Taxing Sales under the FairTax – What Rate Works?

Boston University ^ | September 2006 | Laurence J. Kotlikoff et al

[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.

[sausageseller]

Did I post that the IRS would not be abolished? NO!

You need to reread my posts. And stop with the "erroneous statements."

[Bigun]

This is tedious ... and complex.

Indeed it is and purposefully made more so by some it would seem.

Find me an authoritative source that claims that the FairTax will definitively capture transactions from the illegal economy.

As shown by that very statement. No one that I know has EVER said that dollar would be taxed while it remained underground it WOULD however stand a VERY good chance of being taxed when it emerges from underground with the FairTax unlike today where it is NEVER taxed again.

[sausageseller]

The merchant is an individual . States now do a poor job of enforcement and dealing with individuals. Sales tax fraud is massive. Why will you not admit it. Do you think is is just not happening?

[xcamel]

Because you quote polling without indicating what the content of the poll was, nor do you cite any source.

[xcamel]

FT is not tax reform, it's simply exchanging one system for another. Tax reform is spending reform - But you are too deeply invested to understand that.

[Bigun]

There's no difference. Illegal activity is not taxed in either scheme. The dollar is taxed exactly once. There remains a bias to go underground (but the bias shifts from avoiding taxable income to avoiding taxable purchases. No new activity is captured.

Wrong as can be as I have shown in a number of posts to you and others but I have NO DOUBT that you will keep right on posting it regardless.

[Mom MD]

Does this really mean I would get to take home my WHOLE paycheck and decide how much tax I paid by deciding how much to spend or save and invest?
Why hasn't anybody thought of this before?


Because, you can't be trusted with your money. The pols no so much better than you how to spend it.

[Mom MD]

The problem is spending. All Fairtax is about is substituting methadone for heroine for the tax and spend junkies.

But at least everyone pays tax at the same rate. I am so tired of paying for myself and 15 or so of my closest friends. If everyone payed taxes at the rate I do, the tax revolution would start tomorrow.
But wait a minute - I'm stinking rich! I can afford it! /sarc

[Man50D]

Did I post that the IRS would not be abolished? NO!

The statement "Abolishing the IRS is just a slogan to hype the plan" in my post #237 is a quote directly from your post #222! Your statement in post #222 can only be interpreted to mean you don't believe The Fair Tax Act will abolish the IRS! Section 301 I copied into my post #237 refutes your statement.

It's a poor strategy to reply by denying the existence of documented facts. I suggest you try another strategy

[Bigun]

There's no difference. Illegal activity is not taxed in either scheme.

And BTW, I would STRONGLY contend that a good deal of that illegal activity would dry up under the FairTax as there would no longer be an income tax code which literally cries out for one to "Earn illegitimate income! You don't have to pay taxes on it!"

[socialismisinsidious]

You are entitled to your opinion.

Yes and you to yours. And that is all you have provided; your opinions.

Fairtax.org

[Mom MD]

no, but it is very difficult to accumulate when you are in the higher tax brackets. My husband and I are by no means rolling in it, but we just make the top tax bracket. RIght now our marginal tax rate is north of 50%. I recently had to send one of my kids to an expensive school (and college is coming up).
That means every extra dollar I need to help my family, I have to make over $2 dollars just so I can give my "fair share" to the government
I am tired of it, and we are cutting back on our income as much as we can afford. It does not pay to work. Your reward is a higher tax bill and others enjoying the fruit of your labor. And this isn't even April -- don't even talk to me then.
/rant off

[Always Right]

"In your thousands of posts you have never once admitted an error. You always choose the path of lying and spinning to defend your errors."

Both of these sentences are patently untrue.

I stand by those statements and can back them up if you really wish me too. On this thread you lied about who started the personal attacks. You spin it as my criticism of the paper as 'personal attacks', which is just typical of your tactics. On the previous thread alone there are dozens of examples of this too. I just don't get it. When you are obviously wrong about something, all you have to is admit it. Instead you engage in foolish games of denying, spinning, changing the subject, and in many cases telling boldface lies. It's all in black and white, so I have no idea how you can deny it. I am surprised some of your fellow fairtax supporters don't step in and tell you to stop it. It adds nothing to the debate.

[Bigun]

"... It is well known that the FairTax will DECREASE consumption ... " said Dimples

"REALLY??? Every genuine economic study I've seen on the matter shows quite the opposite." responds pigdog quite correctly

To which I say:

Some folks are just plain SMARTER than all those economists don't cha know???

[ducdriver]

You will only get to keep your paycheck until they decide they aren't getting enough tax, then they will reinstate the income tax, and leave the sales tax in place.

[Man50D]

So we'll keep the fair tax and reimpose the income tax as well.

Right on! Remember the Reagan tax cuts? We got lower rates in exchange for losing deductions. Later the rates go back up and the deductions are still gone. Unless we can cripple the government's ability to grow, these efforts are largely academic.

You maybe interested to know there is a resolution before Congress H.J. Res. 16 to repeal the 16th Amendment. The text is as follows:

"Proposing an amendment to the Constitution of the United States to repeal the sixteenth article of amendment. Proposing an amendment to the Constitution of the United States to repeal the sixteenth article of amendment."

This will prevent the income tax to return after The Fair Tax is enacted. One other thing to consider is the fact that Congress members could have passed a consumption tax in addition to the existing income tax long ago if it weren't for them realizing their constituents would kick them out of office if both taxes were implemented.

[Bigun]

There is massive fraud and abuse under all the state sales tax collection system now.

I'm sorry but that is simply NOT the case at least in the state I reside in which, BTW, has NEVER had a state income tax, relies on a sales taxes for it's funding, and is currently running the largest budget surplus in it's history! The state is Texas and you can check me out if you want.

It will be more of the same.

Yep! Hallelujah!

[Always Right]

Some folks are just plain SMARTER than all those economists don't cha know???

You mean all those economist paid for by AFFT? I don't put much weight into opinions of economists who were paid to come to particular conclusions.

[Always Right]

I'm sorry but that is simply NOT the case at least in the state I reside in which

Its nice you feel that way. The reality is, even with the lower sales tax rates there is massive avoidance and quite a bit of business making tax-free business purchases that are really for personal use. It is a very difficult thing to police. Once a business buys something, it is difficult to tract how it was used.

[pigdog]

"I stand by those statements and can back them up if you really wish me too."

I don't give a rat's rearend whether you think you can "back them up" or not since we all know that all you will post is exactly what you've posted before (which I have refuted on both threads) - misinformation about what's been said and continued personal attacks.

This has nothing to do with the FairTax IAE and you don't even seem to realize it. Grow up!!!