Posted on 10/19/2006 5:11:50 PM PDT by pigdog
As specified in Congressional bill H.R. 25/S. 25, the FairTax is a proposal to replace the federal personal income tax, corporate income tax, payroll (FICA) tax, capital gains, alternative minimum, self-employment, and estate and gifts taxes with a single-rate federal retail sales tax. The FairTax also provides a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no taxes net on spending up to the poverty level.
Bill Gale (2005) and the President’s Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23% rate. This study, which builds on Gale’s (2005) analysis, shows that a 23% rate is eminently feasible and suggests why Gale and the Tax Panel reached the opposite conclusion.
This paper begins by projecting the FairTax’s 2007 tax base net of its rebate. Next it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. It then determines if an effective rate of 23% would be sufficient to fund 2007 estimated spending or if not, the amount by which non-Social Security federal expenditures would need to be reduced. Finally, it shows that the FairTax imposes no additional real fiscal burdens on state and local government, notwithstanding the requirement that such governments pay the FairTax when they purchase goods and services.
(Excerpt) Read more at people.bu.edu ...
They also advertise it is better for everyone except those that work illegally now. Using their calculations the average middle income taxpayer would see his tax burden more than cut in half, and this is the middle income guy. And they don't see that as a red flag that there is something terribly wrong with their assumptions.
The main problem with their math is that they are assuming the 29.87% sales tax is revenue neutral. Since government has to pay the tax on its salaries, benefits and all non-education purchases, the revenue generated is not purchasing power neutral. This alone brings the sales tax rate up to 40%+ when expressed as a normal sales tax.
When you then take into account the reaction of the buying public to a 40%+ sales tax, the taxable base is likely to contract, in a number of ways: people buy used, people fix what they have, people just do without, people buy on black market, people barter, people buy through their business exemptions,...
Just a 15% drop in the taxable base due to the above would have the Fair Tax rate to 50% when expressed as a normal sales tax. Buy a $100 item, pay $150.
Look at the 8% price drop that I and others have estimated that could be possible by eliminating the employer half of FICA, and corporate tax on profits, and compliance costs--that 8% price drop if realized would contract the taxable base by making the same # of units sold cost up to 8% less.
Does the FairTax calculator say what your tax rate will be if you get laid off, perhaps because a taxpayer revolt has put your employer on the skids, and have to borrow money on your house to get by until you find another job? Not only do you have to pay the 30% tax on the bread and butter put on the table, but also the portion of the interest and loan service that is taxable. The decent into FairTax hell begins.
That bring up an interesting point about 'the effective fair tax rate'. If I am a retiree with very little income, but lots of savings, my 'effective fair tax rate' could easily be 3000%! The fairtax calculator assumes I can only spend what I make, not what I save. Another fraud of the fairytax calculator.
the calculator may be full of errors, but the concept is still good.
Yes, I may have a 6000 tax bill on the car, but unlike income tax, if I do not buy a new car, I don't have to pay the tax anyway. I'm not dumb enough to think the government won't get the same amount of revenue, just distribute the way it is accumulated more fairly.
There is no penalty for saving money - you don't pay tax on it until you spend it.
Everyone pays tax at approximately the same rate, not putting > 50% of the tax burden on the top 3 % of income earners
You get your full paycheck, and then you get to see what the government actually takes from you - no frog in the water syndrome with withholding. I actually know people who overwithold so they "get money back from the government!" HELLO, THIS IS YOUR MONEY IN THE FIRST PLACE
No taxes to file in April, less tax accountants, much less need for IRS employees, the benefits just go on and on.
LEt's see. We want to change the system but working within it is reason for you to criticize. Lunacy.
If you want to support fair tax for legitimate reasons, that is great. There are many positive aspects of the plan. Personally, I am in the home building business, and I think a 30% tax on new homes will destroy the new home industry. I also don't like the idea that it is a tax on my accumulated wealth that I already paid taxes on. If someone wants to make an honest case for the fairtax, that's fine with me. But when they put out propaganda like the fairtax calculator or many of their other exaggerations, I will call them on it.
What happened to your post last night? It seems to have disappeared.
Don't know. I guess I got dinged. Sorry if I offended anyone.
I respect that you aknowledged that. We all can get caught up and cross the line sometimes.
It yields a valid figure that at least one of the "antis" tried to characterize as not being believeable (thinking it was too low) simply because his own idea of an effective tax rate was 23% tax inclusive - which no one will ever have under the FairTax. When you are fixated on opposing a plan like the FairTax, you can't admit that it might help you.
But by all means, use it and get a very close idea of the effective rate you'd have - most taxpayers have no idea. What throws most people is that they hear the demagoguery that "... everything will cost 30% more ..." (or 50% per one Georgia Boy) which simply ignores the many things untaxed under the FairTax and which reduce your taxable income. For example things such as:
1) Mortgage payments (p&i both).
2) Other loans and credit cards (p&i also).
3) State and local taxes including property taxes.
4) Educational tuition payments.
5) The entire amount of savings/investments.
6) Money contributed to church/charity organizations.
7) Money given as gifts to others or political contributions..
8) Used items such as real estate, cars, furniture, etc.
on which tax has already been paid. All these reductions in your taxable income make a sizable difference in most cases from your present effective income tax rate.
I actually think it may be neutral for the home building industry.
Although the tax would add a large bite to the selling cost, people will also be able to qualify with their full income. THe lack of tax withholding will add thousands of dollars to the monthly take home pay of most families.
I have not dissected all the points of the plan, so I do not propose to be an expert, but the home industry would have to be protected in some way as it is the backbone of our economy.
As for taxing dollars we have already been taxed on, that happens all the time under the current system as well. The government will get its bite no matter waht, but at least the taxes can be fair, not "progressive", and up front. I think everyone should get their full income and have to write a check for the taxes, so they can see exactly what they are giving to the government
"That bring up an interesting point about 'the effective fair tax [sic] rate'. If I am a retiree with very little income, but lots of savings, my 'effective fair tax rate' could easily be 3000%! The fairtax [sic] calculator assumes I can only spend what I make, not what I save. Another fraud of the fairytax calculator."
You're mistaken once again, Always Right. the calculator makes no such assumption. If there's a problem relating to that it's with the "nut that holds the wheel" - not the calculator.
As to your questionable "example", that's merely more hype as such a percentage could only happen with considerable difficulty and only if your "retiree with very little income but lots of savings" had such big-spending habits he deserves to pay the tax on that consumption. If his "very little income" were, say $5,000 per year, your inflated hype would have him spending $150,000 per year. He'd be foolish, indeed to do that - and that's even ignoring the prebate he'd receive. But, hey, it's his money and the FairTax gives all the freedom to blow what they have if it pleases them.
He'd do much better following the path that most would take which would be to invest his savings and spend some part of those receipts together with his other "very little income" since it's all tax free income and build his "savings" even more. He could certainly do quite well that way. You also undoubtedly haven't considered the effects of his normal spending in reducing his effective FairTax rate either. All in all, not too convincing.
To answer your question, that's not up to the calculator but the one using it.
Also, interest isn't taxable under the FairTax.
Since when is interest not taxed under the fairtax? It is taxed, just by some convulated method. And the principle of the house is very much taxed, so it is misleading to suggest it is not.
2) Other loans and credit cards (p&i also).
Interest is taxed, so that is untrue. Most credit cards are several times greater than any index rate set by the government.
3) State and local taxes including property taxes.
State and local taxes are taxed, just not directly. Under the fairtax, States and local governments now would have to pay 30% sales tax? Does the state print that money or do they collect it from taxpayers?
4) Educational tuition payments.
That's true.
5) The entire amount of savings/investments.
But money you already saved and paid taxes on, you will be taxed on again when you spend it. The fairytax calculator assumes you have not saved any money in the past.
6) Money contributed to church/charity organizations.
Unlike the current system, there is no tax benefit to being a church or charity organization under the fairtax. They will be taxed on their expeditures. You will have to give more to do the same.
7) Money given as gifts to others or political contributions..
Gifts are treated better under the fairtax.
8) Used items such as real estate, cars, furniture, etc.
For used items, they do fair better under the fairtax. But there are problems with most of the other points.
Really, where then can I input the amount of money from savings I spend each year? The fairytax calculator does not allow for such input.
Fair Tax entitlement seekers probably haven't.
It's interesting that you try to spin the AFFT effort as something sinister since it will actually help you and most others and the country as well. Apparently you believe that the status quo is "wonderful". Why don't you defend it???
OK, the 3000% effective fairtax rate might be a bit unlikely unless he was rich or had virtually no income. For a modest income of $5000, a 300% effective fair tax rate for a retiree is quite probably.
VERY conservative, I'm sure.
His effective tax rate might also be 0% - or even negative but you don't seem to realize that ... or wish to admit it.
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.