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???

[phil_will1]

"Which is why a 'fairtax' type of system will never happen. Not unless there are all kinds of loopholes and exceptions to keep all those people employed."

Correct. Unless the American people take control of their government back from the special interests and demand it.

[wardaddy]

link please on that trillion per year(?)

[wardaddy]

what about state and local and FICA?


my property taxes on my business are way more than my combined income?


and all these from a proponent of infanticide...sorry.

[phil_will1]

"Boortz and the congressman said that the built in taxes in the price of any item are about 22%."

However, that is not true for imports, which will increase in price.

[goldstategop]

With federal and state withholding no one knows how much they pay in taxes. That makes easy for the politicians to blithely talk of raising taxes precisely because most Americans are ignorant of the true extent of their tax burden. Such chicanery disappears under the FairTax since every one pays the same 23 percent rate. No playing off one group of taxpayers against another. And best of all, people would finally be able to judge if they're getting value from the government for their tax dollars. Wouldn't you want to know how much you've paid? We get a receipt and we know the cost of everything else we acquire in life but we're in the dark as what exactly government has cost us in the way of our hard-earned money. The FairTax will change this state of affairs.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[xzins]

I listened to Cavuto rerun this morning and I assume that was Boortz in another publishing house promotion that Fox is getting famous for.

In any case, the one thing that really appeals to me about the sales tax is getting the IRS out of the lives of private citizens.

The thing that worries me about it is Greenspan weighing in a few months back suggesting that we have both a sales tax and an income tax.

I guarantee you that congress will vote for that tomorrow.

They will promote it, of course, as a "transition" period. They'll be able to have a new movie, "The Never-Ending Transition."

[goldstategop]

A sales tax can't be increased since its a pure flat tax. Every one pays the SAME rate. Which is exactly why liberals loathe the idea. They think the rich should be punished for having more and of course everyone else should be dependent on the government. That's why they support our current graduated income tax system.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[phil_will1]

"Can this really be true? Can it be proven to a sufficient level of certainty to make it worth risking the health of the entire US economy (the best in world history) that you and the other Fair Taxers are right?"

You raise a valid point, but there are a couple of other points that need some consideration.
1. Although our economy is relatively good, there are major problems looming ahead. For one, we have a massive trade deficit which is growing at an alarming rate. We are in uncharted waters here - no country on earth has ever run up these kinds of trade deficits. ALso, some foreign money managers are becoming concerned enough about our twin deficits (federal budget and trade) that they are already shifting reserves out of dollars into euros. If euros displace the US dollar as the most trusted currency on the planet, the economic consequences will be enormous. I could go on, but that should give you an idea of what I am talking about.

2. The FairTax has been thoroughly researched and that research is ongoing. It isn't perfect, but it is AT LEAST as good for the economy as the current system (which isn't saying much). The upside potential is much greater than the downside risk.

3. Our tax system has long been recognized as a drag on our economy. This isn't new. What is somewhat new is an alternative that has been well thought out.

[goldstategop]

Idiot. Business don't pay taxes; they pass the costs on to individuals - that's you and me. If a corporation is taxed like living persons are, they have two strategies to deal with burden: they can lay off workers or pass the costs on the consumer. Unemployment would even lower in this country if employers did not have to pay so many taxes when instead they could invest in improving the business or paying their employees more. That's being intellectually honest. I defy the defenders of the income tax to explain to me that double taxation makes either practical or moral sense.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

The Fair Tax is intended as a REPLACEMENT, not an addition to our current system. It has nothing in common with European VAT schemes.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

No more exemptions, deductions and what have you. As John Linder and Neal Boortz observe, many Americans don't bother to itemize their tax returns because the rules are so complicated. If every one pays the same rate, all the special interest giveaways are unnecessary since every one's tax burden is by definition predictable. You know in advance how much of your income goes to taxes. And since you pay taxes only on what you consume, you can give yourself a tax cut simply by altering your consumption and savings patterns. Now that's a beautiful thing, giving us back control over our own pursestrings. That's the ultimate idea behind the FairTax.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

I suppose if someone never spent a cent, then I guess you'd have people gaming the system. But that's less likely than people today looking into tax shelters to keep the taxman's hands off as much of their money as the law will permit. Today, personal decisions are partly driven by the calculation one act can lessen as opposed to increasing one's tax burden. In a FairTax system, such incentives for irrational decision-making would become a thing of the past. Since you know you pay the same rate as your neighbor, there's little point in trying to get a break at every one's expense. And the government in the final analysis will be able to collect substantially more revenue than it does now. All because of a change in people's habits.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

Under the FairTax, administration of taxes would be returned to the states, who would then remit a share to Washington. It would likely lead to the abolition of state income taxes too. Right now, states like Florida, Texas, Tennessee, Nevada, Washington, and Alaska show its possible for a modern government to be funded entirely by sales and excise taxes.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

The point is, the FairTax encourages savings. We have a low rate of savings in this country and if people knew they wouldn't be taxed for keeping money in the bank, a lot more would be saved. Of course it reduces government revenue and consequently spending down the road but that's where conservatives would like to see us head. Right now, under the income tax, the politicians could take 100% of your money and I think the key to dealing with the growth of government and our entitlement programs is to change how they are funded. Under the FairTax, we pay a set amount to the government that's fair. And if taxes have to be increased the transparency allows voters to decide if the additional amount they'd have to pay is worth the expense.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[KenmcG414]

Sounds like a "pig in a poke". The black market will be rampant.

[RobFromGa]

I really do want to understand and I am almost finished the Booortz/Linder book. I would like to get behind this and push it but if I can't understand it in a fairly simple way, then I have no chance of selling it to others.

As an example, I am able to explain supply side economics by explaining that tax payments are a brake on the economy and that reducing effective tax rates causes the economy to grow increasing overall revenue.

But the FairTax people are not counting on a larger economy to generate the revenue from what I have read, and from what I am reading. They are using a static model.

Let me try to restate what I don't understand.

As an upper middle class taxpayer right now I pay a substantial amount to the IRS in the form of income tax, plus I pay $X for all goods and services I buy. These prices are estimated to have a hidden premium of 20-25% in order to compensate for the tax related costs.

Under that Fair Tax as an upper middle class taxpayer, I will no longer pay any income tax to the IRS, and neither will any one else. This lack of taxes in the cost of goods and services, will result in a reduction in the price of those goods and services of about 20-25%. Under the Fair Tax, I will pay the same amount for all my goods and services in the end when the government collects the 23% Fair Tax.

The 23% the government collects will replace the money that they had been collecting in taxes embedded in the product. So where does the government collect the money to replace what I am presently paying in income tax?

[Bigun]

But you agree that taxes and the costs of planning for and dealing with them are in the prices the miner, smelter, and steel mill must charge for their products if they are to make a profit.

The steel is but one component of an automobile and it has at least three levels of cascading tax and compliance cost embedded in it's price to the automobile manufacturer. That would also be true of every other component of that automobile and how anyone can not see that the final price to the consumer contains all of that is beyond me. The Fairtax would eliminate ALL of that and our products would once again be VERY competitive in world markets.

[RobFromGa]

As John Linder and Neal Boortz observe, many Americans don't bother to itemize their tax returns because the rules are so complicated.

Yeah I read that, so right now some Americans are paying a "lazy and/or unorganized person" surtax. Normally Neal would ridicule such people not champion them as people to be helped.

But I digress. The Fair Tax system will eliminate the "lazy and/or unorganized person" surtax (the LUP surtax).

What will replace that lost revenue? Remember we are trying to be revenue neutral here. I assume that the organized, productive persons will have to pay more than he does now to make up for the repeal of the LUP surtax?

How can everyone come out better under this plan and pay less money for everything? Is this Lake Wobegon, where all the children are above average?

[Bigun]

...if the taxes are already embedded how does bringing them out in the light raise any additional revenue to replace the income taxes that are lost?

Because the taxes themselves are but a small part of ALL the costs imposed by those taxes!

[RobFromGa]

Because the taxes themselves are but a small part of ALL the costs imposed by those taxes!

So we've come back to the idea that the entire goverment tax revenue collected currently is about equal to the compliance costs with the present system. Get rid of that system and the compliance costs are eliminated.

All we need to prove is that those compliance costs are about 20% of goods and services and we've made the case for the Fair Tax.