Posted on 12/17/2004 4:38:48 AM PST by JOHN W K
ANSWERING A FAIR TAX QUESTION
During yesterday's show a caller asked what would happen to her 401K funds if the Fair Tax bill became law. No income taxes had ever been paid on that money residing in her 401K. If, by the time she starts drawing that money out, the income tax is history, will she have to pay some sort of penalty? One month ago I would have rattled off the answer. No. No penalty. No taxes. You take the money and run. Yesterday, however, I was a bit more cautious. I've spent many hours over the past weeks studying the history of the income tax, the history of withholding, and various schemes for tax reform including, of course, the Fair Tax. I wanted my answer to be dead-on accurate, so I deferred until I could dive into the bill.
(Excerpt) Read more at boortz.com ...
"Then I have to move, so I sell my house. I receive $250,000 minus the federal tax for a net amount of $192,500 and not only lose all my equity, I can't even pay off my mortgage.
Or will the federal government only tax new construction, and real estate won't be taxed again when sold after the first time?"
Everything is taxed once and only once. Used goods are not taxed - real estate or otherwise. You would be crazy to sell your house for $192.5K.
And whose going to pay for the credit?
It is a return of taxes already paid under the current income/payroll tax system, in answer to the initial concern of untrained skeptic Duhh.
This credit is not accounted for in their "revenue neutral" rate.
Pick your favorite federal tax rate, I prefer making the Bush tax cuts permanent myself:
refer Tax Freedom Day 2004 PDF http://www.taxfoundation.org/sr129.pdf
|
Total Effective Tax Rates by Level of Government |
|||
| Year | Federal | State | Total |
| 1998 | 22.4% | 10.4% | 32.8% |
| 1999 | 22.5% | 10.4% | 32.9% |
| 2000 | 23.1% | 10.4% | 33.5% |
| 2001 | 22.2% | 10.5% | 32.7% |
| 2002 1 | 19.7% | 10.2% | 29.2% |
| 2003 2 | 18.5% | 10.1% | 28.6% |
| 2004 3 | 17.9% | 10.0% | 27.9% |
| Notes: Leap day is omitted to make dates comparable over time. Positive and negative percentages in parentheses after legislation indicate the first-year fiscal impact of the bill,measured as a percentage of NNP. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP. 1 Economic Growth and Tax Reform Reconciliation Act of 2001 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations. |
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"The fair tax will eventually make items cost less to make, and the prices for items will go down. However, companies with inventory get screwed. They paid higher prices to purchase or make those items, and they're suddenly worth considerably less.
Let's go back to real estate. A developer invest many millions of dollars into building a housing development. The fair tax goes into effect and the houses can now be built for 20+ percent less. The developer doesn't even make 20% on the deal if things would have went right to begin with, so they go bankrupt."
Ah so! Very legitimate concern. You will be delighted to know that the FairTax has a transition rule built into it to allow businesses which hold inventory on the effective date of the FairTax's implementation to file for a credit which will approximate the amount of taxes of the old system imbedded into that inventory. The purpose of that rule is to enable businesses to pass along the price reductions immediately and to prevent just such market dislocations as you are concerned about.
let each state follow its own model and it stays out of the hands of congress.
It is a federal tax, that would cause the tax to be levied in an unconstitutional manner and isn't going to happen.
The Constitutional requirement of a uniform tax throughout the states prevents your scenario, there can be no differences in the law based on location or state in which the tax is levied:
Constitution for the United States of America:
- Article VI: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."
- Article I Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
to pay the debts and provide for the common defense and general welfare of the United States;
but all duties, imposts and excises shall be uniform throughout the United States; "
i would even be happy making it more strict than current state standards and just leave unprocessed foods untaxed (flour, sugar, vegetables, water, milk, etc.).
Sorry, open the door for one exception the door is open for any that Congress and Guchi Gulch can dream up. Who are you to determine what is not taxed?
My evening beer is a necessity to my good health. Why should that be taxed at all? Heck even my doctor tells me that one beer is good for my heart and settling my nerves down, definitely should not be taxing the meds.
OOPs there that tax rate starts climbing on everything that's left. You see give up a concession on one side it has to be made up it a higher rate. Where does it stop?
Illegals would have to pay the FairTax.
"It just a marketing tool to get the suckers on board, and it's worked well on FR."
Do I sense some frustration there, YN? All your bashing and cartwheels in logic haven't slowed down the proposal's momentum a bit, have they?
You know what they say, YN, if you can't beat em, join em. As much as you have studied the issue, you would make a great advocate. You would just have to let your brother in law fend for himself, or stop investing in real estate for artificial tax reasons or abandon whatever the hell your hidden agenda is.
FLAT TAX, let's get behind it!
It is a return of taxes already paid under the current income/payroll tax system,That's irrelevant. It would reduce the revenues collected and it's not accounted for in the "revenue neutral" rate.
Pick your favorite federal tax rate, I prefer making the Bush tax cuts permanent myself:Even with current reduced rates (which, btw, are creating massive deficits) you are still along way from being revenue neutral.
Do I sense some frustration there, YN? All your bashing and cartwheels in logic haven't slowed down the proposal's momentum a bit, have they?Momentum? You are kidding, right? If you haven't noticed, the word is a NRST is dead in the water in the Bush Admin.
As much as you have studied the issue, you would make a great advocate.The amount of study I've put into is the reason I can't evocate it. It's a bad idea whose time hasn't come.
You would just have to let your brother in law fend for himself, or stop investing in real estate for artificial tax reasons or abandon whatever the hell your hidden agenda is.I have no hidden agenda (can all the FairTax supporters say that?). I would pay more tax with the FairTax, but most in the middle class would. My problems is the FairTax is a bad idea being promoted with half-truths and deception.
Your 'sources' stink.
No it isn't. The entire proposal is right out in the open for all to see.
It is you who has consistently misrepresented the facts.
"Indeed, the only fair tax is the FLAT TAX."
Which version of the flat tax do you support - the one championed by Rep. Burgess, who picked up Rep. Armey's bill?
It is you who has consistently misrepresented the facts.Care to show an example?
"Even with current reduced rates (which, btw, are creating massive deficits) you are still along way from being revenue neutral."
What is the primary reason that we are running degicits now when we had surpluses in the late 90s? No, it isn't because of President Bush's tax cuts, contrary to what our democratic friends would have you believe. It is because the rate of economic growth has declined. What might happen to the federal deficit if we were able to get the rate of growth above 10% - which BTW is WAY higher than any experienced in the 90s?
No it isn't. The entire proposal is right out in the open for all to see.Sure it is. What's the rate again? 23% or 29.87%?
What is the primary reason that we are running degicits now when we had surpluses in the late 90s? No, it isn't because of President Bush's tax cuts, contrary to what our democratic friends would have you believe.It is because the rate of economic growth has declined.Couldn't they both have something to do with it?
What might happen to the federal deficit if we were able to get the rate of growth above 10% - which BTW is WAY higher than any experienced in the 90s?Which, BTW, is totally unrealistic (about as realistic as the labor supply growing 30% in one year). The fact that you think it is realistic shows how much Kool-Aid you swallowed.
"Momentum? You are kidding, right?"
Not at all. Remember a couple of years ago when we only had 8 co-sponsors? In addition, your energetic and frenzied posting of attacks on the proposal and its supporters on virtually every tax reform thread that pops up speaks volumes about how seriously you take the "threat" posed. You have posted several hundred or more separate times, probably several thousand. That doesn't even count the time you have spent studying the bill for any little "gotcha" you can find and scouring the web for any economic study that you can twist into supporting your wacky interpretations of economic principles.
And you would have us believe that you don't think this bill has a chance and that you are doing all this for recreation?
Give us a break, YN, we weren't born yesterday.
A simple review of your posts on this subject reveals a wealth of examples.
Even with current reduced rates (which, btw, are creating massive deficits)
Cut spending, that is what creates massive deficits.
you are still along way from being revenue neutral.
LOL: Tax Freedom Day 2004 PDF http://www.taxfoundation.org/sr129.pdf
|
Total Effective Tax Rates by Level of Government |
|||
| Year | Federal | State | Total |
| 1998 | 22.4% | 10.4% | 32.8% |
| 1999 | 22.5% | 10.4% | 32.9% |
| 2000 | 23.1% | 10.4% | 33.5% |
| 2001 | 22.2% | 10.5% | 32.7% |
| 2002 1 | 19.7% | 10.2% | 29.2% |
| 2003 2 | 18.5% | 10.1% | 28.6% |
| 2004 3 | 17.9% | 10.0% | 27.9% |
| Notes: Leap day is omitted to make dates comparable over time. Positive and negative percentages in parentheses after legislation indicate the first-year fiscal impact of the bill, measured as a percentage of NNP. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP. 1 Economic Growth and Tax Reform Reconciliation Act of 2001 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations. |
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