A Fair Question about Fair Tax

August 3, 2005 | RobFromGa

[RobFromGa]

A simple question...

So, under the FairTaxI get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month. And businesses pay no taxes.

Where is the extra money coming from...

What is wrong with this reasoning below?

1. Right now the government collects $X in the form of all taxes.

2. All taxes are really paid for by consumers in the end result, either directly, or in the cost of their purchases which allow businesses to collect money in order to pay taxes. Companies do not really pay taxes they jsut collect them and pass them on.

3. The FairTax will collect the same $X per year in the form of taxes but using a different method.

4. Under the FairTax, the price paid for goods will not rise because getting rid of all the taxes built into goods will cause the prices to drop, then the FairTax will add onto the new lower price, resulting in the same price paid by consumers.

5. So, for a given taxpayer, shopping (consumption) will be revenue neutral. Ie. Prices are the same as before.

6. And each given taxpayer will get a "prebate" check every month that they are not getting now.

7. And each taxpayer will pay no taxes on capital gains, or on savings.

8. And, each taxpayer will no longer pay any taxes on income, or payroll taxes.

9. And, there will be no Fair Taxes on any purchases made for a business.

Are these all true so far?

Again, I get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month.

Where is the extra money coming from???

[Nuc1]

Hi Rob,

I am pretty much behind the Fair Tax though I am not an expert on it by any means. Your post brings up some good questions so let's go through them by the numbers. (Dang I wish I could compose this stuff in Word)

1. I will agree with point one. The government does collect X monies from all sources.

2. I completely agree with you about point number two. Why the Pubbies don't hammer away at this I will never know. Talk to people about this when the opportunity arises. It is always good to see the light of realization dawn on them about how they have been duped.

3. As far as I know the intent of the Fair Tax is to be revenue neutral. For this discussion let's assume that the Fair Tax is implemented in this manner. So...I agree with this statement.

4. This point is conjecture. It is a possibility but probably an overstatement made to attract supporters. I believe the truth is that with the elimination of all other taxes, such as the excise tax for example, the imposition of a 23% sales tax will probably result in an increase of an items retail price by about 13%. Maybe a little more maybe a little less. In reality I am not sure what the final rate will be. I don't believe the proponents of the Fair tax are sure either however they are more qualified to make the estimate than I. Thus, I disagree with your statement in item 4 but I find the possible rise in retail costs acceptable and continue to support the Fair Tax.

5. This point is conjuncture. Basically it is a restatement of item 4 so the answer is the same. If we postulate true revenue neutrality then the consumer will receive monies from the elimination of other taxes equal to the amount taken by the Fair Tax. In reality I think the consumer will pay less under the Fair Tax than one pays under the current tax structure because a larger population will be paying the fair tax than pay taxes currently.

6. The prebate is intended to offset the tax costs for certain items, such as food, while for families up to a certain qualifier. I don't recall the exact rational but it is available on web sites dealing with the Fair Tax. This allows retailers to collect the tax without having to determine what is taxable and what isn't. Over all I think one could liken this aspect of the Fair Tax to deductions under the current system.

7, 8, and 9 are all true, assuming the income tax amendment is repealed. This must occur before fair tax implementation. IMHO a new amendment must be added to prohibit income tax of any type. Further, we should add prohibition of property taxes also.

All in all the Fair Tax is superior to the income tax. It will help break up the government's ability to practice social engineering. It makes the amount paid to the government by the citizen highly visible. And don't forget that one of the primary tenants of good ole Karl Marx is a progressive income tax. Hope this helps a bit.

[RobFromGa]

I think you mean well, but I am not talking about tax overhead expenses. Most small businesses don't have much of these types of expenses, they are really just a huge annoyance and make us spend a day per quarter and a weekend in Feb doing tax forms. This is an infintesimal percentage of most small business and medium business costs.

I have run three businesses, I know what cost structures of small and medium businesses are like, you can't make me believe that there is 22% hidden cost, it isn't there.

[listenhillary]

Labor will still be cheaper elsewhere.

You get what you pay for. We have the most productive workforce in the world.

[listenhillary]

It will help break up the government's ability to practice social engineering.

This alone is worth it.

[RobFromGa]

4. This point is conjecture. It is a possibility but probably an overstatement made to attract supporters. I believe the truth is that with the elimination of all other taxes, such as the excise tax for example, the imposition of a 23% sales tax will probably result in an increase of an items retail price by about 13%. Maybe a little more maybe a little less. In reality I am not sure what the final rate will be. I don't believe the proponents of the Fair tax are sure either however they are more qualified to make the estimate than I. Thus, I disagree with your statement in item 4 but I find the possible rise in retail costs acceptable and continue to support the Fair Tax.

If they want to risk the world's largest and best economy on their plan, they need to be honest and we can debate the pros/cons. It is difficult to debate from a position of a lie. If #4 is incorrect, and prices will rise by 13%, then the retirees who have paid taxes all their lives and saved money to live on, will now get whacked again in increased prices of everything they buy in their old age. It will be a non-starter.

[Your Nightmare]

You get what you pay for. We have the most productive workforce in the world.

And we have near full employment with our workers producing high quality products that can't be made elsewhere. Let China make the low quality stuff. This is the best way to allocate our limited resources, in this case - labor.

[balrog666]

My only point related to that is that there will be a great demand for these cards and there will either have to be a compliance/audit system (and that's what we're eliminating) or there will be rampant cheating.

Just as now, there will be both.

[groanup]

Under the Fair Tax, since all the savings are coming by getting rid of compliance expenses, and there is no IRS to come after me, what would catch the person who cheats the system?

I hear you brother since you are a local here in Georgia, but you are wrong about the savings. Just imagine that a 500 pound gorilla that has been sitting on your economy suddenly goes away and is replaced by a pesky little guy who asks you to donate every time you buy something.

[RobFromGa]

It will help break up the government's ability to practice social engineering. This alone is worth it.

Not if it doesn't work and we kill the Golden Goose, it won't.

[higgmeister]

Supposedly I will be able to flash a card and that will save me the FairTax at the point of purchase.

Save it for what? Save it for whom? There is no deduction
for business expense. There is no Corporate Tax. There is only
the sales tax for everyone. Then registered poor people get
a rebate check every month. There is no flashing a card.

[RobFromGa]

You haven't read anything about the FairTax system. There is a card and it pertains to all business related expenses. They will NOT have the FairTax imposed on them.

[Logical me]

So much for all the bullsh@@. Everyone forgot State, City and County taxes. If the Fed Tax becomes law, the state might add another 25% to the cost of goods. That is about the percent I pay now. Remember State income tax is a small part of my State taxes. Gasoline, real estate, liquor, etc.

[balrog666]

Yes. There's nothing new in the book.

Except the same old lies.

[balrog666]

What did you think about the closing of offshore banks and the corporations reconsidering their overseas relocations?

It's idiocy.

[Always Right]

That would change with the Fair Tax. Trixie would pay sales tax on her purchases.

Legal transactions are taxed today so nothing changes.

[groanup]

Okay. On this thread you are going to get an overwhelming amount of information both pro and con re: the fair tax. You need to understand that YOU need to do some work too. I would hope that, as you do, keep in mind the reason we love America, FREEDOM!!

[Always Right]

Trixie doesn't pay income tax now anyway, but now when she buys those spare handcuffs, condoms, etc. she pays the fair tax.

As she pays the embedded tax when she makes legal purchases today. Nothing changes although every fairtax advocate claims this bogus benefit.

[DakotaRed]

For a good read on some likely possibilities;

http://www.jpfo.org/fairtax.htm

Comments on the article;

http://www.jpfo.net/ftresponse.htm

[KarlInOhio]

There is no Corporate Tax. There is only the sales tax for everyone. Then registered poor people get a rebate check every month. There is no flashing a card.

Businesses would not have to pay the national retail sales tax. There has to be some way for businesses to avoid paying the sales tax on things which people pay the taxes. If GM buys a ton of steel - no tax. If I buy that same ton of steel - 23% tax. That means either companies will have to sell either exclusively wholesale or exclusively retail, or there has to be some mechanism for a combined wholesaler/retailer to segregate their sales. Thus the tax exempt "I'm a business, really, honest" card.

[balrog666]

As she pays the embedded tax when she makes legal purchases today. Nothing changes although every fairtax advocate claims this bogus benefit.

Exactly - FAIRTAX.ORG is nothing but lies.

Similarly, money spent offshore will not be subject to the 30% sales tax - reason enough to keep any offshore bank account.