What is the FairTax?

Economic Freedom Coalition . Org ^ | current | Herman Cain

[Eaglewatcher]

The FairTax (HR 25 in the US House and S 25 in the US Senate) is a federal retail sales tax that replaces the entire federal income and Social Security tax systems, including personal, gift, estate, capital gains, alternative minimum, Social Security/Medicare, self-employment, and corporate taxes. The FairTax allows Americans to keep 100 percent of their paychecks (minus any state income taxes), ends corporate taxes and compliance costs hidden in the retail cost of goods and services, and fully funds the federal government while fulfilling the promise of Social Security and Medicare.

More FairTax benefits:

No tax on used goods. No tax on business inputs. With the FairTax, if you choose to buy any new good or service, the sales tax is charged just as state sales taxes are computed today. If you choose to buy used goods - used car, used home, used appliances - you do not pay the FairTax. If, as a business owner or farmer, you buy something for strictly business purposes (not for personal consumption), you pay no FairTax. So, in deciding what to buy, you get to choose whether or not you pay the FairTax.

No federal sales tax up to the poverty level means progressivity like today's tax system. Furthermore, to ensure that no American pays tax on necessities, the FairTax plan provides a prepaid, monthly rebate for every registered household to cover the consumption tax spent on necessities up to the federal poverty level. This, along with several other features, is how the FairTax completely untaxes the poor, lowers the tax burden on most, while making the overall rate progressive. However, the FairTax is progressive based on lifestyle/spending choices, rather than simply punishing those taxpayers who are successful. Do you see how much freer life is with the FairTax instead of the income tax?

All Americans take home their whole paychecks. Not only do more Americans have jobs, but they also take home 100 percent of their paychecks (except where state income taxes apply). No federal income taxes or payroll taxes are withheld from paychecks, pensions, or Social Security checks. Retail prices no longer hide corporate taxes or their compliance costs, which drive up costs for those who can least afford to pay. Did you know that hidden income taxes and the cost of complying with them currently make up 20 to 30 percent of all retail prices? It's true. According to Dr. Dale Jorgenson of Harvard University, hidden income taxes are passed on to the consumer in the form of higher prices - from 20 to 30 percent higher than they would otherwise be - for everything you buy.

Tax criminals - don't make criminals out of honest taxpayers. Today, the IRS admits to 25 percent non-compliance with the code. However, this does not take into account the criminal/drug/porn economy, which conservative estimates put at one trillion dollars of untaxed activity. The FairTax taxes those engaged in the underground economy capturing their income at the cash register. The substantial decrease in points of compliance - from every wage earner, investor, and retiree, down to only retailers - also allows enforcement to concentrate on following the money to criminal activity, rather than making potential criminals out of every taxpayer struggling to decipher the code.

The income tax exports our jobs, rather than our products. The FairTax brings jobs home. Most importantly, U.S. exports are not burdened by the FairTax, as they are with the current income tax. So the FairTax allows U.S. exports to sell overseas for prices 22 percent lower, on average, than they do now, with similar profit margins. Lower prices sharply increase demand for U.S. exports, thereby increasing job creation in U.S. manufacturing sectors. At home, foreign imports are subject to the same FairTax rate as domestically produced goods. Not only does the FairTax put U.S. products sold here on the same tax footing as foreign imports, but the dramatic lowering of compliance costs in comparison to other countries' value-added taxes also gives U.S. products a definitive pricing advantage which foreign tax systems cannot match.

YOU are in charge! The FairTax moves us from a system that taxes what we earn to a system that taxes what we spend. Under the FairTax, you control your tax liability, not the government. The FairTax puts "we the people" in charge of our money, and puts us all on the path to economic freedom!

To enact the FairTax and unleash the full economic potential of the U.S., we must apply Vocal and Persistent pressure on Congress each week.

Email, call or fax your members of Congress today. Send them this simple message: "Please support replacing the federal income tax code and become a co-sponsor of HR 25 or S 25, the FairTax."

[Shalom Israel]

I want to try something new that I believe will be better, but you persist in holding your breath til things change.

Your proposal cannot possibly change anything, and I told you why in my previous post.

[eskimo]

I want to try something new that I believe will be better, but you persist in holding your breath til things change.

When you desire to experiment with changes that are obviously flawed in the minds of many Americans but benefit you in some way, you have to expect that those offended by your selfishness will object.

[Kellis91789]

Nothing is difficult to understand about it.

What you do not seem to understand is that there are many other areas that will benefit. Both sides must be quantified and compared to see what the NET effect is.

For example, suppose you are 55 years old and planning to work until 65. You have $200K in already-taxed savings, and can afford to add $5K per year under the income tax. Without income and payroll taxes you could afford to add $20K per year.

This is the breakdown of earnings, savings, and spending:
Earnings: $125K

PIT:
Savings (401k): $15K
Savings (A-T): $5K
Fed Income + Payroll Taxes: $35K
Spending: $70K

FairTax:
Savings (401k): $15K
Savings (A-T): $20K
Spending: $70K
FairTax: $20K

When you were 65, assuming a 7% rate of return and 28% Federal Tax bracket, the 401k accounts are equal, but the A-T accounts are very different:

Income Tax would allow A-T savings to grow to only: $390K
Under the FairTax, your A-T savings would have grown to: $670K

Spending that money over a 25 year period would allow for withdrawals:

Under income tax system: $2,800/month
Under the FairTax system: $4,800/month

Since only $3,640 would be needed to buy $2,800 of goods and pay the $840 FairTax, this person with 10 years left to work gains so much by his accelerated savings rate that the FairTax leaves him with MORE purchasing power in retirement. He can spend $3,700 + $1,100FT each month compared to $2,800 he would have had under the income tax -- if he actually owed any income tax on the interest, he'd have even less.

Even if we assume all the gains on his savings was long-term capital gains at a 15% tax rate rather than 28%, those savings would grown to only $422K and allow for only $3,100/month withdrawals.

Note:

I assumed ZERO income tax owed on gains after retirement.
I assumed ZERO price drop under the FairTax.
I assumed FULL 23% rate of FairTax, no FCA benefit counted.

So your original comment "damned near everyone over 50 who has saved anything (will get screwed)" doesn't bear out, does it ? Here is an example of your typical 55 year old middle-income worker that benefits greatly.

[Badray]

Yada, yada, yada.

[Badray]

For reasons that I will not go into, I will be one of those whose tax burden goes up.

If all that mattered to me was money, maybe I'd just continue on the present course. However, I have children and grandchildren that I want to leave a better world and a freer country. The slave tax's demise will help to do just that.

If all that mattered to me was money, I'd still be working 60 or 80 hours a week. I care more about this nation and its liberty than I do about money.

[wgflyer]

"Sure there will be a new tax, but existing taxes go away.
So what is the NET effect ?"

Ok, good question. I guess the simplest way to put it is with a question: Would you rather pay a dollar for an item and keep the current IRS and all of it's hassles and costs, or would you rather pay $1.01 for the item and dump the IRS and all of it's hassles and costs?

The net effect the FairTax is more money in your pocket because you don't pay any income tax and you don't have to deal with the IRS. You don't pay any federal taxes at all (remember, we're talking at the federal level only. State and local taxes are unchanged by the FairTax) You file no 1040. Your capital gains and interest are untouched. No one (except liberals) cares how much you make any more. Then when, and only when, you buy something new, you pay a tax.

There are quite a few people out there raising fears over the amount that the FairTax sales tax would be, but as proposed it is 23 percent. And, under current calculations by those who have researched this extensively, that would be an increase of 1 penny on the dollar on the price of goods after the FairTax is enacted because the embedded costs of tax compliance under the current system fall out of the price you pay now currently.

I'm not an accountant. Don't want to be. I hate with unbridled passion sitting down every year and spending hours working with unintelligible forms demanded by the IRS just so that I can get a portion of the money they stole from me back. I hate it that they take it in the first place and have hated it since my first job in my teens. Under the FairTax they can no longer take anything out of my paycheck, including social security and medicare, and I no longer have to worry about dealing with the IRS, ever. If the FairTax people are correct, the price of things I buy changes little but I have more money available to me to spend. A net gain. Furthermore, there are no tax penalties for early withdrawal on tax deferred savings plans and investments no longer require careful tax considerations. It is win/win.

With a flat tax, we still keep the IRS and all the accounting and legal headaches that come with it. Thus, the embedded IRS costs don't go away. They might get more simple, for a while, but they don't go away and congress can still manipulate individuals through the tax code. You still owe them money just because you made it. The net loss is the embedded tax. Whatever other savings you make by changing to a flat tax, you suffer a net loss in the embedded costs of compliance and you still have to deal with the IRS every year.

Remember, the FairTax is for government purposes, a revenue neutral plan. It is not designed to change what the government takes in. It only changes the way that people pay the government, and greatly relieves the public of the current pains involved with tax compliance. It also greatly frees them to conduct private or public business unencumbered by those extra costs of compliance.

Many FairTax people actually feel that the tax will be lowered after a while because of the surplus brought in by such a free economy. I don't trust government much to do that so I don't count on it. But getting rid of the IRS is worth a lot more to me than just a penny increase in the price of goods.

Sorry to be so long winded.

Eskimo said regarding taxes paid on savings:

"I hope not, it is a serious flaw affecting a large portion of the population. It needs to fixed not argued for."

My answer is that I don't think that there is any way to make savings tax free at some point so long as we pay taxes, period. However, go back to my opening response, to the question I put forth, and think about that. I take the second choice, hands down.

[wgflyer]

I'm curious. Do you have a vested interest in keeping the IRS alive?

[eskimo]

Both sides must be quantified and compared to see what the NET effect is.

Problem is, that can not be done without making more guesses than most rational people would be comfortable with.

[pigdog]

You don't seem to understand that the FairTax eliminates the income tax (and several other taxes), the IRS (and defunds it to boot) and requires destruction of income tax records. It all goes "bye-bye". Zip, zero, nada. gonzo ... got it???

[pigdog]

Nonsense, Finial. You've had it pointed out several times that the prebate is not a "guarantee" of anything, but is a refund of part of the taxes you'll have paid. Just like your April 15 tax refund presently.

[eskimo]

If all that mattered to me was money, maybe I'd just continue on the present course.

I'm too old to care about hoarding wealth. I live simply and probably not very much longer. I am very concerned for my grandchildren and great-grandchildren though. In my opinion, anyone pushing a tax scheme that raises the price of goods by $30 on $100 and does not expect to see a society damaging criminal black market emerge, is not credible on the other guesses as to what will happen.

[pigdog]

Hi, Rightie. I see that you persist in you old, shopworn tactic that anyone in favor of the FairTax is a lian and thief - and has bad breath to boot.

You may actually sucker a few who are uninformed and can't read into falling for that, but for the most part you're losing your battle to protect your little income tax niche.

[pigdog]

Sorry, Finial, it's no dole. It's a refund of some of the taxes you've paid.

[pigdog]

You need to read the bill:

http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:

[GSlob]

My vested interst is in keeping my purchasing power, which I have been saving up for decades, as intact from the likes of you, and your frauds, as possible. IRS does not bother me - for me [due to my invested after-tax savings which you want to tax the second time] Vanguard makes Turbotax free.

[pigdog]

In fact, Rightie, most people will be better off with respect to disposable personal income under the FairTax.

[pigdog]

Almost entirely rong Rightie. Savings are not taxed by the FairTax - consumption spending (or some part of it since not everything is taxed) is taxed. Savings & any earnings thereof remain untaxed.

At present, whenever you buy something using tax or untaxed savings you still get nicked with the taxes embedded in prices since there's no free lunch, poddner!

[pigdog]

You should talk to more people, then, and urge them to investigate what happens with the FairTax by visiting the FairTax website which has a wealth of economic data:

http://www.fairtax.org/research.html

Or get them a copy of The FairTax Book to read. Don't merely let them stick their heads in the sane like an ostrich. Help them learn.

[pigdog]

Then he's as misinformed as you. Help educate him.

[eskimo]

...and I no longer have to worry about dealing with the IRS, ever.

No one I know believes that either.