I don't know how else to say it. One person is paying twice the tax the other is paying.
How about: I am 65 years old, just retired and have $500k in my Roth IRA. I have paid taxes, say $125k, on this already. I will now pay another $125k in taxes as I spend this money for a total of $250k.
Another guy starts saving in his Roth IRA today. He doesn't have to pay taxes on the money as he earns it. He retires with $500k too. When he spends it he'll pay only the $125k.
I paid $125k more in taxes than the other guy on the same amount of money. How is that fair?
All I'm proposing is some way for people to shelter money that has already been taxed so they don't have to pay the sales tax on products purchased with that money.
The 'prices will be lower' bit is a red herring. Everybody will be benefiting equally from the lower prices so this can be eliminated as a variable. The fact of the matter is that some people will pay twice the tax as others.
Why would you oppose a better tax system if that system didn't necessarily help you? I thought all conservatives supported a government that allowed for individual success. If I'm mistaken, then clearly we need to redefine conservatism to allow the half of the country that doesn't pay taxes to call themselves conservatives.
Don't forget about the imbedded taxes in the price of goods that you already buy.
The 'prices will be lower' bit is a red herring. Everybody will be benefiting equally from the lower prices so this can be eliminated as a variable.
In effect you want a tax refund in the form of an exemtion. Even when you would be double taxed yet another person just entering the tax system is single taxed you are no worse off than under the income tax. That is limited to just the money you already saved after paying tax.
Suggestion: for big-ticket items, buy used. And remember that for necessities you are not double taxed because the government pays that tax for you via the prebate check you receive each month.
In other words, you seek tax reparations. I think everyone would like to get a refund for previously paid taxes. Again, with the NRST, in regards to spending your after tax savings from yesteryear, you'll be no worse off than you will be under the income tax.
OK.
I will now pay another $125k in taxes as I spend this money for a total of $250k.
It seems you're thinking that if we stayed with the income tax, then the 125k in income taxes you paid on the money in the Roth is all the tax you'd be paying? That's not right.
When you buy something, anything under our income tax system, the price includes 20%-25% federal tax costs. So when you go buy something today and look at the receipt, 22.5% (or so) of the price is actually federal tax costs. You didn't know that?
The NRST strips those (invisible) federal tax costs out. Then it replaces them with a visible tax of very nearly the same amount - and the amount will be printed on your receipt.
If you buy a $100 widget today, you pay $77 for the widget and $23 in hidden fed tax costs- but you don't see it on the receipt. THe NRST eliminates the hidden $23 in tax. So the price becomes $77. Then when you buy the widget for retail consumption, the $23 is added and you pay $100 at the counter.
So whether you spend the Roth savings now or you spend it under an NRST, you pay the same tax.
Another guy starts saving in his Roth IRA today.
Under an NRST, all savings are "Roth" style - the earnings grow tax free. However, when the money is spent, it will be taxed - JUST LIKE IT IS TODAY UNDER THE INCOME TAX. But some people are unaware of the federal tax costs in prices and erroneously think that the only tax they pay is income tax!
I paid $125k more in taxes than the other guy on the same amount of money.
No, you paid the same amount in taxes as the other guy.
A fundamental concept to understand is that you're already paying federal tax costs at the counter - the nrst doesn't change that. The nrst eliminates taxation on earnings though.
I urge you to spend a few minutes kicking around here.
"All I'm proposing is some way for people to shelter money that has already been taxed so they don't have to pay the sales tax on products purchased with that money."
"The 'prices will be lower' bit is a red herring. Everybody will be benefiting equally from the lower prices so this can be eliminated as a variable. The fact of the matter is that some people will pay twice the tax as others."
I just have to jump in here, since the concern over retirement savings seems to have dominated this thread. First of all, as others pointed out, you will be paying about what you would have paid under the old system for your consumption TO THE EXTENT THAT YOU CONSUME U.S. PRODUCED GOODS. To the extent that you voluntarily purchase imports, you will be paying more than you would have under a continuation of the current system. In addition, to the extent that you purchase (U. S. produced)essentials up to the poverty level for your family, you will see a net 15 - 30% increase in your purchasing power because of the net effect of
(1) the imposition of the sales tax at the register,
(2) the offsetting effect of the prebate relative to #1, and
(3) the reduction in the pre-tax prices of U. S. produced goods because of the removal of the current system.
However, there is another benefit which dwarfs all of that. Several nationally known money managers have told the bill's primary sponsor that they expect the Dow Jones to double within 24 months of passing the FairTax. If you were to invest that $500K in Dow Jones stocks and at the end of two years, it was worth $1MM, that gain would, in all likelihood, dwarf the tax differential that you would pay on your consumption as a result of your personal consumption decisions.