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The FairTax Debate

by VM1
Last Update: September 23, 2013

Is the FairTax fair? Many questions remain regarding the consequences of a consumption tax (FairTax). Some people see the name “FairTax” and believe that it is more fair than any other method of taxation. People who describe this as the best method for a tax system probably have not investigated the effects of moving from an income tax to a consumption tax.

Our current “progressive” tax system punishes small business owners and people in the upper income brackets who often work two or three jobs and consequently have a higher annual income but rewards those at the lower income level and often gives refunds to people who have not even paid any income tax. The FairTax would do the opposite by increasing taxes on those at the lower and middle-income brackets.

Contemporary Economics by Milton H. Spencer describes the Personal Income (PI) as the total income received from all sources before taxes are taken out. Disposable Personal Income (DPI) is the amount of money that people have left to spend after taxes. Currently, the United States uses a Progressive Tax System, which means that people who make more money have a larger tax burden than a family with a low income.

The progressive tax rate increases as the PI increases until the “maximum tax bracket” is reached. The FairTax is a regressive tax which means that the percentage of income that is actually taxable decreases as the tax base (PI) increases so the method taxes a larger share of income from the low-income taxpayer than from the high-income tax payer.

Actually, a regressive tax is “a tax whose percentage rate decreases as the tax base increases.” But “if we compare the rate structure of the tax with the taxpayer’s net income (PI) rather than with the actual base, the term regressive applies to any tax that takes a larger share or percentage of income from the low income taxpayer than from the high income taxpayer.” With this in mind, most taxes such as consumption tax, value added tax, and other sales taxes have a regressive effect on the taxpayer.

The claim is that the FairTax would be 23%. This number is achieved by falsely calculating the tax. If a product costs $1.00 at retail and the FairTax adds 30 cents then the total cost is $1.30 under the FairTax rule. This is a total cost increase of 30% (30% of $1.00 is $0.30; add that to the $1.00 and you have $1.30). The FairTax divides the increase by the total to achieve the lower rate which is MATHEMATICALLY INCORRECT ($0.30/$1.30)*100=23%. A 23% tax on $1.00 would yield a total cost of $1.23 NOT $1.30.

A 30% FairTax could be applied to all taxpayers so everyone would pay the same rate. However, since the low income families spend most or all of their available money on goods and services, a large percentage or all of their income would be taxed and the high income families would spend a smaller percentage of their income on goods and services so only a small percentage of their income would be taxed. In this sense, the consumption tax is viewed as a regressive tax.

As an example, consider a Family of four who has a PI of $500,000. Using the current Federal Income Tax requirements, this family would probably pay around $145,000 after reducing the taxable income to compensate for savings plans, medical, donations, etc. A family of four who has a PI of $100,000 may pay around $10,000 in Federal Income Tax.

The “FairTax” or Consumption Tax would tax the money actually spent on goods and services. The family making $100,000 per year (or less) would probably spend all of their disposable personal income on goods and services so this means that 100% of their DPI is taxed. However, the family making $500,000 per year would most likely not even spend half of their income on goods and services so a smaller percentage of their income would be taxed.

Let’s assume the higher income family spent $200,000 per year for food, clothing, etc.: This means the family making $500,000 per year is taxed on 40% of their personal income and their tax would be $60,000 (a savings of $85,000 compared to the current progressive tax). The family making $100,000 per year would pay $30,000 if they spent all of their income on goods and services. The $100,000 per year family would be taxed on 100% of their DPI and would pay three times the amount they currently pay.

In this second example, assume the FairTax was set at 50%; the family making $500,000 per year would pay $100,000 in taxes (50% of $200,000) instead of $145,000 (a tax savings of $45,000). The family making $100,000 per year would pay $50,000 in taxes (50% of $100,000), which would be 5 times as much as they currently pay.

The regressive consumption tax is really the most unfair taxing method of all the available choices. It places the largest burden on the poor and middle class with a tidal wave of taxes while the rich only see a ripple in their budget, which amounts to a large decrease in taxes compared to the current income tax. The consumption tax penalizes the poor and middle class and gives enormous tax breaks to the rich. The rich will use only a fraction of their income on taxable goods and the taxable percentage of their income just gets lower as the PI increases.

Supporters of the consumption tax suggest that the tax rate on goods and services would only be around 23% (30% if you do the math right). However, a tax rate of 40 to 60 percent is more likely in order for the government to receive the same revenue as the current progressive tax. In addition, to make this process work, services such as medical, rent, food, and many other things that are not currently taxed would have to be taxed in order to pay for the ever-expanding government appetite for money.

There are many unintended consequences to consider with the consumption tax. As an example, people who currently purchase a new car every two or three years will probably delay that purchase and keep the car for five to ten years or keep it until it doesn’t run anymore. This would have a disastrous effect on the auto industry and also on other industries that sell high value equipment. Corporations would delay purchasing new vehicles and capital equipment because of the large tax burden, which would continue to damage the economy.

As Bruce Bartlett (economist associated with supply-side economics) explained, the government would have to tax itself when purchasing tanks and other military equipment. The government would also have to tax itself when purchasing ships, aircraft, and all the small things that are needed to keep the government running. But the increased revenue from taxing purchases is exactly canceled by increased costs in the federal budget so this is something that the FairTax folks need to re-think. This government taxation may also be applied to the state and local governments, which would in turn add another burden on the taxpayer by increasing the state and local taxes.

Also consider the 55 year-old and older people who have been paying income tax all their lives. Even though they retire and no longer make wages, they will get hit with the consumption tax, which amounts to double taxation. The “FairTax” is not at all fair to the low-income or middle class families. The FairTax would however, remove the burden of extreme taxation on the wealthy.

The FairTax supporters claim that all Americans that hold a valid Social Security Card and who are U.S. residents will receive a “prebate”. This prebate is not restricted to low-income families but is given to everyone regardless of annual salary. The CEO’s of companies such as EXXON and Chevron who make over 4 million dollars a year in salary would also receive a “prebate”.

The word “prebate” is not a real word but was made up by the FairTax followers to disguise the real meaning which is WELFARE and would cost around $800 billion in the first year and would only increase with time. This new entitlement of 800 billion dollars a year is not considered in the FairTax proposal. Think about it: Americans would start off the year with close to a trillion dollar debt before one cent of revenue (tax) is received by the government.

The FairTax is supposed to replace just about all current federal taxes and some services:

1. Income Tax
2. Social Security Tax
3. Medicare Tax
4. Corporate Tax
5. IRS
6. Save 300,000 trees a year (no joke)
7. Eliminate 401Ks and IRAs
8. Eliminate deductions for charitable donations
9. No reporting of where you work or your salary
10. Encourages the purchase of “tax-free pre-owned cars, clothes, furniture, houses, etc.” (Isn’t this what they do in Cuba?)

“When something seems to be too good to be true, it isn’t true”. The list above is only a small sample of what the FairTax people claim to accomplish. Now consider the fact that they claim to remove all the taxes with a 23% consumption tax but still run the government, fund Medicare, fund Social Security, and the rest of the services currently provided by the government. They also want to dismantle the IRS and fire 100,000 workers. Now someone would have to be around to manage the FairTax policies and ensure taxes are collected from the companies offering the products and services. I expect they would create a new bureaucracy and hire the IRS folks back since they already know how the process works.

The United Kingdom pays an income tax that is similar to the U.S. tax with the maximum tax bracket of around 40% (currently, the maximum tax bracket in the U.S. is 35% although the progressives in Congress would like it to be near or above the 40% range). However, the Brits also pay a Value Added Tax (VAT). Value Added Tax is a general consumption tax assessed on the value added to goods and services, which is really a consumption tax “because it is borne ultimately by the final consumer. It is not a charge on companies”. The VAT rate in 2008 was 17.5%. It dropped to 15% in 2009 but in 2010 it was back to 17.5%. Most people pay the 17.5% VAT plus the standard income tax. If the United States were to implement the FairTax, we would most likely end up in the same situation as the U.K., paying a consumption tax and, re-instating the progressive income tax.

The FairTax would place most of the tax burden on low-income families and give large tax breaks to high-income families. Don’t forget about the state income tax, county tax, property tax, and city taxes that will be in addition to the consumption tax. The FairTax would crush the low-income family, destroy the economy, and provide an enormous tax break to the wealthy.

The FairTax would require the 16th amendment to be repealed. We know how difficult it is to get an amendment to the Constitution passed and it is virtually impossible to get it repealed once in place. What this means is there is little chance of repealing the 16th amendment and if the FairTax ever became law and the income tax was ended, congress could re-instate the income tax any time they wanted and you can depend on congress when it comes to increasing taxes. The end result would be that we have a national sales tax called the FairTax at somewhere between 40 and 60% and we would also have the old and honored progressive income tax – the progressive liberal dream.

There are ways to simplify the current tax code such as a “flat tax”. The flat tax would be an income tax and would only have one or maybe two tax rates. The tax rate could probably be lowered to ten or fifteen percent with a flat tax. The flat tax would be fair to everyone and not have the disastrous effect of the FairTax. The current tax system does need work but the FairTax is not the answer.

The following is from a 2012 study by the Tax Foundation using data from 2010:

The top 1% of taxpayers paid 37.38% of all federal taxes.
The top 5% of taxpayers paid 59.07% of all federal taxes.
The top 10% of taxpayers paid 70.62% of all federal taxes.

This leaves us to conclude that the bottom 90% of taxpayers only paid 29.38% of all federal taxes.

Some Unintended Consequences

For this example, we will use the 30% FairTax although as shown above, it would be much higher:

Purchase a $500,000 house and pay $150,000 in sales tax.
Purchase a $30,000 automobile and pay $9,000 in sales tax.
Get a hospital surgery bill for $20,000 and pay $6,000 in sales tax.
Spend $200.00 on groceries and pay $60.00 in sales tax.
A large portion of the population will stop purchasing new houses and new cars and buy used goods so they won't have to pay the harsh FairTax. What will this do to the building and automobile industries?

As you begin to see some of the unintended and intended consequences of the FairTax, you can understand it is just a bad idea.

But what if the tax was increased to 50% which is a likely scenario?

Purchase a $500,000 house and pay $250,000 in sales tax so now the price is $750,000.
Purchase a $30,000 automobile and pay $15,000 in sales tax so now the price is $45,000.
Get a hospital surgery bill for $20,000 and pay $10,000 in sales tax.
Spend $200.00 on groceries and pay $100.00 in sales tax.

Although the current tax system is unfair to those who earn a higher income, the bottom line is that the FairTax will not work and it is definitely not fair. We do need something to replace the current tax code but is the FairTax really the answer?

http://www.votersmarket.com/FairTax.aspx

Jeb and the media are just trying to look "cool" to the kids and undocumented dems.

Originally Posted by Mayday

Jeb and the media are just trying to look "cool" to the kids and undocumented dems.

His daughter Noelle is real cool with the crack-heads.

"As a politician, Bush has not embraced marijuana. He spent much of his time as Florida governor championing jail instead of treatment for nonviolent drug offenders, and pushed for mandatory prison sentences for drug offenders -- with the exception of his daughter, Noelle, who has struggled with crack cocaine use. " (Click the blue to read all about it.)

MONDAY, SEP 16, 2002 10:13 AM PDT

The latest Bush hypocrisy

Gov. Jeb Bush calls for jail time for nonviolent drug offenders as his daughter gets sent to rehab.

ARIANNA HUFFINGTON
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I feel nothing but sympathy and concern for Noelle Bush. Her latest stumble on the rocky road to recovery — being caught with crack cocaine at a drug rehab center — shows that she is in desperate need of help. As a parent, I can also easily empathize with the anguish Noelle’s father, Florida Gov. Jeb Bush, must be experiencing. And I’m in total agreement with his insistence that his daughter’s substance-abuse problem is “a private issue.”

But when I think about the heartless stance the governor has taken toward the drug problems of those less fortunate and well connected than his daughter, my empathy turns to outrage.

While Noelle has been given every break in the book — and then some — her father has made it harder for others in her position to get the help they need by cutting the budgets of drug treatment and drug court programs in his state. He has also actively opposed a proposed ballot initiative that would send an estimated 10,000 nonviolent drug offenders into treatment instead of jail. I guess what’s good for the goose gets the gander locked away.

Of course, Jeb’s wildly inconsistent attitude on the issue — treatment and privacy for his daughter, incarceration and public humiliation for everyone else — is part and parcel of the galling hypocrisy that infects America’s insane drug war on every level.

The latest example of this madness is last week’s early morning DEA raid on a medical marijuana club in Santa Cruz, Calif., that caters to terminally ill patients. Although the hospice-style operation has been lauded by local law enforcement officials for its caring and ethical approach, federal agents stormed the place with guns drawn and chainsaws whirring — leveling its pot garden, handcuffing ailing patients (including a paraplegic) and carting off its founder and director, Valerie Corral, a woman who has been called the Florence Nightingale of the medical marijuana movement.

So much for the president’s compassionate conservatism, and its conservative consistency. Back when he was running for president, candidate George W. Bush declared that medical marijuana is a states’ rights issue. “I believe,” he said, “each state can choose that decision as they so choose.” Although the mangled syntax makes it a little hard to tell exactly what the president was getting at, is it consistent with allowing John Ashcroft to order a holy-roller war against cannabis clubs in California, even though it is one of 12 states that have decriminalized the use of pot for medical purposes?

---

---

Surely there has got to be a better use of our limited law enforcement resources than busting grievously ill cancer and AIDS patients searching for relief from their suffering. How about unearthing a terrorist cell or two?

And the White House continues to bombard us with those offensive — and expensive — TV spots implying that youthful drug users like Noelle Bush are the moral equivalent of Mohammed Atta. Maybe her Uncle George can get her an audition for the next round of taxpayer-funded ads. Show her pulling some crack out of her shoe while saying, “I helped blow up buildings.”

Or does that kind of overheated and stigmatizing rhetoric only apply to those other, non-Bush-family youthful drug users? After all, a glaring double standard has been a hallmark of our nation’s drug policy for decades. It’s why African-Americans make up only 13 percent of the country’s drug users but 55 percent of those convicted of drug possession and 74 percent of those sent to jail on possession charges. And why the youthful indiscretions of the rich are routinely treated with a slap on the wrist and a ticket to rehab while poor kids are shipped off to prison.

If America’s drug laws were applied consistently, Jeb Bush and his family would be evicted from their publicly funded digs, just as people living in public housing can be thrown out of their homes if any household member or guest is found using drugs — even if the drug use happened someplace other than in the housing project. And Noelle could find herself joining the tens of thousands of young people unable to get a college education because of a provision in the Higher Education Act that denies financial aid to students convicted of possessing illegal drugs.

But the rich and powerful are judged by a very different set of rules.

That’s why the staff at Noelle’s rehab center tore up a sworn statement incriminating Noelle even though the facility’s standard policy is to turn all such matters over to the police.

If, through her pain, Noelle Bush can help open her family’s minds as well as their hearts and force them to rethink their disastrous drug policy, the nation — and millions of young Americans in particular — will owe her a tremendous debt of gratitude.

I wish her much luck.

http://www.salon.com/2002/09/16/war_on_drugs/

Originally Posted by MW

The FairTax Debate

by VM1
Last Update: September 23, 2013

Is the FairTax fair? Many questions remain regarding the consequences of a consumption tax (FairTax). Some people see the name “FairTax” and believe that it is more fair than any other method of taxation. People who describe this as the best method for a tax system probably have not investigated the effects of moving from an income tax to a consumption tax.

Our current “progressive” tax system punishes small business owners and people in the upper income brackets who often work two or three jobs and consequently have a higher annual income but rewards those at the lower income level and often gives refunds to people who have not even paid any income tax. The FairTax would do the opposite by increasing taxes on those at the lower and middle-income brackets.

Contemporary Economics by Milton H. Spencer describes the Personal Income (PI) as the total income received from all sources before taxes are taken out. Disposable Personal Income (DPI) is the amount of money that people have left to spend after taxes. Currently, the United States uses a Progressive Tax System, which means that people who make more money have a larger tax burden than a family with a low income.

The progressive tax rate increases as the PI increases until the “maximum tax bracket” is reached. The FairTax is a regressive tax which means that the percentage of income that is actually taxable decreases as the tax base (PI) increases so the method taxes a larger share of income from the low-income taxpayer than from the high-income tax payer.

Actually, a regressive tax is “a tax whose percentage rate decreases as the tax base increases.” But “if we compare the rate structure of the tax with the taxpayer’s net income (PI) rather than with the actual base, the term regressive applies to any tax that takes a larger share or percentage of income from the low income taxpayer than from the high income taxpayer.” With this in mind, most taxes such as consumption tax, value added tax, and other sales taxes have a regressive effect on the taxpayer.

The claim is that the FairTax would be 23%. This number is achieved by falsely calculating the tax. If a product costs $1.00 at retail and the FairTax adds 30 cents then the total cost is $1.30 under the FairTax rule. This is a total cost increase of 30% (30% of $1.00 is $0.30; add that to the $1.00 and you have $1.30). The FairTax divides the increase by the total to achieve the lower rate which is MATHEMATICALLY INCORRECT ($0.30/$1.30)*100=23%. A 23% tax on $1.00 would yield a total cost of $1.23 NOT $1.30.

A 30% FairTax could be applied to all taxpayers so everyone would pay the same rate. However, since the low income families spend most or all of their available money on goods and services, a large percentage or all of their income would be taxed and the high income families would spend a smaller percentage of their income on goods and services so only a small percentage of their income would be taxed. In this sense, the consumption tax is viewed as a regressive tax.

As an example, consider a Family of four who has a PI of $500,000. Using the current Federal Income Tax requirements, this family would probably pay around $145,000 after reducing the taxable income to compensate for savings plans, medical, donations, etc. A family of four who has a PI of $100,000 may pay around $10,000 in Federal Income Tax.

The “FairTax” or Consumption Tax would tax the money actually spent on goods and services. The family making $100,000 per year (or less) would probably spend all of their disposable personal income on goods and services so this means that 100% of their DPI is taxed. However, the family making $500,000 per year would most likely not even spend half of their income on goods and services so a smaller percentage of their income would be taxed.

Let’s assume the higher income family spent $200,000 per year for food, clothing, etc.: This means the family making $500,000 per year is taxed on 40% of their personal income and their tax would be $60,000 (a savings of $85,000 compared to the current progressive tax). The family making $100,000 per year would pay $30,000 if they spent all of their income on goods and services. The $100,000 per year family would be taxed on 100% of their DPI and would pay three times the amount they currently pay.

In this second example, assume the FairTax was set at 50%; the family making $500,000 per year would pay $100,000 in taxes (50% of $200,000) instead of $145,000 (a tax savings of $45,000). The family making $100,000 per year would pay $50,000 in taxes (50% of $100,000), which would be 5 times as much as they currently pay.

The regressive consumption tax is really the most unfair taxing method of all the available choices. It places the largest burden on the poor and middle class with a tidal wave of taxes while the rich only see a ripple in their budget, which amounts to a large decrease in taxes compared to the current income tax. The consumption tax penalizes the poor and middle class and gives enormous tax breaks to the rich. The rich will use only a fraction of their income on taxable goods and the taxable percentage of their income just gets lower as the PI increases.

Supporters of the consumption tax suggest that the tax rate on goods and services would only be around 23% (30% if you do the math right). However, a tax rate of 40 to 60 percent is more likely in order for the government to receive the same revenue as the current progressive tax. In addition, to make this process work, services such as medical, rent, food, and many other things that are not currently taxed would have to be taxed in order to pay for the ever-expanding government appetite for money.

There are many unintended consequences to consider with the consumption tax. As an example, people who currently purchase a new car every two or three years will probably delay that purchase and keep the car for five to ten years or keep it until it doesn’t run anymore. This would have a disastrous effect on the auto industry and also on other industries that sell high value equipment. Corporations would delay purchasing new vehicles and capital equipment because of the large tax burden, which would continue to damage the economy.

As Bruce Bartlett (economist associated with supply-side economics) explained, the government would have to tax itself when purchasing tanks and other military equipment. The government would also have to tax itself when purchasing ships, aircraft, and all the small things that are needed to keep the government running. But the increased revenue from taxing purchases is exactly canceled by increased costs in the federal budget so this is something that the FairTax folks need to re-think. This government taxation may also be applied to the state and local governments, which would in turn add another burden on the taxpayer by increasing the state and local taxes.

Also consider the 55 year-old and older people who have been paying income tax all their lives. Even though they retire and no longer make wages, they will get hit with the consumption tax, which amounts to double taxation. The “FairTax” is not at all fair to the low-income or middle class families. The FairTax would however, remove the burden of extreme taxation on the wealthy.

The FairTax supporters claim that all Americans that hold a valid Social Security Card and who are U.S. residents will receive a “prebate”. This prebate is not restricted to low-income families but is given to everyone regardless of annual salary. The CEO’s of companies such as EXXON and Chevron who make over 4 million dollars a year in salary would also receive a “prebate”.

The word “prebate” is not a real word but was made up by the FairTax followers to disguise the real meaning which is WELFARE and would cost around $800 billion in the first year and would only increase with time. This new entitlement of 800 billion dollars a year is not considered in the FairTax proposal. Think about it: Americans would start off the year with close to a trillion dollar debt before one cent of revenue (tax) is received by the government.

The FairTax is supposed to replace just about all current federal taxes and some services:

1. Income Tax
2. Social Security Tax
3. Medicare Tax
4. Corporate Tax
5. IRS
6. Save 300,000 trees a year (no joke)
7. Eliminate 401Ks and IRAs
8. Eliminate deductions for charitable donations
9. No reporting of where you work or your salary
10. Encourages the purchase of “tax-free pre-owned cars, clothes, furniture, houses, etc.” (Isn’t this what they do in Cuba?)

“When something seems to be too good to be true, it isn’t true”. The list above is only a small sample of what the FairTax people claim to accomplish. Now consider the fact that they claim to remove all the taxes with a 23% consumption tax but still run the government, fund Medicare, fund Social Security, and the rest of the services currently provided by the government. They also want to dismantle the IRS and fire 100,000 workers. Now someone would have to be around to manage the FairTax policies and ensure taxes are collected from the companies offering the products and services. I expect they would create a new bureaucracy and hire the IRS folks back since they already know how the process works.

The United Kingdom pays an income tax that is similar to the U.S. tax with the maximum tax bracket of around 40% (currently, the maximum tax bracket in the U.S. is 35% although the progressives in Congress would like it to be near or above the 40% range). However, the Brits also pay a Value Added Tax (VAT). Value Added Tax is a general consumption tax assessed on the value added to goods and services, which is really a consumption tax “because it is borne ultimately by the final consumer. It is not a charge on companies”. The VAT rate in 2008 was 17.5%. It dropped to 15% in 2009 but in 2010 it was back to 17.5%. Most people pay the 17.5% VAT plus the standard income tax. If the United States were to implement the FairTax, we would most likely end up in the same situation as the U.K., paying a consumption tax and, re-instating the progressive income tax.

The FairTax would place most of the tax burden on low-income families and give large tax breaks to high-income families. Don’t forget about the state income tax, county tax, property tax, and city taxes that will be in addition to the consumption tax. The FairTax would crush the low-income family, destroy the economy, and provide an enormous tax break to the wealthy.

The FairTax would require the 16th amendment to be repealed. We know how difficult it is to get an amendment to the Constitution passed and it is virtually impossible to get it repealed once in place. What this means is there is little chance of repealing the 16th amendment and if the FairTax ever became law and the income tax was ended, congress could re-instate the income tax any time they wanted and you can depend on congress when it comes to increasing taxes. The end result would be that we have a national sales tax called the FairTax at somewhere between 40 and 60% and we would also have the old and honored progressive income tax – the progressive liberal dream.

There are ways to simplify the current tax code such as a “flat tax”. The flat tax would be an income tax and would only have one or maybe two tax rates. The tax rate could probably be lowered to ten or fifteen percent with a flat tax. The flat tax would be fair to everyone and not have the disastrous effect of the FairTax. The current tax system does need work but the FairTax is not the answer.

The following is from a 2012 study by the Tax Foundation using data from 2010:

The top 1% of taxpayers paid 37.38% of all federal taxes.
The top 5% of taxpayers paid 59.07% of all federal taxes.
The top 10% of taxpayers paid 70.62% of all federal taxes.

This leaves us to conclude that the bottom 90% of taxpayers only paid 29.38% of all federal taxes.

Some Unintended Consequences

For this example, we will use the 30% FairTax although as shown above, it would be much higher:

Purchase a $500,000 house and pay $150,000 in sales tax.
Purchase a $30,000 automobile and pay $9,000 in sales tax.
Get a hospital surgery bill for $20,000 and pay $6,000 in sales tax.
Spend $200.00 on groceries and pay $60.00 in sales tax.
A large portion of the population will stop purchasing new houses and new cars and buy used goods so they won't have to pay the harsh FairTax. What will this do to the building and automobile industries?

As you begin to see some of the unintended and intended consequences of the FairTax, you can understand it is just a bad idea.

But what if the tax was increased to 50% which is a likely scenario?

Purchase a $500,000 house and pay $250,000 in sales tax so now the price is $750,000.
Purchase a $30,000 automobile and pay $15,000 in sales tax so now the price is $45,000.
Get a hospital surgery bill for $20,000 and pay $10,000 in sales tax.
Spend $200.00 on groceries and pay $100.00 in sales tax.

Although the current tax system is unfair to those who earn a higher income, the bottom line is that the FairTax will not work and it is definitely not fair. We do need something to replace the current tax code but is the FairTax really the answer?

http://www.votersmarket.com/FairTax.aspx

The tax rate by the statute is 23%. Not 30%, not 50%, not 60%. Of the 23% tax rate, 8.09% is earmarked for Social Security and Medicare, goes straight into the Social Security Trust Fund and robustly funds the programs. This leaves a 14.91% tax rate for general revenue to operate the government and fund other programs not related to the Social Security Acts.

The dispute over the 23% versus 30% is that most state sales taxes are exclusive and added on to the price of a product whereas the 23% is inclusive like income tax rates and is already part of the cost of the new goods and services you're purchasing at the retail consumer level. The sellers and providers have already taken the tax into account so it's already included, just like income tax rates on your income are already in your income. You don't receive a salary of $25,000 and then hike the salary up to $35,000 to pay income and payroll taxes. No, the cost of payroll taxes for both the employer and employee are already in the cost of your salary just as your income taxes are already included, so nothing is added on, because the cost of these taxes are already part of the salary and are then deducted from it. The FairTax because it's replacing inclusive income and payroll taxes is handled the same way, and this was done to make the calculations for cost comparative for the revenue neutrality and make it easier for sellers to price their goods. Under the FairTax, the FairTax is part of the price, like gas prices which is the easiest comparison, gas taxes are inclusive sales taxes, priced per gallon and already in your price that you pay at the pump. The goods and services you purchase will be priced the same way except the FairTax is not a per item or per unit tax, it's a % of the total price and like income taxes are already included in the price.

People buying $500,000 homes are not poor or even "middle class" based on most markets in most locations. These are very well to do people with at least 1 very high professional salary or 2 with very nice professional salaries. In any event, the cost of new home sales won't change at all under the FairTax, because all the FairTax does is change the way tax costs are collected and at 23%, it's the same amount of revenue under tax rates that were in effect when it was first introduced in 1999 before the Bush tax cuts.

A $500,000 new house under the FairTax still costs $500,000, of that total price paid, the seller sends 23% of the $500,000 not an additional charge of 23% but 23% of the $500,000 you actually paid to the states, which is $115,000 not $150,000, and is the same amount of tax that all the manufacturers, distributors, sellers, engineers, architects, suppliers, brokers and so forth would have already owed in income taxes. When the source of the website fails to mention the tax cost already embedded in new home prices today because of all the income taxes the whole supply chain pays now, but yet continues on to present these scenarios as if you still have those taxes included in the price and now you're adding another tax, when of course, you don't and aren't, you're replacing one with another, then their opinions are written to deceive not inform. Under the FairTax, you no longer have the embedded income taxes in the price, instead you have a FairTax included in the price that is paid one-time at the final point of sale so there is nothing in the FairTax that would cause the cost of a new home to rise, if prices for new homes go up its because they're nicer, bigger and there's more demand for them. The same with cars and appliances and food and clothes and every other new good or service that we buy in the United States.

The FairTax does not have to have a repeal of the 16th Amendment to work. Yes, there might be some stupid Democrat who wants to try to reactivate the income tax, but they'll never be elected once the FairTax passes. Americans are sick and tired of the income tax, the games, schemes, plots, cost, compliance burden, mandates and invasion of privacy. Americans are fed up with this crap. They do and should want to be freed from it, and the FairTax is as perfect as it's going to get to do that.

The authors bring up about the government paying the FairTax in their purchases of goods and services. Of course, the government has to do that, because they do it now with the income tax. When the government hires employees, it pays salaries that include income and payroll taxes. When the government purchases products and services, it pays prices that include the supplier or vendors income tax cost, payroll costs, all the way down the line of the supply chain. So to be revenue neutral, the government has to pay the FairTax the same as any other purchaser of new goods and services. It's the same cost they pay now in prices and salaries that include income and payroll taxes, so there's no increase in the cost of government, just a different manner in which the tax portion of the new goods and services it purchases is paid.

And the authors of this website like so many who try to write on a tax reform they don't understand call the Rebate "welfare", when it isn't, it simply is a mechanism to offset the FairTax for essentials, the same way the personal and dependent deductions offset the income tax. When was the last time someone called the income tax personal and dependent deductions "welfare"? It's the same money for the same purpose under the FairTax, and has absolutely nothing to do with "welfare."

I illustrated above in another post that for a household of 2 adults and 2 children earning median household income of $54,000 who today under our present system has approximately $42,000 disposal income after payroll and income taxes, would have $61,000 of disposable income under the FairTax, which is a $19,000 cash advantage for this middle class family with the FairTax. The $19,000 is comprised of the $12,000 in payroll and income taxes they would save plus the $7,000 a year Rebate they would receive if they choose to sign up for it, which involves a simple form detailing the names, ages and social security numbers of the household.

The poor do not carry a burden under the FairTax any more than the family above. The poor family, same as someone in the middle income or upper income, receives the same $7,000 a year in Rebate based on 2 adults and 2 children, they owe no payroll taxes so they save $2400 a year on payroll taxes if they earn $30,000 a year in household income, and at that income level perhaps $2,600 a year in income taxes, so this family earning $30,000 a year gross only has $25,000 in net disposable income after payroll and income taxes under the present system. Under the FairTax, they would have all their $30,000 they earned, saving $5,000 a year in payroll and income taxes, plus the $7,000 rebate, or $37,000 a year in disposable income to do whatever they choose to do with it, an increase in cash income of $12,000 a year.

No one is hurt by the FairTax. No one is wiped out by the FairTax. No one carries any burden under the FairTax, because there are no burdens placed on anyone by the FairTax, except retail businesses who collect the FairTax, but even then, they are compensated for that service, which parallels what they do already in 45 states, is much easier and simpler than filing federal income tax returns for which they are not compensated, so everybody wins under the FairTax.

Retail businesses also realize a tremendous benefit from the FairTax which is simplified lower priced goods and services that they purchase, because all business to business transactions are exempt under the FairTax. Under the FairTax, no business at any point in the supply chain has to pay federal income tax, payroll taxes or the FairTax, and none has to pay the enormous expense of filing federal income tax reports or returns or paying income taxes. So when the goods and services get to the retailer at the final point of sale, they are much cheaper which dramatically reduces the price of their inventories and services. Under the present system every point in the supply chain not only has to account and charge for the costs associated with the income tax, they mark it up so it compounds over and over by the time it gets to the retailer. Under the FairTax, there will be no federal tax costs in the prices nor will there be any tax or administrative costs associated with income tax compliance in the prices. Then at the final point of sale, the price contains the 23% one-time charge for that transaction if for a new good or service and that's it, no cost of capital for taxes along the way, no compounding, no mark-ups, just a simple one-time payment at the final point of retail sale.

All of these benefits are passed right on to consumers, businesses, workers, citizens and our economy with lower prices, more efficient operations, lower cost capitalization, cleaner higher profits, better wages and benefits, more disposable income for all income levels, less debt, enhanced cash flow to accelerate debt reductions or pay-offs, fair trade, more investment, more capital, more industry, more good jobs, less welfare, less government, and in sum, a thriving economy for a free nation of free people.

FairTax Now!

www.fairtax.org