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???

[ancient_geezer]

So what compliance costs do I eliminate exactly?

Since you no longer need to account for income to the government, you do not need to shelter it in inefficient uses rather than chosing to put it to its most productive use in expanding your business.

You no longer face audits & expensive litigation because the IRS disagrees with your accountants as to the suitability or amount of deductibility of expenses.

There are no longer costs associated with relocating a business because the tax climate in another country is better for you bottom line as the U.S.will become a tax haven for manufacturers instead of a tax trap.

There are no longer costs associated with interpertaitional errors or having to conservatively not take deductions that you feel you are due but avoid to stay out of the gun sights of the IRS ...

Anything done that restricts one from producing a product for sale to another business or to the final consumer that is a choice that arises from either adjusting one's operations to take advantage of some deductibility at the expense of efficiency and productivity, or that one imposes on their business to avoid visibility of otherwise taxable income to evade or avoid the income tax is a cost imposed by the current system.

The overhead costs of the current tax system are much greater than the mere accounting and filing cost that people first think about, infact the are the lesser portion of the total impediment the income tax system imposes on the economy and business specifically.

[calex59]

The thing about this caller's question is this: His 600,000 isn't setting there gathering dust, it is earning interest. He is not going to be paying tax on the interest and the next million he earns he won't have to give the government 400 grand of it.

There is naturally going to be a little overlap of the two systems, but it will even out in the end and we will all be better off. Even if we break even on taxes, the average wage earner I mean, we will still benefit from not having the expense of the IRS and the fear a lot of people go through each year struggling with the income tax.

We, this country, existed well into the 20th century without an income tax. We didn't need it then and we don't need it now. It makes it easier for them to steal our money. Sales tax makes it more difficult.

Along with the fair tax we need real spending reforms. It is long past time to do away with the runaway spending our government does that started with the income tax and 16th amendment.

[RobFromGa]

Considering that we can't even get most people to agree that the Laffer Curve exists, and that to a point tax rate cuts increase revenue through growth...

And considering that our government uses static models in predicting effects of tax law changes because dynamic models are too risky evne though there is plenty of data to allow its use...

And considering that our own budget deficit estimates under a fairly fixed set of laws and conditions fluctuate wildly over time...

The entire Fair Tax movement appears to be a very risky scheme from any rational point of view. We do not tolerate these high levels of risk and we are in the middle of a world war that needs to be financed to boot. I think this whole exercise is a huge waste of time.

It is not going to happen, it will let Neal Boortz add "NYT Bestselling Author to his official bio". I am beginning to think that is his motivation.

[calex59]

Sorry, I don't understand your answer.

[higgmeister]

I am still trying to figure out how they are going to get Trixie the local prostitute to collect and remit a 30% sales tax.

Trixie isn't paying income tax right now and
she isn't, right now, collecting sales tax
from her customers either. Right now, none
of Trixie's funds go to the government.

That would change with the Fair Tax. Trixie
would pay sales tax on her purchases. It
will be the same with drug dealers and every
other person in the shadow economy that
doesn't currently collect or declare income tax.

I plan to buy Neal's book to find out more.

[RobFromGa]

We, this country, existed well into the 20th century without an income tax

We also existed without our huge bloated inefficient government, the New Deal welfare programs, and the requirement to feed that gigantic hog called Washington.

[balrog666]

Yep, any rational, objective analysis shows the FAIRTAX is a fraud. Welcome to the fold.

[RobFromGa]

That would change with the Fair Tax. Trixie would pay sales tax on her purchases. It will be the same with drug dealers and every other person in the shadow economy that doesn't currently collect or declare income tax.

But this not true, she is paying all these taxes now when she buys legal goods, the Fair Taxers say that the taxes are hidden in the costs of the goods. So, she is already paying the taxes on her consumption of goods, they just have not been liberated and called taxes yet.

[listenhillary]

$16.47 Buy the fair tax book at Amazon here

How about reading the book or visiting
http://www.fairtaxvolunteer.org/smart/faq.html

Hard to believe the FR brigade is against something that would achieve the stated FR goals and makes polititians pee in their depends just thinking about the power they would lose over us all.

Free Republic is the premier online gathering place for independent, grass-roots conservatism on the web. We're working to roll back decades of governmental largesse, to root out political fraud and corruption, and to champion causes which further conservatism in America. And we always have fun doing it. Hoo-yah!

[Your Nightmare]

Under the fair Tax, the States will lose all funding from the Feds...

Even worse than the, the states would have to pay the FairTax on their purchases and the wages they pay their employees (that's right, the FairTax taxes the wages of government employees). A recent paper estimated the states "would pay $346.2 billion in NRST to the federal government, an amount about 50 percent greater than current state and local general sales tax revenues."

[The Drowning Witch]

Don't waste your time worrying about it, the 16th needs to be repealed first and that'll never happen in a million years.

This is the only thing stopping the Fair Tax from actually getting passed. There is NO WAY that the federal government is going to give up the single most comprehensive, effective domestic citizen database. Not in the midst of a War on Terror. NEVER GONNA HAPPEN. EVER.

Don't get me wrong, I LOVE this idea. So WHAT if it ain't revenue nuetral??? Nothing would make me happier than to starve the federal gov't of the only thing that keeps it alive; MONEY. Congress just spent 28 billion on UNHOLY pork in the transportation bill. 28 BILLION

[Principled]

Billing something as radical as this as "Absolutely no Downside," worries me. Wasn't the McCain/Feingold Campaign Finance Reform bill also a "no downside" bill?

I see the rebate as a downside. But without it, the tax reform is a political non-starter.

What guarantee is there that businesses will lower their prices instead of just keeping them where they are and reaping even more profits?

THe competitive market. It's the same reason everyone doesn't just keep raising their price today to make more. Maximum price does not necessarily mean maximum profit.

In any competitive industry, the market eliminates unnecessary costs. If the industry isn't competitive, they already charge what they want.

...this bill doesn't do anything about State, County and City taxes.

No it can't. You have to change state laws from the state. The feds can't change your state's tax laws.

With Washington having a 7.65% sales tax already, this will mean I pay over 30% sales tax for nearly everything.

It could - if Washington taxes everything - services included.

I don't see anything mandating a decrease in Federal spending, either. How can there be real tax reform if spending keeps going out of sight?

We've been trying to control spending for decades. It can't be done under the income tax system. Withholding and hidden taxes (business taxes) in prices prevent most of us from knowing what we really pay for our government.

It used to be that people would say "no tax reform until we get spending under control". Now it is become apparent that there will be no spending control without tax reform. Eliminate withholding. Make taxes visible to the maximum extent possible. Make us all feel the burden acutely. THAT will put downward pressure on taxes and spending.

Once this tax is in place, what guarantee is there that it won't be raised well beyond the 23%

No guarantee - just the ballot box. Pols like keeping their jobs. When any increase (or decrease) in taxes affects every single individual in the US on a daily basis by increasing or decreasing the amount of cash we have to pull our of our pockets to pay for anything - we will all be far more sensitive to tax burdens.

Some economists are now claiming the true rate will have to be over 30% for a National Sales Tax to work with the possibility of it eventually having to be raised to over 50%.

If this were the case, would it not indicate to you that we're already paying a similar amount? That we don't realize it is the problem IMO.

It claims to eliminate the IRS, but what bureaucracy will be started to oversee it and mail out those monthly checks and maintain records of who is registered for them? Will we be getting something worse than the IRS?

It does eliminate the IRS. THere is no reason for it. There will be no more income taxes to collect. There will have to be sales tax enforcement though. 45 states already have them. WRT the monthly rebate, the Soc Sec Admin will send the money. Not necessarily by mail though. To qualify for the rebate, you must be a legal resident with a valid SSN. I don't know about you, but I'd like some enforcement on SSNs.

...if they are really interested in saving citizens money...

I don't think that's their interest.

[RobFromGa]

I would like to answer your question, I really don't understand it though.

The Fair tax plan says that when, on a business trip, I buy a plane ticket and I spend the night in a hotel and buy a meal or when I buy 10,000 postage stamps to mail out brochures I will not pay the Fair Tax because these are business expenses.

As a sales service business, these things are the bulk of my expenses. Right now, I am reimbursed by my company for these expenses and they write them off of their profits thereby not paying income taxes.

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.

[listenhillary]

Can the FairTax really be passed into law? Do women have the right to vote in this country? Did we pass Prohibition? Did we repeal it? Do Blacks enjoy freedoms far beyond the lunch counter and mass transit? Do free-market economies dominate Eastern Europe, peoples once under the boot of communism?

All these were grassroots efforts that effected significant changes in our nation and the world. Is the current income tax system any less a yoke around the necks of otherwise free peoples? We think not.

[KarlInOhio]

You forgot to add in the cost of the matelial for the item.

Actually I just hand waved it away. Quite different from forgetting. :-).

For example, GM's cost for cars would be steel, plastics, electronics, machine tools, factory building, electricity, etc along with GM's labor costs and profits. Let's follow the steel. With the steel, the costs come from iron (and other inputs) along with the steel company's labor and profit. The cost of the iron is from the iron company's labor and profit + purchase price of the mine and mining equipment. The mining equipment's cost comes from labor, profit and materials to make the equipment. Other than the cost of the land for mines, farms, and real estate, all the costs will be labor or profits for someone. I assumed that each layer was divided 70/20/10 (with a relatively insignificant amount for the land the raw materials come from).

I admit that isn't true across the board. Oil is the vast majority of the cost of gasoline at current prices, so the 70/20/10 split might be labor 10/profit 10/import 50/domestic land 30.

Unemployment might be another 1%, and I don't know how much is state vs. federal. Workman's comp is entirely state.

[Your Nightmare]

The thing about this caller's question is this: His 600,000 isn't setting there gathering dust, it is earning interest. He is not going to be paying tax on the interest and the next million he earns he won't have to give the government 400 grand of it.

It's a Roth IRA. He won't pay taxes on the money he makes.

[RobFromGa]

Can you answer my question at the top of this thread or are you just going to cheerlead for the FairTax and join the "Trust us, it'll all work out, don't you hate the IRS" chorus.

And saying that this is a "conservative" proposal doesn't make it so. It has to pass the smell test too.

[Lawgvr1955]

Don't waste your time worrying about it, the 16th needs to be repealed first and that'll never happen in a million years.

There are only 2 ways to amend the Constitution. All amendments thus far have been by acts of 2/3s of Congress later being approved by 3/4s of the state legislatures. The second method which has never been succesful is for Constitutional Conventions in 2/3s of the States to pass an amendment that is approved in 3/4s of the States. Hard to do.

There have apparently been several thousand amendments proposed. 27 have been approved.

[Principled]

THe caller was unaware that his savings will have it's purchasing power reduced by embedded tax costs already - in about the same extent. The nrst only changes that he will see the amount.

The significant problem is that when we all realize what the income tax system costs, we'll be mad as hell.

[Principled]

http://www.fairtaxvolunteer.org/smart/faq-main.html#16