The Progressive Democrats' Sales Tax

Running In Circles ^ | August 16, 2006 | John Bambenek

[pigdog]

I consider myself to be fairly liberal on most issues. So some of you might be surprised that I am about to take a position that’s usually the providence of hardcore conservatives. I support HR25—the Fair Tax Act of 2005.

Yeah. The one that would replace virtually the entire tax system with a 23% sales tax.

I read about it most recently in an unnecessarily hostile editorial by Matthew Holmes. Truth be told, his article did nothing to convince me that the tax is a good thing. But it convinced me to wade through the full text of the legislation, and I’ve decided that not only is the Fair Tax Act justifiable, it is the ideal legislation for progressive Democrats. I’ll explain why.

[pigdog]

Some of the liberal Democrats are beginning to see the benefits of HR25

[pigdog]

Soon we'll begin to see labor union members read up and see how it benefits them, I'd think.

[avacado]

When the Moonbats begin to like something you know it's a "dog with fleas!"

[chrismich2610]

Sounds too good to be true!

[pigdog]

Hard to say who the "moonbat" might be, here, since this Democrat (unlike you) recognizes that the FairTax is not a "regressive tax" as you've continually claimed - and you've been repeatedly shown to be wrong.

Even when you gave actual numeric examples you dreamed up, they were both shown to be wrong.

[pigdog]

Could you be a little more explicit in your remark? I'm not sure what you mean.

[chrismich2610]

When you live in a state like Pa.you never see tax money come back to the working class guy.

[BamaAndy]

23% is awfully high.

[pigdog]

But that's exactly what happens with the FairTax - you get your full check without all the Federal income or payroll tax withholding. In addition, prices will decrease after the income tax is removed so that even when you buy taxable things under the FairTax (and not everything is taxed) your purchasing power is increased and the effective tax rate (what you actually pay over a year) is lower. We've done a number of comparative examples of purchasing power at a given income level under the income tax and the FairTax and in almost every case the taxpayer's purchasing power is increased undet the FairTax. If you'd like to get some idea how this works, here's the FairTax website.

There's lots of helpful information there on many, many different topics. Check the FAQs and Rebuttals for example.

And here's HR25 itself.

[chrismich2610]

I`m sure in theory it sounds great,in practice in a blue state I don`t see it working.

[RobFromGa]

It's actually 29.87% when described like a normal sales tax. If an item is $10.00, then the tax will be $2.99 for a total of $12.99. Since $2.99 is 23% of $12.99, they call it a 23% tax. AND this tax unlike most sales taxes will be on almost everything, goods and services. Including mortgage loans (partial).

In reality, the rate will need to be considerably higher than even the 29.87% because the government is required to pay the FairTax which means the cost of government will rise significantly. (And state and local governments have to pay the 29.87% tax on everything they purchase AND all their salaries and benefits paid ot employees other than those involved in education).

And the rate will also go up because they have assumed that a huge tax in the 30%-50% range will not have an effect on sales at retail. Of course some people will buy used items instead of new to escape the tax, others will not make the purchase at all, others will barter goods and services rather than purchase at retail, some will buy outside the country, and others will go to the underground black market. All of these things will reduce the tax collected, and require the rate to be increased in order to feed the beast.

Plus they create the largest entitlement program yet conceived at the same time, where EVERY SINGLE AMERICAN family will receive a government check each month to pay the expected taxes on basic existence level spending, whether they actually pay any FairTaxes or not. This money to pay these "prebates" is added on top of the cost of todays bloated government, giving us yet another huge entitlement that will be manipulated for votes by our elected officials.

You are right to think 23% is too high, but the truth as described above is much worse even that that.

[Badray]

BTTT

[RobFromGa]

A National Luxury Tax

This proposal isn’t like that. The secret lies in Title II, Sections 301-303, a provision called the “family consumption allowance.” These provisions allow families to purchase necessities without paying taxes on them. (“Family” means “1 or more family members sharing a common residence”).

This exemption does something interesting: it means that the government would only get taxes from the sales of nonessentials—things that the impoverished, by definition, don’t buy. By allowing essential products to be purchased without the tax, it turns the “national sales tax” into something more like a “national luxury tax”.

In other words, people who spend most of their money on things like food, clothing, and medicine end up paying almost none of the tax burden, while people who spend a greater percentage of their income on luxuries pay a greater percentage of the tax burden. People who don’t have very much money almost uniformly fall into the former group, while people with lots of money almost uniformly fall into the latter group. People with more money shoulder more of the tax burden—it’s as progressive as is gets.

The above from the blog article which this thread is about is almost totally wrong. The huge retail sales tax is on almost all goods and services-- food, medicine and clothing are certainly taxed.

I am amazed that this is the level that the FairTaxers have had to fall to in order to drum up new signs of excitement for their DOA tax. Apparently, they don't even read the articles before they post them as long as they appear to be pro-FairTax, regardless of whether the article author has any idea what they are talking about.

[pigdog]

You're right ... 23% IS too high ... and you will never pay that.

When you look into it and find out the effective FairTax rate most people will actually pay, it is much, much lower that the 23% tax inclusive or 29.87% tax exclusive figure which is the marginal rate - and no taxpayer will ever pay that over the usual yearly tax period that is used.

Keep in mind that there are some powerful forces that do not wish to see you get your full paycheck and have control over how (and for what - or if) it is spent.

One example of a comparison of purchasing power between the present income tax and the FairTax follows using the current CBO all households effective income tax rates, the current FairTax prebate rates, and the 9% drop in prices due to the removal of the income tax that FairTax opponents have stipulated to. For a family of M2K (married, 2 kids) and making assumptions favorable only to the income tax (mentioned later), we find:

With an income of $50,000, the effective income tax rate is 12.06% ($6,030 in tax) leaving $43,970 in purchasing power. This means that if you buy a "$100 baseball bat" you actually have to earn $114 to buy it.

Under the FairTax the same $50,000 of income would have an effective FairTax rate of 10.86% ($5,428 in tax) and a purchasing power of $48.980. But before going further, let's remind you that all assumptions made so far favor the income tax (and aren't actually possible in the real world).

For the income tax we assumed the value of the thing purchased is not reduced by the income tax costs embedded in the price of the thing you buy. With that in the picture, your purchasing power drops to $40,013 due to artificially inflated prices and your "$100 baseball bat" now requires you to earn $129 with an effective tax rate of 22.41% ($9,987 in tax).

For the FairTax there are many things that every taxpayer will spend money for that reduce his taxable income such as state/local taxes, educational tuition, mortgage and other debt payments, church/charity contributions, gifts, savings and investments, etc. If the taxpayer uses, say $10,000 for all of these purposes, his effective tax rate drops to 7.82% (A TX OF $3,128) AND HIS "$100 baseball bat" declines to $91 plus tax or a bit under $99.

So you see that the efforts of FairTax opponents in trying to make everyone believe that they will pay every cent for taxable things at the highest possible marginal rate is the worst sort of propaganda and is patently not true. You've seen an actual example using published figures that can be duplicated using simple arithmetic.

The FairTax rate of "23%" (and some opponents even try using "30%") is greatly misleading. You're right ... 23% IS too high ... and you will never pay that. Most taxpayers' effective rate will be something more like that in the example.

[Man50D]

Another intelligent counterpoint in post #3 that addresses the author of the article point by point.

[balrog666]

23% is awfully high.

BWAAAAAAAAAAAAAAAHAHAHAHAHAHA!

The "FairTax" is more like 30%!

[pigdog]

The poster in #11 is someone who is a wholehearted fan of the income tax and struggles to retain it by attacking the FairTax with any sort of misleading information he can come up with (such as that in his posts #11 and #13 which are exactly the type of posts the lead in article was referring to).

You will find this poster does nothing but quote his own fanciful ideas of rates, etc. with no factual basis. The numerical example I've just given is from valid published data and can be duplicated (even by this poster if he were open minded since one of his colleagues did so and also came up with the fact that purchasing power increased under the FairTax.

[RobFromGa]

Have you read the article? The author does not understand the FairTax.

[pigdog]

Nope nothing at all like "30%" - and the reason why is clearly illustrated in #14. Misstating something like that does not make it true and even a casual reading of the bill itself and/or the AFFT website linked to in #9 will show this.

[irishtenor]

Read the book. It explains it all. We are already paying about 22% in hidden taxes. These will go away with the new tax. So we end up paying about 1% more.