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.

It's just that some people - like those in rural areas - don't have feasible access to mainstream pricing.

ROTFLM(_|_)O!!!!

I live out in the boondocks my friend. And I have no problems at all getting below mainstream pricing at anytime I take the effort to assure it. I know of no neighbor that has a problem, and if there were such I and my other neighbors would make sure that person has any help they require. That is how rural areas work.

Another example I like to use is housing: renters have higher median monthly housing expenses than homeowners,

All kinds of examples you like to use isn't there. Get off u'r rearend and get an occupation that allows you to qualify for homeownership if you figure you are being so ripped off. $14K don't do it under any tax system and you have no more right to expect someone else to subsidize your purchase of a home than I have. There are no guarantees in this country for ownership, just the oppertunity to strive for it.

As I was saying, spending generally is a less efficient measure of consumption for the poor than for the rest of us, and I don't think you have refuted that.

LOL, guaranteed income is even less, and I am not interested in "efficient" measures only appropriate ones:

From Thomas Hobbes, Leviathan it is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income.

ftp://ftp.bls.gov/pub/special.requests/ce/standard/2001/

Table 2. Income before taxes:
Average annual expenditures and characteristics, Consumer Expenditure Survey, 2001

Complete reporting of income a/

Item	Total complete reporting	Less than $5,000	$5,000 to $9,999	$10,000 to $14,999	$15,000 to $19,999	$20,000 to $29,999	$30,000 to $39,999	$40,000 to $59,999	$50,000 to $69,999	$70,000 and over
Households (thousands)	88,735	4,100	6,829	8,099	7,014	12,075	10,508	8,737	12,480	18,892
Income before taxes b/	$47,507	$1,666	$7,675	$12,380	$17,282	$24,494	$34,456	$44,418	$58,943	$113,978
Income after taxes b/	$44,587	$1,528	$7,678	$12,388	$17,086	$23,924	$33,047	$42,362	$55,572	$104,685
Average annual expenditures	$41,395	$20,517	$16,625	$20,642	$25,028	$28,623	$35,430	$40,900	$50,136	$76,124
Estimated market value of owned home	$97,681	$41,007	$49,326	$53,907	$58,377	$61,612	$72,720	$79,331	$115,123	$194,720

After paying for the service on top of the underlying groceries, I think I could still save many of these people money compared with both smaller neighborhood stores and existing delivery services. Got any suggestions?

Sure, treat it in the same way the discount surplus markets out here do it. Aquire the goods you sell from the megamarket's excess & discards. Canned goods in dented cans, overstock items, anything that is otherwise a loss to those markets, the discounters are all small family run operations going around the major cities here collection store discards selecting out the goods stuff, and selling it at half to third the market price of the large stores.

Doing it that way, you might make a profitable enterprise out of it and achieve your goal by offering goods & service at below what folks would otherwise have to pay to meet their needs.

HOW ABOUT REMOVING THE TAX ON S.S. WE ARE TAXED AT 85% THAT'S DOUBLE TAXING.

Hmmm, actually it's triple taxing of the same wages.

Wages-of-Sin: An employer pays a tax on wages for the sin of hiring you, You pay a tax on wages for the sin of working, and a second tax on your wages so some another guy can go fishing, drink, and sin some more.

The Fair Tax Act repeals all federal income, SS/MC and gift/estate taxes, and replaces them with a retail sales tax that taxes once and only once on consumption, not income nor anything you might pay into savings/investment. Tax all products once but only once is the explicit rule stated in the legislation.

Look into it.

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer for additional information: http://www.fairtax.org, http://www.salestax.org & http://www.geocities.com/cmcofer/ftax.html

I spent a week up in Waterville, Maine visiting a cousin who lived there at the time. The nearest store was about three miles away, and I found the prices to be not anything I would call mainstream.

So? the nearest store to me is hardly mainstream either, its a gas station convenience "yah pay the price for it" store.

Couple more miles down the road is the Esh's discount market where I actually buy my stuff. 30% lower than the mega Walmart.

So what? You live in a rural area, one of the costs is you travel abit to do your shopping. It goes along with the costs of owning a home where you prefer to be.

You haven't shown me how a 50-year-old making $14K can realistically get enough income to buy a home.

Your outta luck I guess.

At my age, occupation won't do it.

If you believe that, then its true. My grandfather managed a new occupation at 60 to pay for his home.

My solution is very simple: protect property rights and allow people earning $14K to build shacks on whatever private property (e.g. vacant lots) they can acquire. That would be my homeownership solution. Isn't that what FReepers should stand for?

Absolutely. I did it. Rural land is plentiful and quite inexpensive most areas of the country. Go for it.

Your figures

Not my numbers, That's the Consumer Expenditure Survey, put out by Bureau of Labor Statistics.

presumably include a lot of unreported income and spending down from accumulated assets (e.g. retirees with low incomes and savings to draw from).

Most likely unreported income, as there there is little in the form of liquid assets or savings reported in those numbers at the low end either. Not even Social Security, retirement benefits or welfare which leaves out your guesses.

I'd suggest you go look at the table, but the BLS ftp website appears to be shut down at present, gov sites tend to do that over extended holiday periods.

I don't have either of these "advantages." So your figures have no relevance to my own situation.

Sorry, those are the averages, looks like you are well below average, and IMHO likely bound to stay there with your attitudes.

Thanks for the tip.

You're welcome.

Looks like this thread is rather long in the tooth and not much left to be said about the appropriate functions of a tax system here.

The purpose of taxation in the United States is for the payment of national debts, providing for the nation's defense and general welfare of the states as a whole as expressed in the unumerated powers of the Constitution granted to Congress.

Looked all the way through the Constitution and writings of the founders, and can't find anywhere that ftlpdx is guaranteed ownship of a house. The right to pursue the ownership of property is protected and once aquired rights to hold and defend that property are guaranteed.

That's it and so is the end of this thread.

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