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.
So we're to leave the old, crumbling, punitive system in place so the (arguably) wealthiest among us can buy golf clubs?Hmm, imagine, so many people managed to get wealthy under a "crumbling, punitive system"
Sorry, they can play with mashies and niblicks as far as I'm concerned. Health care? What old geezer pays for his health care? It is all paid for by medicare. I'm supposed to carry a ball and chain and finance their travel? I'd rather they go suck eggs. Are you getting my drift here?Yea your "drift" is the socialist creed... it's all for the geater good...
The rest, like your heartless (pulled) comments from the hurricane Rita thread says more about you than any tax plan you might be dreaming of...
When he buys a car, the drug dealer effectively pays the income tax of every person who sold the car, transported the car, assembled the car, and made parts for the car. The difference with the fairtax is the tax is shown on the receipt. That is what the 23% of 'embedded taxes' are that fairtaxers talk about.
EXACTLY.
There just has been a shift in the tax PAYER, from me in the income tax, to the drug dealer under the FairTax. And the difference is?
This argument blows a hole into a major part of Chapter 10 in the FairTax book.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
I take it then that you believe that the FairTax will be the LAST tax bill signed by Congress. HaHaHaHa.
We are in the present situation precisely because of Congressional interference. What will change after (or even DURING) the proposed passage of HR25 (FairTax resolution).
Actually that is not correct since a loaf of bread is food. Therefore, the prebate would neutralize it..
My 3rd question in post 1 shows that the 'FairTax' would have to be a minimum of 34% BEFORE the prebate. With the prebate the 'FairTax' rate would have to be much higher. I've seen proposed 'FairTax' rates as high as 49% once the cost of the prebate is included. With sales tax rates that high, I guarantee you that there will be tax evasion beyond any amount that Boortz says happens today. Then the Mob will be making hourly smuggling runs.
Yes, due to the penalties imposed by the 'FairTax' system.
Allow me to repeat the first line I wrote (which hasn't been refuted as far as I've gotten on this thread):
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.
See post 43, my reply to post 26
The first line that I wrote helps me to determine the effects of the 'FairTax':
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.
Boortz glosses over this topic on pg. 169 of his book. I paid a BIG chunk of money in income taxes to convert to a Roth IRA after 1998. Now I am supposed to roll over and pay an additional 23-30% sales tax when I spend it?? (I actually figure the rate to be 34% BEFORE the prebate.) If businesses can have an inventory-on-hand transition rule (pg.120-121) can't Roth IRA owners have an account-on-hand transition rule?
Please see post 227, which I wrote before reading your post.
Yes I do accept that there is somewhere in the neighborhood of 22-23% "embedded taxes" in most goods. But unlike you, I understand what makes up that total, and the majority of those embedded taxes are payroll taxes and income taxes paid now to the IRS on behalf od the employee. This is exactly what Jorgenson said as well.
Some FairTaxers, now accept this obvious fact, and others like you are so full of the KoolAid that they think that the 22-23% can be created from compliance costs, and cascaded corporate taxes. You just don't know what you are talking about and it is clear that you have never managed a business or you would know that your hidden money isn't there.
Something that the "Fair tax" people never bring up. Anyone with savings is going to be screwed out of 23% of those already taxed savings. Those who are either young and just starting our or who are old and shiftless will benefit.
After a 'FairTax':
New home price falls by embedded taxes, then rises with the 'FairTax'. Net effect according to Boortz, the same as today.
Now what about old homes? Does their price fall due to embedded taxes? Why or why not? Tax has already been paid. The price DOESN'T go up due to the 'FairTax'.
My thinking is that the embedded tax amount is too high, the 'FairTax' amount of 23-30% is to low, and that new housing will increase in costs, so old housing will be a better buy.
No thanks, I'm well aware that the Kool-Aid drinkers have made up their minds, and I have no desire to reason with them in an attempt to make them understand.
On FreeRepublic, I have little hope that I will change the minds of anyone who is already convinced of the rightness of their cause-- it is cultlike and reason doesn't play a major part.
I post so that those who have not yet made up their mind and who are trying to understand the FairTax will see there are many questions about the Plan and that it is not the Free Lunch that has been promised in the book.
BTW, you accused my of lying and making up the email exchange with Jorgenson in the first few posts of the Jorgenson thread. You have never asked that post to be deleted even though it is now obvious that I was telling the truth. You should go to that thread and Report Abuse on that post of yours and ask that it be removed.
INITIALLY the consumer's price will go up. But as the income tax savings are realized by first by the consumers (remember your gross is now your take home pay) the manufacturers, then the store owners, the prices will naturally deflate.
Because they support liberals.
Tell you what. You just keep the income tax that you love so much and the rest of us will go to the fair tax.
"It seems that it would vastly increase the bureaucracy."
Let's see ... we would be reducing the complexity of the system by about 99% (as measured by the number of pages in the two systems) and reducing the number of points of collection/enforcement by more than 95%. And you are saying that it would take a drastically incresed bureaucracy to do that?
"Someone or some committee has to decide exactly what is 'new' as opposed to 'used' and how does 'income' differ from 'service.' The current IRS and state tax guidelines could be expanded to do this."
The definition of "new" under the FairTax is "never before taxed". The current IRS and state tax guidelines could not be "expanded", since they would have been repealed.
"1. I am not sure how purchases made abroad by Americans are taxed."
"They owe sales tax on it. Any property you aquire for personal consumption after Dec. 31, 2006 is taxed. Period. Used property which is not taxed is property which has had taxed imposed on it or was aquired for personal use prior to Dec. 31, 2006. Everything else sales tax must be paid, and as the Buyer without a official sales tax receipt from a registered merchant, you would be liable for it and required to submit a monthly statement and remit the tax."
Incorrect. Only items purchased for consumption within the US are taxable. A restaurant meal bought in Brazil, therefore, would not be taxable, nor would groceries that you bought for consumption in your rental cottage. However, the wine that you bring back with you would be taxable.
If there is more money floating around the economy in the pockets of consumer, what hairbrained retailer would deflate prices????? The prices will inflate and stay inflated. There is not one legitimate economic reason prices would come down, unless wages would go down too. This is why the fairtax modellers chose to assume take home pay would stay constant under the fairtax plan, they did not want to deal with the effects of inflation.
"And there are no compliance savings."
Amazing. The GAO just released a report indicating that compliance costs run in excess of a hundred billion dollars per year and the cost of the system's inefficiencies were greater than that.
Care to cite a study that says that compliance costs are zero?
"Please provide a link to Jorgenson's claims of financial bonanza."
Jorgenson's study showed GDP growth of 10.5% the first year after the FairTax is enacted. Other economists have estimated similar results, some a little higher. 10.5% is huge. No one on this thread has lived in a year in US history in which the economy grew by double digits.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.