Tax Day
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Scott,
Interesting Idea!! Still I would like to see 'sample numbers'. It is nice to know that there is a choice
Hope that it flourish!!
* Noel -
Scott,
Thanks for the clarification. I think it's a good idea, but one thing more to think about is that the IRS and associated schemes also employ a lot of people. I know they'd get jobs elsewhere, but something to keep in mind in radically changing government is that many people derive their income from the government, kind of a form of welfare, though it's middle class welfare.
Not to mention the millions of CPAs, associates, H&R block temps and more that derive income from this crazy scheme.
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For those that say they want to see sample numbers, I'm not sure what you're asking for. The Fair Tax is an inclusive national sales tax applied to goods and services. If you pay $100 for an item $23 will be the tax. You don't file any paperwork or anything. Each month you would get the prebate as mentioned by a previous poster.
I really would recommend the Fair Tax book. It explains a lot of this and how it works. Also before someone comes back with the argument about the tax being 23% or 30% let's cover that. The expected tax percentage will be 23% figured inclusively. When you currently buy a $1 item sales tax is added on top of the purchase. That is an exclusive tax. The national sales tax would be calculated into the item before you even hit the checkout stand, nothing would be added when you checkout. You buy a $25,000 car the tax is already added in. It was calculated that way to mimic the current tax system which is also inclusive. Think about it the taxes are taken from your gross pay, not added on top. If you make $100,000 a year and 15,000 was in taxes the government let you keep $85,000. That would be a %15 tax rate if caluclated exclusively. If you calculate it as a percentage of your net though or exclusively the rate would be nearly 18%.
This tax program would make our country a great place to do business as there would no longer be corporate taxes. Several economists that have studied this plan say our economy would grow under this plan. By the way if think corporations really pay taxes, think about that one for a minute. Let's say your GM and you pay corporate taxes. To pay those taxes you would naturally add it into the price of the cars you sell. Now tell me who is paying those taxes, yep you and me!! Surprise. This tax also closes some loopholes. One is those that like to work for cash under the table and never report it. Currently they get off scott free where under the fair tax they would pay everytime they buy something.
If you enjoy the current system where you either spend hours or dollars figuring out your taxes each year then by all means stay quiet. If you support a drastic change that will do away with federal tax withholding, social security withholding and medicare withholding then get behind the fair tax by writing your Congressman and Senators.
Randy Epstein
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Where a consumption tax gets ugly is in Value Added Products. You are Alice who makes Engine Widgets. You sell your Engine Widgets to Bob who pays tax at the time he makes his purchase. Bob uses the Engine Widgets to make Engines which he then sells to GM who again pays tax on the item. Only in this case, GM is paying the tax twice as Alice will forward her tax costs to Bob who then forwards them onto GM who then forwards them onto the customer who ends up paying tax on the same item three times. As soon as you eliminate VAT on B2B purchases, everyone will become a business.
It should be noted that FairTax may have addressed this issue but I have not had a chance to read through it yet.
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With all due respect I think you perform a dis-service by posting about something you readily admit you know nothing about.
I say once again, read the book!
Randy Epstein
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The FairTax is not a VAT because it is only charged to the final retail consumer. Neither manufacturers nor their suppliers would pay federal tax.
To (hopefully) clarify 30% vs 23%: under the FairTax, the tax on a $100 purchase would be $30 because the sales tax rate (tax-exclusive) is 30%. If your marginal income tax rate (tax-inclusive) is 23%, you have to earn $130 to have $100 after-tax dollars to spend. The sales tax rate of 30% sounds alarmingly high, but you have to use the 23% figure to compare it to income tax rates. Since most US citizens are in the 15% federal tax bracket and pay another 7.65% for Social Security, most people are paying 23% federal tax now.
But under FairTax the employer's matching contribution for Social Security also disappears, so they could give everyone a 7.65% raise without increasing their payroll. Since employers would no longer be paying corporate taxes or other compliance costs it would make sense to share the wealth with employees. It is estimated that annual economic growth (GDP) would be over 10% under FairTax, so given the current low unemployment rate salaries would have to rise. And with the VAT-like effect of all the current taxes and costs on every layer of manufacturing removed, prices of most goods should drop by at least 20%. So the net effect is most people will be paying the same tax rate, but with a larger paycheck and paying lower prices.
The total revenue collected by the federal government would be the same (the rate is designed to be revenue-neutral), so the government can afford to keep paying the salaries for all IRS employess. They'll just have to move to other departments.
People working for H&R Block, Liberty Tax Service, or other companies that feed off the mess created by the IRS, would obviously be affected. The best answer to this is that in an economy growing at 10% annually with extremely low unemployment rates, anyone remotely employable should not have a problem finding a job.
I didn't mean to write a book about this, I strongly recommend going to http://www.fairtaxvolunteer.org/smart/faq.html for answers if you have more questions.
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After reading through the material, the proposal sounds fine ***IF*** the following is absolutely, Constitutionally enforced:
1. Income tax in any form is completely abolished. They (FairTax) have already proposed that an Amendment that repeals the 16th and bars any further income tax would be required. However, let's not forget how difficult it is to get an Amendment passed. One can easily imagine the nightmare scenario of the law being passed and the Amendment being stalled.
2. That this tax can't morph into a VAT. This is where their proposal is weak. That is where politicians would try to make their mark. The reason we do not currently have a VAT is that business to business purchases of product that go into the making of another product are exempt. However, it would be easy for politicians to remove a tax exemption for one type of business and product here, another there etc. I'm not suggesting that our current tax code is any better, but in this area the flat tax would make tax increases insidiously easy to make and hard to find.
- In response to Scott, I'm not convinced that the employers would fork over the matching share of the SS and Medicare as it is really a part of the embedded cost of the product. If we want to see the cost of products go down then we have to be willing to forgo trying to add that money to our checks. One might even argue that your federal tax withholding currently is an embedded cost to a product and as such an employer may want to adjust your wages downward to remove that cost from the product also.Of course we'll never know until we can convince our elected officials this is what we want instead of the current corrupt system that nobody, including the IRS employees, seem to understand.Randy
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Your entire paycheck is part of a company's cost of doing business, but the FICA matching contribution is part of their labor budget so the easiest thing to do might be to just stop taking the fed's 7.65% off the top before printing your paycheck.
I don't run a business so I'm just guessing, and every employer would be free to make a different decision. I am confident that in a time of high economic growth and low unemployment there will be ample motivation for employers to raise salaries (or risk massive turnover), and letting you keep the 7.65% would be a way to do it without fiddling with the rest of the budget.
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Scott,
I'm interested how you and other that have heard about the fair tax found out about it.
Randy
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Actually, I first heard about the flat consumption tax idea in an Economics class way back in college in the late 80's. It was presented to us as being proposed by Milton Friedman (from the 70's). However, there I was only given the broad outline of the concept. It was only after reading this thread and seeing the link that I was exposed to the details of how it could be implemented.
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I may have heard of it on talk radio, or on the internet, about two years ago. The people behind it started working on it about 20 years ago, and have done a lot of research on how it would be implemented and what the benefits would be.
The http://www.fairtaxvolunteer.org/how_to_help/region_map.html site can direct you to the people in your state who are trying to make it happen. They would gladly accept contributions, but you can also help by signing petitions, writing congresspersons, and convincing your friends to get on the bandwagon.
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I get to hear about it nearly everyday as I listen to Neal Boortz here in Atlanta. Neal is the co-author of the book along with John Linder, the Congressman who introduced the legislation in the House. I wish everyone would read the book. The paperback version with additional material hits the stands on May 2 for $10.
Randy
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