Fair Tax?

[Newport]

I will post what i typed up on another forum so i can save my fingers from sudden death

 

 

 

Just for kicks, you should still read up on the FairTax - there are some pretty interesting arguments as to why it can work.

 

In a nutshell, the tax is only collected at final points of sale on new goods only... meaning if you buy a car, for example, no single component that went into making the car is taxed until you buy it... wholesalers are not involved in tax collection. So, retailers become the 'tax collecting agent'. Ever try to barter with Wal-Mart? Furthermore, there is still going to be a regulatory agency responsible for overseeing collection points. Meaning Wal-Mart gets attention on a regular basis, and would face severe penalties if they tried not to report income. Also consider... monitoring tax evasion right now means monitoring every single U.S. resident taxpayer. That's a lot of people to keep track of. Under FairTax, the retailers acting as tax collectors become the only entities that the government receives tax income directly from. That means there are drastically fewer points to keep track of (couple thousand corporations instead of couple hundred million individuals).

 

Furthermore, the tax only applies to new items... so when you sell your car to a buyer, they're not paying tax on the car again; it's already been collected.

 

What that all means is that the 'barter/don't report' concerns are not applicable. The only people you could barter with to avoid paying taxes are the tax collectors themselves... and they are too big and hold too much responsibility for you to be able to persuade them into letting your purchase go under the radar.

 

As far as the tax rate goes, it'd have to be around 23% exclusive. What people don't realize is that when they purchase goods today, the price is inflated by about 23% because of embedded tax costs. Wholesalers pay tax on raw materials, they then raise their prices to pass that cost along to the next step in the supply chain, who does the same thing to the next step, and so on... at the retail level, you the consumer are paying the sum of those offset tax costs from each step in the process of creating that product. And the dollar amount of that cost is hidden from you. The only tax you see is the existing sales tax.

 

The FairTax removes all the intermediate taxes from the supply chain, which makes your product 23% cheaper, then you buy the item in the store, your receipt shows the cost of your item, and the sales tax for that item as a separate figure. The exact amount of tax money that you pay is shown explicitly right there. That in itself promotes fiscal responsibility. You're paying the same price in the end, but under the FairTax, you're reminded every time you buy something how much of that is going to the government.

 

This also leaves the payment at your discretion. If you don't want to pay taxes, don't buy the item...

 

(there's more to it, but I'll stop for now - feel free to ask any more questions if you have them).

 

I do agree that it'll be an uphill battle to reform the system when tax lobbyists are among the most influential entities in politics today.

 

EDIT: Sorry for jumping off topic again - I tried to post this yesterday and the page didn't load. Came back to work this morning and tried again - didn't see that we've already moved beyond that... Apologies!

[Verran]

I think the biggest question is who determines what constitutes a "new retail product"? I mean sometimes it's very easy. If you go to the Ford dealership and buy an '07 Mustang, then yeah that's new. If you go to Earl's Used Cars and buy a '91 Mustang, that's used. Those are easy examples. But what about going to Sam's Club or Gordon Foods or Costco and buying 20 pounds of ground beef. If a restaurant owner buys that and sells it to me as a cheeseburger, then Costco was just the middle man, and shouldn't charge tax at that point. But if I go there and buy it and freeze to eat over the next 6 months, then I'm buying a final product and should be taxed. How is that all sorted out?

 

Between loopholes like what I said above and the "one shot taxing", it seems like it'd actually be easier to evade taxes. At least now if someone ducks the taxes on something, they just miss one "stage" of taxing, but in this system, ducking the taxes on a purchase evades the full "unified tax" in one step. Saving 23% on a purchase just further motivates people to cheat the system.

 

I think it's a neat concept that everyones' at least thought of at some point, but I don't think it would work in reality.

[SMeeD]

So this is what i got from that paragraph, correct me if im wrong.

 

All income tax will be eliminated. Say walmart buys a 7300 from nvidia, they wouldnt have to pay taxes on it, the only taxes come from when the item hits the consumer. Income tax is tacked onto the item tax. Because of tax inflation, item prices wont go up much.

 

There are no taxes on "used" items ex used cars, garage sale items (who ever reports that money anyways)

 

If, by some twist of fate, this was passed the government will loose money. They are going to invent some crazy way to get it back.

[Newport]

In reply to Verran:

I agree with you and with that comment i will post something i said that disagree with the Fair Tax Program. This is also something i would love to try.

 

People will just barter or won't report the taxes especially at the high tax rate needed to support all the programs. I think a better idea is to get rid of tax withholding and have everyone write a check to the government for income tax each April 15th. Then people will be so pissed because they actually will realize what they are paying and will demand a stop to wasting money. Come April 16th, the streets of Washington DC would be littered with "political corpses" after people had to write those checks. I know that is just a pipe dream because congress can't afford to loose their way to bribe people with their own money to keep in power.

 

But then again, this is a reason why i would like to see how well this new taxation program works

 

FairTax eliminates all income taxes, along with social security tax, estate taxes, and a whole bunch of others, and replaces them with one comprehensive national sales tax. Everyone gets to take home their entire gross paycheck, and they are only taxed on their consumption. That is, the more of your money you choose to spend, the more tax you pay. The goal of this is not to change the amount of taxes raised, but to change the system so that taxation rates are much more transparent. It shifts the tax burden upward on the economic ladder, and broadens the tax base dramatically. It also makes tax evasion nearly impossible to perform. The net result is that the lower and middle classes will be giving up less per capita than they do under an income tax. Oh, and it renders the IRS obsolete.

 

EDIT: Blitz, what is actually happening here is that right now is that even though you have a sales tax of (in Kansas is .0725%) there is also taxes behind the scenes that are implimented in the creation of the product. If i buy a car, the engine parts are being taxed. The paint products are taxed, you have tax on every single piece of product that goes into making that vehicle. That boils down to around 23% taxation after you have bought the car. What you see is that .0725% because that is factored onto the sticker price AFTER you have agreed to purchase the car. The other 16% is already factored into the sticker price because it was added in during the process of the making of the car. So if the car has an MSRP of 15,000, 16% of that 15,000 is money that was taxed during the build process.

 

SO... If we rid all those "behind the scenes" taxes, that 15,000 dollar car now has a sticker price of 12,600. But you now pay a 23% sales tax which brings it to 15,000 total. You pay the same, some cases more some cases less, but the gvt still makes the same amount of profit. This just simplifies the way the gvt makes money, it simplifies your life because now u get more money in your pocket (cashing gross paychecks instead of net) which means you now have more money to spend. This now increases sales on everything. Can somebody say "trickle down effect?" Remember when Ronald tried this when he was in office? Remember the awesome results? Catch my drift?

[Verran]

Wow, there's a lot of points there. First of all, getting rid of tax withholding would be a terrible idea. At the end of the year, when everyone has to cut that big fat yearly check, how many people do you think will have the cash? I know 40 year old parents of two that make $150k+ a year and still live paycheck to paycheck. Most Americans are so poor with money that they won't be able to cut that check, and the government will have to send people after them to get the money they don't have, costing even more.

 

Also, you said that FairTax would make taxes more transparent, but actually, it would make them more aparent. 4-8% at several stages along the way is transparent. The "Oh #$%^!" factor of a 23% one-shot tax is quite aparent.

 

Also, you say that FairTax will eliminate bartering by shifting the tax burden up the economic ladder. I see it as the opposite. When you look at the example of putting the burden on WalMart, then yes it makes sense. It's a huge corporation and very accountable. But don't forget the millions and millions of Mom and Pop corner shops that will now also hold the burden of this huge one-shot tax. Now dickering and bartering with Mom and Pop yeilds 23% instead of 4-8%... all the more reason to do so.

 

As far as rendering the IRS obsolete, I can't see how that would be the case at all. The government would still be bringing in the same money. Someone has to do all that paperwork and route all that money. It might reduce staff numbers somewhat by reducing the number of contacts the IRS has (only end-product businesses), but I don't see it eliminating the IRS, or even close.

 

And as far as this "trickle down" notion, that's silly. You said yourself that things still cost the same, you're just paying in different ways. You're not making or destroying any income here, you're just shifting it. Yes, a gross check will yeild more dollars in a worker's hands, but every extra dollar that didn't get taxed with FairTax now goes into the one-shot 23% tax that he's paying when he buys anything. The concept of more income through the gross check is an illusion. They make more money so they can spend more on items than they used to. The system remains the same. There is no "extra income" to trickle down.

[Newport]

And as far as this "trickle down" notion, that's silly. You said yourself that things still cost the same, you're just paying in different ways. You're not making or destroying any income here, you're just shifting it. Yes, a gross check will yeild more dollars in a worker's hands, but every extra dollar that didn't get taxed with FairTax now goes into the one-shot 23% tax that he's paying when he buys anything. The concept of more income through the gross check is an illusion. They make more money so they can spend more on items than they used to. The system remains the same. There is no "extra income" to trickle down.

 

That illusion of making more money is a part of what i ment when i talked about the trickle down effect.

 

 

A normal paycheck for john doe is 500 bucks. If his new paycheck is 575, hes got 75 more dollars in his pocket. Thats 75 more bucks to spend at wally world. Even after the 23% tax is figured into whatever it may be that he wants to buy, it would still costs him the same amount even IF the fair tax plan was NOT in effect. Therefore, there is 75 bucks he didnt have before hand, AND nothing will cost him more to purchase. remember how i talked about the 15,000 dollar car that still costs the same before and after the tax shift? This tax shift is NOT an added tax, it is simply the government's way of doing a "balance transfer" onto a single credit card instead of many credit cards having many balances where each type of tax is a credit card... if that makes sense to you.

[Verran]

No. Again, it is only an illusion. Your example of the car proves your point, but alas, it is incorrect.

 

You say the car cost 15k to start, but now costs 12.6k with the megatax brining it back to 15k. But with your system, the megatax would make it cost more than 15k.

 

Think of it this way. If you consolodate all the sales taxes that are paid along the way to make the car, then yes your example works. But if that's all you do, then you're missing a lot. Where do the income taxes figure in? You took them out of the system, where do they get put back in? If they don't go back in, then your system is nothing more than an elaborate tax break.

 

You said we still pay the same in taxes. If that is true, then our income taxes are now a part of your megatax, which means we're actually paying income tax on sales, which means MORE taxes at time of purchase than we used to pay. Instead of paying income tax every two weeks when you cash your check, now you're paying it on purchases. Thus things cost more. This is how the lack of income tax is balanced, and why your new gross income is nothing more than an illusion.

 

You may make $75 more a month, but now you pay $15 more on rent, $7 more on utilities, $10 more on your car payment, etc. It evens out perfectly because ultimate (per your own words) the taxes are still the same, only collected differently.

[LoArmistead]

I actually just started reading the Fair Tax Book. I was waiting for Barnes and Noble to put it the sale list for their "Post-solstice winter celebration" sales. I've been wanting to read it for quite a while, so I guess I'll get back to yall on what my perception of all this is. From reading the brief overviews and looking at the pie charts on internet reviews, it seems like a plan that is very doable. My main concern is that the Democrats will spin this as a way to "increase taxes on the poor!"

 

But hey, anything that renders the IRS obsolete is fine by me. The IRS = an accountants worst nightmare.

 

I'm just tired of seeing hardworking Americans lose 50% of their paychecks to federal and local governments before it even hits the bank. It's an injustice.

[hockeyrcks9901]

Verran. The trickle down effect still works because of the Money Multiplier(Bank) effect. If the item costs more, the store gets more. They don't give that money directly to the government immediately. Which in turn means that it goes into the banking system. Therefore the bank loans more money, some of which comes back into the bank system again. And again some gets loaned out. Essentially "creating" more cash. Now, when the government collects their taxes from the store. All that "created" cash stays in the economy. That of course is all completely irrelevant if the government collects the taxes immediately from the store.

 

Now, on the rest of the Fair Tax idea. I like some ideas of it. I like that it is an equal tax put on all new goods instead of taxed on my income. I like that I get taxed for what I use, not what I earn. Other than that, I don't really care either way.

[LoArmistead]

 

Now, on the rest of the Fair Tax idea. I like some ideas of it. I like that it is an equal tax put on all new goods instead of taxed on my income. I like that I get taxed for what I use, not what I earn. Other than that, I don't really care either way.

 

Ding ding ding! Abso-friggin-lutely.

[Rehit]

everyone always seems to overlook the taxes not collected on illegal income.

say perhaps you are a drug dealer, and you want to buy $10,000 worth of clothes...

since you pay absolutely no income tax at this point, the fair tax will get your earnings.

this also goes for wages earned by people illegally in the US.

the polititians will never let go of their cash cow...

the IRS.

taking away their power to accept perks in lieu of tax breaks will never happen.

we would be eliminating one of their biggest contribution, and vote buying powers.

[Verran]

Verran. The trickle down effect still works because of the Money Multiplier(Bank) effect. If the item costs more, the store gets more. They don't give that money directly to the government immediately. Which in turn means that it goes into the banking system. Therefore the bank loans more money, some of which comes back into the bank system again. And again some gets loaned out. Essentially "creating" more cash. Now, when the government collects their taxes from the store. All that "created" cash stays in the economy. That of course is all completely irrelevant if the government collects the taxes immediately from the store.

So if I'm following you right, you're saying that the stores will earn interest on the tax money between when they collect it from the consumer and when they pay it to the governemnt? I guess that's true, though it seems quite small in the grand scheme of things, hardly enough to stimulate some sort of economic enrichment. How long are you assuming these retailers will keep the collected taxes? I guess if they were allow to keep them til the end of the year, maybe, but that doesn't seem very logical. More than likely it'd be a week or two max, which is nothing to get excited over in terms of interest growth.

 

I like that it is an equal tax put on all new goods instead of taxed on my income.

So in this new system the government just forfeits all the taxes it used to collect from income tax? You guys are acting like you just won't pay that money to the government anymore. If that's the case, then as I said before, this is just a glorified tax break. My understanding was that the same money will be collected in both systems, just at different times. If that's the case, you will still be paying income tax in the form of higher sales tax.

 

I still think the biggest question is how you decide what an "end product" is versus a a middle man product. Seems like a very difficult differentiation to be made, and one that would open up huge loopholes in the system.