BUT WHAT ABOUT THE POOR*? (Fair tax POV of Neal Boortz)

Neal's Nuze ^ | 8/3/04 | Neal Boortz

[CSM]

BUT WHAT ABOUT THE POOR*?

OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right? We're actually going to forget, just for now, that poverty is largely a behavioral disorder and consider how they would survive under the fair tax.

We begin with a reality check. Right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly named Earned Income Tax Credit, for example. So right now the government is actually supplementing their income. How can they endure a 23% sales tax?

The implementation of the Fair Tax would fail in short order if, as the question presupposes, the net effect on the poor would be the that they would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.

Let's begin by considering two realities.

First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.

Second. Don't forget the 22% in imbedded taxes. It's lurking there in virtually everything poor Americans have to buy. As soon as the competitive forces of the free market work their magic these people will be paying 20% or more less for virtually retail purchase, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.

So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.

Pull out the calculators. Say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities.

Well, at this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. So, here's the clincher.

The Rebate

Under the Fair Tax plan every consumer will receive a check from the federal government every single month equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households.

Here's an example of how the rebate payments would have worked in 2003.

Let's say you're a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would receive $172 per month.

Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.

OK ... let's add it up for America's lower income citizens:

They get their entire paycheck. Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy. They get a check from the federal government every month to rebate any sales taxes they had to pay. Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.

So, my friends, if you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.

*Please note that I titled this chapter "But what about the poor?" and not "But what about the less-fortunate?" Look, I can't be expected to write this entire book without getting in a few digs at the language of political correctness, can I? To say that the poor are poor because of a lack of good fortune presupposes that those who aren't poor were just lucky. Sorry, but for the vast majority the benefits of an affluent lifestyle aren't a matter of luck, they're the result of attention to education, hard work and good decision making. Luck counts on the Las Vegas Strip, not Main Street.

[Remember_Salamis]

"Wouldn't it be a lot simpler to exempt the necessities - food, clothing, medicine, shelter, and tax the rest? Then you don't need to trck everyone's address or bank account to send monthly checks.

And with all the talking over this issue, why can't anyone come up with a reasonable explanation of what the embeeded tax is, and how high it is? Every article has new figures."

-- The government already tracks everyone's address. Regarding a bank account, you don't have to get it direct deposit; it can be sent out manually or it is even possible to insert it ina paycheck.

-- Regarding imbedded taxes, the reason everybody has a different number is because all industries differ. Furthermore, some people use OLDER numbers than others.

[Remember_Salamis]

"There is something even easier. My liberal dad proposed it to me a few years ago. Its really very simple, and it provides for unlimited freedom of political speech with no corrupting influence.

Anyone can give a much money as they like to any political campaign or organization as often as they like ... BUT ... all the giving is done anonymously through a single-blind process, say run by the FEC. So you can give $10 million to Candidate X 4 times a year, but Candidate X would not be told who gave him the money once it is channeled to his account. He would just see a total of daily deposits from contributors.

I predict this would very successfully take the money out of politics."

-- That's a real good idea. The only problem is with very local elections, like (mayor, etc.), where family and friends fund elections. Maybe it could start at the state government level...

[Remember_Salamis]

"Would the poverty level be jiggered by area of the country? Its more expensive to live in NYC or LA than in Dubuque."

-- That's no different than the current tax bracket system. The 15% tax bracket ends around $26,000. In Mississippi, you're doing pretty good at $26,000, but in California you're truly struggling.

[kevkrom]

There is something even easier. My liberal dad proposed it to me a few years ago. Its really very simple, and it provides for unlimited freedom of political speech with no corrupting influence. Anyone can give a much money as they like to any political campaign or organization as often as they like ... BUT ... all the giving is done anonymously through a single-blind process, say run by the FEC. So you can give $10 million to Candidate X 4 times a year, but Candidate X would not be told who gave him the money once it is channeled to his account. He would just see a total of daily deposits from contributors. I predict this would very successfully take the money out of politics.

Maybe, but I prefer George Will's proposal:

1. No limits.
2. No foreign money.
3. Full disclosure.

If a candidate wants to sell out to the highest bidder, then his opponent can make it an issue.

[Remember_Salamis]

Bigun, I'm glad to have another FairTax-er on board. Get used to Your Nightmare, lewislynn, balrog666, and willie green.

Myself, Ancient_geezer, principled, taxman, and phil_will will help you out a lot.

[Remember_Salamis]

Regarding state tax exemptions, there's nothing prohibiting a state from subsidizing a particular product or service. I could forsee a liberal state implementing a bill that would pay for residents' sales taxes on energy bills.

[livius]

You're right, but it's easier to control your state legislature than Congress. I see us having more input, ultimately, in how even local money is spent.

[Remember_Salamis]

I really don't know why. I live in Hawaii, and I can tell you that prices aren't that different than San Francisco's. There's more of a price difference between all of California and West Virginia than there is between Hawaii and California. I think it's a result of:

1. A one-party state in Hawaii ran by scandal-plagued Japanese demcocrats.

2. Republican Pork Kings in Alaska.

[satchmodog9]

What makes anyone think the wholesaler, retailer or distributor would ever lower their prices to reflect the taxes they no longer pay for the product. It will never work as long as there are people trying to make more money(a good thing). I just do not think anyone will benefit from lower prices, they are figured in right now and if this tax plan goes into effect, the profit margins for the seller will increase.

[Remember_Salamis]

"What makes anyone think the wholesaler, retailer or distributor would ever lower their prices to reflect the taxes they no longer pay for the product. It will never work as long as there are people trying to make more money(a good thing). I just do not think anyone will benefit from lower prices, they are figured in right now and if this tax plan goes into effect, the profit margins for the seller will increase."

-- Have you ever heard of the "elasticity of demand"? Competition? Your theory only holds water in a cartel system where competition is artificially extracted from the market. Where there is no Cartel, and there isn't a COERCIVE monopoly, PRICES WILL DROP.

[Your Nightmare]

I know you've heard of supply. What happens to prices when demand increases and supply can match (which is bound to happen in some markets if demand is increased across the board)? You get inflationary pressure.

Producer prices may drop a certain level, but consumer prices won't drop the same amount across the board.

[ancient_geezer]

Better late than never!

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

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 retail sales 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 for additional information: http://www.fairtax.org & http://www.salestax.org

[ancient_geezer]

Could someone please explain how the sales tax rebate would work? Would I be required to keep every single receipt I get? Just curious.

You will not be required to keep receipts.

All legal residents will receive a Family Consumption Allowence(FCA) demogrant equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

To illustrate examine the tax burden that a family of four will have at various annual expenditure levels.

H.R.25 "The FairTax Act

Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their paycheck:

Fedup Smith makes $39K per year...once the FairTax is the law of the land he will receive an instant increase in pay of $200.00 per week. Since he has a family of four, he will receive a FCA of $445 per month, for a total of $1,305.00 additional income per month that he can do with as he sees fit

[yoswif]

This was the closest I could find to a tax code that doesn't require individuals or businesses to provide information to the government.

http://users.ixpres.com/~concepts/

[satchmodog9]

I think you are right as far as Walmart and HomeDepot type stores are concerned. Auto manufacturers, commodity items, insurance companies and large ticket items like appliances will probably stay the same. So yes, you are correct, I should have stated my position better.

[Remember_Salamis]

An important concept in understanding supply and demand theory is elasticity. In this context, it refers to how supply and demand change in response to various stimuli. One way of defining elasticity is the percentage change in one variable divided by the percentage change in another variable (known as arch elasticity because it calculates the elasticity over a range of values - This can be contrasted with point elasticity that uses differential calculus to determine the elasticity at a specific point). Thus it is a measure of relative changes.

Often, it is useful to know how the quantity supplied or demanded will change when the price changes. This is known as the price elasticity of demand and the price elasticity of supply. If a monopolist decides to increase the price of their product, how will this effect their sales revenue? Will the increased unit price offset the likely decrease in sales volume? If a government imposes a tax on a good, thereby increasing the effecive price, how will this effect the quantity demanded?

If you do not wish to calculate elasticity, a simpler technique is to look at the slope of the curve. Unfortunately, this has units of measurement of quantity over monetary unit (For example, liters per euro, or battleships per million yen), which is not a convenient measure to use for most purposes. So, for example if you wanted to compare the effect of a price change of gasoline in Europe versus the United States, there is a complicated conversion between gallons per dollar and liters per euro. This is one of the reasons why economists often use relative changes in percentages, or elasticity. Another reason is that elasticity is more than just the slope of the fuction: It is the slope of a function in a coordinate space, that is, a line with a constant slope will have different elasticity at various points.

Lets do an example calculation. We have said that one way of calculating elasticity is the percentage change in quantity over the percentage change in price. So, if the price moves from $1.00 to $1.05, and the quantity supplied goes from 100 pens to 102 pens, the slope is 2/0.05 or 40 pens per dollar. Since the elasticity depends on the percentages, the quantity of pens increased by 2%, and the price increased by 5%, so the elasticity is 2/5 or 0.4.

Since the changes are in percentages, changing the unit of measurement or the currency will not effect the elasticity. If the quantity demanded or supplied changes a lot when the price changes a little, it is said to be elastic. If the quantity changes little when the prices changes a lot, it is said to be inelastic. An example of perfectly inelastic supply, or zero elasticity, is represented as a vertical supply curve. (See that section below)

Elasticity in relation to variables other than price can also be considered. One of the most common to consider is income. How would the demand for a good change if income increased or decreased? This is known as the income elasticity of demand. For example how much would the demand for a luxury car increase if average income increased by 10%? If it is positive, this increase in demand would be represented on a graph by a positive shift in the demand curve, because at all price levels, a greater quantity of luxury cars would be demanded.

Another elasticity that is sometimes considered is the cross elasticity of demand which measures the responsiveness of the quantity demanded of a good to a change in the price of another good. This is often considered when looking at the relative changes in demand when studying complement and substitute goods. Complement goods are goods that are typically utilized together, where if one is consumed, usually the other is also. Substitute goods are those where one can be substituted for the other and if the price of one good rises, one may purchase less of it and instead purchase its substitute.

Cross elasticity of demand is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. For an example with a complement good, if, in response to a 10% increase in the price of fuel, the quantity of new cars demanded decreased by 20%, the cross elasticity of demand would be -20%/10% or, -2.

[Remember_Salamis]

What is your proposal personally?

[Remember_Salamis]

"I think you are right as far as Walmart and HomeDepot type stores are concerned. Auto manufacturers, commodity items, insurance companies and large ticket items like appliances will probably stay the same. So yes, you are correct, I should have stated my position better."

-- No, prices in every free market will fall. The only place where they don't fall will be in monopolies and cartels like Utilities and possibly banking.

[looscnnn]

I am learning. I thought I understood it, maybe I do but am using the wrong words/terms? Thanks for clearing things up.