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.

[looscnnn]

That would not happen, they can't just selectively increase the rebate. Any increase would be to all people across the country and that would be based on the poverty limit.

[looscnnn]

At the 23% the revenue would equal what it is getting currently. The thing about this proposal is that no matter what happens with unemployment, there is still tax money coming in due to the fact that people still need to buy goods and services.

[ArGee]

The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.

For this reason alone the Dims will oppose the Fair Tax.

The Dims love the poor. That's why they work so hard to ensure they remain poor. If they managed to dig themselves out of poverty, the Dims wouldn't love them anymore.

Shalom.

[looscnnn]

Embedded taxes are the taxes that are matched by an employer, corporate taxes, etc. that are passed on to the consumer. These taxes would be eliminated.

[ArGee]

Food is a necessity...a CD player isn't.

Is toilet paper? It used to be taxed in Florida where "necessities" weren't. Don't know if it still is.

Shalom.

[looscnnn]

Is food in a restaurant taxed in FL?

[Your Nightmare]

That would not happen, they can't just selectively increase the rebate. Any increase would be to all people across the country and that would be based on the poverty limit.

An interesting thing is that the Poverty Guidelines are different for Alaska and Hawaii than for the other 48 states. Alaska's is about 25% higher and Hawaii's is about 15%. I haven't been able to find out if their Family Consumption Allowance will be higher than the rest of ours.

source

[ArGee]

Unfair taxes, like the income and capital gains taxes, require enormous amounts of information to be collected for compliance and enforcement.

It's not just unfair, it's positively criminal. It's criminal on two fronts. The first is the unfunded mandate to do a considerable amount of work just to comply. Many people hire it done, or pay for computer software to help them do it, because it is completely unreasonable to expect to do your taxes at all well without specific educations.

The second is that you're treated like a criminal if you do everything in your power to file your taxes properly, but make a mistake. You can be audited, fined, even jailed (although I don't believe anyone is jailed for a mistake I could be wrong). You do your best to do your duty and obey the law, and in the back of your mind is the nagging question - did you obey or break the law?

Even if the "Fair Tax" raised less revenue or cost more, it would be worth it to create a tax system that was not so inherently criminal.

Shalom.

[looscnnn]

"and such lobbying is not a problem here."

Just found this from Michigan Association of School Boards http://www.masb.org/pdf/taxpolicy.pdf

The definitions of “food” and “immediate consumption” in terms of Michigan’s 1974 Constitutional amendment exempting food and prescription drugs from the sales tax have been subject to continuous proposals for change.

So far there has not been any major changes.

[looscnnn]

Considering that Alaska and Hawaii are part of the US, I am going to guess that they will have the same levels.

[n-tres-ted]

How is the embedded tax going to be completely dissolved as Boortz suggests?

When the income taxes and payroll taxes are repealed, the "embedded taxes" no longer exist and will evaporate.

[ArGee]

Wouldn't the tax benefit for home ownership disapear?

There aren't any real tax benefits for home ownership. The benefit to home ownership is that you have the property.

You may be thinking of the tax benefit of a home mortgage. If you are, consider this:

If you pay 20% of your income in taxes, and you have an annual mortgage interest of $10,000 (numbers selected for easy math - not reality checked), then your tax will be reduced by $2,000. You get $2,000 back from Uncle Sam for sending $10,000 to a banker.

If you think of that as a benefit, then I have a great benefit to offer you. Send me $10,000 and I will immediately send you $5,000. That's 5 times the benefit of Uncle Sam's offer. Freepmail me and I'll give you the address to send the check to.

Shalom.

[ArGee]

Is food in a restaurant taxed in FL?

I honestly don't remember, but I suspect it is. FL has a tourist-heavy economy, and we all know how locals like to shove the bills for their benefits off on tourists. I don't think FL is any different. So they probably have high restaurant taxes, hotel taxes, rental car taxes, amusement park taxes, etc.

I haven't lived in FL since 1981, but I still remember the discussions around taxing toilet paper. It's one of those things that sticks, I guess.

Shalom.

[Phantom Lord]

In addition to the tax deductability of mortgage interest, this increases your taxable income on the state level, the benefit is reduced even more.

[Your Nightmare]

Considering that Alaska and Hawaii are part of the US, I am going to guess that they will have the same levels.

Did you go to the link? Alaska and Hawaii don't have the same official HHS "poverty level" as the other 48 states. Alaska and Hawaii get greater benefits with other government programs that use the HHS Poverty Guidelines.

[Your Nightmare]

At the 23% the revenue would equal what it is getting currently. The thing about this proposal is that no matter what happens with unemployment, there is still tax money coming in due to the fact that people still need to buy goods and services.

Actually, the rate isn't high enough if you include the reduction in revenues due to the "transitional inventory credit" the bill provides for. Businesses would get a ~$350 billion sales tax credit (they collect the tax and keep the money) for the items they have in inventory on the day the NRST goes into affect.

This credit is not accounted for in the 29.87% rate. So the shortfall for the first two years will be at least as much as the credit (~$350 billion).

There are other reason the rate is too low, that's why I'm glad they are going to have congressional hearings. These issues will come out.

Since taxes distort resource allocation, a critical requirement for a fair comparison among alternative tax reform proposals is that all proposals must raise the same amount of revenue. It is well known that the ST and AFT [Americans for Fair Taxation] sales tax proposals fail to achieve revenue neutrality and tax rates must be increased substantially above the levels proposed by the authors of the plans.

Dale W. Jorgenson and Kun-Young Yun, 2002.

source [PDF]

[undeniable logic]

my only concern is that the rebate level better be tied to the poverty level. Otherwise, it isn't hard to keep increasing the rebate, until you have an almost pure socialist system. For example, up the tax rate to around 50%, assume the poverty level is $40k, send everyone a check for $20k. You could keep making these types of changes to create a socialist system.

I would like to see the bill have the "poverty level" tied to perhaps the bottom 10, 15, or 20% of income earned, without the possibility of adjustment from that percentage.

[looscnnn]

I realize that, but I am just saying that they may be based on the 48 state level. I can't say for sure as I am not the one that wrote the proposal, nor am I one of the people that will have to hammer all that out.

[Remember_Salamis]

"On the other hand, politicians will use Boortz's rebate scheme to payoff their constituents--no difference from what's being done today."

-- That's not possible. Sure, the rebate can move up and down, but it moves up and down for EVERY American. No class warfare here.

[Remember_Salamis]

"Wouldn't the tax benefit for home ownership disapear?
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)."

-- Actually, your tax benifit for home ownership wouldn't disappear, IT WOULD BE MUCH LARGER. Under the current system, you only deduct interest payments on a mortgage. On top of that, you can't deduct Payroll taxes paid.

Under the FairTax, you wouldn't pay taxes on the principle or the interest. Furthermore, most homeowners can't even benifit from the homeowners' deduction because it doesn't meet the standard deduction level. Also, homeowners a quite a ways into their mortgage are primarily paying principle, so your tax benifit from owning a home degrades the longer you have the mortgage.

The FairTax will make an entire mortgage tax-free. However, there are a few caveats:

1. Taxes must be paid on NEW homes. The tax will only be on the structure itself, not the land. Furthermore, the final form of the bill will probably allow purchasers of new homes to split the tax up over the life of the mortgage for a primary residence, that way interest isn't paid on a tax bill. This is advocated in the CATO institute version of the bill.

2. Interest paid ABOVE the Basic interest rate, which is the Federal established rates, will be taxed. If the established federal long-term interest rate is 5%, and the bank's charging 6%, then you'd pay taxes on 1/6th of the interest on the loan (non-principle payments).