FairTax Act-Is it a viable solution?

I have to bump this. A tour de force

 

Why should tax burdens be distributed when benefits are not? The rich get far more out of the government and out of society than the poor do. Welfare isn't even close to equal to the corporate supports and wealthfare the government provides to the rich.

Moreover, the fair tax isn't equal distribution of the tax burden, it's a regressive tax burden, because the rich spend a smaller portion of their income than the poor. The poor get to pay 30% on all of their income above poverty level, while the rich only have to pay it on the 20 or 30 percent of their income they spend on actual goods. The prebate doesn't really solve this problem, it just shifts the highest burden off the destitute and onto the slightly more well off working poor. The only way this might be countered is with a progressive wealth tax, but there's no chance that would ever get passed along with the unfair tax.

There's really no reason to favor a fair tax over a simple progressive income tax; all of the arguments for tax reform the fair taxers make would apply just as well to a simple progressive income tax. It's not like it's inherently difficult to calculate a person's tax rate under a progressive tax schedule. You could fit that on one side of one sheet of paper if we didn't offer deductions and credits.

It's foolish to think that we wouldn't need enforcement agencies for a fair tax (because it's unconstitutional and illegal to force the costs of federal tax collection onto state agencies), or that people wouldn't push through exemptions and prebates for the fair tax like they do for income taxes. It's not like the income tax system began as a huge book, that grew over time, and it's likely that such growth would happen with a consumption tax too.

No, I don't think it's a viable replacement. Sales taxes are quite regressive by their very nature, and subject to wild shifts in consumer spending habits that make budgeting a nightmare. It's not even ideologically sensible, since all you're doing with a consumption tax is taxing other people's income.

 

Are you in favour of the end of capitalism then?

 

Obviously you've never read the full proposal.

I will grant, that the average middle class person with kids will possibly pay a little more. The skinflint super rich person (aka Warren Buffett who lives in a modest two story house) will make out like gangbusters. The airhead type high spending rich person, however, will be providing us with a lot more tax money. However, it would boost our ability to sell goods outside the country (loss of embedded taxes) and would increase the price of imports relative to American made products. The Fair Tax would be a major luxury tax, with luxuries meaning any spending above that of poverty level subsistence. It would hit the drug dealers and tax dodgers hard. Read about it before posting.

www.fairtax.org

 

I do agree.

The middle class would be soaked. The rich would figure out a way around it, as usual.

 

How? The tax on Poverty level income would be rebated to all. That, with the reduction in prices from the reduction of embedded tax will make it neutral or beneficial to those close to poverty level. The rich will choose the amount of tax they wish to spend, based on the amount of resources they consume. In addition, there would be no payroll taxes at all (including Medicare, Social Security, etc.). For the poor, this is would be a major gain of income.

And the fair tax does that. It taxes those who live high off the hog more than those who live simply.

 

I dislike the FairTax for one reason: it is a Value Added Tax rather than a Retail Sales Tax, which means that it will end up affecting rent, food, and other basics that poor people spend most of their income on.

If we were talking about a Retail Sales Tax, then yes, I'd support it 110%.

To clarify: we need to be reinvesting in our own country, not investing in China's by buying their crap. Repealing the income tax would give people more money to invest in things like education (thereby eliminating the perceived need for government subsidies for it) or the construction of new factories, whereas a sales tax would reduce conspicuous consumption, keeping capital inside the country.

 

You'd need a bleedin big sales tax to achieve that!

Generally speaking, I find the conspicuous consumption stuff just a little awkward. Those employing the concept will often embed it within more general analysis that also questions the background to supply and demand (e.g. its not just a damaging demand shift, but also preferences alien to utility maximisation). Fair enough, but then tax effects can't be understood with the standard models

 

You obviously haven't read the fair tax legislation.

www.fairtax.org

There is a rebate for the amount of taxes if a family living in poverty level spent all of their money on taxable goods/services. They would be essentially paying no taxes.

A value added tax is a tax on every level of transaction. That is how it differs from a sales tax. This would be a sales tax on any consumer transaction. For example, with a value added tax, if a farmer sells his crop to a middleman, the profit is taxed. Then when the middleman sells to a store, it is again taxed. Then when the store sells it to a person, it is again taxed.

 

[/QUOTE] A value added tax is a tax on every level of transaction. That is how it differs from a sales tax. This would be a sales tax on any consumer transaction. For example, with a value added tax, if a farmer sells his crop to a middleman, the profit is taxed. Then when the middleman sells to a store, it is again taxed. Then when the store sells it to a person, it is again taxed.[/QUOTE]

And both a sales tax collected at the retail cash register and a VAT collected at each stage of production collect exactly the same amount of revenue at the same rate. In fact, a VAT might collect a greater amount due to lower evasion because of the self policing nature of the collection process. Check it out!

 

Actually, I believe it would reduce all consumption. That would motivate the government to increase the tax rate and the increase would further reduce consumption.

This sort of thing can occur with income tax as well. How many companies have left California to seek lower taxes? Do you remember in the 1960's when the wealthy Swedes were leaving Sweden to escape 70% income tax rates?

The problem isn't revenue. The problem is government spending. Get the government under control and the methods for funding it won't matter as much.

 

I think they are talking about 20% to 25%. I think that would do it.

 

The Fairtax as described in HR25 is certainly not viable! (1) Federal taxation of state and Local government operations is unconstitutional. (2) The Fairtax throws seniors under the bus by forcing them to resume paying for their SS retirement benefits with their sales tax dollars, and double taxing their after tax wealth when spent. (3) The Fairtax prebate is in fact a $600 billion annual cash grant entitlement, coming at a time when entitlements are squeezing out discretionary spending in the federal budget. (4) The prebate would create a group of millions of workers who would pay no net federal tax. (5) Contrary to Fairtax claims, Sec. 801, HR25 lays on a huge implicit service tax on all interest bearing debt and investment instruments. (6) The Fairtax would destroy the new housing market. Federal taxes have no collateral value, so buyers would have to come up with not only the 20% down payment but also the 30% federal sales tax. (7) All 50 Governors, through the National Governors Association, are opposed to any kind of national sales tax. Repeal of the 16th Amendment would be very difficult. ( The Fairtax proposes to implement the plan overnight or "cold turkey". despite the fact that no other country has ever successfully funded their central government with a broad based sales tax. (9) Often misunderstood is the fact that retail prices will rise 17% on average, assuming we all get 100% of our pay/pensions. There is no free lunch!

HR25 is not viable as written. A far simpler plan would be to replace just the income tax with a revenue neutral 9.5% VAT with no exemptions, no taxation of government consumption, a targeted "prebate" at 10% of the cost of the Fairtax prebate, no inventory tax credits, and phased in over five years or so.

 

Dumb dumb dumb. A 9.5% VAT would not replace government revenues. Consumption taxes are worse than income taxes.

 

The only thing dumb here is that a self professed "guru" named Someone can't read. The 9.5% sales tax replaces only the income tax. All other federal taxes are left in place. Simple way to get rid of the hated IRS and the income tax.

 

Oh, perfect, then the rich will pay almost nothing at all. Seriously, the income tax is the only nominally progressive tax in the US. Everything else is already regressive.

Only to be replaced by the Internal Business Revenue Management Service, which is just as large and invasive.

Getting rid of an income tax and replacing it with something regressive like a VAT or retail sales tax is not a good idea. We need more progressive taxation, not less.

Note: The "guru" thing isn't self-professed, it just means I've posted a lot.

 

A sincere "thank you" for bringing me to my senses! I have spent years writing and speaking against the Fairtax scheme, and agree with you that the progressive income tax should be simplified but not replaced by a sales tax.

My initial response was directed at the question of Fairtax viability. My 9.5% plan was an example of how to simplify the Fairtax plan, but I do not support either. Only in the event the nation seems to be on the way to a national consumption tax of some sort would I support such a suggestion. And if I have to choose, I prefer a VAT over a national sales tax. Less chance of evasion due to the self policing nature of the collection process.

How do you respond to the criticism that half of Americans pay no income tax? Is that fair? I realize that all workers contribute to FICA, but shouldn't everyone pay something to fund the federal government? Just asking.

Thanks again! D3

 

To expect people who have the means to make the payments? Absolutely. The more money you make, the more you're getting from society, and the more you ought to pay. If you're barely making ends meet with $20,000 a year, society isn't really doing very much for you, and you don't really have anything to spare to make the payment anyway.

At some point, taxing the poor just means the government's going to have to pay more in welfare. When the IRS is effectively stealing food of a child's dinner plate, the government's wasting its time and money trying to collect, because they're just going to have to hand that person a larger welfare check to account for it.

 

Any tax structure that simplifies the process is cost effective as even if it nets less the cost of administration is reduced due to the simplification and therefore allows for use of those funds else where! Sure maybe 10,000 irs auditors may have to get regular cpa jobs in the competitive market and may be it would only save a few million , but a million here a million there can add up to billions!

It's just like the road tax system where trucks pay more road tax cause they use and abuse it more so should we who use it pay according to usage , and don't think I haven't thought about that one I live 10 miles from everything so yes I would pay more but I use it more! Sometimes you just got to bear the pain ,buck up and take responsibility and in the end you are usually a better person for it!

 

Yes it is fair. Why should people who do not benefit from government spending pay taxes? Government spending creates one huge positive externality, it makes land more productive and increases the economic rent of land.

So if government spends tax payers money to build a new road, does the minimum wage increase…NO! What does increase? Only the value of land. Those who own land near the road will see their earning potential go up, sometimes drastically. It is a fact of economics that where government spending creates positive economic outcomes, the financial benefits of that spending will be pocketed by landowners…that is a FACT.

So why should a minimum wage worker pay taxes so that a landowners earnings can increase? Paying those taxes certainly isn’t going to lead to him getting a raise in pay. Since the landowner is receiving the economic benefits (increased earning potential), why shouldn’t the landowner pay? You can read more about it here: http://en.wikipedia.org/wiki/Land_value_tax

There are certainly other privileges issued by government which disrupt competition and shovel massive amounts of money into undeserving hands, but the primary beneficiaries of government spending are landowners.

 

O.K., Geofree, I'll go along with your Land Tax position as long as you agree that only land owners can vote! Isn't that fair?

 

No, it creates numerous positive externalities. You've focused on one aspect in order to maintain the land tax exaggeration

 

Interestingly, this is kind of a silly question. For example, why would I ever consider changing tax codes unless it directly benefits ME? If all of us can only consider tax changes as to how they directly effect each of us, then it's impossible to achieve anything different than what we have today. What idiot would actually encourage tax changes that will increase their tax payments?

The current tax system extracts more from those who earn more and less or nothing from those who earn less. The only way this can possibly be considered a problem, is if people wish to extract even more from OTHERS. Obama politics of dividing the nation by talking about the 'poor' and the 'wealthier' is nothing but political grandstanding and class-warfare. It does nothing to solve any identifiable and important problem.

For all of those who believe more taxes should be extracted from OTHERS, this is just a sign of pure greed and self-serving behavior with a dose of jealousy...