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.
John, I take strong exception.
As a newly retired, I expect to take a net loss on my SS contributions. I got higher return on the remaining portion of my savings I was able to invest on my own. That money is just wasted as far as I am concerned.
I didn't ask for free drugs. I've had experience with 'free' drugs under my former employer's health plan. Believe me, I'd rather do it myself. It's cheaper and a lot less hassle. TANSTAAFL.
And to your third point, I think any kind of absolutely no exceptions flat tax, either consumption or production is fairer and more efficient in the economic definition of that word. It would be much better for the country in the long run. I favor that. It just grinds my gears to have to pay 'greedy' politicians coming and going. We've worked, saved, and made plans under one set of rules. They can change them again. They'll come up with another cool theory some day. Some day you may find that you can't adapt so easily anymore. God bless you.
But anyone who saved money before after paying taxes on it, will be HURT because the same money will be taxed again when it is useed for consumption.
You are correct. I meant that "Thrift and frugality will now not be penalized". Its not they will be giving rewards for saving :)
If we don't "go back to that again" then FairTax proponents will continue to misrepresent the Plan.
The obvious truth is that either take-home pay and prices will stay the same, or they will both go up.
What will not happen is that takehome pay goes up and prices stay the same.
The Plan conitnues to be sold as a something for nothing plan by proponents and I will keep "going there" as long as they continue to make the false statements.
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.
It seems that it would vastly increase the bureaucracy. 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.
One of the purposes of such a sales tax seems to be to recover the income people "sheltered" for retirement, and make the pay their fair tax burden now.
Then you are giving for the selfish reasons.
Unfortunately for Puerto Rico, not anymore. The Commonwealth's Legislature voted to repeal those tax cuts and the economy is tanking big time. Manufacturers, (HP, Sensormatic, Avon, Hanes, Bluebell, PPG, Converse, Hush Puppy, BVD, to name a few), are closing shop fast. Last I heard, the unemployment rate is around or above 20%.
You can always count on politicians to pick the worst, of the available choices.
Best Regards
Sergio
Excuse me, but this is crap. My salary is negotiated with my employer, not some politician. Or are you assuming that the money I am currently paying to SS, Mediscare, and income tax will somehow just evaporate and I never get to see it?
Stop with the propaganda telling people that not only will they have to pay a 23% sales tax, they will get shafted out of THEIR money that is currently being paid to the government.
"Most small business people spend a small percentage of their time and money for filling out corporate tax forms. Almost every single small business owner I have talked with doesn't want to see a major change like this made which endangers the entire economy and everything they have built in the likley case that the FairTax proponents are wrong in their rosy assumptions.
They continue to lie about the plan, so I have no confidence in their statements."
Rob, when these small business owners come to you to have their taxes done, I am sure they are concerned with how they pay taxes and how much they pay. You keep telling them that they can't live without your services.
I have a lot of respect for folks that frequent this site and debate issues in the best interest of our country. Calling people liars diminishes your credability. A liar is someone who "knows" what they are saying is misleading. I don't see that too often on this cite. What would be the motivation for folks to intentionally mislead people about replacing a tax plan. If you think there are folks trying to sell books here, then you should note that proceeds are supposedly being donated to charity. Do not be mean and nasty. And do not be angry.
By calling people liars, you sound like a democrat. No you don't want people to think you are a democrat do you?
No. Remember, I am still giving $1000. Its just that the income tax deduction reduces my cost of giving.
My whole point in writing the winner/loser list is that different tax systems have different incentives/penalties. And all of those incentives/penalties change if the 'FairTax' goes through.
I am shocked that more holes/discrepencies haven't yet been found in my list. The day still has a ways to go. I'll check back later.
sure. it is a good post and I don't want to take away from that.
but it won't be until tomorrow.
but I will be back.
FairTax ping
Oh and Bingo! You nailed it on the head...
The only people not telling the truth is you Rob...
It is crap, but that is the crap the fairtax expert assumed when he made all the glowing predictions fairtaxers constantly quote. When you hear all these great things the fairtax does for you, remember that is according to their model which says you take a cut in pay. Not realistic, but their model and you must understand the assumptions when listening to the results.
Based on what you wrote, then there is always hope. Thanks at least for offering me your views.
The only way they become "losers" is if there is a consumption tax. Precisely and exactly why there will be no consumption tax. Compared with one who doesn't save and expects to live off of social security, they are indeed winners.
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