Fair Tax?

[ETERNAL WARMING]

Thus, those who spend nearly all of their income on such necessities won't be paying that much in taxes.

Even these people need washers, dryers and autos to drive to work. They can't afford the increase such a tax would place on the price of modern day necessities. To the wealthy, it's nothing. Afterall, their incomes have gone up from 10 to 29% according to Lou Dobbs. They're getting much richer. That is untrue of the rest of us. Our meager 2% hasn't kept pace with the increases we've all faced.

It disproportionately hurts lower incomes because they just do not have the money to pay extra.

[Leaning towards Libertarian]

Another economic advantage of eliminating the income tax would likely be a windfall produced by liberating capital unproductively spent on the cost of complying with the current complex tax system. Currently, businesses and individuals in the United States spend more than $150 billion to comply with the federal income tax system. In 1995 alone, compliance costs averaged an estimated 20 to 50 percent of the total revenue raised by the tax system and 1.9 to 4.1 percent of the GDP. Those compliance costs have insidious effects on small firms and potential small firm start-ups, which disproportionately bear their burden. As noted in the Kemp Commission report, small corporations endure compliance costs 3.8 times the tax actually collected. High compliance costs are a pronounced drag on our standard of living and the international competitiveness of all U.S.-based firms. According to the Tax Foundation, with an NST, compliance costs for businesses and workers would fall by more than 90 percent. That is the equivalent of adding $1,000 to $2,500 to the income of every household in the United States.

[wattsup]

Let me give you another side. They have estimated that there are upward to 50 million illegal aliens, drug dealers and other illegal money earners in this country that pays no income tax. Seems to me that ringing up this underground money would do no harm to the economy. I worked in an payroll company in a highly transient Hispanic community. The majority of employees that have Hispanic names coincidentally claimed 9 dependents on their employment paperwork knowing claiming 10 would automatically cause a IRS explanation. Do you think for one instant that they file income tax? Using 9 on the exemptions causes the company to take out almost no income tax.

[ancient_geezer]

You think prices would drop by more than the 23% they're going up becasue a tax is being added on to the cost of what I'm buying?

It is not being added on to the prices you pay today.

All income and payroll taxes are being repealed with the legislation and the NRST replaces them, that removes the business taxes & costs of planning, accounting, reporting and litigation associated with those taxes.

Instead of hiding 20-25% of those burdens in today consumption prices, those prices will stablilize at the same total payment you do now.

Supply demand is not repealed by NRST, you end up paying the same amount for products with NRST as you would for products with business income/payroll taxes burden in place and hidden.

All that is changed is how taxes are collected. The amount of taxation overall does not change. What you pay for things has no place to go but where it is now.

You just get to see the tax burden itemized on the receipt with a lower shelf price listed because businesses are no longer being hit for those taxes spread out throughout the whole chain of productinon to retail sale.

[Leaning towards Libertarian]

The FairTax is fair to low-income earning Americans.

The FairTax empowers those with low incomes. Under the FairTax plan, no American will pay taxes on necessities. Every household will receive a rebate that is equal to the FairTax paid on essential goods and services, and wage earners will keep 100% of their paycheck. More money will be available to spend, save and invest. Used items will not be taxed and prices will go down by 20–30%.

Education will be easier to obtain with the FairTax. Education costs will go down by as much as 50%. This will allow for easier upward mobility among lower income earning families. The FairTax is the only plan that can legitimately claim to "untax" the poor. Those spending at twice the poverty level will pay a rate much lower than the income and payroll tax burdens they bear today. The FairTax would dramatically improve economic growth and wage rates. Jobs will be more plentiful and wages will go up.

[FairOpinion]

Where did the 23% consumption tax come from?

Obviously the rate of the sales tax is important.

In the specific example you cited, you would indeed be paying more in sales tax . BUT, I think that virtually nobody would fit your hypothetical example.

You are assuming that someone has NO money in any IRA-s, or 401K, or any tax deferred investments, no investments with capital gain, but they have around $230K (assuming the $16K represents 7% return) in after tax savings, and the living expense are exactly such, that 2/3 comes from income and 1/3 comes from principal.

One can always find some specific hypothetical examples, maybe a very few real ones, where some people may theoretically do worse.

But most people are either working, and paying taxes on the income, or retired, with most of their capital in tax deferred accounts, where they pay taxes on every penny they take out of those accounts.

The current tax system discourages after-tax savings, because you pay taxes on the income, then when you invest what's left, you pay taxes on any income or appreciation.

[Wissa]

...unproductively spent on the cost of complying with the current complex tax system.

You're gonna put all those poor accountants out of work! :)

Actually, the effect might be greater than you think. The most complex tax issue that a lot of businesses deal with right now is state sales tax. Each state has their own rules about what is considered taxable. If there would be a national sales tax, there's a good chance that the states would copy the national rules, eliminating the need to learn dozens of different state's conflicting rules.

[ancient_geezer]

Rep. Bill Archer, Chairman, House Ways and Means Committee 106th Congress:

• "A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."

[Wissa]

Where did the 23% consumption tax come from?

All I know is that it came from post 7.

You are assuming that someone has NO money in any IRA-s, or 401K, or any tax deferred investments, no investments with capital gain, but they have around $230K (assuming the $16K represents 7% return) in after tax savings, and the living expense are exactly such, that 2/3 comes from income and 1/3 comes from principal.

Not necessarilly. I, like many others, have a combination of aftertax and pretax investments. The income withdrawn is taxed the same way, whether it comes from aftertax investments, or withdrawals from IRA's or 401k's. The $230k doesn't all have to be aftertax dollars, just that the $10k I choose to not pay tax on has to come from my aftertax principal.

[supercat]

You think prices would drop by more than the 23% they're going up becasue a tax is being added on to the cost of what I'm buying?

I'm skeptical, but I'm open to being convinced.

First of all, suppose that (1) there were no tax-deferred investment vehicles available, and (2) no foreign products were available. How much money from each $100 worth of productivity would individuals get to keep, and how much would go to the government? For simplicity, assume personal and corporate income taxes of 25% with no deductions or exemptions.

It seems to me that, under those constraints, society would quickly experience an economic meltdown. Since money would lose 25% of its value every time it passed from a business' hands to an individual, and since businesses can't do anything with the money except either keep it as profit (in which case it's taxed), pay it to other individuals (in which case it's taxed), or pay it to other businesses (which will be in the same bind as the first), the only real value of money would be the time value of having it until the government takes it away. And at a 25% tax rate, it wouldn't take very long for the government to absorb most of it.

IMHO, the only thing that allows the U.S. economy to survive such tax rates is the fact that we can buy goods from other countries which don't tax their people the same way. But that can't last forever.

[ancient_geezer]

Where did the 23% consumption tax come from?

All I know is that it came from post 7.

The tax rate for the Fair Tax legislation is 23%

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a pure consumption tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer: http://www.fairtax.org & http://www.salestax.org

It is designed to take the place of approximately 95% of the total federal revenue base:

Effective Total Federal Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
All Families	22.8	23.4	23.5	21.4	21.8	22.6	22.5	22.6	23.5	24.7	24.2

Data from IRS collections statistics and The Bureau of Economic Analysis as compiled in tabular form by the Congressional Budget Office.
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

[lewislynn]

When income and payroll taxes are repealed, prices will come down 20–30% according to Dr. Dale Jorgenson,

It's a lie and mathematically impossible.

What Volkswagen, for example, would have to be making to lower their price 20%. Volkswagens aren’t made here, their manufacturing labor isn’t subject to payroll taxes (it wouldn't matter if they were).

Volkswagen asking price before NST: $30,000

NST claims 20% price reduction for embedded (hidden) tax

Taking away the $6,000 (20%) the NST claims is added , the Volkswagen asking price AFTER NST is $24,000 ($30,000 X .20 = $6,000)...($30,000 minus $6,000= $24,000).

Meaning $6,000 (25%) of $24,000 (gross) is tax.

Tax is imposed on profits and gains…To pay 25% of your gross in taxes at a 30% tax rate you would have to be operating your business at + or - 83% profit.

$24,000 (gross) Put another way:
Sales price…$24,000
Cost of goods sold…$4,000
Gain from sale…$20,000
Profit …83.333%
Income tax on profit/gain @ 30%…$6,000

If businesses are operating at 83% profit they don’t need a sales tax to reduce their costs.

[FairOpinion]

But if some of it does come from pre-tax investments -- it just means you change the strategy of what money you spend.

With the current tax situation, you are indeed better off to spend it the way you described, using part after tax principal, precisely to minimize your income taxes.

With a different tax situation, a different strategy will work best. That doesn't mean the sales tax is going to hurt you, it just means you have to adjust your strategy.

I don't think they would have to go anywhere near 23%, more like 5-8% on sales taxes, if they just tax everything retail.

The only people for whom it really would be a problem would be the "low income" people, who are living just on their social security incomes. But it would be easier to address that situation for that small percentage of the people, which would simplify life for everyone else. They could just have those people apply and get some "tax vouchers", which they could use to pay the tax on their spending.

[ancient_geezer]

Volkswagons are imports lewislynn, Import companies having 83% profits off unfair competition with domestic automakers need to have their sails trimmed.

The what is wrong with a levy on import goods so our own manufacturing may compete on an equal playing field, providing growth potential for domestic industry?

Today, imports come in with VATs removed by the nations they come from. Putting our products at disadvantage to those foreign goods.

Furthermore, our products have embedded costs that should not be there except that we impose income and payroll taxes on our companies. Those products are exported with those embedded taxes making them much less competitive in foreign markets.

With repeal of all income and payroll taxes, domestic product prices are relieved of 20-25% of the burden artificially pushing domestic businesses prices up in all markets.

With imposition of the NRST imported products sold in this nation will be burdened with the full federal tax that the escape from today.

The result our products become more competitive foriegn goods are fully taxed, a full leveling of the playing field and trade burdens truly equalized for the first time in a hundred years.

So your objection is?

[FairOpinion]

Yikes! I went to fairtax.org, and they say, that the sales tax has to be 23% to be revenue neutral.

But still, I think in the transition, they could make adjustments, such as vouchers for low income people.

For people with investments, not having to pay taxes on investments or IRA withdrawals would more or less counteract the sales tax, because people who do have money tend to live off the return on the investments, not really using the principal.

[Capitalism2003]

If you think a flat percentage charged to everyone is not fair, your view of fairness is very twisted.

[ancient_geezer]

When income and payroll taxes are repealed, prices will come down 20–30% according to Dr. Dale Jorgenson,

lewislynn: It's a lie and mathematically impossible

Read some more down to Reply #27 which shows it is mathmatically quite possible.

As well as Jorgenson's work on the mathmatics of it:

The primary cite from which the 20-30% range is taken is

D. Jorgenson, "The Economic Impact of the FairTax" (a report to Americans for Fair Taxation) (Nov. 25, 1996). Replacing the Federal Income Tax, The Economic Impact of Taxing Consumption: Hearings Before the House Committee on Ways and Means (Vol. II), 104th Cong., 2d Sess., (statement of Dale Jorgenson, Ph.D., Chairman Harvard University, Department of Economics on March 27, 1996, at p. 105) (reprinted in Joint Economic Committee, Roundtable Discussion on Tax Reform and Economic Growth, 104th Cong., 1st Sess. 1996 at. p. 79).

I could not find the original '96 paper above on the net, I did find the following that compares Retail Sales Taxes with the Armey/Shelby flat tax providing a comparable analysis.

Economic Impact of Fundamental Tax Reform
Jorgenson & Wilcoxen 1996 revised 1999
http://www.economics.harvard.edu/faculty/jorgenson/papers/baker.pdf

Page 26.

9. Since producers capital and workers would would no longer pay taxes on profits or other forms of income from no longer pay taxes on wages, prices received by producers under the Sales Tax, shown in Figure 13, would fall by an average of twenty percent in 1996. Figure 14 shows that prices received by producers would fall by an average of twenty-five percent by 2020. The impact of the Flat Tax on prices received by producers is much less dramatic. Prices decline in the range of six to eight percent for most industries in 1996 and five to seven percent by 2020.

Based on a 15% 1996 rising to 21% in 2020 Retail Sales tax with prepaid consumption allowence replacing Income Taxes as compared to the Armey Shelby 1996 Flat Tax with personal exemptions doing same. It however underestimates the change for he does not compute the reductions possible with repeal of FICA taxes that the fair tax HR25 implements in the general reform study above.

[ancient_geezer]

But still, I think in the transition, they could make adjustments, such as vouchers for low income people.

See reply #38, should cover the considerations on transition.

You need to remember that most folks in low income situations, generally do not have large amounts of pre-taxed capital to convert. Their expenditure comes mainly from immediate income & SS/Medicare rather than savings situtations and thus are covered for the most part by the Family Consumption Allowence.

[Leaning towards Libertarian]

Meaning $6,000 (25%) of $24,000 (gross) is tax.

Not really. You are ignoring the cost of compliance with IRS regulations. You also fail to take into consideration the cost of marketing the product in the United States, where the employees are indeed impacted by the income tax, as are the various media outlets, advertising agency, newspapers, magazines, television, etc.

The savings realized through the implementation of the NRST filters through the entire supply chain, not just the cost of manufacturing the product.

[ancient_geezer]

Lewislynn is looking a import pricing, which has its origin nation's VAT removed from it.

Volkswagen asking price

Under that situation, imports have less US taxes associated with them, primarily those associated with tranport, warehousing and retail, though none in actual production activities from European Union, VATs which are credited back to their exporters.

In such a situation there is a lesser reduction in price from repeal of corporate income & payroll taxes, and the NRST acts more like a revenue tariff when compared with treatment under the current tax system.

With the NRST, producer prices fall appreciably for domestic retail products, and raises the payment for imported retail products. The NRST provides significant trade advantage to domestic manufacturers over their treatment under income/payroll taxes.