33% of those currently on Social Security even back the President's plan to allow younger investors to privatize...
Sharper Minds Daily
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.
FairTax Bump
Not.
You on the otherhand would prefer to continue to fund the IRS and promote all of its Great Contributions to Society
You didn't know that seniors are already paying taxes when they spend today? Not to mention the other problems seniors face with respect to taxes?
You didn't even read the article, did you?
Actually, the 23% rate is really a 30% rate. On a $77 purchase, you pay $23 in sales tax. They figure it is 23% of the total $100.
Most retirement income in this country is inside qualified plans and has never been taxed. When seniors turn 70 and 1/2 they must start withdrawals so the money can be taxed. Under the fair tax that money can be withdrawn tax-free. Seniors should be all over this one.
Actually, it is either. It depends on usage as to which makes more sense IMO.
It is also going to decrease to 20% inclusive/25% exclusive next year.
Let me reword: most retirement SAVINGS
So what are the present income "poverty levels"?
Around here, a lot of them are for any tax that they are exempt from.
Get it done and into law and soonest! (will it ever become a law??? One wonders)
Shift gears, Publius. The present spending poverty levels are the deal. Income don't mean jack no more.
2004 Rebate table based on amount spent. It has not a thing to do with income.
For a Family of four, the poverty level is $24,980 per year. A "prebate", they would get ($24,980 x 0.23)/12, or roughly $480 a month.
If you're looking at a senior couple, you're looking at a poverty level of $18,620. ($18,620 x 0.23)/12 ~ $357 a month in prebate.
The rebate of the sales tax on necessities means that higher consumption families would pay higher average tax rates. For example, because their first $24,980 was not taxed, a family of four spending $49,960 would pay an 11½ percent tax on their taxable purchases.
A family that spent four times the poverty level ($99,920) would pay an average tax rate of 17 1/2 percent.
Not all "geezers" are "greedy"...
"Sure...if I was a senior who paid taxes on the money I saved for retirement, I'd sure be straining at the leash to be taxed a second time -- and at 23% minimum -- when I use that same money!"
Exactly. Older people have already paid taxes ONCE on their savings, and now they would be asked to pay them AGAIN as they spent their savings.
The "fair tax" is a massive transfer of wealth from older to younger Americans.
"You on the otherhand would prefer to continue to fund the IRS and promote all of its Great Contributions to Society."
You don't think you will need any enforcement of the Fair Tax? As in there wouldn't be a black market for goods?
What about just a simple flat income tax? That wouldn't require an IRS either.
-- Just as "Social Security" is a massive transfer of wealth from younger to older Americans???
BWAHAHAHAHAHA!
Define income.
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