped. America is for sale… to any one who has money.
Successful !!!???
Comment by Nick — Jan 30th 2008 @ 11:40 pm
I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.
Comment by Brandon — Jan 30th 2008 @ 8:42 am
Details, details,details…, first check shipping charges for the weight, you are limited. And check import tariffs, just in case give them a call, for personal use it ought to be tax free, yet… check it twice.
http://www.usitc.gov/tata/hts/bychapter/index.htm
Comment by Nick — Jan 30th 2008 @ 11:59 pm
The big problem, in my view, is when has the government, at any level, ever established a tax that it didn’t raise?
What starts as a 23% Federal sales tax would likely grow. I wonder if people who are in favor of the Fair Tax would still be in favor of it when the tax is 55 cents on the dollar.
I think the Fair Tax proposal sounds great… until you start looking at the things surrounding it and asking how it will work in all facets. Then you find problems. Could it be altered and managed to work? Possibly.
What we really need, right now, is a clarified tax code and an option to file simplified tax returns.
Comment by poundwise — Jan 31st 2008 @ 8:12 am
The sales tax is NOT 23% under the fairtax proposal, it’s 30%. A 30% addition to the cost of the item. While it may be 23% of the total, it’s NOT a 23% tax.
Comment by Justin — Jan 31st 2008 @ 9:20 am
We have no income tax in Texas but instead a 6.25% sales tax. It works out better this way because there are a lot of potential income tax cheaters in Texas who work for cash or use another’s SSN. Most come from south of the border. They cannot avoid sales tax. The tax is not charged on food items or rent.
I believe the same would hold true for a national sales tax. All the people in the US (legally or otherwise) would generate a significant revenue steam to replace the current tax system. More likely than not, the tax rate could and would be significantly less than 23%.
I’ve also heard that a national sales tax would be collected by the state agencies already collecting sales tax. So the IRS would indeed see a giant reduction in staff size.
Comment by Paul — Jan 31st 2008 @ 9:22 am
Disclaimer: I AM an economist and have debated both sides of this issue. Both the current and proposed systems have pros/cons, but here are some additional points that have been missed in the fair tax discussion:
1) Illegal immigration: As an illegal immigrant, if I can make $250 a week and live off of $200 (food, travel, shelter), there is a $50 incentive to stay in this country. Since I’m being paid cash, I pay no US income taxes and only a 5-10% sales tax, depending on where I live. If a consumption tax increases my $200 worth of expenses by 30%, how much of an incentive remains for me to stay in the country? This assumption ignores the embedded corporate tax argument, but I would submit that a financial disincentive would do more to prevent illegal immigration than paying millions of dollars to erect large fences.
2) Sinking dollar: As mentioned earlier, having no federal income tax would certainly attract foreign investment capital back into the US, as money seeks the highest return. This increase in foreign capital flowing into the US would bolster the value of the US dollar and reverse its current trend. Good news for imports, bad news for exports.
3) Long term interest rates: Piggybacking off of #2, an increase in the amount of capital available lowers debt interest rates. Academic research pegs this long term reduction somewhere between 250-350 basis points, depending on whose model you believe. In plain english, this would equate to a drop in mortgage rates from ~6.00% to ~3.50%-4.00%. Run the mortgage affordability calculators with those rates and see if home ownership rises.
4) The IRS going out of business. This will not happen. The federal government still has to collect the same amount of revenue under either system. A consumption tax would probably reduce the size of the IRS by about about 70%. This would lead to job loss at the IRS, but I find it hard to believe that all those accountants at the IRS would have a hard time finding a job under the new system. See below.
5) Closely related to #2 & #3, a huge increase in foreign capital flowing into the economy spurs new business investment. Foreign companies would relocate to the US. Domestic stock markets would rise. What would happen to your 401(k) if ROI jumped to 12-16%?
6) Taxing the poor. Proponents of the fair tax have agreed to “prebate” the amount of tax paid up to the poverty level in the form of monthly checks from the government. In other words, in addition to a sudden raise in the form of not having any income taxes taken out of my paycheck, I would also receive a monthly check (currently about $500 for a family of four) from the government.
Is this so-called “Fair Tax” a panacea? Not hardly. Does it solve more problems than the current system? Maybe.
Last comment: I agree with Chris (comment #43) Everyone should do their OWN research, and make their OWN conclusion.
Comment by Joel — Jan 31st 2008 @ 12:14 pm
Most of the posts here seem to be pure opinion. I therefore respect them. If only facts could be presented than I would take exception. One example would be the actual rate of the FairTax. The inclusive rate IS 23%. That is the way the current FICA and income tax are quoted. The FairTax replaces these so therefore it is quoted this way. If one chooses to use an exclusive rate, the 30% would be correct. However, when the exclusive rate someone in the 25% income tax bracket along with medicare and social security taxes were to be used his effective tax rate would approach 60+%.
If someone has a vested interest in the current tax code I can see their objection to the FairTax. Buggy whip makers most likely were against automobiles also. For everyone else, get the correct information from http://www.fairtax.org. Form an educated opinion.
Comment by T Krop — Jan 31st 2008 @ 1:36 pm
Gov. Huckabee’s advocacy of the FairTax ( http://snipr.com/irsgone ) is the single most important policy position in this election. Research findings explain why:
The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces [BHKPT] ( http://snipurl.com/whatratewks ).
The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan [THBP] ( http://snipurl.com/baserate ).
Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case [THBNP] ( http://snipurl.com/realwages ).
The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be [ALM] ( http://snipurl.com/econbenes ).
Consumption benefits [ALM] ( http://snipurl.com/econbenes ) :
• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.
• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.
• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.
• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.
Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system [KR] ( http://snipurl.com/kotcomparetaxrates ).
Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively [JK] ( http://snipurl.com/kotftmacromicro ).
Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax [THBPN] ( http://snipurl.com/lessregress ).
Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 [THPDB] ( http://snipurl.com/moregiving ).
On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base [TBJ] ( http://snipurl.com/staterates ).
The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent [WM] ( http://snipurl.com/homebenes ).
ALERT: Kotlikoff refutes Bruce Bartlett’s shabby critiques of the FairTax ( http://snipr.com/bbrebuke ).
Comment by Ian Repley — Jan 31st 2008 @ 8:21 pm
I’m skeptical about Americans being extremely price-sensitive. True, we bitch and moan, but I don’t see anyone driving any less than they used to, yet gas prices have soared in the past few years (AND people continue to buy cars that get poor MPG). And while embedding a tax in the price of cigarettes reduces teen smoking, it doesn’t much change adult purchases. So I’m not sure that we’d see decreased revenue if you embed a sales tax into the price of an item and cause that price to go up.
Comment by deepali — Feb 1st 2008 @ 12:08 pm
deepali comment 59, that is because of the elasticity of demand, basic economics. Take this example: If the price of milk goes up 30%, families are still going to buy milk; if the price of chocolate syrup goes up 30%, people will buy less chocolate milk. Milk is inelastic, chocolate syrup is elastic.
On a side note, for adults who are addicted, tobacco is inelastic. This is why the government taxes them heavily. Not only do the politicians get to call it a “sin tax”, they get to collect most of the money they are trying to get (the real goal). A new tax on car seat warmers would decrease demand and therefore decrease tax revenue.
Comment by Dan — Feb 1st 2008 @ 12:21 pm
Taxes are OK right now, plus basic food items are tax free, I like that way of thinking Thank you uncle Sam.
My concern is “volunteer pretax deductions”… medical and dental plans… I pay for me and my son, employee and family UH medical, close to 80$ every 2 weeks and that is just participating in the plan, after that you have the copays, and actual payments out of pocket. dental is a bit less, but it piles up. And I don’t really need them I do it for my kid, he don’t think how much would cost visit to the doctor, he wants to run and jump. Bush veto SCHIP, now gives me 900$, for what first? day care, doctor, toys, milk & OJ, food?
Comment by Jo — Feb 1st 2008 @ 4:53 pm
Dan (#60) -
That’s true to a point, but I don’t think the effect is as large as we see in theory. Or rather, while the frivolous elastic goods would generate less revenue, the frivolous inelastic goods would not necessarily.
There is always a variation in the price of a good, and most people do not tend to choose the lowest price item. Brand loyalty and other non-price factors still play a large role in purchasing choices.
I suspect a dip would be seen as prices go up initially, but I don’t think the effect would last long.
Comment by deepali — Feb 2nd 2008 @ 3:25 pm
–That last bit about no one feeling bad about thousands of people suddenly out of work was the part that got to me.
If the auto were invented today, would you be against this newfangled invention because thousands of buggy whip makers and buggy makers would be going out of business?
–Do you seriously believe rents will go down?
I do, because many will see buying a used house without being taxed for it as an opportunity. Market forces will bring down rent costs. Plus, leasers will see their costs do down, too.
–A homeowner with spare rooms to rent? You think they’re gonna register? You think the tax collector will ever find - and pursue - them?
Nope, there’ll always be baby sitters, grass mowers, and spare rooms rented which will be under the radar, just as they are under the current system. But, under the current system, compliance is gradually becoming worse. The FairTax will tax the underground economy.
–Maybe the economy NEEDS to slow down. Why are we so obsessed with “growth” anyway?
With growth, people will see a stronger dollar, meaning our significant buying power from China will increase. Stocks will go up. People who invest will benefit, as the companies will. $11 trillion from offshore accounts will go to work for us, probably from investments. The increase in income from illegals will result in increased revenue. Growth, all by itself, will result in increased revenue. Taxes could actually come down, though we may want to stabilize Social Security and Medicare, first.
–Do you really think that companies will pass FICA (or any other) savings on to their employees? Call me a skeptic, but I don’t think they will.
Yes, why not? The employee deduction is from the employees paycheck–that part is his money. The company match will disappear, too. Why would they want to mess with it? It’s a cost they don’t want to deal with. And, they would want to decrease the cost of business because of market forces. If the company across the street sells a widget for fifty cents less, then the first company will match it. It’ll go down until an equilibrium is reached; that point is most likely to be where all of the cost is marked off the price of the widget.
–I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.
All new items, no matter where they come from, are subject to the FairTax. Conversely, all of our exports will be minus the embedded taxes, which will make for a level playing field with countries who export to us and subtract their taxes.
–Jerry in OC MD, I think that companies will keep the 7.65% in FICA taxes they pay. However, the employees will still get the 7.65% in FICA taxes that are now withheld from their paychecks.
All monies required by Social Security will be paid for by the FairTax.
–Once the rentals are all registered with the state, it’s a short step to tighten regulations, like requiring annual inspections (paid for by the owner, or course - KA-CHING!).
There’ll only be one tax authority for any state. If one state doesn’t want to handle the tax, then they can allow another state or a third party to do so — and if not then the federal government will do so. There’s nothing in the HR25 that has to do with inspections. If a state decides to implement some kind of sales tax similar to the FairTax, then maybe the state could implement an inspection policy. What is to stop them from doing it without going through such a process?
–Why would I want to have a 30% sales tax alone? When I pay less now? Even if I put the present sales taxes…
Remember, there are hidden taxes you are paying, now, which will add up to the sales tax you’ll pay, should you decide to stay in country. There are FICA taxes, corporate taxes, income compliance costs, and so forth — they all disappear.
–The sales tax is NOT 23% under the fairtax proposal, it’s 30%. A 30% addition to the cost of the item. While it may be 23% of the total, it’s NOT a 23% tax.
It’s both a 23% tax and a 30% tax. The former is inclusive, while the latter is exclusive. The former is how income taxes are figured. The latter is how sales taxes are figured.
Comment by Brian Pearson — Feb 2nd 2008 @ 5:50 pm
If there are hidden taxes in the sales taxes now, what is the guaranty there will be no hidden tax or any other tax look-a-likes under the new tax law? Do you believe they are not calculated and included already?
I have friends in some of the European countries and as an example in Spain for the 2K a month, taxation is around 10%, including government run free health care, unemployment benefits and so on and so forth. So clear an employee would put in his pocket 2000 - 200 Euro, = 1800. Compare it with your check.
I don’t wish to rename a monster or as you mention to hit the gray economy as it will always exist. If you wish to tighten the regulations and simplify the tax code, you are free to implement it now. If you wish to hit the gray economy hire more IRS agents. Implement the law in its full power. If a beggar steals loaf a bread he goes in jail, if a CEO steals millions an ankle bracelet and home arrest!!! That sounds like a Hugo’s novel, isn’t that cynical?
Now why it is not implemented, or why it will never going to be implemented… or to be honest why the hell are we having this conversation… I’d suggest you watch this:
http://www.pbs.org/moyers/jour.....a_doa.html
That is the answer why, are so many people in government concern of “fixing”, (understand) “closing” Social Security and Medicade Medicare… We contribute more and more every year, yet is almost empty. If we close the account there will be no history of its usage, and all money misused will be unaccounted for as the account will be closed. All the guys with the hands in the cookie jar will have the chance to go away with it. Billions of dollars your and my money set for your and my old days will disappear. I call this day time robbery.
Yes… I do consider moving out; it is in my best interest. I came and I can live this country. I have started so many times on so many places; it became a second nature for me. The frustrating thing in US is that the “little guys” don’t help each other. Do you realize that you can put the system in its knees by just by cashing your checks and withdrawing your money and use cash? CD’s, High Yield Savings accounts… it all runs on your own money. The system is using you the way it wishes. Instead to take care of you, the citizens and costumers. You get paid most 3-4% savings or even less, what is your mortgage percentage; add the signing, origination fees, points, insurance… so how much really? Buying a car? 8-9% and up… Direct Deposit Advance, (this one is my favorite) 10% per time, bi-weekly make a whopping 260% a year from the poorest of us. That is illegal; it is criminal, who the institution is? Wells Fargo. One of my colleagues is hooked and he cannot break the chain.
We don’t invent the wheel, neither the auto, we try to combine several taxes in one and rename it. There is nothing new about it. The concern comes that there is no guaranty of social or health benefits provision in it. Pure and simple taxation. To proudly call yourself American in exchange. What is there for you? I know what is there for the government, yet where are your needs in that equation. You are just dying to give your last penny for the good of this country? My suggestion is to pack your bags and have some traveling done with educational purpose. But not in Mexico, they are more crooked then we are. Go to Denmark, Norway, Spain, Germany (the one that lost 2 World Wars). See for yourself how those “losers” live.
Here are some rates:
http://en.wikipedia.org/wiki/T....._the_world
http://en.wikipedia.org/wiki/G.....nd_pricing
I don’t think we need new Tax to get old crooks.
Comment by Nick — Feb 3rd 2008 @ 12:04 am
Please do your research before posting about such matters in the future. Even the economists that are opposed to the Fair Tax admit that it would boost the economy (see FactCheck.org, under Fair Tax). You can also learn more at: http://www.fairtax.org
-James Lee Vann
Comment by James — Feb 3rd 2008 @ 9:34 am
Even factcheck.org has its mistakes, which have been rebutted in fairtax.org.
Comment by Brian Pearson — Feb 3rd 2008 @ 3:16 pm
Brain,
I agree. That is why I referenced both sites. My point in the FactCheck.org reference was to show that even the critics admit that the FairTax would benefit the economy!
Even the critics at FactCheck don’t claim that the Fair Tax would “gut the economy”! That is a ridiculous assertion. I urge anyone reading this post to check out FairTax.org! It is a fabulous resource. Sure, read the critics, I too am a skeptic, but I have done the research and the FairTax is the best plan I have seen!
Comment by James — Feb 3rd 2008 @ 3:42 pm
You have a fair point. BTW, no one from Americans for Fair Taxation will say it is perfect, but I’d agree it is the best deal going. Even some of the criticism thrown at the FairTax also applies to the current income tax. I’d like to see this enacted, tomorrow…if not today.
Comment by Brian Pearson — Feb 3rd 2008 @ 4:11 pm
Honestly, I’d rather go with Ron Paul’s plan to eliminate the income tax & replace it with nothing! As has already been mentioned, he doesn’t “champion” the FairTax proposal. He’s open to it as a possibility, but his preference is to so drastically reduce spending that the income tax is simply unnecessary.
Sounds good to me!
Comment by Rich Schmidt — Feb 3rd 2008 @ 11:33 pm
James…
Future is inevitable and how that tax will work is unforeseen. On paper Communism is a great Idea too…, from the people - to the people – in the name of the people, fairest of it all. Didn’t work…, “sorry” is what my parents get and a government pension in amount of 60$ a month. Gas close to 6$ a gallon now, VAT 18-21% including food. No thank you. I will do my research, here it goes.
First line…, and I stumbled already … “substitute federal payroll and income”, wait… .
What about State? Sales taxes are state business, they are not federal tax, and what would the state do then? Jack up the estate taxes and… ? And everything else that they can? We already have doubled the estate taxes; the increase in assessed value raised it to a record high as the prices went up. If State have less and Federal more who wins, police is state, schools are state, firefighters are state… aren’t you getting concerned already? Why more money should go to federal government then now? Equation is already in advantage for the federal government any way. Will the State tax remain?
You want me to believe that I can keep my entire paycheck!!! I’m sorry but it is too good to be truth. I don’t buy it.
1. Opening the web site I see two republican nominees.
2. Fair Tax National Spokesman and former Lt. Governor of Missouri, William Phelps (another republican).
3. FairTax National Spokesman, Bill Spillane received a degree in Economics from Purdue University and studied law at Gonzaga University. His multifaceted career includes 32 years as a combat ready fighter pilot in the U.S. Air Force and Air National Guard, including numerous medals for fighting in Vietnam. He retired as a full colonel. Bill flew as an international airline pilot for Pan Am and for United Airlines and has been all over the world numerous times, as well as having lived in Europe and Asia. (Is he military pilot, a civil pilot or economist? When did he find a time? And complete 2 universities as well. why not Stanford?)
I don’t have the time to research more, the more I read who stands behind the idea. The less I start liking the Idea.
So…, it is not un-bias, that is guaranteed. It is not pro social or democratic either. Some of the web sites, who host earlier, mentioned organizations advertisement and radio appearances are anti democratic and are pro republican. Check it for yourself. Check as well the meaning of the word “Demos”. And as a part of this “demos”, I have the right to suspect treason.
“The road to hell is covered with good intentions” the saying goes. I have seen first hand what Politico-Economic oligarchy can do. You had the chance in the last 8 years too…, in your own back yard. New Orleans is a prime example, with republican appointed head of department.
My question is, how many times a person has to find a lie to become suspicious? For me the number is 0. I grew up in society where you were guilty until proven innocent. I have different ways of thinking, researching and questioning.
And for end. The proposal looks like a “National sales tax” not a VAT.
What can be done as of yesterday would be internal audit. Yet I highly doubt it will happen. I did the research you asked me to, did you watched the PBS video I posted?
Comment by Nick — Feb 3rd 2008 @ 11:41 pm
So, your saying that becasue the FairTax is supported by Republicans, you don’t like it? Then you say that the Raod to Hell is Paved with Good Intentions? Aren’t “good Intentions” what the Democrats use to justify taxing the rich to give to the poor?
I agree that we should drastically reduce spending- I disagree with Ron Paul on how we should od it. The Constitution makes national defense the federal governments first objective and number one priority. That is where we should be spending the bulk of the National budget. Let the States take care of education, and eliminate as many entitlements (good intentions)as we can from the national budget (again, state and local governments can handle this much better than the Feds). Let the People take care of the People, not the federal government. (and their ‘Good Intentions.’
Once expenses are greatly reduced, the FairTax can be greatly reduced (of course, we need to pay off our debt, too).
New Orleans is a poor example. Everyone messed up- the people of New Orleans for building their houses on a flood plane (oops!) the government of New Orlenas and LA for not mantaining their flood prevention systems, the Governor for being slow to act, the President for throwing money at the problem without thinking about it- FEMA for wasting billions of dollars, on and on. It wasn’t any one person or organizations fault. It was a massive melt down of the system!
Anyway, the States can do what they want, they are a soverign government. If they want to tax the heck out of their citizens, it’s their baby (I won’t stand by and let Missouri do that, but if your state wants to, I won’t stop them!)
-James Lee Vann
Comment by James — Feb 4th 2008 @ 9:45 am
James…
I like the start of the second paragraph… It is important how you spend, and lately… “Drinking sailor” is a too soft of a description for present Republican president. (Being a former sailor myself).
So far the federal government is the biggest spender, not the state, which is my point and now, it will give even more money to the federal government, so they can bail out the Bush’s presidency? Or to plug the hole it created? Or spend even more? So the organization is based in Texas (what a surprise), mainly republican (another one)… How much more you need to start being suspicious and star research deeper?
I would (wish) prefer if an audit was executed before the office expire and all responsibilities be addressed, people sentenced and send in jail. All the illegally acquired funds are paid back to the government, those are our money. And so on and so on… There must be personal responsibility for ones actions. (You didn’t watched the video, did ya… ) I don’t believe in “public” responsibility (public is a mass, substance…), surprisingly Americans are good and responsible people, per person basics.
New Orleans is the best example of it all. I watched show on PBS about hurricane hitting New Orleans, several days prior the Katrina to happen. I watched and couldn’t believe that every think they said in that show did happen. Yet what stroke me is that repeated lag… of action. For several days I watched the news and could not believe to my eyes. We cannot help a city in US here in our home land, and we are spending trillions on a war half away across the world, subsidizing governments and regimes around the world with federal money. And you wish to give more to the Federal budget so they can spend even more… It is insanity. You don’t give a alcohol to a AA member with the good intention “to help” him fight his addiction.
Government gives permits for house building. Why did it permit houses to be built first of all? Sorry…, someone get a bribe closed his eyes and a contractor made a buck. Do you want me to go up the chain to the president of this country? “Common sense” is common upon the circles of influence. For you, is common to work, spend and pay your taxes. For your president is to tell you to work, and spend your taxes. Do you get the difference? Common for one is not common for other. “I know where my enemies stand; I don’t know where my friends do”. Enemies don’t betray friends do. So think again.
http://research.stlouisfed.org.....likoff.pdf
Sounds good? Trick is, “separate packages”, one may be accepted other may not. It sounds great on paper.
I just did my taxes; here is news that may piss many Americans. I have PayFlex, and use it for dependant care. I have spilt custody and each year we transfer the rights to each other. By family law we are both custodial parents. By Tax law only one could be, so now I have to pay taxes on all my dependant care dollars throw the year. The law lack perfection, as well as the taxes.
Republicans or Democrats is not important as now they are the same coin, just a different side of it. Problem is I cannot see one that could or wishes to do something, that would change the status quo. 32Mil, in a month for Obama. where those money came from? I’m tired…
Comment by Nick — Feb 4th 2008 @ 3:34 pm
Well, I agree with them spending money like crazy. I do support the war in Iraq, and I know that it is expensive. We must cut spending in other areas (and save as much money on Iraq as we can while still supporting the mission).
You seeem to blame the President for everything- what about Congress? They are the ones wo set the budget! If they were serious about cutting spending, it is the Congress that must do it!
That is something where both the the Republicans and Democrats fall short on. That is why I remain Independant.
BTW, where is that PBS video again? I can’t find a link to it? I may watch it if I get the time, but I have seen several conspircay theory videos- most are poorly referenced bunk.
If the video was in a previous comment, I apologize for not reading them all- this is the 73rd commment, and I read and respond to a lot of Blogs!
Comment by James — Feb 4th 2008 @ 5:50 pm
The way I understood it, Louisiana had $billions in money and in aid coming to them, but that had to request it, first — hence the lag. I think they have since streamlined the process.
I don’t know why there are few Democrats supporting the FairTax. I figure they won’t be able to raise taxes so they can have national health care, and other such things. That’s just my guess.
Comment by Brian Pearson — Feb 4th 2008 @ 7:25 pm
Perhaps someone has already made this point, but corporations will be paying a 30 percent tax anyway — they have to pay the “fair” tax along with everyone else when they buy supplies/raw materials.
It’s great that the tax will offer rebates for the very poor, but what about the middle class? Most members of the middle class live hand to mouth. Even if they cut spending in reaction to the new tax, they’ll still be paying a higher percentage of income in taxes than the wealthy.
The fair tax would be a perfect example of the failure of supply side economics. It will allegedly encourage people to save and invest, but in what exactly will they be investing? If they invest money in businesses and no one is purchasing the goods and services that those businesses offer, where is the net gain to the economy and how will anyone make money off those investments?
Other countries do have a fair tax (they typically call it a value added tax), but they combine it with an extremely progressive marginal tax rate — taking the large part of the tax burden off the poor and middle class while encouraging people to spend a little less.
I hope all the proponents of the fair tax sans income tax are extremely wealthy, because if they’re not, they’re going to get seriously screwed.
Comment by Erika — Feb 4th 2008 @ 7:59 pm
Okay, allow me to call attention to the most important part of any proposed national sales or VAT tax.
The largest selling point, which is not mentioned here is that it would transition our economy from a consumption economy to an investment economy (simple Keynsian economics - an economy is made up for three basic things - consumption, investment (read: business), and government spending). So, yes, the original post is right - it would kill the economy as we know it today. This is considered by many economists to be a good thing.
The current economy is based on debt and overspending to encourage growth. We have a negative savings rate. Under a tax like the fair tax, there would be an enormous incentive to save rather than consume - because all those wonderful stock/bond/cd/mma earnings are not taxed. Why spend it on frivolous crap and pay an extra 30% when you could be earning an extra 8%?
Long term, this would have the effect of providing an enormous advantage to U.S. businesses in almost every industry. It would end trade deficits and cause surpluses. Essentially, we would become a nations of investors and savers, sending our superior and cheaper products overseas for others to consume (reducing their savings rates, but hey…).
Such a change is widely considered to be a potential boon, and calling it a rebirth of the U.S. economy is probably not much of a stretch either.
______
Now, there are also the other arguments previously discussed, and while I have not read any peer reviewed articles on the topic, I am inclined to believe that the forces just mentioned (translated: GDP growth galore), combined with the reduction in corporate taxes and double taxing, would basically mean that you could probably still buy just as much crap as you do today only without the negative savings rate.
Sounds counter-intuitive, I know… but that’s the world of economics.
Comment by Adam — Feb 4th 2008 @ 8:08 pm
Thanks for your comments, Adam. You are right about the transformation of the economy. I don’t think it proper to say, ‘kill’ when you are turning a caterpiller into a butterfly (not that our economy is a caterpiller, but…)
Erika- The Pregate is for ALL Americans, not just the poor. It is essentially enough to cover the taxes on the basic neccesities of life, while allowing for a tax on spending above that! If middle income Americans spend moe on used goods and less on luxeries, they would be taxed less! The rich who buy everything new, would be taxed more! What a concept! (Actually, Jefferson described something similiar to this in his time- a tax on luxeries which at the time were mostly imported!)
-James Lee Vann
Comment by James — Feb 4th 2008 @ 9:14 pm
Erika -
I hate to be that guy but I gotta say you really need to visit fairtax.org and do a little reading.
James already answered your comment about the prebates but your comment about the taxes on the businesses is wrong. The whole idea is that the taxes are only on final goods and services. So for raw materials and supplies for businesses there are no taxes.
Also your comments about investing doesn’t make sense to me. Sure many people like me would be investing more but still spending about the same. But your comment seems like you expect everyone to stop spending and invest in anything they can find. I just don’t see that. There are so many people I can’t even imagine taking the time to research for investing. There are also many people who are afraid of investing because they don’t like any risk. These people will probably spend the extra money they get to keep in their checks.
Comment by Owen — Feb 4th 2008 @ 11:05 pm
James…
“The Case of Lurita Doan and the GSA” on PBS,
http://www.pbs.org/moyers/jour.....a_doa.html
Press the little icon “watch video” under the picture. Congress actually is doing something. You would be surprised. After you watch it you’ll know why nothing is happening and why the Congress looks like bunch of useless chimps.
We don’t need change of taxation; we need investigation of where the money were spend, how much and who benefits, money to be refunded, people to be sent in jail.
Simple math, positive population growth = more workers = more taxes in government. That is you positive side of the balance sheet (emigration is a plus, full grown workers for minimum price without benefits, businessman dream). Now tricky part is the negative part. And for the last 8 years there is no accountability, transparency, or spending cut. (I’m sorry, I forgot the SCHIP). You can triple the taxes if you spend the same way, result will be the same.
Brian…
If half of the world could manage universal health care and be not the reaches country in the world, I would suggest we look at the option. I pay more in healthcare and dental (no vision) then on Federal and State taxes a paycheck. That is disturbing.
Adam…
Value added tax always have been passed down to the consumer. So we end up paying it. I read somewhere that Sales and VAT are two different taxes, even if they look the same.
I tried reading baron Keynes, had a hard time, and was just 18. Too dry, yet I liked his idea on savings and income. And again he is a different epoch. Times changed a lot from then.
Savings is OK, yet you have to have an income outage to save, after all you’d have to pay rent, food, drive, gas, and normal necessities. They would cost you extra 30% at least. What about the mortgage and big items? A car?
“Essentially, we would become a nations of investors and savers, sending our superior and cheaper products overseas”
We are already nation of investors… IRA, 401K, etc…, that does makes us savers, yet we are not one, I doubt we would. And that have nothing to do with the second part. Superior and Cheap products, have nothing to do with that first part, savings and investment. Cheep is usually poor quality and quality is affiliated with higher price. You defeated the gravity law with your second statement. I have never seen superior and cheep. It is either one or the other.
I don’t understand the world of economics lately it make no logic at all.
Comment by Nick — Feb 4th 2008 @ 11:22 pm
The consumption tax will increase the tax on people about 66.7 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. That is 40/60 x100 or 66.7% increase in personal taxes. Under the “Fairtax plan,” businesses do not pay taxes.
Corporations enjoy all of the privileges of persons except the vote. They benefit from infrastructure, employee public education, law enforcement and limited liability. If corporations do not pay taxes, their privileges should be revoked.
Comment by Bruce Barnes — Feb 5th 2008 @ 2:10 am
Nick and others - There are doctors in Britain who are dropping out of the health care system, which means people hare having a harder time finding a doctor.
The costs of the health care plan Romney is so proud of is growing out of control.
I’m going to take a chance and try a little code…
First, talking about the FairTax, I’d like to emphasize the growth we could see. It could even give us surpluses. Here’s another source saying much the same thing. Wouldn’t it be a good thing if we had surpluses?
And then, there is the return of $11 billion dollars from currently tax-protected offshore accounts. I assume that will be put to more productive use, probably in investments.
The new tax shelter will be the USA, since no company will have to worry about tax implications in almost every decision they make.
When Americans for Fair Taxation built the FairTax, they did not take the above into account. They just wanted something that would be fairer, yet would provide the same revenue as the current income tax system. Since there is increasingly less compliance to the income tax, and since the FairTax would be broader, including illegals and other various and sundry criminals, this provides a broader base for taxation. Since only legal residents would be eligible to apply for prebates, the tax would be regressive to the underground economy.
No one, especially those from Americans for Fair Taxation, would say the tax is perfect. But I do suspect many, even in that fine organization, are underestimating the impact of the FairTax.
I’m going to bed. I apologize ahead of time if my HTML doesn’t work.
Comment by Brian Pearson — Feb 5th 2008 @ 2:10 am
Consumer spending makes up 70% of the GDP or about $10 trillion. Notice that 30 % of $10 trillion is $3 trillion, not 23%. President Bush sent the nation’s first-ever $3 trillion budget proposal to Congress on Monday, February 4, 2008.
Comment by Bruce Barnes — Feb 5th 2008 @ 2:36 am
Over 60 % of the oil consumed in this country is imported at a global price. Oil companies that sell US produced oil can produce that oil at a much reduced price but they still sell it at the global rate. If oil companies did not have to pay any federal tax they would still sell that oil at the global rate. There is not anything in the “fairtax” bill to compel any company to reduce their prices.
There may be the 23 % embedded federal tax but I would not count on it being removed at the checkout counter.
Comment by Bruce Barnes — Feb 5th 2008 @ 2:40 am
What about people receiving government assistance social security, military retirement, Medicaid, or disability? They will have to pay a 30 % sales tax. To be fair government services will have to go up 30 % and since the government has to pay the sales tax, the cost of an aircraft carrier will go up 30 %. To pay for these items the budget will go up 30 % which means the fair tax which will be neutral to the present tax will have to go up.
Comment by Bruce Barnes — Feb 5th 2008 @ 2:44 am
Brian…
Most of the Brits don’t worry whether they can afford to go to the doctor, or get in debt for the rest of their lives. And that is not only Brittan, it is most of Europe.
“I’d like to emphasize the growth we could see. It could even give us surpluses”… too many “could” not “will”
About the surpluses… we already do have them, the world don’t wont our genetically modified beef, modified corn, Gas guzzling SUV. The world doesn’t care about us, not anymore. Ford don’t import some European models as they were to expensive to be sold in US the CEO publicly announced.
“And then, there is the return of $11 billion dollars from currently tax-protected offshore accounts.”… Offshore accounts… 11 billions. Why someone, who is making money outside US, would come back? Because we give him 0%, he already has that, no implications at all, or decision making barriers. You have to do better then that.
“FairTax would be broader, including illegals and other various and sundry criminals, this provides a broader base for taxation. Since only legal residents would be eligible to apply for prebates, the tax would be regressive to the underground economy.”
Now that is just a piece of art. So we welcome even the illegal and criminals if they have money to spend. And because I will have rebates and they will not they will be going home… (now that is hilarious). If I’m illegal criminal, I will not pay your 30% tax; I’ll steal with 0% tax, sell it on a black, underground market, for 100% profit. And as the tax would be Federal not State, there will be less police to catch me.
Brian… are you for real? You think those guys from the offshore will come to country like that?
Grey economy will always exist. Only way to take it out on the sun is to legalize it. And tax it.
As I mentioned already…, “road to hell is covered with good intentions”. I ask for actions not “intentions”, “coulds”, “buts” and “ifs”. Tax code needs cleaning I agree. 56000 pages are a lot, yet they piled in the last 40years. How did the people survived before that and how come the best years were before the changes started to occur. 50-60 we were going up, 70-80 kind of flat and from then going down up to now?
Sorry I didn’t get this. Business pays absolutely no taxes, none at all…. Then its easy… I can open LLC and pay no taxes too. I can buy without paying tax at all, managing purchased goods is company business, not yours. My business? I rent my garage to my neighbor for profit, he pays 30% tax. Yet that is a “rent” not a “sale” so he doesn’t have to pay tax it is not a “sale” is it?
Now thinking of it I will vote for tax like that.
Comment by Nick — Feb 5th 2008 @ 3:51 am
Bruce -
Do you really think that corporations pay those taxes now? Out of the goodness of their hearts they give away the money that they have earned? No, they pass along those taxes that they have had to pay to the consumer. That is why they estimate that prices won’t rise much if at all because the fair tax removes the embedded tax that is added along the way in the production process.
This will also help the people on assistance that you spoke of since they wouldn’t need that 30 percent increase. Hopefully there aren’t so many people receiving government assistance that it would be able to derail the government if they had to increase what they are giving to people. If that were the case we are in worse trouble than I can imagine.
Government spending is way out of control. That is a huge issue that isn’t really addressed by any tax code except when they decide to increase taxes. They are talking about giving rebates to people and then in the same bill people are attaching pet projects and other things to it. If you are giving money away wouldn’t it make more sense to add into it ways to cut spending not increase it more? Atleast with the fair tax I could decide that if I’m not happy with what they are doing in Washington I can buy more used good or save more and not pay Washington. Sure, they can increase the rate of the tax to pay for their project but maybe someone in Washington will wake up and figure out that we are sick of paying for 100 million dollar bridges that lead to an island where 10 people live. Maybe we could just start a revolution with this idea and wake some people up and make the government officials realize that they work for us. We don’t work for them.
Well, that’s enough from me. I’m off to get out of the cold for a few days. I’m not taking my laptop so maybe I’ll be able to shut up for a few days. Enjoy.
Comment by Owen — Feb 5th 2008 @ 7:45 am
Nick, that was $11 trillion, not $11 billion — my mistake. Back later.
Comment by Brian Pearson — Feb 5th 2008 @ 1:07 pm
Owen,
What are you talking about? I think you got up to early. Do you want to be forced to pay the taxes that businesses and the wealthy are not paying? Used goods as defined by the fair tax bill is goods that have already been taxed by the sales tax, therefore everything will be taxed for years. Are you going to stop eating or driving to not pay Washington?
I found this comment on http://robertreich.blogspot.com/ regarding economic issues.
Monday, January 28, 2008
The Real Recession Problem: Consumers Are at the End of Their Ropes
Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.
But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything.
This tax break exemplifies the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.
Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.
Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.
Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.
Republicans have almost doubled the national debt in the last seven years by giving tax breaks to the wealthy and to businesses. The big losers from this is the general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens. The falling value of the dollar that makes everything imported more expensive. The U.S. economy, which is harmed by the distortions from the widening gap of income and wealth. State governments and state taxpayers, which see their tax systems erode along with the federal system, and the integrity and sustainability of the tax system as a whole are also, losers. The only way to lower taxes is to reduce spending. The republicans with control of congress and the presidency increased spending every year.
Comment by Bruce Barnes — Feb 5th 2008 @ 1:22 pm
Brian…
Changed my mind, I’m for the taxation. Plan is…
Open the LLC sell my house to the LLC making profit, rent my house to myself and pay no taxes on the LLC, as the LLC will support me… NO payroll, no income, love it. It is genius; we will be nation of corporations I am becoming business owner right now. Hooray… have to call my lawyer.
Bye for now
Comment by Nick — Feb 5th 2008 @ 5:51 pm
Actually, under the FairTax, rent is considered a service. So therfore, you would still have to pay taxes on it. However, you would still get the Prebate, which would cover your taxes on the basic expnse for basic houseing- anything over that is a luxery, and as such should be taxed!
People who buy a new home would have to pay taxes on it (usually rolled into the mortgage, so unfortuanly they would also pay interest on those taxes). If you buy a used home, it would not be taxed (It already has been!)
At least, that is how I think it works. If anyone knows any different, let me know.
-James Lee Vann
Comment by James — Feb 5th 2008 @ 6:30 pm
Hi Bruce, Yeah, I was up early and in vacation mode but I still think my idea holds true. Corporations today aren’t going to be penalized by paying taxes. They pass the cost along to the consumer so we are already in essence paying these taxes. And your comment about not eating or driving is just silly. There is a big difference between needs and wants. But you will be able to hold of on buying that new car, appliances, music, books, furniture. These thi