Why Seniors Support the FairTax

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.

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.

To see how much you would spend do the following:

1. Take your total income.

2. Subtract the exempted poverty spending from your income, being $18,620 for the two of you.

3. Subtract any state and local taxes (not service fees)

4. Subtract any car payments you make

5. Subtract any used goods

6. Subtract any charity

7. Subtract any educational services

8. Subtract any credit card debt payments

9. Take this remaining consumption of ONLY new goods and services and multiply it by 0.23

10. Take the answer from #9 and divide it by #1 (your income)

That is your tax rate.

Wrong. I scrimped and saved and paid outragous capitol gains, lived ok, raised kids and didn't take anything from the government.

What is so hard about the concept that if you don't have money you don't spend it. That is the LAW for government, at least it supposed to be.

You can be assured if they change the tax codes you will pay more not less. You are dealing with a spending machine and you had better do something about it. You have to make them stop spending.

BTW unless you had a zero net tax rate during the time you earned the money you use for your insurance premiums, then you did indeed have to earn more than $800 in order to have $800 available. That's trivial.

I remember in the late sixties when the feds put a big cut on everyone. I was in the service and we didn't have enough fuel to run vehicles state side. All departments had to get rid of dead weight some of it at the top.

Make enough noise and they think the vote is attached to debt they will lower the debt.

I'm all for flat rate or pole tax but it would have to be subsequent to spending cuts and a balanced budget. It will happen because our dollar is no longer the standard and the economy is falling apart.

As far as enforcement of the Fair Tax, it is in place now, it is the same Mechanism as the State Sales Tax. The Black Market of uncollected Income Tax would Balloon with the Flat Income Tax.

The IRS has to go (along with the UN and the ACLU)

Folks, you all are overlooking the refund that everyone gets under the FairTax:

Not to mention you take home your ENTIRE paycheck - no more withholding, medicare or ss. This might seem obvious, but most I think most people are envisioning paying 23% "more" for what they are purchasing now with the same take-home pay they have at present.

The way I figure it, our family would have over a $1000 more per month at our disposal. We are fairly low-end consumers - and we would most definitely come out ahead.

The Yuan has been stable with the dollar for twenty years and now that the bottom is falling out of our currency they are in a position to become the standard if and when they desire it. They own more then 2/3 of a trillion dollars.
China is also beating us badly industrially and we can't compete. This year India became king of the tech hill. What's the trend here.
http://www.ameinfo.com/news/Detailed/50205.html

So the Dollar is still the "Standard" correct?
And you drank the kool-aide about our Economy.

King of the Tech Hill, is that like Twister?
And China my friend is going to have problems just feeding itself, and cleaning up the massive wasteland that it has become. I would worry more about China Militarily than competing with us in the Free Market, they need Land Infrastructure, Water and they still have to have the Iron Fist of Communism to beat their People down.

Parts of China make Chernobyl a Pristine Vacation Hot-spot by comparison.

i feel the fair tax is a good idea in that everyone participates in the support of government, and if they vote i believe they should be taxed... pay for what you vote for.

i feel that federal taxes should be paid by the states, according to population and their share. this would make the states sales tax what they need to pay for what their representatives vote for in congress.

this addendum to the fair tax, which is actually how the constitution calls for the funding of government overspending, would put more control of pork barrel representatives than the current system.

teeman

China is also beating us badly industrially and we can't compete.

One reason is their cheaper labor.
Another reason is our products have their prices inflated by 25% or so due to tax costs.

The nrst would remove tax costs from our exports AND it would levy the tax on imports.

It's a start.

LOLOLO... China's biggest problem is they're growing too fast. I didn't say I wanted to live in China nor for that matter India. China is working on many projects to correct infrastructure short comings and have a long way to go for sure.

I have no knowledge of what certain areas look like now but it wasn't that bad a few years ago. China produces more food now then ever (they are considering changing to a 2 child policy) but as you pointed out the iron fisted commies aren't that concerned about the loss of a few million lives. Individual living conditions have no bearing on China's economic impact production does and they are using 50% of the raw materials produced worldwide. Don't know the % production for resale or infrastructure. OH yeah the US is now buying the best high tech oil drilling rigs from them.

We put out 70,000 engineers a year China puts out 700,000 but we're 10 times smarter so that shouldn't figure in.

Sure sounds like they are done for.

"I feel that federal taxes should be paid by the states, according to population and their share. this would make the states sales tax what they need to pay for what their representatives vote for in congress."

-- I agree with you, but I've been told by many paople that it would be unenforcable. For example, what do you do if a state refuses to pay? Civil War? In the opinion of many, this is why our Founding Fathers decided to write a new Constitution as opposed to merely amending the Articles of Confederation. Interestingly enough, there were a handful of proposed Amendments to the Articles of Confderation at the time of the Convention (that's why it was held in the first place). One of these Amendments would have given Congress to levy an apportioned tax on every state, according to population.

"China produces more food now then ever..."

-- Actually, the opposite is true:

"China's appetite for food imports is likely to expand because of increasing urbanization and water shortages. China is trying to feed 20 percent of the world's population on 7 percent of its arable land. It currently employs 370 million people to produce as much food as 2 million American farmers. The amount of land being harvested has declined from 90 million hectares in 1998 to 76 million last year. There is also a serious water shortage in the north, where grain production is largest. China has four-fifths of its water in the south, while two-thirds of its cropland is in the north. Water per acre of cropland is therefore only one-eighth of that in the south. The supply of water is also being depleted because of diversion of water from rivers to cities, the depletion of underground supplies in aquifers, and the increasing pollution caused by industrialization."

I posted this from an excellent National Interest Article from Summer 2004 Here

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.

Nice try. 100% of their income includes the phony rebate making their tax rate 23%...You can run but you can't hide from "revenue neutral" taxation.

Apparently I failed to make my point. MY point was that china is unable to buy all the material they need to keep their factories operating. When they can get the materials they need we won't be able to compete with them (cheap labor) and that will be detrimental to our economy. Now is the time we should be working on establishing a coalition to compete.

Hey I'm probably wrong and China is just going to disappear, our politicians will balance the budget, a new tax plan creates money for who knows what without digging deeper into your pockets and we'll all have 72 virgins. This comes from the eminent "Bagdad Bob"

"Nice try. 100% of their income includes the phony rebate making their tax rate 23%...You can run but you can't hide from "revenue neutral" taxation."

-- Perhaps I should word it better: "And that's if they saved 0% of their income..."

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