Posted on 12/19/2004 1:40:29 PM PST by Remember_Salamis
Why Seniors Support the FairTax Americans for Fair Taxation October 2004
The Democratic staff (House Ways and Means Committee) makes a number of errors concerning seniors. They state that seniors would be subject to “double taxation.” To tout the virtues of the income tax, they falsely claim that seniors are exempt from the payment of tax on pensions and that they can deduct medical care and long-term care. They further mislead the reader stating that seniors would be taxed on their Social Security benefits and would have to pay tax on drugs, hospital, and nursing home care, as well as doctor visits.
This is just plain wrong once again. Americans For Fair Taxation has many seniors as members, and for good reason. The greatest gift these seniors can give is not to saddle succeeding generations with a broken tax system. But there are other reasons many seniors support the FairTax. For seniors, our broken system presents unusual conundrums. For example, consider a senior who is sitting on a capital asset. If they sell it, they will be hit with capital gains taxes and any unspent capital eventually with the death tax. If they don’t sell it, their heirs will be hit with the death tax. That is why many seniors are sitting on bad investments because the tax laws tell them there is a penalty for getting out.
Senior citizens are becoming a larger portion of the overall population. In 1970, those over 65 years of age were 9.8 percent of the population. By 1995, seniors were 12.7 percent of the population. 13 years from now, seniors will account for 13.3 percent of the population and in 2020, they will account for 16.5 percent.
The average household money income of those over 65 is about 63 percent of the average of all households.13 At any given time, a lower proportion of seniors are poor than in any other age group. However, seniors are more represented in the long-term poor than other adults but less represented than children.14 In terms of financial assets held, those 55 - 64 years old are the wealthiest age group, with those 65-74 years old next.15 In terms of non-financial assets held, those 55 - 64 years old are the wealthiest age group, with those aged 65 - 74 slightly below the 35 - 44 year old group.
Under the FairTax plan, senior citizens will receive a cash rebate effectively exempting consumption up to the poverty level from tax. The sales tax rebate is equal to the sales tax that would be paid on expenditures up to the federal poverty level. It is paid monthly in advance. Thus, poor seniors will pay no sales tax. A household spending twice the federal poverty level would pay an effective tax rate of 11½ percent.
Because income and payroll taxes are embedded in the price of everything we purchase, it is unclear whether prices will increase once the income and payroll taxes are removed and the sales tax is added. They may not increase at all because pre-sales-tax prices may fall once the income and payroll taxes are repealed. Nevertheless, the FairTax plan makes sure that the Social Security benefits would be adjusted so that benefits will increase to the extent, if any, that the sales tax results in higher tax-inclusive prices. The income tax imposed on Social Security benefits will be repealed.
The income tax imposed on investment income and pension benefits or IRA withdrawals will be repealed. An income tax deduction was taken for contributions to most of these plans. All beneficiaries and owners of these plans expected to pay trillions of dollars in income tax on them upon withdrawal and will not be required to do so since the income tax is being repealed.
Repeal of the corporate and individual income tax and the estate and gift tax will have a substantial positive impact on the stock market. Those seniors that own stocks either directly or through mutual funds, Individual Retirement Accounts, 401(k) plans or otherwise will experience significant gains. More seniors own stocks, mutual funds or have IRAs than other age groups. In addition, unrealized capital gains that would have been subject to the income tax when realized will no longer be taxed.
The FairTax plan imposes a sales tax on newly constructed homes but exempts existing homes and other used property from any sales tax. Currently, equity payments on homes must be paid from after-income tax and after-payroll tax earnings (i.e., principal payments are not deductible). The purchase of existing housing is thus subject to the income tax. All owners of existing homes will experience large capital gains due to the repeal of the income tax and implementation of the FairTax plan. Seniors have dramatically higher homeownership rates than other age groups (81 percent for seniors compared to 65 percent on average). Homes are often a family’s largest asset. Gains are likely to be in the 20 percent range.
Under the FairTax plan, the estate and gift tax would be repealed. The need for small businesses and farmers to engage in expensive estate planning involving attorneys, complex estate freeze transactions, and expensive life insurance plans in anticipation of future estate and gift tax liability would disappear. Heirs would no longer need to sell the business or farm out of the family or borrow heavily, putting the business at risk, to pay the estate tax.
A sales tax will make the economy much more dynamic and prosperous.
Consequently, federal tax revenues will grow and spending will be under less upward pressure and the deficit will decline. Budget pressure on entitlement spending, already significant, will become much more pronounced once the baby boom starts retiring in 2008 in 4 short years. The economic growth a sales tax would cause would make it substantially less likely that federal budget pressures will result in Medicare or Social Security benefits cuts or reduce their severity.
According to work by Stanford University economist Joseph Kahn, those seniors with a net worth over $400 thousand (nearly four times the median) may see a reduction in their purchasing power. The largest decline in purchasing power, about 3.5 percent, is for those with a net worth above about $700 thousand. The primary reason for this effect is that wealth, spent for consumption purposes, which is held in non-tax deferred accounts like IRAs will be taxed when spent under a sales tax and would not be taxed further under an income tax.
Seniors will be able to take comfort in the fact that their children and grandchildren will no longer be laboring under the yoke of the income tax and will once again be able to see their standard of living improve, one generation to the next.
Although the FairTax national sales tax plan would repeal both the federal income tax and payroll taxes, social Security or Medicare benefits would remain the same under the FairTax plan as they are under present law.
Currently the Social Security system is funded by a 12.4 percent payroll tax imposed on the first $87,900 of wages (2004). The Medicare program is funded by a 2.9 percent payroll tax on all wages. Both of these taxes are evenly divided between employers and employees. Self-employed persons pay a separate tax equal to the combined employer and employee tax.
Although the Social Security and Medicare payroll taxes would be repealed, the funds necessary to support these programs would come from a portion of the revenues raised by the national sales tax. Under the FairTax plan, the same amount of revenue as would have been raised by existing payroll taxes would be deposited in the Social Security and Medicare Trust Funds.
Thus, the FairTax plan does not affect the Social Security or Medicare programs except that these programs will be funded by sales tax revenues instead of payroll taxes.
I had a deal but Johnson and the boys stole our sacred funds and put them into the pork barrel. All those following him did the same.
Anything that increases the burden on seniors is cutting into their fixed income and that robbing their SS.
CUT SPENDING
The imminent crisis is due to a lot of things- but most acutely that the number of payers is decreasing while the number of recipients and the amount of payouts are increasing.
The nrst hr25 makes the number of payers waaaay huger. So instead of taking 15% of the first 85k or so from wage earners, they take about 1.9% on each purchase from everybody.
And of course SS needs to be reformed - but it is the case that the nrst would stabilize it.
It might excite you. The purpose of providing information is to inform.... not to excite.
I didn't write this article.
The only reason I asked is because your mortgage wouldn't be taxed. In fact, only the money spend in NEW goods and services are taxed. These high rates you're seeing are misleading. Take a look at what you would pay under the FairTax.
If your son is under the age of 18, your poverty level is $21,800. If your son is over 18, your poverty level is $27,930. Let's assume that your son is under 18. We'll also assume that your family brings in $60,000 a year, or $5,000 a month. I'm also assuming that all of your current income is taxed.
Step 1: Subtract poverty exemption from income:
$60,000 - $21,800 = $38,200 ($3,183 per month of taxable income at this point)
At this point, if you spend every dollar you have on new goods and services (excluding education), you would pay a 14.64% tax.
Step 2: Let's assume that you spend 10% of your income on a used car payment. That's $6,000 per year. That is also untaxed. Let's also assume that you save 10% of your income to send your kid to college, another $6,000 per year.
That leaves you with $26,200 in taxable income. This would equate to a 10% tax rate on your $60,000 income.
This leaves you with $2,185 in taxable income per month. This doesn't include your car payment, and it doesn't include the 10% you stash away for your kid's college. This is $2,185 to be spend on food, utilities, insurance, and leisure. If you spend any of this money on untaxable goods or services, your tax rate will drop below 10%.
Oh, on your question related to state sales taxes. It's likely that states will conform to the FairTax to make collection more efficient. That means that the state income tax would be put under the sales tax, the sales tax would be expanded to cover ALL goods and services, and a state prebate may be instituted.
-- LL, you know damn well that the prebate makes it progressive. Even a family of four making $100,000 a year would only pay 17.25%. And that's if they consumed 100% of their income. The same family making $50,000 pays an 11.5% tax under the same circumstances.
So, your state & local sales taxes are rebated on the poverty level income, reducing the rate on necessities to the state+local rate only!
The people who designed the fairTax went to the trouble of putting together state/local tax options under the FairTax:
State/Local Revenue Options under the FairTax:
-- Combined Totals for all State and Local Governments Amount
-- General Sales Taxes - 222,986,687,000
-- Income Taxes (individual & corporate) - 231,009,996,000
-- Taxes to be replaced - 453,996,683,000
-- Total FairTax Base - 8,264,000,000,000
-- Total FairTax Base (after rebate) - 6,517,900,000,000
-- Aggregate state FairTax Rate to replace income taxes - 5.49%
-- Aggregate state FairTax Rate to replace income taxes and provide rebate - 6.97%
You can be sure red or blue they all want in your pocket.
Unless you are a socialist you should understand we earned it we want and don't mess with us.
What is so hard to understand about.
Cut the dam budget...
That's over twice what they're paying today.
A couple earning $99,920 and spending all of it (a family of four surely would) would pay $17,486 in taxes (@ your 17.5%).
Today, that family of four would get to deduct mortgage payments (say $24,000), property tax (say $8,000), charity (say $2000), four exemptions (12,200), for a taxable income of $53,720.
Going to my 2003 tax tables, they owe $7359.
Bend over, family of four.
So ensure every future generation is screwed too?
The FairTax taxes consumption: the best measure of one’s ability to pay.
Taxes paid as a function of some concept of annual taxable income or adjusted gross income or net income is the way in which the Democratic staff would prefer to look at the distribution of taxes. However, it is a flawed way.
Often wealth – which itself may or may not be a fairer determination of one’s ability to pay – is not even captured in the income tax. Individuals rich in personal wealth may have very little income. That is because wealth is defined in assets that they hold – their homes, properties, securities, collectibles, and other items – which may or may not have been earned by them and which may or may not generate income. These wealthy individuals can often choose whether or not to create taxable income, since they can restructure their affairs to avoid receiving current taxable income. Far more than the poor or the middle class, the wealthy have the ability to control income flows (as we legally define it) appreciation vs. consumption. It is one of the reasons why Mrs. Kerry paid at a tax rate that is less than a college student on a summer job.
How much income someone happens to make in any given period is, at best, an incomplete measure of one’s ability to pay? In individual cases it is not even roughly accurate. Proponents of a consumption tax propose that there is no greater measurement of the equity of a tax system than what one individual consumes for their own personal well-being over the course of their lifetime. When you think about it, why would we ever tax income in the first place? Why punish what we need – work, savings, production, and self-sufficiency? If, instead of consuming his income, a rich person gives his money to charity or builds a job-producing factory, why should we punish that choice by taxing it? We should tax what people take out of the economy for their own personal use, not what people produce for society. That's exactly what the FairTax does.
If income is not consumed, then it is either saved or invested or provided to charitable causes (or government) to fund the consumption of others. The return on savings and investment will either be used to fund future consumption or reinvested to increase productivity and output. If it is saved or invested and is not profitable, it has at least been available to the economy. If we tax income and savings, we have simply taxed deferred consumption. And those that are deferring consumption are doing so because they elect not to consume it for themselves immediately, but to make the resource available for others.
That 17.5% figue includes ALL PAYROLL TAXES IN ADDITION TO INCOME TAXES!!!
PAYROLL TAXES ARE 15.3%. This family gets a MASSIVE TAX CUT!
Mortgage payments are made with after payroll tax and after income tax dollars. Only mortgage interest is paid with pretax dollars.
Under the fair tax, mortgage interest is still paid with pretax dollars - but the principal payments get to be paid with pretax dollars too - along with everything else.
Car payments too!
And state/local taxes (no taxation upon taxation)!
And Education expenses!
And all Savings!
And much more!
The 17% plus 15% is 32%.
And under the nrst, there is a rebate excepting necessity level spending. And with the nrst, consumption of previously taxed (used) goods is not taxed - any any savings or investments are not taxed...sending the effective rate for the fair tax lower still.
I pay over $800.00 a month for health insurance to cover two of us, the house is paid for, I've worked over 56 years including a war all in good faith and still want my benefits.
CUT THE SPENDING....WHEW.....
any you have to earn a lot more than $800 to make $800 available to spend.
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