Posted on 08/03/2004 8:09:52 AM PDT by 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.
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.This sentance is misleading. It wouldn't be the price of a gallon of milk (whatever it ends up being) plus a 23% sales tax. It would be the price of a gallon of milk plus a 29.87% sales tax.
I'll accept nothing less!
Confusion, in addition to confustion.
;-)
That would depend on the house; newly built house - yes, previously owned house - no. The reason previously owned/used items are not taxed is that taxes were paid once on them. To tax them again would be double/muliple taxation on that item. That is where you can cut your tax bill, by buying used items and doing repairs/services yourself.
No, it is with SS & medicare included. That way those on them are still able to get it, while others can invest in their own futures with the freed up money.
Absolutely. I was gonna say the same thing, but didn't want to make the post too long. And since poverty isn't static, why continue to make so much public policy based on the needs of a fluid population?
I think anyone who's been a student, or a young married w/kids, or a young married student w/kids :) knows what poverty is and certainly doesn't plan their life around being in that status the rest of their life.
You are correct, basically you are paying for the taxes on the materials and the labor used to build the house, landscape, etc.
No, its like the standard deduction on your income tax. As the article says, its based upon what a family the size of yours is expected to spend on necessities (however that is defined) and you get the tax on that baseline amount rebated, whether you spend that amount, or more, or less.
The thing about the VAT is that it is hidden from consumers. Is it applied to used items that you buy? If so, that would mean that you would have multiple taxation on an item.
If we are going to compare apples to apples when we talk about tax systems shouldn't we use the same language in both cases?
Yes the tax deductions would disappear, but then your property would become more valuable due to more people able to afford it when you decide to sell (they would have more income and would not have to pay any sales taxes on a previously owned home).
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.
You're right. Not to mention the reduction of the IRS, tax courts, and all the associated overheard. It would be a huge savings in bureaucracy.
The fastest and best way to eliminate ALL of that instantly is to eliminate the entire tax code as it exists now. Without question, the greatest amount of money and lobbying done in DC is in regardes to the tax code.
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.
See posts 14 & 40.
Would the poverty level be jiggered by area of the country? Its more expensive to live in NYC or LA than in Dubuque.
First off you have NEVER shot anything out of the water to my recollection and secondly why is it wrong to describe someones purchase of a $2.00 gallon of milk $1.54 for milk and $.46 Tax as a 23% tax when that is EXACTLY what it is?
How do you figure that? That would allow the Soro's and hollywood elites give more and without anyone knowing they are doing it. How would you know that Quinten Tarantino (or whomever) is not donating millions to Kerry so you could not choose to boycot his films?
Correction:
How do you figure that? That would allow the Soro's and hollywood elites give more and without anyone knowing they are doing it. How would you know that Quinten Tarantino (or whomever) is donating millions to Kerry so you could not choose to boycot his films?
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