Are you in favor of the FairTax?

[Bayou Bum]

The FairTax bill would abolish all federal income taxes, death taxes, capital gains taxes, and payroll taxes and replace them with a national retail sales tax. Are you in favor of congress eliminating these other taxes and passing a national retail sales tax?

[keith]

well I am a fan of progressive tax systems - which means status quo.

Anyhow the problem with the fair tax is quite simple; no one is going to get rid of the mortgage tax deduction or the charitable deduction.

So the only way to claim your refund on these is to keep every receipt for the sales tax and then claim back - way simpler than it is now

[esskreemr]

If you are in favor of completely crushing th U.S. economy, abolishing all taxes except for a National Retail Sales Tax would be a good way to start. This would actually give people a reason to save and not spend. That would be bad news for retailers.

[Philistine]

For those who don't know--The Fair Tax Bill (from a site in favor of it):

The Fair Tax Bill repeals all federal personal income taxes, corporate income taxes, payroll taxes, self-employment taxes, capital-gains taxes, gift taxes, and estate taxes. In place of the repealed taxes would simply be a 23% national retail sales tax on all retail sales of new goods and services. Let us explore some of the issues surrounding the Fair Tax Bill.

The Fair Tax Bill suggests a single rate of 23% that would be applied to all new consumer goods and services at the final point of consumption, regardless of the taxpayer's income. The more goods and services that the taxpayer purchases, the more taxes paid. Used items and business-to-business purchases for the production of goods and services would not be taxed. Money saved, invested, spent on education, given to charity, financing research, and developing jobs would be tax-free. Consumption would be taxed not income.

The Fair Tax Bill accounts for low-income households as well. There are no tax consequences for the amount of spending up to the poverty level under the Fair Tax Bill. At the beginning of each month, each household would receive a rebate in tax consequences of spending up to the poverty line. Therefore, someone spending at or below the poverty level would not have a national retail sales tax burden.

If the Fair Tax Bill passes, prices are projected to drop 20 - 30% because taxes currently embedded in the prices would — in theory — be removed, with savings passed on to the consumer. Capital gains and income from stocks, bonds, and other investments would be tax-free under the Fair Tax Bill. IRA withdrawals would not be taxed which would be very beneficial to those who made deductible IRA contributions or who made pre-tax contributions to retirement plans. However, after-tax contributions to Roth IRAs and Traditional IRAs converted to Roth IRAs would not experience any benefit nor any harm from the Fair Tax Bill. Taxes will have already been paid and regardless of whether the Fair Tax Bill passes or not, Roth IRA withdrawals are tax-free.

Although the Fair Tax Bill calls for eliminating the payroll taxes that fund Social Security and Medicare, the benefits would not change in any way. Under the Bill, the benefits would be funded by the 23% national retail sales tax applied to retail sales. Another bonus is that Social Security would no longer be subject to income taxes.

The Fair Tax Bill would reduce tax evasion. For example, a drug dealer who avoids taxes with the current system could not avoid taxes under the Fair Tax Bill if he or she were to purchase any goods or services.

The 23% Fair Tax would apply to new homes, but not to homes currently owned. Currently owned homes are considered used items and therefore are not taxed. Since new homes are subject to the 23% sales tax, the market value of homes currently owned would increase in order to measure up to the pricing and taxation of new homes.

Education becomes more affordable under the Fair Tax Bill. Saving for school expenses can be done tax-free and tuition expenses are paid for with pre-tax dollars. Also, government schools are fully tax-exempt. Lastly, under the current tax system, if you work hard and earn more income you end up in higher tax brackets. Our income taxes do not encourage our hardest workers and brightest minds to work longer. The Fair Tax Bill encourages working and saving by taxing consumption rather than income.

Interesting concept.

Raises a lot of questions in my mind. Some people will do better, some will do worse, I'm sure.

--Philistine

[keith]

"If the Fair Tax Bill passes, prices are projected to drop 20 - 30% because taxes currently embedded in the prices would — in theory — be removed, with savings passed on to the consumer."

so it is meant to be revenue neutral, yes? If so then the price drop implies an inefficiency penalty of 20-30% in the current tax system. hmmmmmmmmmmmm, bollocks me thinks.

For anyone actually interested in what happens when you roll old hidden taxes into an open sales tax system then the australian GST is a good example - the states got rid of various taxes in exchange for a flat national sales tax of which they would get a slice.

Guess what - prices pretty much just went up.

[Bayou Bum]

I think the fairtax is something that we will be hearing more of. The movement seems to really be picking up steam. Even Greenspan supports it (for what thats worth). I've never considered him to be the all knowing economic genius some people do.

[keith]

the sales tax (which is what the fair tax actually is) will pick up no end of steam until people sit down and look at the details.

For example do you trust your employer to pass on all the reduction in their portion of the payroll taxes to you?

[telkanuru]

Can somone from across the pond explain the difference between this and VAT? It sounds vaguely similar...

It would seem like this would place the burden unfairly on the lower class consumer, much like the 'flat tax' idea that is/was going around.

Also, I object to the name. Calling something the "fair tax" unnecessarily biases the debate before it begins. If you don't like it, are you against fairness? Similar issues revolve around the "Death Tax" (Uber-rich people inherit slightly less money tax) and the term "pro-life" (anti-abortion; most people who are not pro-life have already committed suicide/murder/both). Accursed sound-byte media...

[keith]

Originally Posted by telkanuru

Can somone from across the pond explain the difference between this and VAT? It sounds vaguely similar...

Its exactly the same thing, with the exception that it replaces all other taxes something VAT in the UK or the GST in australia doesn't do.

In the UK VAT is 17.5% in Oz GST is 10% (and there are all the other taxes) but in both cases there are exemptions on food, books, childrens clothing and some others I think. A revenue neutral flat rate of 23% to replace all taxes thus looks a little hopeful (to put it politely) even if it is on everything.

[lochinvar]

Where's the option for "none of the above"?

I favor a flat percentage tax with realistic deductions/exemptions.

[keith]

Originally Posted by lochinvar

I favor a flat percentage tax with realistic deductions/exemptions.

now this is either brilliant humour or, well I'll be polite

[lochinvar]

Your derision does not touch me, sirrah.

[keith]

Originally Posted by lochinvar

Your derision does not touch me, sirrah.

well sorry but "flat tax with exemptions" might strike some as drifting close to the reefs of oxymoronity


how about a flat tax of 35% with rebates for those on lower incomes?

[Gav]

Originally Posted by keith

well sorry but "flat tax with exemptions" might strike some as drifting close to the reefs of oxymoronity


how about a flat tax of 35% with rebates for those on lower incomes?

And there is the reason why this fair tax isn't.

Seems like a good idea if you are rich, bad idea if you aren't (or even averagely wealthy).

[Bayou Bum]

The Fair Tax Bill accounts for low-income households as well. There are no tax consequences for the amount of spending up to the poverty level under the Fair Tax Bill. At the beginning of each month, each household would receive a rebate in tax consequences of spending up to the poverty line. Therefore, someone spending at or below the poverty level would not have a national retail sales tax burden.

Actually the Fair Tax Bill is a progressive tax in that everyone would receive a monthly check equal to the sales tax on basic living expenses. Low income people would continue to pay no taxes. People with retirement income but little expenses would also pay no taxes. The losers are the extremely wealthy who are high consumers but pay very little income taxes under the current system because of all the tax shelters, trusts, etc.

[Inquartata]

I'm of the same mind as telk: the name alone is enough to make me clap a hand to my wallet. Politicians certainly do adore the art of euphemism-as-camouflage.

[jeff]

I'm agreeing with Inq again. This could be a trend, egad!

[Gav]

I'm going to jump on the bandwagon and agree with Inq'. What next? Me voting Tory? (not bloody likely)

[lochinvar]

Originally Posted by keith

well sorry but "flat tax with exemptions" might strike some as drifting close to the reefs of oxymoronity


how about a flat tax of 35% with rebates for those on lower incomes?

And THAT strikes me as the same effect by a different means--and an inefficient one, at that...

Why send the money to the government just so they can send it back? You know that the amount of the money returned is reduced by the number of hands it passes through--some of it sticks to each palm.

Why not just leave it in the pocket of the taxpayer via the exemptions?

[lochinvar]

Originally Posted by Bayou Bum

Actually the Fair Tax Bill is a progressive tax in that everyone would receive a monthly check equal to the sales tax on basic living expenses.

Sounds to me like the formula for another massive government bureaucracy, to calculate and cut checks for every person in the US.

Plus the requirement that the government then also has to keep track of everyone's spending--another huge bureaucracy. Or are we sending this check to everyone regardless of whether they buy anything or not? Does "everyone" include minor children? Doesn't that unfairly subsidize large families at the expense of small ones or single persons?

A complete can of worms, better left unopened.

The losers are the extremely wealthy who are high consumers but pay very little income taxes under the current system because of all the tax shelters, trusts, etc.

People conveniently forget that the tax shelters and deductions were set up as a deliberate mechanism for effecting social good without actually subsidizing things by the government.

Examples:

The mortgage deduction is intended to encourage home ownership, which the government deems to be in the best interests of the nation but doesn't want to get involved in directly.

Charitable deductions are intended to encourage giving to charities, an activity that the government deems to be in the best interests of the nation but doesn't want to get involved in directly.

And so on.

The rich may be saving on taxes because of deductions, shelters, and the like but it's because they channel their money into places where the government wants money to go but doesn't want to give it directly.