Posted on 09/28/2005 12:14:25 PM PDT by hripka
A change in a tax affects that area of the economy . . . and beyond. Taxes hurt whatever is taxed. Income taxes hurt income (production). Sales taxes hurt sales (consumption). Higher rates have higher effects.
After having read "The FairTax Book: Saying Goodbye to the Income Tax and the IRS" by Neal Boortz and Congressman John Linder, I realized that the 'FairTax' proposed by Boortz and Linder would change EVERYTHING. The 'FairTax' is not tax reform, it is tax upheaval. Since it taxes consumption instead of income, consumption WILL fall, and incomes WILL rise. All of the incentives (and penalties) enacted into the current tax code would, at least be neutralized, or perhaps go into reverse.
A frugal person might be in favor of a 'FairTax' (National Retail Sales Tax, NRST) because the United States is consuming too much and needs more income. Considering our multiple deficits, (federal budget, international trade, consumer debt, etc.) cutting consumption and increasing income might not be a bad thing, but only to a point. However, the 'FairTaxers' assume minimal transition costs. They are VERY mistaken. The day of the change itself would be minor, but then the 'FairTax' would change EVERYTHING.
A list (in no particular order) put together by an amateur, not a tax professional:
List of those who would benefit under the 'FairTax' plan:
1. Business/production in general
2. All income-producing activities that were previously taxed, dividend payers, capital gains, etc.
3. Savers. Thrift and frugality will now be rewarded.
4. Activities that were formerly penalized: Alternative minimum tax payers, estate tax payers, gift tax payers, etc.
5. Corporate bonds, as compared to government bonds
6. Cash and bartering transactions
7. eBay for handling used transactions, also flea markets, second-hand stores, rummage/garage sales
8. Current owners of houses, cars, clothes, household goods. The answer on pg. 162-163 ignores existing houses. It states that *new* houses will decline in price, but go right back up again due to the 'FairTax'. And existing houses?
9. Companies will start a Company Store for tax-free employee benefits
10. Home-based activities: sewing, knitting, cooking, fruit and vegetable gardening at home, home repair, do-it-yourself, self reliance
11. Refurbishing of standing 'used' real estate
12. Smuggling, especially of portable high-value goods
13. Warren Buffett, who doesn't sell due to capital gains taxes which are now eliminated
14. Indian tribes could offer tax-free stores, and their casinos aren't affected
and others ? ?
List of those who would be hurt under the 'FairTax' plan:
1. Consumers/spenders in general
2. All retail establishments
2a. less impacted: those catering to home-based activities such as groceries, home improvement, etc.
2b. Internet-based retailers
2c. most impacted: portable high-value goods such as stamp, coin, jewelry dealers which might even close due to smuggling
3. Federal Government temporarily, due to initial tax simplification
4. IRS employees, tax accountants and lobbyists, HR Block, Intuit, etc.
5. Government bonds, (no longer tax-advantaged) as compared to corporate bonds
6. Roth IRA account holders (despite pg. 120-121 that a principle of the 'FairTax' that everything should be taxed only once)
7. Charitable donations to charities and churches, due to loss of tax deductible giving
8. All currently tax-exempt organizations, their comparative advantage is reduced.
9. Home real estate in general due to loss of tax deductible interest, a major selling point.
10. New real estate developments - especially near cities with old housing
11. Residents of states that don't currently have a sales tax, those states will enact their own sales tax
12. Taxpayers living in states or cities with high income or high property taxes, which are no longer deductible
13. Anything currently tax-advantaged through credits and deductions, i.e. conservation efforts, high medical bills, victims of casualty and theft losses, child and adoption tax credits, capital losses, etc.
14. Tax-advantaged 401k's, no reason to have them ? though savings in general will increase
15. China, Japan, etc., countries that currently export to us
16. All non-Indian casinos and lotteries. Casinos have to pay in effect a 23% income tax on gross profits (gross receipts minus payoffs and other taxes)!? My reading of Section 702(e).
and others ? ?
Remember, this is a list put together by an amateur, not a tax professional. Are there others affected, positively or negatively? Where am I wrong? Read my tagline.
A tax hurts what is taxed. That is how I came up with this list.
I agree that the FairTaxers have no way to make this happen, but if salaries don't fall, then most of the embedded taxes aren't removed, and costs can't drop, so prices can't drop, so when a 30% tax is added to the top of the prices everything made domestically will cost 15-25% more.
Now if your paycheck is 25% larger, you could say no big deal. But this would shaft everyone on a fixed income or with savings. So this is a non-starter.
With the FairTax there are two options: #1) all prices go up and takehome wages go up, or #2) all prices stay the same (with the 30% FairTax included) and takehome wages stay the same (a cut in gross wages).
#1 is impossible because everyone with fixed income and savings is screwed.
#2 is impossible because people won't accept a cut in gross wages now that they've been promised a Free Lunch (in the form of 100% paychecks and no change in prices).
So, where does that leave us?
Oh I see. So instead of responding to the facts I presented you, you respond to someone else by making false accusations against me. You have the making a fine fairtax advocate.
Your all over the board in that post..
Yeah 30% vs. todays 33%.... in cost savings.... Oh I know you don't want me to add that dam Income tax into it even though everyone has to pay it..... That might ruin your 30% argument.
$600 savings is what it cost your small business....
What do you think it cost big business? I would imagine a little more than $600.00
Most retirees will pay no where close to 20% tax on the money from their retirement accounts. And the majority of wealth is held in after-tax savings, both financial instruments like stocks and bonds, tangible possessions, ROTH IRAs and real estate. In most cases there is no further tax due on the principal for the bulk of retirees savings.
As a percentage of sales, probably not a lot more. Certainly less than 1%.
I am not the one all over the board. Your posts makes no sense. We are collecting the same amount of taxes my son.
http://www.gopinsight.com/2005/02/greenspan-testifies-before-committee.php
From the link:
"Dr. Dale Jorgenson, former chairman of Harvard University's economics department, forecast a 10.5 percent GDP growth in the first year after enactment with decreases each year thereafter, leveling off at a rate that is slightly higher than under a continuation of the current system."
So this thing works by applying a tax on items consumed? I came to that conclusion from economics and accounting classes. When an expense is added to an item or commodity the price of the item goes up accordingly.
Oh I get it, this is one of those magic taxes where the companies will pay the difference, we won't see it as consumers. Just like the consumers don't see the costs of taxes we have now?
And if you don't see the problem as spending what country are you living in? All you are doing is saying to a junkie: Hey we will switch you from heroine to cocaine and the problem will be solved!
Only if you include the Forbes 500. The average mom and pop have their money in QUALIFIED accounts and will receive a huge benefit under the fair tax.
This study assumes that wages and prices will fall by about the same amount. Do you buy that part of the testimony?
All those unemployed tax accountants and lawyers?
Of course percentages are the only thing that matters. Home Depot spands more money on Toilet Paper and Hand Soap than most small businesses make in total revenue. It is only as a percentage of sales that any business expense makes sense. Not that I'd expect you to understand that though.
I never said what part of the study I buy or don't buy. I just know that the part you buy is that wages must decline for prices to decline. So do you also buy the 10% GDP?
If the FairTaxers would agree on which of these plans they are pushing we could do some studies and try to figure it all out. But as long as the plan is the "keep the whole paycheck, and everything costs the same as it does now" as it is described in the Boortz book, there is nothing to discuss.
The employer still has to pay the employee his full salary, which includes $1.3 Trillion of Jorgenson's embedded taxes.
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