For the self-employed, the $125K gross DOES include a 15.3% SS/M tax. Sorry if that wasn't clear.So now this is a self-employeed, single, 55-year-old making $125,000. This example is getting less and less typical with each reply.
If you want to get more detailed, I'd have to exclude my mortgage and property taxes from the spending subject to FairTax -- so only $53K of the spending is subject to FairTax instead of the full $70K.The portion of mortgage interest representing the cost of financial intermediation services is taxable under the FairTax. (As is your "free" checking account and other financial services.)
My example may not be typical but there are plenty of people like me. Eskimo's statement was "anybody over 50 with savings" should fear the double-taxation effect of the FairTax. Clearly, there are lots of people that don't need to fear the double-taxation effect at all.In your post with the example you quoted eskimo as saying "damned near everyone over 50 who has saved anything will get screwed." You showed an example where someone at the extreme margin would show limited gains under certain circumstances (factor in a reasonable amount pre-tax savings and even your extreme example shows the person worse off under the FairTax) with the FairTax. You have failed to show that "damned near everyone over 50 who has saved anything [wouldn't] get screwed."
[I can play that game. Let's suppose a person retiring tomorrow with $2,000,000 in after-tax savings. Do you think they'd be better off with the FairTax?]
I've already said closer than 4 years to retirement starts to see a problem. That is a far cry from "anybody over 50".
[Try your example without the 401(k) (or, even better, factor it into the outcome) and see how your numbers turn out.]
The 401k grows rax-free under both PIT and FairTax for ten years. At the end of 10 years it is worth $600K. It provides the same $4,200 per month income for 25 years. Together with the A-T savings income and my pension and SS benefits:
PIT:
A-T income stream: $2,800
401k income stream: $4,200
Pension: $1,800
SS: $2,200
Total: $11,000 per month $132,000 per year ($80K taxable income)
Income Tax: $1,500 per month $18,000 per year
Purchasing power: $9,500 per month
FairTax:
A-T income stream: $5,400
401k income stream: $4,200
Pension: $1,800
SS: $2,000
FCA: $200
Total: $13,200 per month $158,400 per year
Income Tax: $0
FairTax paid: $2,700 per month
Mortgage + PropTax: $1,400 per month $17,000 per year
FairTaxable purchases: $9,100
Purchasing power: $10,500 per month
So the FairTax is only going to allow me an extra $1,000 per month in purchasing power. That's not a lot, but I'm sure I'll find a use for it.
[The portion of mortgage interest representing the cost of financial intermediation services is taxable under the FairTax. ]
So my mortgage interest rate falls from 6% to 4.5% due to the removal of the income taxes the bank must pay, my mortgage interest falls from $12K to $9K, and then I pay FairTax on the financial intermediation portion which is about $1200 (30% of $4,000) and my net outlay falls from $12K to $10.2K.
Thanks for clarifying. That's another $2K per year I can add to my savings.
[You showed an example where someone at the extreme margin would show limited gains ...]
You think my numbers are at the extreme margin ? I had no idea I was so well-off -- considering I still can't afford better than a townhouse in SoCal. And you consider a 50% improvement in purchasing power on the A-T savings to be "limited gains" ? It sounds like a significant gain to me.