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 ...
On my 1040 last year, my adjusted gross income was $127,594, my total tax was 21,075 (16.5% effective tax rate); your presumed tax on 100K (25%) was off by a deceptively huge amount (gee, who would have guessed). Even the deceptively quoted 23% FairTax sales tax rate is considerably above the typical effective income tax rate for a middle class single guy.
There is not such thing as a "tax free settlement annuity" that I know of so I know not of what you speak.
As for as your deductions. Think about it. IF there is anything that makes me madder I don't know what it is. The idea of deductions and tax credits gives power to Washington to effect our behaviour. Our behaviour, thank-you very much, is much better than the corrupt bastards in the Beltway.
Then use your "effective" tax rate and do the calculations. The FairTax calculator has been available on this thread for you to work with. Try it.
You act as if you are going to tell the person at closing what your effective rate is and they are going to add that. Wrong. They add the full FairTax rate and later on (if you care to) you can calculate what your effective rate was for any given time period. Surely you understand something this simple.
You seem to have no comprehension of what 1+0 equals. In addition to that is the time frame being considered which is, in the sense we're discussing it, a year or less. We're not considering the effect spread over a decade or so but even if we were your claim would still not hold up since the indexing of the payments is precisely to allow the same purchasing power.
This is clear from the paper's statement that "... it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. ..." meaning that indeed the adjusted rate indexing is for that purpose. The entire paper is developed around real spending, not nominal.
Further the paper clearly sets out:
"In this paper, we focus on real revenue/real spending neutrality."
the entire paper and the derivations are developed around the real spending - not nominal. One reason it does this is so that there is no need to focus on the price level but the real rather than nominal spending/revenue levels.
So despite your belief the values are indeed real values made so by any required indexing and their real value is not changed.
They indeed get their full $26,400 worth of purchases.
I think that I have a generally good understanding of how the FairTax would impact my particular circumstance - and I think it would be very costly to me in terms of what I could trade my actual $'s for in the above ground economy should the "FairTax" be enacted. And it would be costly to many others who are similarly situated.
Any change in tax policy will have winners and losers - I believe that the government ought to compensate the losers and charge the winners when proposing a bill for a significant change. Why not, that would be "Fair" would it not? And consistent with the spirit of the original Constitution. Why should the federal government essentially take my property without due compensation, when such is prohibited by the Constitution?
The same kind of complaint is raised by land owners who face increasing regulation of land use imposed by the Federal government, without due compensation. Bill by arbitrary bill encouraged by other private activists, usually donating buckets of money, bends the legislature to impair use of another citizen's land, and ultimately, its market value, without compensation. It is wrong, and unconstitutional.
Sure, spitting in the wind, notably in light of Kelo, but right.
Its annoying to be sure, but there is no way for government to function and not effect behavior. If the FairTax is structured to encourage investment and saving, isn't that an attempt to effect behavior?
It is really too bad that you feel so controlled by government. With such an attitude, I doubt there would be any country on earth where you could experience freedom.
Well you certainly don't. Once again (ad nauseum) because you can't understand the simple concept of money supply and purchasing power.
NOW
I make 100,000 dollars I keep 75,000 dollars.
Under the NRST
I make 100,000 dollars I keep it all. The amount I can spend is only 75,000 dollars because I will pay a 23% (or 30%) tax rate.
The difference is nothing. What I have under the NRST is the ability to save, buy used, purchase (and pay taxes) when I wish and nobody tells me what is tax advantaged and what is not. I don't have to subsidize some big donor's environmentally friendly toilet anymore --- EVER.
The only person who can be uncomfortable with that scenario is he who is entrenched in the current tax situation. And that person is among thousands. Think about it, thousands of people are lining up to grease congress's hand for tax favors. The current system, which you not only adore, but drool over, is exactly that. It favors those who will donate for its privileges.
No way around it, the current system (which you have stated repeatedly that you prefer) is the most unfair, systematically reprehensible, impossible to understand and disgustingly favorable to moneyed interests tax system ever devised by the devil.
Been through this very same thing with you before so it surprising you raise it again. They indeed get their full $26,400 worth of purchases.So what's the $6,072 in "prebate" for?
"There is no such thing as an effective rate in practice"
Untrue - there most certainly is an effective tax rate and it is typically much less than your effective income tax rate. On a home purchase the tax would probably paid incrementantly as are many types of mortgages expenses presently, but I'll let Principled speak to you about that as he's more familiar with commercial practices in that area.
On most normal day to day purchases such as a new suit, perhaps (at $700) your would PAY the FairTax marginal rate of $161 at the register, but your actual COST would be the price of the suit itself ($539) plus your effective tax rate which will vary with each taxpayer. We've shown for the mid-quintile guy earning $51,900 at an effective income tax rate of 12.5% that his effective FairTax rate would be something like 7.82% making the suit actually cost him $539 + $46 = $585. In effect Uncle would be handing you the money at the cash register to reduce the cost from the amount you paid.
You didn't even address the point that I asked the question about. Principled claims that when he buys the $300,000 he only pays his effective 15% FairTax rate on the purchase. I called BS on that.
Do you think that anyone will pay an effective FT rate of 15% on a $300,000 house? FairTax rates are calculated, they are not what is paid. It is ridiculous to insinuate that you will only "pay" 15%, when of course you will pay the full rate.
Surely you understand something this simple.
You just establish an arbitrary beginning rate, then lower it periodically until revenue to the Treasury actually falls.
That would be the optimum rate, as it would be under the current tax code.
But we can't rely on politicians to do that.
Although there is no need for it to begin with, the same thing could be done with the minimum wage. Just establish one, then index it to inflation.
This would take the political football out of the game, and we could then cause our politicians to focus (maybe) on more serious and consequential things (or further enslave us with things like Twinkie taxes, as the case may be).
not in terms of the rubber-ruler units you propose.LOL!
Do you really wish to waste everyone's time going around on this again (and again, etc.)?
Well, I am in receipt of such. And personal injury awards are not taxed - they are considered compensation for loss. Income loss is taxed.
As for as your deductions. Think about it. IF there is anything that makes me madder I don't know what it is.
Come on, if a business couldn't deduct its cost of doing business, it could not be in business.
Why shouldn't I be able to deduct costs of holding an investment from the return on such investment? It only makes sense. Or deduct the cost of improvement of a capital asset when figuring capital gain?
I should be able to claim a depreciation adjustment as I age! After all, companies can depreciate their capital assets as they (theoretically) become less useful - when my brain cells die as I age, I ought to be able to claim a depreciation on the wasting of said asset.
The government recognizes some personal handicaps as depreciable properties of individuals, why not other impaired features, looks, vitality, teeth, hair, etc. It makes me madder than hell that they don't! LOL
Well, yes, the FairTax does tell you that saving, investing, and buying used are all tax advantaged.
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