Posted on 02/11/2006 8:54:52 AM PST by Eaglewatcher
Recent letters have expressed concern that the poor or middle class might be harmed by adoption of the FairTax (www.FairTax.org) based on a deep misunderstanding of both the FairTax and the current system. We cannot assess the effects of the FairTax without comparing it to the reality of our current income and payroll tax system.
One cannot buy a loaf of bread without paying the income taxes of the baker. The price of that loaf of bread contains the cost of the flour, and the income of the baker, but it also contains the taxes the baker pays. After all, the baker does not have a money tree from which to pluck dollars to pay his taxes, he must get those funds from his customers, like any other business.
Further, the price of that loaf of bread contains the taxes of the miller, the farmer, the trucker and the grocer and those of all their employees. Those income and payroll taxes cascade through the production process and eventually make up more of the cost of that loaf of bread than the profits of any of those who worked to produce that bread.
Those many layers of taxes on productive work make up the embedded tax component of the price of bread or any other goods or services we buy. On average, that embedded tax component is 22.4 percent of the price of everything we buy, from a loaf of bread to brain surgery. So, the true tax burden on the working poor is 28.4 percent, (their FICA tax of 7.65 plus plus 22.4 percent of their remaining take-home pay, which goes to pay the embedded taxes hidden in the price of everything they buy).
Even if the poor paid the entire 23 percent FairTax, they would be better off than now, but they don't. The FairTax provides a rebate of all tax paid on spending up to the federal poverty line to everybody. This cancels out all taxes for those living at or below the poverty line, $25,660 a year for a married couple and two children.
For the same family earning twice the poverty line ($51,320), half their taxes are rebated, yielding an effective rate of 11.5 percent. And even at triple the poverty level, $76,980, their effective rate is only 15.3 percent, still far better than the 28.4 percent the poorest of the poor pay now.
So, who loses? The idle rich, illegal aliens, criminals, "off-book" workers and others who escape the current system through evasion or legal loopholes. Tax lawyers and lobbyists who make their livings from the complexity of the current system will also come up short. Foreign goods sold in the U.S. will no longer get a free ride while production of American-made goods and services bear the whole tax burden.
But those of us who work for a living, or who get by on a fixed income, will be far better off.
Tabor, of Chesapeake, is co-state director for FairTax.org in Virginia.
can you explain how the idle rich will pay more?
I still haven't heard a satisfactory explanation of how the value of post-tax savings won't be diminished, when it becomes subject to a tax that REPLACES a tax it already paid.
It is pure fairy tax fantasy that everyone is going to make out better because of the fairy tax because illegal aliens and criminals are gonna pick up the slack.
But how many times have you been pointed to the fair tax web site?
If you spend more you pay more.
The fair tax is an outstanding way to collect taxes. If you buy you pay, if you save you do not, if you make the decision to not save that is your problem.
I said I haven't heard a satisfactory explanation, not that I wasn't pointed to resources.
In other words, the resources I have explored have not provided a satisfactory explanation.
I believe that can be addressed by a moderate phase in/out but yes someone who paid income taxes for 50 years and saved a million dollars and wants to blow his entire wad the year after FairTax comes into fruition would lose economically. He'd also be a fool. The proper economic response to this tax for a person who has enormous savings is to pour the money back into the economy and extract it from the investment whenever it is needed.
Perhaps it is, but I hate the phoney analysis that goes along with the hype. I hate when they sell the plan as everyone gets more money and prices come down. It's just smoke and mirrors as they count taxes one time as being in the price of goods, and then they also count them as being taken out of your pay. This double counting taxes is how they arrive at the ridiculous analysis. They are taking the same amount of money out of the economy. There is no windfall. Sell the plan honestly.
It's magic!
The example doesn't have to be as stark nor as exagerated as you suggest.
I'm not talking about a million or more dollars. The buying power of each previously post-tax dollar will be dimished. $ 10,000 of post-tax dollars won't buy $10,000 worth of stuff, since it will be subject to the second federal government tax bite that the earner already paid.
$10,000 in newly earned money is worth more than $ 10,000 in savings, because the feds already took the first bite out of the $10,000 and now look to take a second bite. That's a deficiency that freshly earned $ 10,000 under the new system doesn't have.
I know. I was just pointing out when there is no good answer, they always point you to the propanda on their web site. There is no satisfactory answer. Prices will go up with the added tax, and your savings won't be able to buy what it used to. The only way around it is if they somehow can force employees to take a paycut in the amount of taxes they currently pay. That is the only possible way that prices would come down. Otherwise this plan is highly inflationary.
Well, there is a windfall - to the filthy rich and to the the multi-million dollar inheritance slackers and ne'er do wells. I mean - the snotty little heirs will tell you they EARNED that money, darn it, and no one can take it from them!
I am pure capitalist - Keep whatever you kill. Save taxes by eliminating welfare - including welfare for all the little Casper Milquetoasts who were born on third base and thought they hit a triple. Let them start out in the marketplace competeing for the good things in life on the same footing as me and every other suffering b@st@rd.
No work - no money.
Don't like it? Atlas shrugs.
More accurately, the BIG SPENDING rich will be hit hard.
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