Third Party & Independents Archives

Each month, a check for the amount of taxes that they would have paid for goods and services is electronically deposited in their bank account, offsetting the taxes that they pay during that month.

I looked in the section in the FAQ about this part and it doesn�t sound as bad as I had originally thought. However, I�m still not sure how one would apply for this. It seems to me that this could be used to abuse the system.

Also, have they included provisions that would make it difficult for congress to raise the tax whenever they felt like it?

Other than that, the plan doesn�t sound too bad. I�m going to have to look into it a bit further before rendering an opinion, however.

I read the other day in the comments for the sales tax post that the poor would have to fill out forms and could fill them out wrong, etc. Isn’t a simple form that just shows how much you make better than the mess we have now? I think it would be far less confusing and there would be plenty of people ready to help since the people who do tax preperation now would be looking for something to do.

You would ask your employer for form xxxx, which would only state what you were paid for the year. Instead of a w-4 that now shows how much in taxes was withheld, fica, ss, etc. You would then use that form to show that you made less than x, indicate the bank routing information, and send it to the government. No deductions, no schedules, nothing like we have now that is confusing and even the IRS admits to being wrong on their own codes at least 25% of the time.

Rhinehold,

I looked at the site. It looks like a good deal for the rich, but I think it would screw the poor.

My Mother is 81 yrs, she gets about 18k a year in SS and a small retirement plan. She pays zero in taxes now. It takes every dime she gets now to scrape by.
That plan would give her a 23% rebate on aprox. 9k.
A 30% fed sales tax would be added to all goods and services she buys, even food and Meds.

The plan ASSUMES that prices will just go down to make up for it because companys must compete.

Some things have no companys to compete with, and its damn hard to buy used gas,elect,meds., and food ect.
Nothing in the plan regulates that prices must come down, I detest price controls, but assuming prices on everything will fall in relation is wishfull thinking IMHO.

Next problem. Define used?

If someone buys a pre-existing house, is it taxed at the extra 30%? Or is it only for those building new houses? If so, what happens to the construction industry? How would bare land be taxed? There is no such thing as NEW land.

On to cars; Do people leasing a new car pay the full 30% on the new price? If so, I see that as nolonger an option for many people.
Wouldn’t that just raise the value of used cars, and screw over the “big three” more than they are now?

Rhinehold, I’m not trying to be cute or just bash the plan outright, but there are lots of loose ends that would have to be tied down before people sign on to that plan.

Beagle, I appreciate that you have concerns and I will do what I can to help address them. But to say that it will be a good deal for the rich? How do you figure that? With loopholes and shelters, few rich people pay income taxes now. However, we see from our research that the rich purchase much more than the poor in things like unprepared foods, etc.

That plan would give her a 23% rebate on aprox. 9k. A 30% fed sales tax would be added to all goods and services she buys, even food and Meds.

I’m not sure what you are saying here. You don’t get a rebate as a percentage of your income, you get a rebate based on what sales taxes you would have paid during the month. They will figure out what a person in her situation would have paid for goods in order to maintain a defined lifestyle and then refund that tax back. So she would get back every penny she spent in taxes that month.

Now she pays a hidden 23% tax on anything she buys. After the plan she would pay 0%. I’m not sure how that is a bad deal?

The plan ASSUMES that prices will just go down to make up for it because companys must compete.

If prices don’t fall, it will be the poor that will be the ones to make out even more, since they will get back all of the taxes they spent. The worst case scenario for her would be that she pays the same now that she paid before. Only we KNOW that most of the things will drop in price, so she will end up paying less, up to the magic 23%. So yes, she may only get 20% more each month than she’s paying now, not the full 23%, but that’s not too bad, is it?

If someone buys a pre-existing house, is it taxed at the extra 30%? Or is it only for those building new houses? If so, what happens to the construction industry? How would bare land be taxed? There is no such thing as NEW land.

I’ll look into the land, but if it’s a sale then I would imagine it will have a sales tax. However, you say ‘what will happen to the housing industry?’ I would imagine that nothing will happen to it. The price of a home will have a 30% inclusive tax (remember the difference between inclusive and exclusive taxing, 23% exclusive is the same as 30% inclusive, I don’t want people to get confused) but it will cost that much less to build! We remove the imbedded taxes and add a sales tax equal to the imbedded tax removed, either the housing industry will lower it’s price to meet the market demand or they will try to over charge for it’s product and will lose to competition. The housing market is indeed full of competition right now.

I do thank you for your concerns and hope I have answered them well, if not please reply and we can try to work through them.

Rhinehold,

“They will figure out what a person in her situation would have paid for goods in order to maintain a defined lifestyle and then refund that tax back. So she would get back every penny she spent in taxes that month.”

If you look at their defined charts, she would get a refund of 23% on the first 9k she spends to just survive. She would pay 30% on everything she spends to stay alive.

She gets and spends 18k to just barely survive now. Where does she get the extra $2500 for the taxes on the rest of it?

Rhinehold,

Oops, I forgot this that you posted;

“I’m not sure what you are saying here. You don’t get a rebate as a percentage of your income, you get a rebate based on what sales taxes you would have paid during the month.”

In reality you get a refund on what someone thinks it will cost you to live, not what it reallys costs for many people to survive.

The extra 9K she must pay isn’t an optional purchase, and she cant buy it used.

I read the fairtax.org plan and liked it a lot (despite some initial skepticism). In fact, I became a member this week. It’s probably much better than giving the money to one political party, since that doesn’t seem to be working.

For those that have always previously believed any sales tax was bad because it hammers the poorest, should read this plan. It eliminates that problem.

The only change that should be investigated is:
[a] a lower tax rate, combined with
[b] federal government downsizing

23% might be too high, which may give rise to black markets and bartering, and people still have city/state/county/school property, sales, and income taxes to deal with also.

If there’s currently about $9.5 trillion (? GDP about $11.2 trillion) in total annual U.S. spending, and federal spending is about $2.2 trillion per year, how low can the tax rate be?
Perhaps, some federal government downsizing and spending cuts are necessary too?

The fairtax.org offers more advantages in the long run. The fairtax.org plan is much much better than what we have now, but a lower rate combined with a reduction of the size of the federal government to exist with those revenues, would be nice too. But, that’s pushing our luck to ever hope for a smaller federal government too?

A major resistance to a new tax plan is that many in government like the current tax system the way they designed it (full of tax loop holes and tax shelters). It took a lot of time and work to make it work to their advantage, and they won’t abandon it so easily.

For any tax plan to be successful, it must be reasonable, fair, not cause the poorest to pay a larger percentage of income toward taxes, not tax those below the poverty level, not punish the children of the poorest (80% of all Americans only have 17.7% of all wealth), and still provide for national defense, and Social Security (that promise can’t be broken now).

Unfortunately, the federal government has grown to such nightmare proportions, meddles in virtually everything. How do we devise a tax plan that can generate the current revenues ($2.2 trillion per year). Perhaps we shouldn’t. Perhaps the size of federal government needs a reduction?

Do we really need all of these? :
home.comcast.net/~d.a.n/DoWeNeedAllOfTheseGovernmentOfficesDepartmentsAgenciesCommitteesEtc.htm

Does federal government need to be involved in all of this? :
$107,000 to study the sex life of the Japanese quail.
$1.2 million to study the breeding habits of the woodchuck.
$150,000 to study the Hatfield-McCoy feud.
$84,000 to find out why people fall in love.
$1 million to study why people don’t ride bikes to work.
$19 million to examine gas emissions from cow flatulence.
$144,000 to see if pigeons follow human economic laws.
Funds to study the cause of rudeness on tennis courts and examine smiling patterns in bowling alleys.
$219,000 to teach college students how to watch television.
$2 million to construct an ancient Hawaiian canoe.
$20 million for a demonstration project to build wooden bridges.
$160,000 to study if you can hex an opponent by drawing an X on his chest.
$800,000 for a restroom on Mt. McKinley.
$100,000 to study how to avoid falling spacecraft.
$16,000 to study the operation of the komungo, a Korean stringed instrument.
$1 million to preserve a sewer in Trenton, NJ, as a historic monument.
$6,000 for a document on Worcestershire sauce.
$10,000 to study the effect of naval communications on a bull’s potency.
$100,000 to research soybean-based ink.
$1 million for a Seafood Consumer Center.
$57,000 spent by the Executive Branch for gold-embossed playing cards on Air Force Two.
$1,000,000 for the brown tree snake
$3.5 million community sports complex in Culpeper County, Virginia
$223 million for a bridge to nowhere
$1 million to improve access roads at the Please Touch Museum in Philadelphia
$400,000 for an uptown jogging, bicycle, trolley trail in Columbus, Ga.
$2 million for the construction of a parking facility at the University of the Incarnate Word in San Antonio.

It’s not just the pork-barrel. The federal government is involved in virtually everything.
If it weren’t for all of that, how little could the federal government really operate on?
And, consequently, how low could the fairtax.org rate be? Maybe only 13% ?

I would be fully on board with this one, as long as we clarify one thing — are stock purchases taxed, too? If not, you’ve left a HUGE tax shelter.

Last I checked, most wealthy people don’t spend all their money on goods and services. Most of their money gets invested. Billionaires aren’t billionaires because they SPEND billions. They’re billionaires because they HAVE billions. If they spent it all, they wouldn’t be billionaires anymore, would they?

Overall, I do agree that the Fair Tax is a better system than we have now. (A randomly-generated tax system that changed every 13 1/2 months would be better than what we have now!) But any system will be abused, and the wealthy will always find the loopholes faster than the poor will. So the question is, are the gains worth the trouble to switch?

Dan,

I know you’re a good person, and well informed on tax issues and politics.

But any tax reform plan needs to face the realitys of what it cost to live.
Poverty level isn’t a one “size fits all” type of thing.

I’m conserned about the homeless wine-o’s living under a bridge, but I have a problem putting them in the same class as an elderly person that did work for a living, and spends every dime to survive.

Rhinehold, Thanks for posting something about this… I’m a huge supporter of this bill (as you could probably tell from my posts on Pauls article.

Beagle, You and I clearly have some different views on this one (Going back to Paul’s post) and I do understand that you have hesitations about the plan.

My Mother is 81 yrs, she gets about 18k a year in SS and a small retirement plan. She pays zero in taxes now. It takes every dime she gets now to scrape by. That plan would give her a 23% rebate on aprox. 9k. A 30% fed sales tax would be added to all goods and services she buys, even food and Meds.

With the FairTax there is a 23% sales tax on all new goods and services purchased for personal use. I’m not really sure where the 30% tax rate you speak of is coming from?

Taking your example of your grandmother. I unfortunatly don’t know too much about Social Security (being that I probably will never get any myself) but I was under the impression that it was taxed as income? Of course since you deal with it with your grandmother you probably know better than I. However, even if she does not receive any more money for social security then she will still receive the prebate check every month which for her would be in the amount of $178. That is $178 more than she is getting now. That is what would be used to cover her tax costs on the basic necessities (food, meds, clothes, etc) of life.

The plan ASSUMES that prices will just go down to make up for it because companys must compete.

The plan does assume that prices will drop and history has proven that is true. There are very few products out there that have no competition at all, and only in the case that they have none will there not be quick price drops due to the imbedded taxes. There are documented cases of this happening when a tax is removed. for a short time some will try to keep that money as profit but inevitably another company will try and get more market share and drop their price. This will result in everyone following suite to stay competitive. In the case of the FairTax this will normally be between 22 and 25% for most products and services out there. The end result will be that you will pay close to the same amount for products that you are paying now.

I agree that some will try to hold their prices as long as they can but I still believe market pressure will eventually force to think differently. And IMHO the many other benifits far outweigh this possibility.

Next problem. Define used?

Simple… anything that has already been taxed. (products that were purchased before the tax goes into effect will be considered already taxed). Only new homes, cars, etc will be subject to the 23% tax. The home builders and car companies will love this because their imbedded costs are actually higher than the 23% so even if they immediatly drop their own prices by 23% so that they are selling the cars/homes for the exact same prices they are now they will actually be making more money… And people will still be buying them because they now have more money to spend and the prices for these products will remain virtually unchanged.

You are correct in that IMO it will raise the value of used cars for folks like me who would be buying them anyway because then I would not have to pay taxes on them like I do now…

I could go on forever but who wants to hear that! lol

Beagle,
Did you read the entire plan?
I may be wrong, but from what I can tell, the poorest would stand to receive money, and pay no tax at all too. That is, if the poorest person made nothing, they would receive $2141, pay $492 in sales tax, which means they received $1649 free (and tax free).
And, I believe, that the welfare system should then step in to help the truly needy.
It’s best to not overlap the purposes of the two systems (taxes and welfare).
Also, the poverty levels are calculated differently in every state.
And, it’s possible that the poverty level amounts should be lowered, which would be fine.
Also, I think a much lower rate may be possible.
23% sounds too high.

Rhinehold, I will address concerns one per comment. HR 25 eliminates all taxes to the government by corporations and companies. The bill states: “TAX.�Congress finds further that a broad-based national sales tax on goods and services purchased for final consumption…”

Because the tax will be levied on final consumption of goods, corporations will pay nothing on profitability regardless of how high that profit goes. I understand clearly how this will give American corporations a competitive advantage in the global economy by reducing their cost of operation. But HR 25 provides nothing to prevent those corporations from moving jobs overseas or operations overseas for other reasons (environmental costs and regulations being just one example). There is nothing here to assure the corporations will pass on increased profitability to American workers in the form of increased compensation or benefits (since third world nations will still offer a better deal for labor).

So the justification for HR 25 based on the bill inducing Corporations to stay here in the US just does not wash, and will not happen. It does not address the comparative advantages of low cost labor overseas, and therefore provides no inducement to halt the export of jobs overseas, nor will it result in increased real wages and compensation for American workers.

This is the first obvious lie being offered up to sell this bill.

BradM,

“I’m not really sure where the 30% tax rate you speak of is coming from?”

Go back to the site and read about the plan you tout so highly.

In the question section where someone asks; How much tax will I pay at the retail level on a purchase?, It clearly states 30% !

Re-read it, If I’m wrong I will apoligise for being uninformed.

Rhinehold, the second major problem with this bill is that it delegates federal revenue collection to the states and eliminates itemization of taxation for Soc. Sec. and Medicare. Specific problems are these:

* We already know Republicans want to do away with Soc. Sec. By eliminating the direct link between a workers wages and FICA taxes reporting on their paycheck and the solvency of the program, the contract between workers and their guaranteed benefits for deductions is for all intents and purposes removed. How would a worker 10 years after the HR 25 becomes law, be able to assess 1) how much they contributed to S.S. over the last 10 years, and 2) determine what the government’s obligation to them is based on their payments into the program?

HR 25 becomes a smoke screen for ending Medicare and Soc. Sec. by removing the accounting for it from worker’s paychecks.

Rhinehold, this one is a real biggie. HR 25 would eliminate the transparency of accountability by voters over federal fiscal management. When taxes go up, the voter will find it difficult to determine if it is due to their state’s representatives actions or mismanagement or their federal representatives and or mismanagement. The headlines will be full of political spin with state legislators accusing federal fiscal mismanagement for increases, while federal officials accuse state legislators of being responsible for increase or lack of fiscal discipline.

Voter accountability for representative’s fiscal actions will be even further diminished and obscured. This will empower government to act without accountability at the polls and weaken voter’s ability to hold representatives accountable for their tax dollars. Definitely a win for politicians but a huge, huge loss for voters.

David R. Remer,
That’s a good point.
But, that’s an accounting issue, and the accounting is already abused (i.e. lock box full of I.O.U.s).
Couldn’t S.S. and Medicare still be funded?
Does it really spell the end of S.S. and M.C. ?

Dan,

I did read the plan, I still think it screws the working poor, and those that are retired.

The current system also does, but this would make it easyier for the rich to profit.

I don’t engage in class warfare, and the very rich will never give up more than they are willing to.

HR 25 paves the way for privatization of tax collection to for profit companies. The Bill states:

“(4) businesses that must collect and remit taxes
should receive reasonable compensation for the cost
of doing so.”

Do the American taxpayers want to pay additional taxes to support profits from businesses who collect and remit their their hard earned tax dollars from them? I don’t. Plus, putting businesses in the collection and remittance middle of ALL tax collection becomes:

1) an open invitation to fraud and abuse by non-government employees
2) spreads the collection responsibility out so far that an entire new bureaucracy will be needed to account for it.
3) Removes direct accountability for collections and remittance from politicians and places it on an unknown vast network of private businesses and shops, and corporations, which voters have no influence over.

Rhinehold, the bill states:

“SEC. 103. ESTATE AND GIFT TAXES REPEALED. 15
Subtitle B of the Internal Revenue Code of 1986 (relating to estate and gift taxes) is repealed.”

This will create a wealthy aristocracy in America in which the rich will become permanently and generationally rich and the poor and working classes will remain so generationally supporting that aristocracy.

And please don’t respond with some argument that there is enough wealth for everyone to have the opportunity to be wealthy. Such an argument defies the very definition and fundamental principles of economics 101.

Rhinehold, the drafters of the bill state: “FINDINGS RELATING TO FEDERAL INCOME
TAX.�Congress finds the Federal income tax
(1) retards economic growth and has reduced the standard of living of the American public;”

Where is the evidence of this outrageous presumption upon which the rest of the bill is predicated?

If income tax retards economic growth, would not the same amount of removal of tax dollars via a sales tax also retard economic growth by reducing disposable income with which to consume and create demand? This is pure hyperbole.

Also, since the US population has one of the highest standards of living in the world, the question is begged, reduced the standard of living from what standard of measure? And if income taxes reduce standard of living, would not the same amount of taxation from sales taxes also reduce standard of living by the same amount?

Republican drafters of this bill are talking but, they aren’t saying anything worth listening to with comments like this in the bill.

Rhinehold, I have a few dozen other comments and questions, but, I will wait until the above are responded to before continuing. Thanks.

d.a.n, yes, it is an accounting problem initially. And yes, the SS Admin. could produce a different set of reports to every wage earner, perhaps. But, how does SSA know how much a voter is spending in a given year, or sequence of years? They don’t, and have no way of tracking this, unless they want to institute a 1040 to filed by every wage earner in which the wage earner stipulates their income, less all of their spending, and documents supporting the net gain or loss (income minus spending) as savings or borrowing. But, then, what is saved? The cost of administration increases by the potential savings of not having an income tax system and tax dodgers will manipulate the numbers as they have always done.

Nothting is gained, and accountability between payers into the SS and Medicare and politicians is lost.

Neil Boortz is a major league boob, so anything he is associated with deserves heavy scrutiny. Thanks for the discussion on both sides.

David,

Even if we disagree on most issues, we agree mostly on this one. (basicly non-partisan issue).

This plan would tax 30% on food, what the hell happens to granny’s roadside veggie stand?

Is she going to have to hire someone to do the taxes because she sells a few squash and tomatos from her garden? No, she will have to close her stand because some Federal tax prick will be hounding her to collect taxes!

Back to the drawing board for this Harvard Prof, it will screw the poor.

Perhaps the federal government should get back to doing only the few things we need:
(1) national defense
(2) federal laws
(3) federal law enforcement

Perhaps there is no solution, without first solving the current nightmare proportions of federal government?

There are now more jobs in government, than all manufacturing.

Taxes wouldn’t be so contentions if they were sufficiently low for everyone. Taxes used to be lower. What happened?

So the justification for HR 25 based on the bill inducing Corporations to stay here in the US just does not wash, and will not happen. It does not address the comparative advantages of low cost labor overseas, and therefore provides no inducement to halt the export of jobs overseas, nor will it result in increased real wages and compensation for American workers.

This is the first obvious lie being offered up to sell this bill.

David,

Former head of the House Ways and Means Committee, Bill Archer, asked Princeton Econometrics to conduct a survey. The goal was to find out what 500 European and Asian companies would do if we enacted the FairTax here. The results were that 400 would build their next plant here. The other 100 said they would move their world headquarters here. The United States would become a sponge for the capital investors of the world.

If the foreign companies would relocate here, given that they would have the same issues to deal with regarding the cost of workers, wouldn’t it stand to reason that the companies already headquartered here would continue to do so?

Right now the company has to pay taxes for each employee. If that is eliminated, the cost of each employee goes down. If the of employees goes down, it stands to reason that the cost of those employees will be closer to the cost of those overseas, narrowing the gap and removing for many the single reason they would think about incurring the added expense of building a plant overseas.

Currently, the US has the 4th largest corporate tax in the world. Eliminating this tax burden on the companies would make the US a magnet for local and international businesses to build their plants and headquarters. How is this a lie or a bad thing?

In the question section where someone asks; How much tax will I pay at the retail level on a purchase?, It clearly states 30%

Yes, it does. The exact quote is:

I know the FairTax rate is 23 percent when compared to current income taxes. What will the rate of the sales tax be at the retail counter? 30 percent. This issue is often confusing, so we explain more here.

When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” If that were the case, for $100 one earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.

We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.

Sales taxes, on the other hand, are generally quoted tax-exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax. This is a 30-percent sales tax.” Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.

Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.

Spend that same $100 under a sales tax, you pay that same $30, and the rate is quoted as 30 percent.

Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.

The tax-inclusive income tax of 23% is the same as a tax-exclusive sales tax of 30%. They equal each other, so yes the actual tax-exclusive sales tax rate would be 30%.

By eliminating the direct link between a workers wages and FICA taxes reporting on their paycheck and the solvency of the program, the contract between workers and their guaranteed benefits for deductions is for all intents and purposes removed. How would a worker 10 years after the HR 25 becomes law, be able to assess 1) how much they contributed to S.S. over the last 10 years, and 2) determine what the government’s obligation to them is based on their payments into the program?

Under section 903 of HR 25 it states that:

(a) IN GENERAL.—Employers shall submit such information to the Social Security Administration as is required by the Social Security Administration to calculate Social Security benefits under title II of the Social Security Act, including wages paid, in a form prescribed by the Secretary. A copy of the employer submission to the Social Security Administration relating to each employee shall be provided to each employee by the employer.

The Social Security administration will still operate under the Social Security Act (42 USC 401) and employers will still detail wages earned by employees to the SSA and the employee so that this will still be tracked just as it has been before. However, the actual payments will come from the general fund (much like they are now) and just tracked seperately, just as they are now. There would be little change to the SS system at all, except that the rebate checks to those under the poverty level will be handed out by the SSA as the IRS will no longer exist.

Do the American taxpayers want to pay additional taxes to support profits from businesses who collect and remit their their hard earned tax dollars from them?

But don’t we already depend on these businesses to collect the taxes now? They are required to collect the income tax from employees and pass it on to the government, they are already collecting sales taxes in most states for the same thing. I personally don’t see this as a problem, but I am more trusting of private enterprise than politically motivated beauracracies who have the power of force at their disposal.

I imagine we will have to disagree on this one.

Rhinehold,

You are correct, It does say 30% would be the tax rate.

Beyond that its just hopefull spin geting it down to 23%.

I respect your opinions, am thankful for your article/thread putting things in context, but IMHO, this plan would suck the high hard one for the working poor.

Wow. So 23=30. Whoda thunk it?

Right now the company has to pay taxes for each employee. If that is eliminated, the cost of each employee goes down.

Does it go down to $100 per week? Cause that’s how much manufacturing jobs in China pay.

Good discussion here. I was against a sales tax to start with, and I haven’t seen anything to change my mind. Howzabout we start closing loopholes in the current system and stop giving tax incentives to move business out of the country?

AP, there is a cost associated with moving a plant overseas. It costs X. If the savings, Y, are greater than X, the company will do it. If the savings is not, they won’t. So we don’t have to get down to 100, we just have to get the difference down less than expense and it no longer makes sense.

And doesn’t the knowledge that out of 500 foreign companies surveyed, ALL of them said that they would move their next plant or even their HQ to the US if they were to eliminate corporate taxes have any weight at all?

Hopeful spin? I didn’t realize explaining economic principles was ‘hopeful spin’.

Beagle, considering that this tax plan is considered to be the most progressive tax plan on the table, how do you rationalize that it will ‘screw the poor’ when they won’t be paying taxes?

As for ‘roadside tomato stands’, how do they deal with state sales taxes now?

Howzabout we start closing loopholes in the current system and stop giving tax incentives to move business out of the country?

AP, if that were the only issue, I would support that.

However, what do we do about the poor paying an imbedded tax rate of 23%? I would personally like to eliminate that.

Rhinehold,
How did they arrive at 23% ?
To support a total annual federal revenue of $2.2 trillion,
that implies that spending must be at least $9.57 trillion per year.
How much spending is there really in the U.S. annually?

Here’s what Greenspan said, who favors a consumption tax too:
cbs4.com/finance/finance_story_062114259.html

Rhinhold,

“As for ‘roadside tomato stands’, how do they deal with state sales taxes now?”

There is no current tax on food, nothing to report, nothing to pay.
As far as progressive taxes go, if they pay nothing now on a very low income, few would consider it progress to pay money they dont have, on things they were never taxed on before.

If you don’t tax food, you may have to raise the tax rate.
So, the tax will simply be shifted.

But, many would like the plan much more if it was still a 23% rate, and did not tax food, medicine, and medical.

However, everyone must realize exceptions merely distort things elsewhere.

The poorest are receiving the rebate (in advance) to pay the sales tax, so they’ll pay little or zero tax.

Perhaps the cost of living levels should be a little higher.
It’s hard to argue that the poor will get hit hardest if they pay zero.

And, the working class shouldn’t be too concerned, because they pay more that that now:
15.3% for S.S. and Medicare alone.
That only leaves 7.7% = 23% - 15.3%
Most working class pay more than 7.7% income tax.

As far as progressive taxes go, if they pay nothing now on a very low income, few would consider it progress to pay money they dont have, on things they were never taxed on before.

Because, as has been detailed before, the poor would get a refund each month to cover the taxes they spend during the month, so in the end they would pay no taxes.

So, they would pay no taxes on necessities, all of them, not just food but the imbedded taxes on that food that they are currently paying (yes, there are imbedded taxes on food now).

Sounds pretty progressive to me, to pay no taxes as opposed to imbedded hidden taxes on all items as well as sales taxes on those things that aren’t currently exempt like housing and utilities.

Based on these average income tax rates,
it appears everyone would pay less tax
under the fairtax.org plan.

AGE AverageIncomeTaxRate + S.S. + Medicare (YEAR 1996)
15 , 2.2% + 15.3% = 17.5%
20 , 7.1% + 15.3% = 22.4%
25 , 11.6% + 15.3% = 26.9%
30 , 13.7% + 15.3% = 29.0%
35 , 15.2% + 15.3% = 30.5%
40 , 16.0% + 15.3% = 31.3%
45 , 17.2% + 15.3% = 32.5%
50 , 17.6% + 15.3% = 32.9%
55 , 17.6% + 15.3% = 32.9%
60 , 17.1% + 15.3% = 32.4%
65 , 16.1% + 15.3% = 31.4%
70 , 13.6% + 15.3% = 28.9%
75 , 11.9% + 15.3% = 27.2%
80 , 12.3% + 15.3% = 27.6%
85 , 12.3% + 15.3% = 27.6%
90 , 11.2% + 15.3% = 26.5%

And that doesn’t even take into account there’s currently no tax on income above the S.S./Medicare caps. Who get’s hit hardest by that 15.3% S.S. & Medicare tax that we have now?

Rhinehold, a flat tax on income makes far, far more sense. It is fairer, far fewer loopholes, and far simpler. Accountability is greatly enhanced too by the simplicity. A flat tax also eliminates the generational aristocracy HR 25 would create, plus, it avoids the shifting of purchases by the wealthy overseas to avoid sales taxes here. Think about it.

A flat tax with a poverty thresshold floor under which no income tax is paid, and no ceiling for the wealthy individuals. It eliminates corportate taxes and provides the same incentives HR 25 does without all of the bureaucratic smoke and mirrors and reduction in accountability.

Do any foreign countries buy anything from us now anyway? What do we still manufacture here?

d.a.n, software, (when not pirated), plane parts, and military hardware, plus a few billion tons of food, a percentage of which we give away for foreign policy objectives of the Administration at tax payer cost through subsidy of corporate farmers.

Rhinehold.

“Because, as has been detailed before, the poor would get a refund each month to cover the taxes they spend during the month, so in the end they would pay no taxes.”

As I stated before, my Mother pays 18k now to just barely get by.

The FREAKING refund under that FREAKING plan would pay the taxes on what some dip-shit Harvard Prof. thinks it costs to live!

Reality isn’t a factor in his plan!

Let the stupid bastard that wrote the plan try to live on $9200 and see how he feels about it, if he’s still alive after one year!

Give him a few extra thousand, just enough to not be covered under any other welfare or medicaid plans. That way when he crawls from under his bridge,(if he didn’t freeze to death), he can now go buy a burger doodle for $5, rather than the $3 that he picked up pop cans before to pay for!

Sorry folks, even if I never live that way, I’ll never vote for a plan that might cause you or your’s to live that way.

A high sales tax to foreign customers does pose a valid argument.
I was sort of joking, seeing how so much there are more jobs now in government than manufacturing . : )
We also sell aircraft, meat products, wheat, corn, semiconductors, computer processors, machined parts, some autos, organic chemicals, plastics, refined petroleum products, etc.
In 1994, exports totaled over $500 billion.
I don’t know what they are now.

2004, total exports were $713 billion.
That doesn’t sound too good.

Dan,

This thread will just die, not because it isn’t a great topic to debate, but because fair-minded Republicans will only support a bill that doesn’t screw the poor.

You see, if the left can’t use the mantra that Republicans want to starve the poor and elderly, it nolonger works.

I love Watchblog for its respectful format, and differing points of view, but if the right express’s views that would help the poor and downtroden, it defeats the purpose of the left in saying that the right is evil.

Rhinehold, a flat tax on income makes far, far more sense. It is fairer, far fewer loopholes, and far simpler. Accountability is greatly enhanced too by the simplicity. A flat tax also eliminates the generational aristocracy HR 25 would create, plus, it avoids the shifting of purchases by the wealthy overseas to avoid sales taxes here. Think about it.

You will get no argument from me regarding the flat tax being better than the current tax plan. I just see this plan as having more upside.

For instance…
The flat tax does not touch a large part of where the money will come in from under HR25. That is Illegal immigrants, those that make (and spend) large amounts of money in the black market (such as drug dealers) and tourists… All of these people would be taxed just as much as the rest of us because they all have to buy products to live or visit here. All of these would be helping to fund all the current government programs (such as social security) that we have now. A flat tax would not bring in any of that revenue any more than the current system does.

David, you seem to be introducing many other programs into this mix as if they had some bearing on how the taxes are collected… I understand that these programs at some level are attached however HR25 is not designed to address anything other than how the taxes are collected. The program (as it is designed) is revenue neutral. It should bring in the same amount of money to the government as the current tax system. Concerns about Social Security and other programs are of course valid and completely worth discussion but I fail to see how they effect a plan that only addresses how taxes are collected not used and dispursed.

That is a BIG upside

Sorry for the BIG upside at the end… from a previous thought that I thought I deleted! lol

Rhinehold, a flat tax on income makes far, far more sense. It is fairer, far fewer loopholes, and far simpler

Except it doesn’t get rid of imbedded taxes. So when someone goes to the store to buy a gallon of milk, now they are paying taxes in the price of the milk they are paying, only it is hidden and we are unaware of how much and where it is being added at.

Under the fair tax plan, those imbedded taxes are gone. We will be able to SEE all of the taxes. And we can deal with the poor having to pay those taxes. Under a flat tax, the poor will still pay them.

Beagle,

Yes, ofcourse, you’re probably right.
Government worked hard to get it the way it is now, and they’ll not give it up easily.

I’d also support the flat rate income tax plan, but it needs to be carefully designed to not punish the poor either, and all the deductions and loopholes would have to be removed, and gradually phase out the home mortgage deduction too.

Both plans don’t hammer the poor really.
It’s the working (middle income ) class that gets hammered the most now. With earned income credits, Social Security, Medicare, Medicaid, Prescriptions, welfare, deferred taxes, etc., I don’t think the elderly are necessarily getting a raw deal now, and the poor don’t pay income tax now either. But, there’s the S.S. and Medicare tax (15.3%) that’s still a big kick in the ass (half paid by the employer, but really borne by the employee).

It’s hard to create a new plan that’s so different from the original plan, which is why the flat rate income tax might have a better chance.

I’m not trying to make a class/wealth warfare thing out of this, but until the tax system is reformed, the lower and middle income class are paying a much larger percentage of income on taxes. An equal tax rate for all (except those below a certain income level) may be the easiest way to simply fix the current system we have now.

The question, still, is how to eliminate the numerous tax loop holes, deductions, etc. that make the tax system unfair? Even that seems impossible, since most Senators and Representatives are not concerned about all of those tax deductions.

Beagle,

I understand your ‘emotion’ regarding this issue, but I think you are letting it get in the way of understanding what is being discussed.

Currently, your grandmother makes 18,000 per year, from SS and a pension plan. Unless I’m mistaken, she has to pay taxes on the pension plan, I apologize if she does not.

According to the play she would get ~9,000 back from the government every year for the taxes she would pay on living expenses. She would however no longer pay any of the hidden taxes she currently pays for. For example, a gallon of milk has hidden imbedded taxes associated with it. Those taxes would disappear. Therefore the prices will drop (we know this from past history and understanding of ‘how things work’).

In the end she would pay NO taxes, currently she pays MANY taxes. I want your grandmother to not have to pay any taxes.

I grew up poor, my grandmother supported my father and his 3 brothers on her own using assistance from the government. Her deadbeat husband left her and was never heard from again. I had to wear clothes that my mother made until I got out of high school and started supporting myself. I understand what you are worried about. But the REALITY of the plan is that this solution would be much better for those people who are in such a state.

However, if you feel that this is a bad program, please don’t support it! I am not expecting everyone to support it, some won’t for various reasons. All I ask is that you understand what is being suggested before saying things like ‘this hurts the poor’ when it clearly is the only plan currently out there that doesn’t.

“Rhinehold, a flat tax on income makes far, far more sense. It is fairer, far fewer loopholes, and far simpler”

Except it doesn’t get rid of imbedded taxes. So when someone goes to the store to buy a gallon of milk, now they are paying taxes in the price of the milk they are paying, only it is hidden and we are unaware of how much and where it is being added at.

In addition to this, you are still having all that money leave your paycheck before you get it… Out of sight out of mind…

It is proven that if the taxes are taken out before the check is cut then people tend to even notice that it is gone And when an increase happens, then they say “oh well, its only a few bucks per pay check”… This is the same reason that if you ask someone how much taxes they paid last year most will inevitably tell you “I did not pay any, I got a refund”. Unfortunatly the vest majority don’t pay that much attention to this because it come out before they have it in hand. However, give them all their money and the 23% tax on goods… then in a year try and raise the taxes to 24%… You will get a lot more people screaming about that than you would the same 1% increase in the income tax.

Rhinehold: Thanks for your response to Beagle. I too am concerned about what will happen to those on SS and a small pension as I?m considering retirement and expect to be in the $20,000/year income range. Does the plan envision taxes on rent? Currently, there?s an apartment nearby that is income controlled that appears very attractive, but not if the $600/mo. rent will be taxed at 30%. I?m confused on this. Is rent a ?service? or are you ?buying space?? I also know that different states tax SS & pensions differently, will that still be an option to the states? After reading the FAQs, I’m still confused on some of it.

Rihnehold,

I was useing my Mother as an example.
She would get screwed over with the stated plan.

She currently pays zero in taxes, but would get screwed over with that plan.

I’m sure that there are millions more just like her.
$9200 wont support anyone unless they live under a bridge. Heat, lights, and a phone can cost that much in this area. Not much left for food ect.

I understand those wishing to formulate a “one size fits all plan”, it just doesn’t work that way.

How about a tax system that is a hybrid of sorts, with:
(a) a lower income poverty level calculation like within the fairtax.org ;
(b) and a Flat Income Tax Percentage Rate of 17% ;
(c) and no taxes withheld until income exceeds a N times the poverty level;
WHERE:
[01] it is the ONE and ONLY federal tax that may apply to each eligible tax payer;
[02] there is NO tax for those with an income less than N times the established poverty level;
[03] N is a multiplier determined by the government, that can never be less than 1.5 ;
[04] the poverty level for 1 person, married couple, family of 1,2,…,8+ dependents will be determined by a government agency, and will be recalculated annually and may vary by state;
[05] the same income tax percentage rate applies to all tax payers with an income above N times the established poverty level for that state;
[06] starting 01-January of each year, no one starts paying any income tax until their annual income exceeds N times the established poverty level; the total income to date will be maintained by the government; employers determine tax to be paid (if any) based on the total tax paid to date;
[07] there are NO graduated income tax rate percentages;
[08] there are NO upper-level income caps;
[09] there are NO tax loop-holes;
[10] there are NO tax deductions of any kind;
[11] there are NO subsidies for any industry or group;
[12] all income is taxed at the same tax percentage rate, including: inheritance, gifts, payroll, wages, prizes, etc.; i.e. all money that exchanges ownership;
[13] the purpose of the tax system and the welfare system should not overlap; it causes unnecessary complication which could lead to abuses of both systems;
__________________
The benefits of a Flat Income Tax Percentage Rate which make it more fair is the:
[a] elimination of the graduated tax scale that forces the wealthy to pay higher percentages based on income;
[b] and the elimination of the tax loop-holes and deductions, which makes the tax system very complicated, and allows everyone (but the lower income groups) to reduce or avoid paying taxes, and allows too much tax evasion;
[c] there is NO tax for those with an income less than N times the established poverty level, and no one has to pay any taxes until their income exceeds N times the established poverty level;
[d] everyone pays the same percentage (except the poor, who pay little or nothing); what could be more fair and require the least changes to the current tax system?
[e] there are no high sales tax imposed on exported products;
[f] still allows for accounting for Social Security and Medicare; if necessary, those percentages can still appear on pay-roll statements;
_______________________________
The following tax systems would be recommended for states:
[a] implement a similar state flat Income Tax Percentage Rate system;
[b] eliminate all other taxes (e.g. sales tax, property tax);
________________________________

NOTE1: Social Security and Medicare would be funded from 9% of the income taxes collected (8% for Social Security and 1% for Medicare). Tax payers would still file a 1040 annually, but it’s merely to resolve any minor shortfalls or over payments (which should be small, since taxes paid are tracked by computer). Tax payers would still receive a Social Security statement showing the portion of their taxes that were required to fund entitlements.

NOTE2: The 17% flat rate income tax was arrived at by dividing the total current federal tax revenues (about $2 trillion) by the U.S. GDP of about $11 trillion, and subtracting 1% (i.e. 18% - 1% = 17%).
______________________________________

BradM, where is the embedded tax in a flat tax on individual income? There is none. It is fairer, easier to administer, and maintains the direct relationship between taxes and representatives at election time.

Your premise that currently taxpayers don’t know how much they pay, but, on a sales tax system they will, is just plain illogical. Where is the incentive for individuals to sum the hundreds of thousands of purchases they make each year to come up with a sum total of taxes they paid? Just plain illogical.

Rhinehold said in response to my statement:

DRR: Rhinehold, a flat tax on income makes far, far more sense. It is fairer, far fewer loopholes, and far simpler

Rhinehold: Except it doesn’t get rid of imbedded taxes.

How do you figure? A flat tax on personal income is not embedded in anything, Rhinehold. It is straight up percentage tax on net income. My statement does not reflect corporate income taxes. A flat tax on personal income does not add one cent to the cost of production or services.

OIC, so you are in favor of doing away with all corporate taxes and corporate tax matching of current employee wages?

If a corporation has to pay any tax, it will be passed on to the consumer. However, if I read this right you are suggesting eliminating that, which is good. The problem is, what’s to prevent it from coming back in the future? The repeal of the 16th amendment would be a big step, but we would have to replace it with one that would allow for the personal income tax.

Would the companies still be required to collect the taxes? I wouldn’t be opposed to that necessarily, as long as they are not matching anything or having to pay anything.

Yes, that would be much better than what we have now, though, if I am understanding what you are saying correctly. And I have been a proponent of the flax tax in the past, but I have found that I prefer the fair tax because it is indeed progressive AND eliminates the 16th amendment and the IRS, two things as a libertarian I have been a supporter of for years.

Rhinehold,
I’d still support the fairtax.org plan because it’s better than what we have now. But, I’d like it even better if it can be shown that prices for exports are still competitive in a world market. A high sales tax on exports too may be a problem.

Yes, in the 17% flat income tax rate plan above, corporations would collect income taxes (same is now) and send it to the government. But, the matching thing would be eliminated, because that is borne by the employee anyway.

Yes, I do not think corporations should be taxed (please provide reasons if anyone thinks that is a bad idea).
They’re not a person.
Any money they have doesn’t belong to one person. Not until they pay themselves some money, or sell the corporation.
Therefore, a lot of cash in a corporation is only useful to the corporation to compete, grow, expand, research, invest, weather bad times. Many companies don’t weather bad times because their discouraged from having too much cash, which they get taxed on. Also, taxing corporations doesn’t encourage corporations to come to the U.S. Besides, is it not enough that all their employees pay tax, and spend that money?

I like the fairtax.org in the long run, and certainly like the idea of eliminating the IRS, but see a couple of problems that still need to be worked out. One is applying sales tax to exports. Would that be done ?

If sales tax doesn’t apply to foreigners (exports), citizens won’t like paying more than them for the same products.

However, if it could be shown (for the fairtax.org plan) that prices on products (with the sales tax included) are still competetive worldwide, the fairtax could be justified. Is that the case? Also, if the sales tax wasn’t so high, it might be easier to deal with. 23% seems too high. Even a 17% flat income tax rate seems to high, but it’s primarily because of the pay-as-you-go Social Security and Medicare systems that are driving up those percentages.

Yes, unfortunately, in the 17% flat rate income tax plan, the IRS would still exist, but they wouldn’t have nearly as much to do, since everything is going to be so much simpler.

d.a.n.,

Yes, we would be eliminiating the imbedded tax so the prices of the products should stay about the same. So if they are competitive now, they will be then as well.

Yes, I’d believe so too as you say; it would even out in the end.
I think either plan would be a huge improvement.
As it is now, I hate April, and many others probably do to.
And, both flat rate plans would eliminate the current, incredibly complex, time consuming, frustrating tax system.
Just think how time consuming it would be without software?
And, did anyone ever calculate the potential economic gains of spending much less time and money on tax accounting? That must be a staggering figure? How many $billions and hours of work (nation wide) would it save?

Talk about your harebrained ideas. This one takes the cake. It’s almost as ridiculous as “supply-side economics”. In short, there are two significant problems with this plan.

First, it equates consumption with income. Unfortunately making money and spending money are two very different economic activities. The examples in the FAQs on their web site provide a very telling demonstration of this principle.

“Let’s look at a billionaire under the FairTax. If he spends $10,000,000 dollars [sic] he pays a tax of $2,300,000 and gets a rebate of $4,283 (assuming he is married and has no children). His effective tax rate is 22.96 percent.”

Talk about your wild assumptions. What in God’s name is he spending $10 million a year on? How many lobster dinners is this guy eating? This guy’s spending $27,400 per day, 365 days a year, on retail consumables? Please. His “tax rate is 22.96 percent” of his expenses, not his income or his assets. Its only 0.2296% of his assets and it could be any percentage of his income.

The reason this plan seems reasonable to the average person is because the vast majority of us spend what we earn. In other words, our annual expenses are equivalent to our annual incomes. Hence, a 15% tax on income and a 15% tax on expenditures are roughly proximate. Wealthy individuals and large corporations, however, know that earning money and spending money are two very different economic activities. Because they earn much more than they spend, a tax of this nature would increase their ability to accumulate and retain wealth, which is, after all, the ultimate objective of all capitalistic economic activity.

Sales taxes are regressive in nature because, generally, the people with the lowest incomes have the least wealth. Therefore, they are compelled to spend a much greater percentage of their assets upon consumables. The poorer you are, the more expensive a sales tax becomes, and the richer you are, the less expensive it becomes.

Expense cannot be equated to cost; it should be thought of as the ratio between cost and wealth, and this tax is much more expensive to those who spend a higher percentage of their net assets on retail consumables than it is for those who spend a lower percentage. A pair of Bally shoes might cost the same amount for everybody, but they’re a hell of a lot more expensive to me than they are to Bill Gates.

Let’s say that you have net assets of $10,000, and you want to buy a computer for $1,000. That means that the purchase of your new Dell will cost you 10% of your wealth. If, on the other hand, you’re worth $1 million, this purchase will set you back just 0.1% of you wealth. Now add a 23% sales tax onto the cost of the computer. This new cost makes it 2.3% more expensive for the poor guy, but only 0.023% more expensive for the rich guy. Without the tax, the poor guy keeps 90% of his wealth; with the tax, this percentage falls to 87.7%. On the other hand, with or without the tax, either way the rich guy keeps 99.9% of his wealth. Hence, while the cost of this tax may be the same for both indigent and affluent Americans, its expense is much greater for the former.

The economic burden of a consumption tax could only be equalized if each of us spent the same percentage of our net assets upon retail consumables annually. Since this is impossible, the true expense of a retail consumption tax must be borne most heavily by those with the fewest economic assets and least heavily by those with the most. Hence, this tax will tend to increase instead of decrease the disparities in wealth that exist currently within our society, and concentrations of wealth will increase rather than decrease. In short, this is the perfect Republican tax: the rich will get richer and the poor will get poorer.

Second, by exempting corporations from any taxation whatsoever, this plan rewards corporate consumption at the expense of personal consumption. This has at least three dire consequences. First, it will encourage corporate profligacy and wastefulness, which will counteract any deflationary tendencies the elimination of the corporate income tax might have. (Parenthetically, this plan foolishly assumes that 100% of corporate income taxes are passed along directly to the consumer, rather than “paid” in terms of reduced profitability.) Second, expect to see a massive number of personal incorporations among wealthy individuals. Suddenly everything I buy as Chuck Hanrahan, Inc. becomes 23% cheaper than everything Mr. Chuck Hanrahan buys. (Great deal for Inc.; lousy deal for Mr.) Finally, and most importantly, it will concentrate more and more wealth into corporate hands because corporate money will be worth 23% more than personal money. In other words, corporations wouold get richer, and hence more socially and politically powerful, while individuals would get poorer and weaker.

Rich individuals and wealthy corporations are already living off of the productivity of American workers. This system exacerbates, rather than ameliorates this trend. If you don’t think so, why not suggest either a flat corporate consumption tax or a flat wealth tax.

In the former case, every corporation simply pays XX% to the federal government based solely upon their annual expenditures. Watch them scream. Low overhead corporations would be rewarded at the expense of high overhead corporations. (By the way, it works the same way with people, too, because the poorer you are, the higher the percentage of your assets that you must expend upon “overhead”.) But don’t worry, we could tell the corporations, since 100% of the tax expenses are passed along to the consumers, we’ll end up paying all of the taxes anyway, right? Ho, ho, ho. Ha, ha, ha. I’m sure the corporations would get a big kick out of carrying the entire revenue burden of the federal government on their backs. They’d be just as thrilled as we should be.

I like the latter case even better. With this tax, each individual would pay a flat tax based upon XX% their net worth on December 31 of every year. This way, an economically inert activity, having money, would be penalized relatively, while an economically beneficial activity, earning money would be rewarded. I’d be curious to see how far either of these proposals would get in our Republican Congress.

The bottom line is to be extremely wary when someone wants to raise the taxes you have to pay on compulsory activities, such as earning your living or buying your daily bread. It probably means you’re getting screwed. It sure does in this case.

Good points on both plans.

Thankfully, Corporations have paid taxes in the past. Thankfully, because some of the greatest expenses to the working taxpaying women and men in the past have been caused by corporations. Remember the Savings and Loan bailout, how about the super fund cleanup for all the polluted towns and hamlets in America.

Thankfully, corporations were asked to pay a share for cleaning up after them. Under HR 25, Corporations have carte blanche to consume American resources, water, air, and pollute same without having to pay a dime. Sounds like a wonderful plan if you are a golden parachuted CEO.

Chuck,

Some people already get screwwed for saving money. It drives them to buy things on credit, so they never actually have any money saved…but they also have to pay more for it. Sometimes a lot more. Discouraging savings will also hurt the poor, because they’ll resort to credit to buy all big ticket items.

You know, I’ve studied both plans at some length.
My web-site lists both flat tax plans.
But, what about the average person?
They are not doing a lot of research on these.
The don’t have time (one big reason working people get screwed).
Even though I’m now a member of fairtax.org,
I e-mailed them some questions posed here by others.

It seems like a good plan in many respects, but
sales tax always seems to get accused of hammering the poor.
Also, the flat income tax percentage doesn’t change
the current system as much.
But the sale tax gets rid of the IRS.
But the flat sales tax diminishes the IRS significantly too.

So, I’m not yet convinced which is best.
I’m leaning slightly to the flat income tax rate,
but I’m not yet discarding the sales tax yet either.

Each plan has some pros and cons.
How about a side-by-side comparison?
Does anyone have that prepared in a way
that’s easier for the average person to comprehend?

David,

You do realize that no corporation pays any taxes now, right?

I mean, seriously, do you really think that a single corporation has paid a single dollar in taxes ever? The taxes are just added to the cost of the goods and passed onto the consumer.

I want to see those taxes and know I am paying them, not have them hidden away blissfully thinking that the ‘big bad corporation’ is paying for them out of their own pocket…

Each plan has some pros and cons. How about a side-by-side comparison? Does anyone have that prepared in a way that’s easier for the average person to comprehend?

Fair Tax vs Flat Tax

That should help. I did just want to say that a sales tax, in and of itself, is regressive. But by ensuring that the lower income individuals are not paying any taxes at all with the rebate checks, it becomes very progrssive.

Rhinehold,

Thanks. Yes, the poor don’t pay any tax under the fairtax.org plan.
Nothing wrong there.
In fact, there may be nothing wrong with the fairtax.org plan.

However, the objective of any tax system is:

[X] all should pay the same percentage of income ( except the poor, which pay nothing ).

Therefore, taxing income seems the most logical way to accomplish the objective of taxing income equally.

The fairtax plan has some difficulty and more work to do that proves income will be taxed equally.

Yes, there are many types of income. Money, interest, dividends, capital gains, etc.

Both plans are vulnerable to bartering.

Both plans are vulnerable to similar abuses.

The fairtax is vulnerable to black marketing.

The fairtax may (hard to know for sure) raise product prices for exports.

Taxing spending may be flawed, when all income is not spent. Often, those that spend all they earn is because they don’t make a lot. While that may not apply to poor, it may apply to the working middle class.

The flat income tax rate is vulnerable to missing some types of income (tips, gifts, etc.).

The fairtax eliminates the IRS, but the flat income tax greatly reduces the IRS.

There are many PROs and CONs to both plans, but the fairtax plan must address this one question:
________________________________________________
Since the objective is to tax income equally, (except the poor), how does the fairtax plan prove that income will be taxed equally ?
________________________________________________

Also, 23% seems too high. Almost immediately, it causes one to gasp. It certainly has shock value.

The fairtax may have a better chance if it was 17% (or lower?). Income (nation-wide) is greater than spending, since not all income is spent. 17% of GDP is almost equal to federal revenues of about $2 trillion.
17% of $10 trillion in spending is $1.7 trillion. But, the federal government is over-spending now. In all plans, the biggest problem each face is funding Social Security and Medicare, the biggest part of total tax (since S.S. and Medicare require about $1 trillion per year).

Rhinehold,
Good point about corporations.
Most don’t pay much tax.
The problem with taxing a corporation is that retained earnings gets taxed again when it’s later paid to a person (in the next tax year). That doesn’t encourage corporations to retain much cash reserves, which may be why many can’t weather hard times.
And, corporate taxes get passed on to consumers anyway.
Personally, I may be wrong, but taxing corporations seems counter-productive (provided there is sufficient compliance with all the income tax laws).
Simply impose tax on money and perks provided to any person (all things received are that person’s income). What good is money in a corporation doing anyone (except the corporation) until it’s paid to someone?
However, if it can be shown later that corporations are somehow abusing the system (untaxed perks, living expenses, various forms of income to people), then a tax on corporations may be necessary (although, that really should be a separate law-enforcement issue).

d.a.n.

Wouldn’t GDP still include all the products consumed by corporations to make end products, which the Fairtax Plan would not tax?

Also, another down-side that might not have been considered. As I understand it, the rebate checks are to be deposited directly into people’s bank accounts (probably to reduce the risks of fraud). What happens to people who don’t have bank accounts?

I forgot about those without bank accounts.
I guess they would have to go to a government office and provide sufficient identification.

Hmmm….not sure about the effect on GDP.
But, under the fairtax plan, only personal consumption is taxed.

Businesses don’t pay sales tax (no tax for a computer, office supplies, furniture, etc.).

I could see how that might get easily abused; someone goes into a store, buys a computer, says it’s for a corporation, pays with a corporate credit card, pays no sales tax, and takes it home and uses it for personal use. That happens now too when companies give gifts, and they escape the income or gift tax.

The more oen digs down into the various tax plans, while considering current constraints,
such as:
(01) Social Security
(02) Medicare
(03) Current and future tax collection methods
(04) Probability of compliance
(05) Probability of taxing income equally
(06) Reducing tax evasion
(07) Avoiding black markets
(08) Not driving up the cost of all products
(09) Not taxing the poor and truly needy
(10) Still maintain accounting for individual Social Security / Medicare accounts
(11) How to tax (or not tax) corporations?
(12) Should there be caps on S.S./Medicare taxes (like our current system)? Consider the vastly wealthy. What’s the most S.S./Medicare anyone should ever pay in or receive later?
(13) integrating old systems with new systems.
(14) won’t the vastly wealthy get double taxed, since they already paid income tax on much of their money?

I’m beginning to see the problem more clearly.
It’s not easy at all. It makes you wonder if there’s any tax system that will ever work. Then one we have now is so complicated and ripe for abuse, which benefits who mostly?

Your premise that currently taxpayers don’t know how much they pay, but, on a sales tax system they will, is just plain illogical. Where is the incentive for individuals to sum the hundreds of thousands of purchases they make each year to come up with a sum total of taxes they paid? Just plain illogical.

The argument was not that they don’t know now and will with HR25… The argument is that most don’t care now (at least not enough to do anything about it) because they are used to never seeing it. This is the same thing that will happen with the Flat Tax. Therefore when it gets raised people are less apt to really do anything about it. If it is in their face everyday when the choose if/what they want to make purchases on, then a 1% hike that is proposed down the road will meet with a lot more resistance by the general public… Besides, with this plan the majority will have a choice over how much tax they want to pay just by deciding how they want to live their lives. If I want to live off of Mac and Cheese and Penut Butter, buy used cars and used clothes then I probably won’t pay much if any taxes to the government. If I want to buy steaks and big screen TVs then I can expect that I will be funding the government by making those purchases. Of course there will be things that are not a choice. Necessities of life such as food etc…) but that is what the pre-bate was designed to suppliment. The taxes that folks pay on those items.

I would agree with you that summing up their purchases to find out how much taxes you paid is illogical… In fact it would be downright pointless. If you live how you want to live and pay for what you want to pay for. If there is nothing out there that is based off of that number anymore Do I really care how much I put in? Poor or Rich, why would it matter to me at that point? I would argue that it would not.

On a side note, my rant for the day: Someone said farther up that this plan would create problems because the rich people would just continue to gain money because they save more than they spend… I guess my response to that would be so freakin what? Why are people so concerned about what the rich do? If the rich continue to make more money then exactly how is that anyones business but theirs… They will still buy lavish (new) homes, cars, and such and will still foot the bill for the majority of the tax dollars collected. If that whole concept does not just scream jelousy I don’t know what does. If people would spend as much time working to make their own lives better instead of wasting it worrying about how to make sure the government “puts the screws” to those damn Rich folk then they might just find that they could become what they apparently despise so…

Back to the topic:
David, again I am not arguing that the Flat Tax idea is bad. It would be far better than the current plan. and I actually support that plan as well. I just feel that the Fair Tax is a better plan.

Just about any plan that involves forethought would be better than what we have now, which didn’t. We rely on patches now, patching up the leaks. The problem is, no matter what plan we have there will always be people who spend their time and resources to find out where it leaks and then put those leaks to their best advantage. If there aren’t built in leaks than I’m sure someone will find a way to poke a hole. I’m not trying to sound defeatist, I really believe we need a major re-haul of our current tax system, but to argue against any particular system because it could be abused seems pointless. Any system could and will be abused.

Rhinehold said: “You do realize that no corporation pays any taxes now, right?”

You do realize how incorrect that statement is, don’t you? The WSJ has covered a number of stories on mailboxes set up in places like the Bahamas as corporate hdqtrs. for American companies in order to avoid AMERICAN corproate taxes?

Yes, many do, as they should considering our politician’s proclivity to bail them out with tax dollars when their books move deep into the red. GM’s Pension plan being the latest example.

David R,

You do realize how incorrect that statement is, don’t you? The WSJ has covered a number of stories on mailboxes set up in places like the Bahamas as corporate hdqtrs. for American companies in order to avoid AMERICAN corproate taxes?

I think the real question is where do corporations get their money from? From their customers (or VCs during the internet boom :) If corporation pay taxes, they still want/need to make a profit, so what do they do? They pass the tax right onto their customers (higher prices), employees (lower wages), etc.

Of course if we setup a tax-code situation where you can avoid those expenses you will. Many shareholders would consider that due diligence. So why bother with this economic fiction that taxing a corporation is somehow different from taxing a person? If it incourages “insourcing” all the better.

Corporation stick as much to the customer as they possibly can, which is why they make so much money. My question is, the idea that corporations would use their new-found revenue to grow larger… how is that a good thing?

Corporation stick as much to the customer as they possibly can, which is why they make so much money. My question is, the idea that corporations would use their new-found revenue to grow larger… how is that a good thing?

The answer is jobs…. Like them or not corporations are where us “little folk” get our money from.

Screwing the coprorations is not all it’s cracked up to be.

Let me see if I have this straight?

No business to business transactions are taxed under the fairtax system.

Sounds like I want to start a bunch of “home businesses.”

First, I’ll start a home-based catering business to take care of buying all my groceries tax-free. Next I’ll get a realtor’s license and buy my autos through my business (A car is a legitimate expense for a realtor it shouldn’t be taxed; it’s a business to business transaction.) Same thing with clothing. That keeps me fed, clothed and takes care of transportation. I’ll start a “general contracting business” and buy lumber, tools and anything else I might need for my “business” tax-free. And if anything I buy gets used for personal use around the house, who is to know? Maybe I’ll even start a home-based day-care business to purchase toys for my kids without paying taxes. Of course none of my businesses may make any profits, most businesses fail to make a profit. I really won’t need to keep any books because there’s no income to report, no FICA taxes. With the IRS gone, there’s no one to audit my books and see that my faux business ventures are really just tax dodges. I don’t see how I’d get caught and I don’t see how I’d pay any taxes.

Seriously, there has to be a mechanism for small businesses to compete with larger ones and purchase goods and services without paying the 23% sales tax, right? If that’s the case, the system is right for plunder along the lines above. If there isn’t a mechanism for small contractors and small businessmen to purchase goods and services without the tax, you might as well kiss entrepreneurship goodbye.

Unless you suggest turning the police into tax-cops in addition to the front-line for homeland security and all their other jobs, I don’t see how you can get rid of the IRS.

It seems to me like the fairtax system would get beaten like a rug. Am I missing something here?

BradM,

“Screwing the coprorations is not all it’s cracked up to be.”

If corporations screw their employees over whenever possible, if their investment capital is going to foreign countries, if their investment capital is going into advance technology that needs a lot less people to run, then…

How are corporations a good thing for the everyday person? Self-employment and small businesses seem like a much better option. The difficulty is that politicians of both major parties tend to favor corporations because that’s how they or their friends make their money. Off the backs of the little guys. Corporations kill the small businesses by having the option to out-do them on every angle but quality, squeezing out competition.

Stephanie,

Most people don’t WANT the headaches of being their own bosses or they would be. That’s the plain truth, many just want a simple job on an assembly line or in an office where they do x and then go home and not think about work again until the next day. You can’t do that when you run a business, anyone who has done that will tell you.

The large corporations do that for those people, give them somewhere where they can have a job like that. Why would you want to take away their freedom to do so?

As for ‘squeezing out the little guy’, that does happen and forces the ‘little guy’ to keep on his toes and come up with the Better Idea. Something that has driven this country to where it is now. I’m thankful for that, competition is a wonderful motivator.

Rhinehold,

First, you don’t need corporations to make jobs. Small businesses do that too. And yes, I’m well aware of the headaches and insecurities that go along with being self-employed or owning a small business.

And, I’m not against competition. However, when the very laws are set up in favor of bigger corporations, then it ceases to be reasonable competition in a normal, capitalistic fashion. Bigger corporations can take risks smaller businesses can’t, because the government is going to bail out the bigger corporations if they screw up. Smaller businesses don’t have confidence that that sort of thing is going to happen to them, and for good reason, so they’re more likely to fold under the pressure of bigger corporations.

DRA,

Under current rules, establishing yourself as a business requires either:

- incorporating or forming a partnership which burderns you with structural and other rules
- making money (eventually) or having your business reclassified as a hobby (I think it’s 3 years)

Besides which… obtaining (and maintaining) a realtors, contractors, etc. licenses aren’t trivial… I think it’s safe to say most people wouldn’t go to such great lengths.

Jason Shao,

Small businesses hire people, too! And they usually care more about their employees than any corporation does.

Small businesses hire people, too! And they usually care more about their employees than any corporation does.

What do you think corporations started out as? They just happen to be more successful. Tell me, exactly what is the point at which a successful (once small) business automatically becomes an evil corporation that should be punished at all costs?

Lets make sure we figure out any way possible to punish the sucessful. They are the source of all problems in the world!

Rhinehold,

I think the fairtax would be better than what we have now. There’s a few unknowns and a few negatives.
I E-Mailed several questions to fairtax.org, which they answered (see below).
One problem is that people with cash that’s already been taxed once under the old system , will get taxed again under the new system.
Another problem is that it might (this is hard to prove) end up taxing the middle-income-group more (as a percentage of income).
Despite that, I think it’s better than what we now, because we lose hundreds of billions per year in time, money, accounting fees, software, etc. to track all sorts of different types of income…it’s truly ridiculous.

QUESTIONS and ANSWERS RECEIVED from fairtax.org:
[1] QUESTION: Will money already taxed (for income, Social Security, Medicare) be taxed again when spent (under the fairtax.org plan)? If so, that’s a big OUCH too ! Was that ever addressed ? If so, I missed it.
ANSWER: yes, it will. If it’s tax deferred, the impact is less.
[2] QUESTION: What about persons buying stuff (e.g. computer, office equipment, car, etc.) for personal use or for their home, and claiming it was a corporate purchase, so they avoid paying sales tax ? That may be hard to control with such a high tax rate of 23% . 23% sounds too high. Any single tax that high may encourage tax evasion and black markets.
ANSWER: 100% compliance is impossible, but there will be less cheating, since it will be easier to track a few million point-of-sale locations instead of 100+ million tax payers;
[3] QUESTION: What portion of the %23 of fairtax is for Social Security and Medicare ? I see in the fairtax FAQ that income accounting is still maintained, but were exact portions defined ?
ANSWER: Can’t really answer that. But, it’s conceivable that it will cost all tax payers less than it does now.
[4] QUESTION: I’ve seen the fairtax FAQ regarding tax of consumption vs income. But, are there any other supporting studies other than that by the American Farm Bureau ? Is there any proof that the middle-income persons will not end up paying a higher percentage of income on sales tax ?
ANSWER: Many studies exist. Many economists support it. See fairtax.org .
(well…no one can really prove the outcome; but it it seems rebates could be increased, if necessary, to reduce the burden on the poor-to-middle-income groups).
_____________________________

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” – Alexis De Tocqueville.

BradM,

“Tell me, exactly what is the point at which a successful (once small) business automatically becomes an evil corporation that should be punished at all costs?”

When did I say they should be punished? I’m not talking about punishing them. I’m talking about forcing the government to stop favoring them. There’s a big difference. And, not all small businesses become corporations, and many don’t do so willingly. Many are bought out by entities that are already corporations, and thus become corporations when their original ingenious founders are out of the picture.

Jason wrote:

Under current rules, establishing yourself as a business requires either:

- incorporating or forming a partnership which burderns you with structural and other rules
- making money (eventually) or having your business reclassified as a hobby (I think it’s 3 years)

Granted, but it seems to me the fairtax plan throws away the current rules, esp. point #2. If there is no IRS to audit you and no tax returns to do, how does anybody know if you’re acutally making money? Even if you keep the rules, who is going to enforce it without the IRS? Who is to say what businesses are legit?

My question about the plan is:

What is a business to business transaction?

Suppose I have a small business and I buy office supplies at WalMart or Office Depot. Do I have to pay and extra 23% on my office supplies? Would a company like GE pay an extra 23% on their office supplies? Why should one business pay an extra 23% in tax on the same item? What’s fair about that! Is there a magic size the business needs to be to qualify for this break? If so, wouldn’t that undermine small business?

Here’s another thing I don’t understand about the system. Suppose I’m a professional photographer. I don’t need any state license or anything, I just hang out a shingle or operate out of my apartment. I don’t employ anyone, but I operate a legitimate small business and make ends meet. I’m a happy man. I decide to buy a new camera. Should I pay 23% tax on this? How is the store selling cameras going to know if I’m a legitimate businessman or just an enthusiast trying to aviod paying an extra 23%? The same item may or may not be taxed depending on who buys it.

I’ve looked through the fairtax web site a bit, but I don’t really understand how this would work in practice without either screwing over small business folks and making them pay an extra 23% on everything they buy or opening the system up to widespread fraud.

“Do I have to pay and extra 23% on my office supplies? Would a company like GE pay an extra 23% on their office supplies? Why should one business pay an extra 23% in tax on the same item?” - DRA

It’s my understanding that the ‘end user’ of the good or service pays the sales tax.

If either your company or GE was the end user of a box of copy paper, then both your firm and GE would pay the 23% tax.

If your firm bought that box of copy paper with the intention of reselling it TO AN END USER, then you would not pay the sales tax, but your firm would be responcible for COLLECTING the sales tax from your customer who IS the end user, just as your retail business would now collect whatever your state’s sales tax is charged on that transaction.

——
In a previous post about compensating businesses for collecting taxes, when I owned a small retail auto parts business many years ago, my state allowed me to deduct a fee of $25 for collecting and sending them their sales taxes.

If my gross retail receipts were $52,000 for a given month, I would divide that gross amount by 1.04 (we had a 4% sales tax back then) and see that I had collected $50,000 in sales revenue and $2,000 in taxes. I would then write a check for $1,975 to the state’s dept of revenue after keeping my $25.

H.R. 25 says that a retail business would be able to charge the government $200 or a (small) percentage of the taxes to be sent in, which ever is larger, in exchange for that business doing the collection and accounting for them. This is similar to my experiance with the collection of state sales taxes and the merchant being compensated for their efforts.

Edisto Joe,

Thank you. Your response clarifies that all the people concerned about the gross abuse that would occur shouldn’t be so worried, assuming your understanding is accurate.

I have a few questions for the FairTax experts to answer! Beyond section 1 of HR25, where it repeals the existing Income Tax legislation, after reading further into the bill…

Why does HR 25 under the definitions category of the bill maintain the concept of withholding by employers on the wages and salaries of Federal Employees? If they were going to be consistent with the concepts layed out by FairTax.org why would they not eliminate direct taxes on the wages and salaries for all employees federal or otherwise?

Furthermore, why does the bill shift the regulatory duties of the IRS to the social security administration for withholding? Was the intent not to eliminate an expensive, bloated and intrusive bureaucracy?

Why does it maintain a definition for wages and salaries but change the definition it once had under the Income Tax and change it to read that wages and salaries are now defined as “services?” Under this definition, would a 23% tax rate not be applied to all sources considered a service?

FairTax.org’s marketing would suggest that under this bill all employees will earn 100% of their wage or salary. If the HR25 bill was intended to eliminate all payroll taxes, would that not include medicare and social security? Where in the bill does it remove social security withholding from wages and salaries? Or is the intent of the bill to eliminate all other taxes except Social Security?

Under Fairtax.org marketing, they claim this bill not only eliminates April 15 (which it does), but they also imply that this new bill lifts the burden of keeping records and receipts from individuals! Under the section on liabilities and penalties, why is it written that a “purchaser” is liable for remittance of the new sales tax?

Any guidence on these issues would be appreciated

Excerpts from HR25

>SEC. 2. DEFINITIONS AND SPECIAL RULES
>
>`(17) WAGES AND SALARY- The terms `wage’ and `salary’ mean all
>compensation paid for employment service including cash compensation,employee benefits, disability insurance, or wage replacement insurance payments, unemployment compensation insurance, workers’ compensation insurance, and the fair market value of any other consideration paid by an employer to an employee in consideration for employment services rendered.
>
>(14) Taxable property or service
>
>`(A) GENERAL RULE- The term `taxable property or service’ means—
>`(i) any property (including leaseholds of any term or rents with
>respect to such property) but excluding—
>`(I) intangible property, and
>`(II) used property, and
>`(ii) any service (including any financial intermediation services as
>determined by section 801).
>
>`(B) SERVICE- For purposes of subparagraph (A), the term `service’—
>`(i) shall include any service performed by an employee for which the
>employee is paid wages or a salary by a taxable employer, and
>`(ii) shall not include any service performed by an employee for which
>the employee is paid wages or a salary—
>`(I) by an employer in the regular course of the employer’s trade or
>business,
>
>SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.
>`(a) LIABILITY FOR COLLECTION AND REMITTANCE OF THE TAX- Except as
>provided otherwise by this section, any tax imposed by this subtitle
>shall be collected and remitted by the seller of taxable property or
>services (including financial intermediation services).
>
>`(b) Tax To Be Remitted by Purchaser in Certain Circumstances-
>`(1) IN GENERAL- In the case of taxable property or services purchased
>outside of the United States and imported into the United States for use
>or consumption in the United States, the purchaser shall remit the tax
>imposed by section 101.
>`(2) CERTAIN WAGES OR SALARY- In the case of wages or salary paid by a taxable employer which are taxable services, the employer shall remit
>the tax imposed by section 101.
>
>SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.

Keep in mind, the definition for the United States of America (aka USA,inc.) is the territories of the federal government which only include Federal Government properties, District of Columbia, Virgin Islands, Puerto Rico, Guam, etc…This does not include the soverign 50 states! Also, any US citizen by definition includes anyone who holds a contractual relationship with USA,inc. by means of a Social Security number, or those born within the legal US territories.

`SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.

`(a) IN GENERAL- Employers shall submit such information to the Social Security Administration as is required by the Social Security Administration to calculate Social Security benefits under title II of the Social Security Act, including wages paid, in a form prescribed by the Secretary. A copy of the employer submission to the Social Security Administration relating to each employee shall be provided to each employee by the employer.

`(b) WAGES- For purposes of this section, the term `wages’ means all cash remuneration for employment (including tips to an employee by third parties provided that the employer or employee maintains records documenting such tips) including self-employment income; except that such term shall not include—

`(1) any insurance benefits received (including death benefits);

`(2) pension or annuity benefits received;

`(3) tips received by an employee over $5,000 per year; and

`(4) benefits received under a government entitlement program (including Social Security benefits and unemployment compensation benefits).

`(c) SELF-EMPLOYMENT INCOME- For purposes of subsection (b), the term `self-employment income’ means gross payments received for taxable property or services minus the sum of—

`(1) gross payments made for taxable property or services (without regard to whether tax was paid pursuant to section 101 on such taxable property or services), and

`(2) wages paid by the self-employed person to employees of the self-employed person.