Posted on 08/26/2004 11:05:33 PM PDT by n-tres-ted
Two weeks ago a man stood up at a George Bush campaign appearance in Florida to ask about a piece of legislation known as HR25. Many, including myself, were pleased to hear Bush respond with some positive thoughts about the Fair Tax plan, a movement to replace the federal income tax with a national retail sales tax.
Washington is a city of inertia, and right now the inertia belongs to our present method of funding the operations of our government, the income tax. Politicians will not easily surrender a funding mechanism that lends itself so well to political demagoguery and which can be used to reward political allies and punish enemies.
The Fair Tax plan deserves a thorough public examination and debate. John Kerry seems dedicated to making sure this doesn’t happen. Soon after Bush cited the national retail sales tax as something worthy of further exploration, Kerry stepped forward with the typical class warfare rhetoric of the left. Acting as if he actually knew what was he was talking about (he didn’t), Kerry announced that the Fair Tax would amount to the largest increase in the tax burden on poor and middle income Americans in our history.
John Kerry was wrong. He was either speaking out of ignorance, or he was deliberately lying about the Fair Tax proposal in order to gain a political advantage. A politician lying in order to gain political advantage --- imagine that.
This column is lengthier than the norm, but I promise you that if you will invest the time it takes to read it you will be well on your way to becoming yet another rabid supporter of the Fair Tax plan. You will know that the poor and middle income Americans would be the prime beneficiaries of the proposal. You may even organize your own neighborhood march on Washington to demand that HR25 receive a fair hearing. In the next two minutes I’m going to turn you into a HR25 Fair Tax zealot. Read on:
First … the briefest of overviews: Simply put, HR25 would provide for the repeal of the 16th Amendment (the income tax amendment) and the dismantling of the IRS. All personal and corporate income taxes would end, as would all payroll taxes. There would not be one cent of federal taxes of any nature taken out of your paychecks. No more Social Security taxes. No more Medicare taxes. You earn $2,000 a payday; you get $2,000 a payday. The federal government would be funded through a national sales tax on goods and services sold at the retail level. No taxes on investments. No taxes on savings. You only get taxed on what you spend at the retail level. Store your earnings in a shoebox if you wish. They won’t be taxed.
When originally proposed, calculations showed that the sales tax would have to be in the area of 23%. A complete economic study is now being completed that is expected to bring that total to under 20%. For the purposes of this column, we’ll stick with the 23% figure.
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?
Bear in mind that 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; a form of outright income redistribution. The absurdly named Earned Income Tax Credit, for example. How can these people survive going from a no-tax situation to paying a 24% sales tax on all their retail purchases?
The implementation of the Fair Tax would fail in short order if, as the question presupposes, nothing were to change except that all of us would be paying today’s prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But … that’s 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 the poor this means an immediate 12 to 15% increase in their earnings.
Second. Don’t forget the 22% in imbedded taxes. These embedded taxes exist in virtually everything poor Americans or any other Americans have to buy. These embedded taxes represent all of the corporate and business income taxes and payroll taxes that the companies involved in the production, manufacture, marketing, distribution and sale of the goods and services must pay in the course of business. As soon as these taxes are gone, and after the competitive forces of the free market work their magic consumers, including the poor, will be paying at least 20% less for virtually everything they buy. This includes such basics as 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 in terms of real dollars will fall or 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, amounting to a 12 to 15% pay raise, and when you factor in the Fair Tax and the lower prices, they’re actually end up spending less of their money for a retail purchase than before. What John Kerry calls the greatest increase in the tax burden on the poor in the history of our country is, in reality, their greatest tax reduction.
You need a clearer picture? Pull out your calculator. Let’s 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 at 23% 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 12% to 15% increase in her weekly paychecks, and she’s paying less at the grocery story for her basic necessities.
So far, so good. 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. Here’s the convincer. Brace yourself for the knockout punch.
The Rebate
Under the Fair Tax plan every consumer, rich and poor alike, will receive a check or an electronic credit to their bank account from the federal government every single month equal to the sales tax that person or that family 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. If the Fair Tax Act had been law in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have had 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 would have rebated 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 have received $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:
1. They get their entire paycheck. 2. Even with the sales tax, and considering the drop in prices, they’ll be paying essentially the same or less for everything they buy. 3. They get a check from the federal government every month to rebate any sales taxes they had to pay on life’s basic necessities.
Are you beginning to see just how far off-base John Kerry was with his intemperate criticisms?
Though most of the poor don’t have what we would call complex tax returns, let’s also include the time these they (all of us, really) will save by not having to keep tax records or file tax returns.
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. John Kerry might find it politically expedient to demagogue the issue for votes, but now you know enough to know what he’s up to.
For more comprehensive information on The Fair Tax you can visit http://www.fairtax.org.
Neal Boortz is a lawyer and nationally syndicated radio talk show host.
©2004 Neal Boortz
I apologize I did not read all 400 + posts but how would this affect mortgages? If you were to buy a housw with this in effect would you add 23% to the price of the home or will homes be exempt?
The 33.6% number is wrong. You can't tell me how it was determine. You can't defend it.
OOPs, messed that link up,
As I indicated earlier to you: http://www.freerepublic.com/focus/f-news/1196095/posts?page=208#208
I am sure Gary and Aldonna Robbins will more than readily let you need all you ever wanted to know about deriving the factor they use, You can contact them at
Through Heritage foundation staff
http://www.heritage.org/About/Staff/GaryRobbins.cfm
E-mail Gary Robbins
or at Fiscal Policy Associates Inc
1515 Jefferson Davis Highway
Arlington, VA 22202
Phone: 703-413-4371
I apologize I did not read all 400 + posts but how would this affect mortgages? If you were to buy a housw with this in effect would you add 23% to the price of the home or will homes be exempt?
Only new houses would be taxed, older residential property held before the implementation of the NRST, and any house up for resale after the NRST has been paid would be tax free.
The basic cost of building a new house would drop substantial as materials and service going into the construction would be tax free as business is no longer hit with federal taxes. Only final sale for use or consumption of property or services is taxable.
As far as mortgages go, the legislation provides for mechanisms to allow banks and financial institutions to create loans where any NRST would be folded into the a persons house payments.
More particular information can be found here ==>Homebuilder & buyers
If you were to buy a housw with this in effect would you add 23% to the price of the home or will homes be exempt?
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nothing will be exempt - but prices of homes will stay where they are today.
the basic deal is that the nrst does 2 things that everyone agrees on:
1 - it removes and eliminates all fed income tax, payroll taxes, and 90% of other costs relating to taxes ("comlpiance costs")
2 - it imposes a sales tax in place of the eliminated taxex.
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re #1, different papers show that prices we pay at the register are inflated by anywhere from 22-33% due to the tax costs (income, payroll, compliance) paid by businesses. this margin is invisible and many people don't even know it's there and that they're paying inflated prices because of fed taxes.
that brings us to #2, which both replaces the invisible tax and makes the fed tax we pay at the register visible.
that is it replaces invisible income tax, payroll tax, and compliance costs that are now in prices with a sales tax in prices of very nearly the same amount. there is agreement that the amount of invisible tax now varies somewhat depending on the number of steps of production to retail. generally that means big ticket items have more hidden income/payroll/compliance costs than smaller ticket items.
the net is that prices will stay about the same. the same amount of tax that is being eliminated from today's prices will appear as a sales tax in new nrst prices.
check this page- it is put together by the people who wrote the nrst but has good, short answers to lots of quesitons...i've learned a lot there - including what questions to ask...
http://www.fairtaxvolunteer.org/smart/faq.html see #28
and
http://www.fairtaxvolunteer.org/smart/industry_impact.html see Homebuilder
i'm sure there's more there, that's just what i've see so far. let me know if you what you find out! i'm interested...
As far as mortgages go, the legislation provides for mechanisms to allow banks and financial institutions to create loans where any NRST would be folded into the a persons house payments.
just because ancient geezer doesn't explain it doesn't mean we can discount its validity. i am still reading on some links so i'm unprepared to jump in yet, but i'd like to see an explanaiton of why you take the position that the 33.6% is wrong. again, not explaining it or not defending it is not a valid reason to discount it. he did provide a link to the dry cleaning example - what is wrong with it - other than ancient hasn't explained or defended it?What's wrong with it is that the dry cleaning example is somebody just guessing what the taxes would be on a bunch of line items. There is no research behind it. The simple math I used showed it to be in error.
Interest is payment for a taxable service. You would also pay sales tax on a portion of the interest on the loan. (as you would on all your loans - eg. credit cards)
yes this is my point - what is/ where is the research behing your statement that the other statement is wrong?
i'm not simply accepting anything - i would like to see research to analyze myself - as i'm currently in the process of doing with the papers above on the 22%. i haven't finished - i'm not even 10% thru - but i will get there...
and i still am waiting for someone to tell me how cheap overseas labor will be ended.
Interest is payment for a taxable service. You would also pay sales tax on a portion of the interest on the loan.
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good point! how much would that add to consumer's costs...
on a $150000 morgage how much interest is there? i guess that depends on rate - say 8%....that total times 1.2987 is what'll have to come out of pocket -
i need to visit an amortization site... i'll be back
yes this is my point - what is/ where is the research behing your statement that the other statement is wrong?It's hard to do research on a statement if there was no research done to make that statement. I've shown that the number can't possibly be true, the least AG could do is explain how that number was determined.
the product of--
`(I) the excess (if any) of the rate paid on such debt over the basic interest rate (as defined in section 805); and
`(II) the amount of the debt.
source
http://ray.met.fsu.edu/cgi-bin/amortize
on 150k at 8% 30 yrs there's 83532 in interest. does that mean that the consumer would have to come up with 83532*1.2987= 104843 then minus 83532 = 24951 extra? that's an extra 69 per month.
i will go back an reread your stuff again - i must have missed something...
oh so it's a margin type deal....
i get it better now. so if the rate pad were 8 but the long term rate were 6, then you'd just pay the tax on 2% - thanks i was gonna freak out!
on 150k at 8% 30 yrs there's 83532 in interest. does that mean that the consumer would have to come up with 83532*1.2987= 104843 then minus 83532 = 24951 extra? that's an extra 69 per month.
You would need to subtract amount attributed to the basic(i.e. federal rate) as defined in the legislation to calculate the portion actually taxed.
Three things to consider, basic interest is not taxed, interest rates would be somewhat lower(roughly 75% of rates at time of implimentation), principal paid on the house is taxed and what is defined to be implicit fees for financial intermediation services (fees added on as a proportion of interest) Essentially FIS is the difference between the amount paid over the basic rate as defined by the legislation.
H.R.25Fair Tax Act of 2003 (Introduced in House)
`CHAPTER 8--FINANCIAL INTERMEDIATION SERVICES
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The fraud in the sales tax begins with the rate itself. You don't "add 23%" you would add 29.87% (30%)
The 23% rate is "of the gross payment" (including itself)
$100.00 taxable plus fed. sales tax = $129.87 (gross payment)
.23 (of the gross payment) X $129.87 = $100.00
Your sales price on your house would be all the costs, fees etc. included in "the gross payment" X 30%...
$200,000 house would cost $260,000+
Did you notice how they avoid answering a simple question by writing an irrelevant essay? You think there's a reason for that?
LOL! No, but common sense and careful thought can.
As much as I despise the IRS and taxes, I too don't trust the govt. to make things better. Rest assured they have done the important research; i.e., which method allows us to get the most money from the people.
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