Carter introduces Fair Tax Act

From the OP link, one can link to the actual legislation. I only gave it a quick scan, but there do not appear to be any exemptions, for food, or other essentials. I suppose, though, these would be calculated into the monthly checks, which each household would receive, as their prebate, for these costs. There would seem to be a lot of cause for arguing over these amounts, as costs are not uniform, throughout the country, but the amounts would, presumably, not vary, based on one's state of residence.

Only the same percentage, on purchases-- not on income. The financially elite, the comfortable, the modest, and the struggling, spend vastly different percentages of their incomes, on products and services. This means that, even if a wealthy person may spend, and so have taxed, several times as much money as a middle class person, it will still represent a much smaller proportion of their overall income. It would be akin to putting everyone in the same tax bracket, but changing only the total amount, on which they could be taxed, with the top amount, being only a couple of hundred thousand. Anything a person made, over that amount (that is, which they would not be using for purchases, in the flat tax system) would then be tax free income.

There already is a system, btw, in which rich & poor have equity: state sales taxes. But all states also have income taxes, on top of the sales taxes (in which one's rate, varies with income level).


Unlike is the case with many other issues-- let's just use marijuana legalization, for example-- this is not something that the country could have the benefit of seeing how this plays out, in action, in the smaller laboratory of just one state, going ahead with some change in policy on its own, out in front of the rest of the country; no state is liable to replace its income tax with higher sales taxes, because that would lead to a large loss of business, and revenue, for the state. They would not only lose out on any sales to residents of adjacent states, but its own citizens, for whom it was feasible, would begin doing their shopping, in the neighboring states.

So we would all have to launch on this project together, and basically blindly (though there may be some rough examples to look to, in other countries). I could foresee problems, just on the practical operational aspects. This plan has all or most families in the country, getting a check, every month, in advance of their estimated tax costs. That is a lot of f****** mail. A lot of people would no doubt be hassled, regularly, with not having their check arrive promptly, and not being sure when, or even if, it would show up. Can you imagine all the headaches over undelivered or lost-- not to mention stolen-- checks? If you were one who really depended on having these to draw on, this could be even more than just a huge pain in the ass.

Of course, most would probably go with direct deposit, into their checking accounts. So that would ease up the difficulties-- provided there were no electronic problems. And simple malfunctions, or human keying errors, I am considering separately from dedicated hacking attempts. A shame, we could not benefit from first seeing the repercussions in just one state, in advance.

 

@Maquiscat

This is interesting: wikipedia told me that Linder came out with his plan in 2005; but the article, linked to the OP, said that Congressmen have been voting on the aLinder plan, since 1999.

<Snip>

First introduced into the U.S. Congress in 1999 by former Georgia Congressman John Linder, the Fair Tax is the leading tax reform movement in the country. In addition to eliminating all personal and corporate income taxes, the death tax, gift taxes, and the payroll tax, the Fair Tax would also eliminate the need for the Internal Revenue Service. The Fair Tax would repeal the current tax code and replace it with a single national consumption tax that is pro-growth and allows Americans to keep every cent of their hard-earned money.

 

@Maquiscat said, in post #46, that the plan includes no VAT for business; that is, it somehow excludes "assembly line" purchases. I believe, though, he was going by a plan that has been proposed, annually, for a couple of decades, give or take. I don't know how the one that is being offered this session, differs, but the entire bill, as I imagine you know, can be linked to, from your OP article.

Well that is another matter, from being in favor of a national sales tax, in lieu of a graduated income tax. Even a flat income tax system, demands much more than just a little skin, from lower & middle class citizens (and limiting that flat tax to just purchases, instead of on all income, would increase this shift of burden all the more). Please see my snip, at bottom.*

Right. This would be far more egregious a shift, than a flat income tax. Even if one were to support putting that proportionally equal burden on all incomes, regardless of a person's success level, or ability to pay, to then enforce that flat rate only on sales taxes, so to exclude from taxation all income not used for purchases, is absolutely absurd.


Below is a simple but fairly thorough description, and analysis, from the Chicago Tribune, of a flat tax system, previously part of a Democratic Presidential Primary candidate's platform, from before we had the "Fair Tax" sales tax plan. But certain aspects of any flat sales tax plan, are going to be the same unless, as @kazenatsu speculated, we maintained an income tax for part of the government's funding. But that would defeat the point, and the savings, of moving to this system. In that case, why not just stick with income tax, and avoid all the additional aggravation, in store with an increased sales tax?

Btw, Kaz , and any "conservative" members, who are positively disposed to the idea of a flat tax: I just want to let you know that, before the Linder "Fair Tax" plan, the most credible flat income tax advocate, had been none other than former California Governor and Dem Presidential contender, Jerry Brown.

https://www.chicagotribune.com/news/ct-xpm-1992-04-01-9201300018-story.html

<Snip>

JERRY BROWN`S FLAT-TAX BOMB
Chicago Tribune
Apr 01, 1992 at 12:00 am
...
So, along with term limits and a $100 cap on campaign contributions, he preaches replacing Washington`s ''crooked fundraising tax machine'' with a tax system so elegantly simple that returns would fit on a postcard. He calls it a ''silver bullet'' that would ''fight corruption and jump-start the economy.''

Like many of the former California governor`s ideas, this one has some merit. But also like many of them, it is poorly conceived and vaguely presented.

Should the flat tax be taken seriously, or can it be written off as another grenade tossed by the contentious Democratic presidential candidate to stir things up? In this case, it`s the latter.

Brown would scrap the current tax system, including Social Security taxes, and replace it with a flat 13 percent income tax. He would eliminate personal exemptions and most deductions, including the one for state and local taxes. He would allow continued deductions for mortgage interest and charitable contributions and introduce a new one for rent payments.

He would replace the corporate income tax with a 13 percent value-added tax, similar to a national sales tax, on all goods and services. Investments in new factories and equipment wouldn`t be taxed.

Compared with today's 4,000-page tax code and complicated return forms, Brown's system would be simple and easy to understand. It would save billions of dollars in paperwork and send thousands of tax accountants and lobbyists looking for work. Its biggest value, however, would be to capture income that now disappears through loopholes and to increase incentives to work, save and invest.

But even serious proponents of a flat tax system concede that it immediately reduces taxes on the top wage earners and raises them on poor and middle-class families. Critics say Brown's plan would be *harshly regressive, cutting taxes for the richest one percent of Americans nearly in half, while more than trebling them on the poorest 20 percent.

In 1983, Robert Hall and Alvin Rabudhka, Stanford economists, wrote a detailed proposal for a 19 percent flat tax. To make their plan fair, they exempted the first $16,000 so the poorest families would pay no tax.

Brown borrowed some of their ideas, but he elected not to exempt any earnings and the to pile on the value-added tax, which makes his scheme very regressive. It would drive up taxes and consumer prices, hitting lower-oncome families especially hard.

 

The way I'm leaning on it is to do something like this to partially replace the income tax, specifically to eliminate the income tax for roughly middle class and lower incomes while keeping it on higher incomes, capital gains, corporations, etc. And then maybe simplify the income tax as well. But the main thing would be to eliminate the income tax where people can hardly afford to pay it without creating such a large sales tax or VAT that those people gain nothing or even end up worse off. That would also leave the question of whether the sales tax/VAT should be deductible from the income tax, of course, or whether the well-to-do are essentially taxed doubly. And then there is the issue of staples, of course, which are not subject to sales tax in my state, at least, and should not be subject to any federal sales tax either. Of course, this does also make a lot of people almost totally exempt from paying federal taxes, which could be an interesting discussion in itself, though everyone does buy non-essentials, so it would not be absolute.

Beyond that, we must ask ourselves what problem this tax reform is trying to solve? If it is to simplify taxes, there are other approaches. If it is to rebalance who shares how much of the overall tax burden, that is likewise solvable in other ways.

 

As they say, “If you want less of something, tax it”!
We consume to survive!

 

Thinking the higher income brackets only buy 'essential foods' is not realistic. Same with clothing, travel, vehicles, entertainment, housing and all that goes with it.

Having a 'single' level income tax percentage is once again, damaging to the low/no income group, who likely don't have deductions such as mortgage interest, or medical expense since they would likely be on assistance programs.

 

This, possibly, is the best concise summation of the FairTax I have ever read. Three gold stars to you, sir!

 

Not exactly. My understanding is, a car is "new" until it has been titled for the first time, regardless of how many miles a dealer may put on it. The original title holder pays the tax. That will generally not be a poor person, as they rarely purchase new vehicles.

 

Its well documented economic fact that the weathly invest proportionally more of their surplus income than the poor. This is because they have bigger surpluses! The rich will buy expensive cloths, eat out more and drive a better car etc but the vast majority also save and therefore invest more. Its fact.

You are also correct about a single tier income tax system potentially being unfair on the less well off but it depends on what the rate us, what deductions are allowed for lower income earners and most importantly where you set the caps on total deductions.

If you make it relatively easy for lower paid workers to reach their deduction limit it shouldn't be a problem. The reason I like the idea is that it let's the wealthy claim legitimate deductions of any type that is relevant to their source of income but it still caps how much they can claim. So the tendency of the wealthy to use elaborate tax minimization structures becomes irrelevant if those structures mean they will breach the cap. And tax minimization schemes cost money to establish and run.

 

Thank you sir. I have been following it since it's inception, or shortly afterwards, and I believe it to be the best system so for. I think resistance is due to either those with power fearing losing it, because they can no longer slip in tax increases in areas more hidden, or simply because people are afraid of change, no matter how much they call for it.

Oh and @DEFinning I'll get to your posts later, when I have time to be at my laptop for a decent length. You deserve more than quick answers from my phone.

 

So what value to do investments bring to the general public? While there is a great deal of manipulation in stock markets, investment in a company can provide capital that includes expansion, research and innovation. Without it, society would stall, and die. Investments also fund 401's, the retirement vehicle of many of the middle class.

I am wholly against the idea that the 'wealthy' should be the majority support for the rest of society. While there was a time of noblesse oblige, that concept shows a dependence factor on the funnel-through in the government. Exactly what percent of what is taken from A, is spent in direct support of X?

 

Sure the wealthy would love a flat tax if it is based solely on income. They do pay 15% on capital gains when they sell stock. The rich get richer because they hoard their wealth instead of spending it so should they be taxed on their savings?

 

I, too, have been following the FairTax since its very beginning. I'm a huge proponent. The reason, I think, that we will likely never see it enacted is because, as you say, the tax code gives government great power over individual people and businesses. It is the most powerful (and terrifying) tool the feds have to "reach out and touch" individual taxpayers, and they do so arbitrarily and with impunity. I have personal experience with this.

When was the last time we saw the feds pass any legislation that took away their own power?

 

It doesn't matter. They can work around it. No one in their right mind will buy a new car if the sales tax it 30%, so the dealers will find a way to sell new cars as used.

I don't recall saying anything about taxes based on savings.

 

What you're missing, perhaps, is that the car will be less expensive, before tax. Since there are no taxes assessed during the manufacturing process, the cost of manufacture will be less. In essence, instead of accruing embedded taxes all along the manufacturing process for each component, thereby driving up the cost, all the tax is tacked at the end. The end result is that the retail price+tax is about the same.

 

Why would they not tax the parts / components? They would be taxed at a high rate, which would drive up the price of the product.

 

Tax is only charged at the point of sale for the finished product, as I understand it.

The amount of tax that is currently embedded in products you buy is significant. FairTax does away with that.

 

Of course parts would be taxed and then the car itself would be taxes as well.

 

Could always do a blend.

Cut income tax by half(purely an arbitrary number for my purposes here) and eliminate altogether for those making less than, say, $35,000 a year(another arbitrary number). Enact a sales tax of 10-12% or something. The rich still pay some income tax, but it's less than it used to be. The poor don't get hit with a huge consumption tax that outsizes their income levels.

 

No, I don't think so. When I get back to my desk, I'll elaborate further. Tax is only paid by the consumer, not manufacturers. Tax is not paid, even, by the dealership. The FairTax is a consumption tax. It is paid by consumers.

 

Per the proposed plan, the parts taxes are those sold retail. After market parts. Wholesale B2B sales are not taxed.

 

Boortz had a book I think

 

Thank you. It was a passion of mine back in the day, and if it is as on the rise again as it's starting to look, it will probably be again.

I had, to a point. Not to the level of expert, but knowledgeable. I still have both of Boortz's books on the topic somewhere (buried among all the other books from where we moved.)

You are correct. The thing to remember is that businesses don't really pay taxes. Consumers do, as it is tacked on to the cost of the product or service all along the line. Do you really think that a business is going to let that after tax number drop? And for them it's no big deal because all of the businesses will increase prices, so they can just blame it on overall prices, and not taxes. Now keep in mind that what a business purchases at retail gets taxed, such as computers for the office, and office supplies and the like. And yes, including many services. And yes, those taxes will probably figure into the overall end price, but comparatively, it's miniscule.

Remember that this would be for all businesses, not just corporations. Further most corporations are actually the small business corporation types, to help protect the small business owner(s). The whole issue of whether corporations should be "people" or not is quite frankly separate from this issue, which is the method by which the revenue for the country is procured.

That's always been an issue. First with people trying to say that it won't work because of this or that which is not part of the plan, but which they claim will be a change. One, it points out that they can't argue against what was presented so they have to change the argument. But it also points out that we as constituents needs to keep our representatives from changing things.

IIRC, that particular proposal was a thrown against the wall see what sticks plan with no intention to really follow through. There were later flat tax plans proposed that were better thought out. The concept is good in and of itself, but we already have had a couple of resets of the income tax code, and then it quickly went back to complicated as Congress made exemption after exemption again. It's one of the reasons that the Fair Tax is better, because it proposes no exemptions in and of itself, save through the prebate, and it proposes to do all things across the board.

 

Many things in life already have a sales tax, so if lower income people consume taxable goods, they are contributing.

 

If it could be done without putting burden on the lowest income level and reduce the burden on the IRS at the same time, it may be a viable option.
However, it will be a massive campaign to get the average Joe to understand it and accept it.
At the end of the day, that sales tax will need to generate as much as the income tax does today.