Carter introduces Fair Tax Act

a flat tax is a tax per dollar, everyone pays the same tax for every dollar earned over the poverty limit, rich or poor

if the poverty limit is 20k, everyone pays tax on every dollar over that, you earn 40k, you pay tax on 20k, etc....

 

Hi, kazenatsu.

I'd be interested to see the reasoning behind the dismissal of the idea. In these United States, we presently have some wealth-based taxation. The flat tax aspect suggests a certain degree of fairness.

Regards, stay safe 'n well . . . 'n solvent!

 

This is all well and good until you have to pay 15 hundred for basic groceries.

If poor people have to pay a larger portion of their income, or should that be yearly(weekly?) accumulated wealth, why can't other wealth brackets, note that I say wealth not income-- because the wealthiest among us don't have income, pay an equal burden?

 

Pretty much all countries with flat taxes are former Soviet block nations, and some are already opting for progressive tax rates. The flat-tax system hits the middle and lower income groups pretty hard

 

Hi, Pro_Line_FL.

Which countries use a specific tax system says nothing about the tax system itself. It's reasoning by inuendo.

How hard a flat tax hits various groups depends upon the level at which it is set. In addition, if it is on wealth, the lower income levels have precious little of it.

Regards, stay safe 'n well . . . 'n solvent.

 

Nations with established political and economic systems all have progressive tax systems, because over time they have learned that it works the best for their purposes. Nations like ex-soviet block countries which do not have established systems have opted for something simple, - the flat tax, and some of them have already learned it did not work well when tests (like in 2008 resession) so they switched to progressive systems.

Its on income, and typically it does not generate enough revenue. Also, by definition it does not have exemptions or deductions for low income people so after tax, they end up with very little money in the pocket.

 

Hi again, Pro_Line_FL.

With respect to the first sentence of the above quote, there may be, Paul Harvey-ish, more to the story. That something works best begs the question of whom it works best for. One can, given the situation in the United States of America, argue that it works best for the ruling wealthy elite.

Regards, stay safe 'n well.

 

You're saying higher rates for wealthy works best for the for the ruling wealthy elite......? How did you reach that conclusion?

The wealthy would LOVE flat tax system.

 

This is a lousy plan. I remember when the "Flat tax," was just going to be 13%. That was before our 2nd Gulf War, though. Since people with lower incomes spend a greater % of their income on things that would be taxed, you would effectively be taxing a much greater portion of the poor and middle class's income, than the income of wealthier people. That is what makes this a "regressive" tax.

I don't know how they believe this could boost consumer spending, unless they're figuring that after such a windfall of gain that would be created for the rich, by eliminating income tax, they might go off on big spending sprees. But this sort of system would also tend to suppress consumer spending, and so the economy, since everything would be so much more expensive.

Also you would need to work out a solution for all those who earn too little to, under our current system, be charged any income tax-- in fact even get additional money from the government, through the Earned Income tax Credit-- so would presumably not be expected to pay all this sales tax, since they can't afford to. And obviously, to all but Republicans, these people would not have the money to put out, all year, to then just wait for an annual rebursement check. IOW, they would need some sort of card, verifying them as tax exempt.

None of this really matters, because we will not be adopting this idiotic, unfair, rich-favoring plan. It is appropriate, though, that this sort of stupidity, and pandering to the rich, at the expense of the vast majority of us, is the way that this Republican House, kick off its session.

 

That's the thing. It would be a big tax hike for the low income people, and a massive tax cut for higher earners.

 

I did not say that.

I'll not respond further to your posts on this thread.

Regards. Stay safe 'n well.

 

I quoted what you said. If you meant something other that what you said, you can explain it, or you can just say "I won't respond anymore".

"With respect to the first sentence of the above quote, there may be, Paul Harvey-ish, more to the story. That something works best begs the question of whom it works best for. One can, given the situation in the United States of America, argue that it works best for the ruling wealthy elite."

 

Hi again.

The 'it' refers to the present situation in the US, a progressive tax structure which contains so many loopholes and has such a lack of auditing that the rich can avoid much of it, not the hypothetical tax structure I had referenced earlier.

Regards, stay safe 'n well.

 

Not hardly. If a person makes $20 K a year, he's going to probably spend at least 90% of that, on things that would be taxed (unless food is exempted). So, you think a person who makes $2 million a year, is going to spend 100 times as much as the other guy? If he's making $2mil, you think he's spending $1.8 million a year, on things that would have sales tax? Highly doubtful. If they "spend" that much, they are really investing it, as in real estate. It's hard to see not only the elimination of any tax benefit, for buying a house, but a 30% surcharge, on top of home & real estate prices. And that is not even looking at the really rich, who make $20 million, or even $200 million, a year.

 

Im in favor of it. Thats how we do in WA and it seems to work fine. We dont tax food or prescriptions either, so its less of a burden on the poor. I'd rather see property tax replaced with higher sales tax. But it would be good to replace income tax as well.

 

You are talk proportional, when I was talking about a flat dollar amount.

There is no rational way of making it proportional, never will be unless every dollar is taxed, no matter the source or the creation. And we both know that won't happen.

 

The thing is, poor and middle class people are already more likely to buy second hand big ticket items, whereas, rich folks aren't known to be bargain hunters. The prebate makes sure that NO ONE pays any tax on the essentials, this, plus the fact that there is no tax at all on used items gives poor folks the ability to control their tax burden. Some may pay less tax than the prebate, thereby making money on the deal.

Calling the FairTax regressive due to it being a consumption tax, without taking these factors into consideration, is not exactly accurate.

 

That is how income tax works, that is, all of one's income is considered for tax purposes, not just that which one uses to purchase things. As this percentage of ones's income is going to be vastly higher, for those of lower incomes, than for the most wealthy among us, such a system is intrinsically inequitable.


P.S.-- Just to correct my exaggerated estimate of my last post: I realized that since the $20 K earner is going to be either making mortgage payments or, more likely, paying rent, it obviously won't be 90% of his income, used on taxable products & services, unless rent is included among taxable items. Then again, I guess rent, theoretically, could be included, in that cockamamie plan, though there would be a strong push to exempt it; which would only push up the tax rate which would need be charged on the balance of taxable goods & services; which would in turn only exert a greater downward pressure, on sales of these things, in our economy.

 

The effect of taxing all income, regardless of how it is earned, by percentage becomes disproportionate when the lower income ranges also receive things like food stamps, subsidized housing and utilities.

A consumption tax such as a National Sales Tax would (should) exclude things like food, clothing under X dollars per item, medical and pharmaceutical. That would even the scales for the lower income group, eliminate loop holes and the IRS for the most part.

Commercial rent is taxable in certain states, I know Florida is one. There may be others.

 

I strenuously reject your argument, but it suggests a viewpoint so in opposition to my own, that it seems a very unpromising prospect, that we might find some agreement here. Quickly, though, I'll argue that 1) subsidized housing is a benefit of only a very small percentage of the working poor, and because of its shortage of supply, should be largely restricted to those who would not owe any income tax. So, if you are going to consider this subsidy as part of one's income, upon which they could not afford to pay tax, that would only necessitate larger subsidies. 2) The same idea would go for food stamps: receiving these should be based strictly on need; if you tax the benefit, you only create a greater need for more food stamps, leading to more tax, leading to an enhanced need for food stamps. So this only creates a cause and effect spiral of consequences.

(I left out utilities, only because I'm not sure about where comes the funding for the winter program, of heating assistance. It may be, in whole or part, a charitable operation, funded by the energy suppliers.)

 

A couple of people have already hit upon my points, but I will be expanding on them. I will first place this disclaimer. While the title is Fair Tax, I am not positive that this is the same Fair Tax that was presented earlier in the century by John Linder. I will be presenting my point based upon that bill, and if the current bill is different I welcome anyone pointing out the difference.

The system has to be looked at as a whole. Any given part could be problematic by itself, but as a whole should work.

First off it should be addressed that the 23% is not the actual sale tax rate. That is the equivalent rate to compare it to income tax. Income tax is inclusive and sales tax is exclusive and they do not compare directly numerically. Trying to say that 23% inclusive is the same as 23% exclusive is like saying that 1 gallon is the same as 1 liter. So if you have sales tax and the item is $100 and the sales tax is 23% then the total is $123. Looking at income tax, if you have $100 and the income tax is 23% then that 23% comes off the top. It's not added on the top like sales tax. So you have to make both rates as either coming off the top, or being added to the top. So changing that income to look like sale tax, we actually have to start at $77 and figure out what the tax rate is to make $23 in sales tax so that the total is $100. So we have:
$77 + ($77 * tax) = $100
$77 * tax = $100 - $77
$77 * tax = $23
tax = $23 / $77
tax = 29.87% or 30%
So a 30% sales tax is equivalent to a 23% income tax.

Now a sales tax, in and of itself, is indeed regressive. To counter this the bill uses what they call a "prebate", as noted by a couple of others. Basically what this does is take what the poverty level is (something we already calculate), and figure out what the 30% sales tax on that amount would be, and then send that amount to every person with a social security number. Well not exactly every person. There are calculations for households to include children. But that's the general principle. The idea here is that no one should ever have to pay taxes on basic necessities, which is what the poverty level is intended to calculate; the amount of money needed to pay for all basic necessities. Along with this idea is the concept that anything above and beyond necessities should be taxed, including things like food, because any food beyond necessities is not needed, therefore should be tasked. After all, why should the rich people not pay tax on the lavish food they buy above and beyond that is necessary. Logistically, it is far easier to present the prebate to everyone, than try to implement any kind of tracking system, which would be logistically more complicated.

In addition to the above, the sales tax is is applied only to the retail level. Not resale and not manufacturing. This later part means that all the taxes that were part of the manufacturing process are no longer passed up the line to ultimately the consumer. This part is what makes the Fair Tax different from a VAT, since the VAT is added at each level of manufacture. The former part means that those of lesser means can buy second hand and pay no taxes. And they are still getting their full prebate. Additionally, the poverty calculation is based on basic retail, and does not account for sales. Which means that money can be saved by getting things on sale, for lower sales tax, while still getting the full prebate. The concern over used goods being sold more than new is not as bad as opponents would make it out to be. After all, all used goods would have to be sold retail, and taxed, before they can be sold again. And no, a car dealer cannot just drive 100 miles onto a vehicle to call it used. Due to test drives, car are commonly sold new off the lot with more than 100 miles on them. Retail businesses would have to show their inventory and what they bought and that they sold it and collected the tax on it.

Which brings us to another aspect and advantage of the Fair Tax. Under the current income tax system, we currently have to track each individual person, AND each individual business to ensure income tax compliance. That's 258.3 million adults plus 32.6 million businesses, for a total of approx 291 million entities to track. Since not all businesses are retail level, that means under the Fair Tax, we would only have to track less than 32 million. Way easier to do, for less money and time.

The issue of seniors who have already paid income tax being affected is a red herring. The taxes they pay on items are already there. The Fair Tax merely takes them all from along the manufacturing line and places them all highly visible at the retail point. This is the point that the average consumer sees and will immediately notice if there is a change.

A new agency will not be needed. The IRS will just be repurposed for the tracking of less entities.

Sales tax rates will not need to be prohibitively high. When the Fair Tax was initially researched Texas sale tax was about 6% (rounding has occurred). The study determined that if Texas had no exemptions for their sales tax, the rate could be dropped to about 2% and still maintain the same income.

Then there is the businesses to consider. Back when Daimler merged with Chrysler, the main HQ was moved to Germany because there was less of a tax burden there than in the US. So if we present a lower tax burden, (0%) for business along the production line, then most of the business will move here.

Many of these points and more are covered in The Fair Tax Book by Neil Boortz and John Linder. As I noted, the current incarnation might be different than the original, but the original stayed intact the whole time that Linder was in office and reintroducing the bill every year.

 

No where did I say anything about taxing those 'benefits'. The do exist as benefits and unavailable for the general public, so are considered 'benefits' since they are paid for by others, whose income is taxable.

 

I still do not understand, because I don't think you've really explained, how that situation, described in your quote, makes it anywhere close to equitable, for a much larger share of our tax revenue to derive from the incomes of those who are struggling, just getting by, or of modest means-- who are going to need to use all or most of their incomes, to buy things (which would be taxed)-- than from the wealthy and especially, the wealthiest, in the population, who would be having only a small fraction of their own incomes, subject to tax.

 

The opposite in fact is true. The poor consume and don't invest. The rich invest and don't consume (as a % of their total income). Almost the entire income of the less well of is spent on basic necessities i.e food, clothing, rent, running a car to get to and from work or public transport fairs etc. At the end of the fortnight very little is left over for other non-essential spending. That's why such people are 'poor'. They have no spare capital to spend on anything but survival.

Now contrast that with someone earning say 1 million a year. There's no income tax so that money is tax free & 'in the pocket'. After spending on essentials food, clothing and transport etc. everything left over minus any expenditure on luxuries like travel and dining out can be invested. TAX FREE! Unless of course the proposed 'consumption tax' extended to stocks, bonds, futures and other forms of income earning asset like property. And guess what? Surprise, surprise there's no mention of those items being included in the proposed consumption tax. The entire proposal is nothing more than a plan to eliminate most of the tax burden payed by wealthy Americans and foist it onto the low income earners.

You want fair and simple? Have a single level income tax of say 30 % and then cap deductions. You can claim whatever legitimate deductions you want under any part of the tax code - right up until you hit the cap. And then it doesn't matter how many more legitimate deductions you may have that's it, no more deductions accepted. Then you just vary the cap with income, someone 50,000 p.a. might get a cap of say 7,000. Someone earning 100,000 p.a. gets say 15,000 and that guy earning 1 million? say 100,000?

Choose your own income levels and caps and see what happens.

 

@Maquiscat
Excellent post, very patiently explained. I recommend it to others.

http://www.politicalforum.com/index...es-fair-tax-act.607277/page-2#post-1073970307


It sounds like you have actually studied this, whereas I have only given it some thought. That prebate makes a huge difference. I had thought the most practical solution would be to issue tax exempt cards, to sufficiently low income people; but what I'd expected, from this Republican's plan, would be some reimbursement device, which is impractical for people who are already living from hand to mouth. I had seen Hotdogr mention this, and was intending to reply to him, to ask for his clarification, that he was saying what it seemed (which you have now confirmed for me, instead).

The one thing that I could use a little more info from you about, are taxes on businesses. You did say 0%, however you'd specified that as "along the production line." But, where else beside the production line, are a lot of companies buying things, that could be taxed? In other words, the corporate offices have mostly just the expenses of rent, plus worker salaries (which employers would obviously not be taxed on-- treating worker pay, from a tax perspective, as if the business was "buying" the services of so many private contractors). So it sounds like business profits, if they pay no tax on their production costs (which, of course, are not even applicable to all businesses), would come largely tax free. I guess they would only, in the plan that you cite, pay tax on things like delivery charges, and rent (and utilities)?

Personally, I think, if "corporations are people," then corporate profits should be subject at least to some minimum tax (like the 15% which Pres. Biden had advanced and, I believe, got passed).


To try to wrap up, it sounds like there might be ways to make this idea at least more workable, and somewhat less inequitable. I would still want to see all the details, up front. You cannot just assume that this current Republican plan is going to stick strictly to the Linder plan, which you cite.

With regard to the potential variations, what I intend to next do, is likewise bring more context to this debate. Your Linder plan, which I'd not been familiar with, but see came out in 2005, was not a completely new concept. I had earlier alluded to hearing about a viable plan*, touting a rate of only 13%: so less than half of this current plan. That had been in 1992 (and I had remembered the figure accurately-- three cheers for me!).

This is what now strikes me as ironic, that we see the most support for this idea, coming from the Right, when it had been someone on the Left, who'd been its chief advocate, 30 years ago. Though, actually, there are some on the Right, in this thread, who also see a flat tax as problematic, and regressive-- good on them! It seems almost too great a contrast from the recent political landscape, to dare to think that this may be the type of issue, upon which common sense, not partisanship, might rule, so that there might be at least a moderate amount of bipartisan agreement (as has been the case, at least this far, with Ukraine). Forgive my slight digression.

*What I had meant, by saying the plan, I wish to bring into the thread, had been "viable," was that it had not merely been some academic paper (of which, naturally, some had been published, prior to that), but that it was part of the economic plan of a serious contender, in the Democratic Presidential Primary. So I want to ask any of those on the Right, who seem to like this flat tax idea-- I'm looking at you, @spiritgide , @Turtledude and @Collateral Damage -- if they know they are endorsing something that had formerly been championed by none other than Jerry Brown!

https://www.baltimoresun.com/news/bs-xpm-1992-03-19-1992079152-story.html

NOTE: this article is from 1992. And the title is "Jerry Brown's Bogus Flat Tax."

<Snip>
FORMER California Gov. Jerry Brown placed a surprisingly strong second in Michigan, by moving into the vacuum on the Democratic Party left. He played to the beleaguered United Auto Workers union, and embraced other populist outsiders such as Ralph Nader and Jesse Jackson. But his flat tax proposal is preposterous and cynical.

Take a close look at what Mr. Brown has called the "silver-bullet solution for the 1990s." That slogan alone should be a tip-off; there are no silver-bullet solutions.
<End Snip>


I'm going to save the rest for its own post, so you'll have to wait to read that one, if you're interested (or, of course, you could Google it, on your own).