Posted on 09/28/2005 12:14:25 PM PDT by hripka
A change in a tax affects that area of the economy . . . and beyond. Taxes hurt whatever is taxed. Income taxes hurt income (production). Sales taxes hurt sales (consumption). Higher rates have higher effects.
After having read "The FairTax Book: Saying Goodbye to the Income Tax and the IRS" by Neal Boortz and Congressman John Linder, I realized that the 'FairTax' proposed by Boortz and Linder would change EVERYTHING. The 'FairTax' is not tax reform, it is tax upheaval. Since it taxes consumption instead of income, consumption WILL fall, and incomes WILL rise. All of the incentives (and penalties) enacted into the current tax code would, at least be neutralized, or perhaps go into reverse.
A frugal person might be in favor of a 'FairTax' (National Retail Sales Tax, NRST) because the United States is consuming too much and needs more income. Considering our multiple deficits, (federal budget, international trade, consumer debt, etc.) cutting consumption and increasing income might not be a bad thing, but only to a point. However, the 'FairTaxers' assume minimal transition costs. They are VERY mistaken. The day of the change itself would be minor, but then the 'FairTax' would change EVERYTHING.
A list (in no particular order) put together by an amateur, not a tax professional:
List of those who would benefit under the 'FairTax' plan:
1. Business/production in general
2. All income-producing activities that were previously taxed, dividend payers, capital gains, etc.
3. Savers. Thrift and frugality will now be rewarded.
4. Activities that were formerly penalized: Alternative minimum tax payers, estate tax payers, gift tax payers, etc.
5. Corporate bonds, as compared to government bonds
6. Cash and bartering transactions
7. eBay for handling used transactions, also flea markets, second-hand stores, rummage/garage sales
8. Current owners of houses, cars, clothes, household goods. The answer on pg. 162-163 ignores existing houses. It states that *new* houses will decline in price, but go right back up again due to the 'FairTax'. And existing houses?
9. Companies will start a Company Store for tax-free employee benefits
10. Home-based activities: sewing, knitting, cooking, fruit and vegetable gardening at home, home repair, do-it-yourself, self reliance
11. Refurbishing of standing 'used' real estate
12. Smuggling, especially of portable high-value goods
13. Warren Buffett, who doesn't sell due to capital gains taxes which are now eliminated
14. Indian tribes could offer tax-free stores, and their casinos aren't affected
and others ? ?
List of those who would be hurt under the 'FairTax' plan:
1. Consumers/spenders in general
2. All retail establishments
2a. less impacted: those catering to home-based activities such as groceries, home improvement, etc.
2b. Internet-based retailers
2c. most impacted: portable high-value goods such as stamp, coin, jewelry dealers which might even close due to smuggling
3. Federal Government temporarily, due to initial tax simplification
4. IRS employees, tax accountants and lobbyists, HR Block, Intuit, etc.
5. Government bonds, (no longer tax-advantaged) as compared to corporate bonds
6. Roth IRA account holders (despite pg. 120-121 that a principle of the 'FairTax' that everything should be taxed only once)
7. Charitable donations to charities and churches, due to loss of tax deductible giving
8. All currently tax-exempt organizations, their comparative advantage is reduced.
9. Home real estate in general due to loss of tax deductible interest, a major selling point.
10. New real estate developments - especially near cities with old housing
11. Residents of states that don't currently have a sales tax, those states will enact their own sales tax
12. Taxpayers living in states or cities with high income or high property taxes, which are no longer deductible
13. Anything currently tax-advantaged through credits and deductions, i.e. conservation efforts, high medical bills, victims of casualty and theft losses, child and adoption tax credits, capital losses, etc.
14. Tax-advantaged 401k's, no reason to have them ? though savings in general will increase
15. China, Japan, etc., countries that currently export to us
16. All non-Indian casinos and lotteries. Casinos have to pay in effect a 23% income tax on gross profits (gross receipts minus payoffs and other taxes)!? My reading of Section 702(e).
and others ? ?
Remember, this is a list put together by an amateur, not a tax professional. Are there others affected, positively or negatively? Where am I wrong? Read my tagline.
A tax hurts what is taxed. That is how I came up with this list.
"I have recently entered my 50's and, for my entire working life, I have followed the frugal 'Millionaire Next Door' lifestyle while getting socked with income taxes."
If you continue to follow a frugal lifestyle, you will do very well under the FairTax. Because of the rebate, your purchasing power up to the poverty level will be increased, not decreased. You would have to spend WAY over the poverty level to be worse off.
In addition, to the extent that your savings are invested in equities of US companies, you will do very well.
Apparently you have never heard of a concept called "capitalism". If I were the president of Ford and wanted to increase sales, as soon as the hated income tax was repealed, I would advertise that Ford was cutting prices as quickly as possible to pass their savings on to the consumer. Think about late January until mid-april when all the income tax rebates are coming in. Do retailers raise or lower prices to try to get this money?
The purpose of the charitable contributions deduction is so that you can donate pre-tax dollars. However, there are many limitations imposed by the IRC. With the FairTax, all donations are made with pre-tax dollars, and are not subject to any government limitations.Except the charity pays FairTax on their purchases (unless they are producing something for sale) so the real value of the gift is the same.
I never said savings would decline to zero and I never said we would ever see a NRST either. So your reply is as usual, moot.
It is easy to know when I make sense, sway the uninformed and less informed, and get under the farttaxers skin, I get bombed with senseless replies like yours.
I am quite aware of capitalistic principles. I am also aware that if there is more money chasing the same goods, prices ain't coming down.
You are correct. I should of said purchases which are consumed in America, which is what I think the question was referring to. Obvioiusly things you buy and consume abroad would be impossible to tax, but anything you bring into the US would be.
"So BOTH savings and consumption would decline under a consumption tax? What would Americans be doing with their money?"
"I never said savings would decline to zero and I never said we would ever see a NRST either. So your reply is as usual, moot."
I did not imply that you said savings would decline TO ZERO. Savings declines can be lower in magnitude than 100%.
Your response is therefore non-responsive to the issue that you raised. No surprises there.
FA: "If everyone saves everything they earn starting tomorrow, then how long would the economy stay afloat?"
PW: "How long do you realistically think that Americans would go with zero consumption under the FairTax?"
FA: "It is easy to know when I make sense, sway the uninformed and less informed, and get under the farttaxers skin, I get bombed with senseless replies like yours."
You really think you are going to "sway the uninformed" by posts like that? That kind of hyperbole and scare tactic does not "sway" anyone. Yes, I know the SQLs will applaud you, but that isn't "swaying the uninformed". You are the one who fears "everyone saving everything they earn" under the FairTax, then when challenged on that irrational assertion, retreat into insults.
As a matter of fact, savings would go up under the FairTax - which means consumption would initially decline. That decline would be disproportionately skewed toward imports, which virtually every economist says would be tremendously beneficial to our economy.
By same as now I assume you mean revenue neutral to the gov? If so, then it sounds like a good deal to me. People who work and earn money get to keep it until they decide to spend it on something. If there is illegal activity, those who break the law get taxed when they spend. Problem?
Thanks, good point, my mistake. Still a bunch of whiners.
Thank you for your nice reply.
As someone about 15 years from retirement, I am in the position of paying a big burden for a plan I am assuming will go bust before I get anything back. And I agree, it is the politicians who are the true culprits.
One thing I like about the Fair Tax approach is the extent to which it takes so much of the politics out of how the government raises money. Perhaps in a system where everyone pays a proportionally equal share we can all focus on accountability for spending and politics can focus on what moeny is spent for vs. the class envy drivel.
You are wrong, wrong again, as usual....
"It is easy to know when I make sense..."
One reason that may be true is because it happens so infrequently.
"1. I am not sure how purchases made abroad by Americans are taxed. Section 101-d-1 of HR25 implies that the 'FairTax' is a Use Tax. I have seen other information that purchases made abroad are 'FairTax'-free. If it is the latter, then foreign purchases by Americans will skyrocket. See also the US Supreme Court decision of North Dakota vs. Quill Corporation regarding the use tax.
2. I read Section 102-a-2 to mean that (initial public offerings) IPOs are not taxed, but would investment real estate be taxed?"
Foreign purchases are not taxed unless the goods are brought back in to the USA for consumption here.
Investment real estate is not taxed.
You are so.....funny, and did I say clever, but not smart.
What people don't get is, that you "pay as you go." It is up to you how much you "go." If you want to save, you save, if you want to spend, you spend. That easy. Heck I have to pay a stinking accountant $200 every year to do our taxes because we simply cannot keep up with all the "rules of the game" that the IRS puts in. I don't know why some here are griping about people would "save" instead of spend, thus hurting the economy. Heck ain't Greenspan and all those talking heads whining all the time about Americans NOT saving enough. What would be next, saving too much and not SPENDING enough?
"You are wrong, wrong again, as usual...."
Another vague, unsupported assertion by an SQL. Check out my tagline for my response.
"I don't know why some here are griping about people would 'save' instead of spend, thus hurting the economy. Heck ain't Greenspan and all those talking heads whining all the time about Americans NOT saving enough. What would be next, saving too much and not SPENDING enough?"
That is exactly the point the SQLs miss. The economists are much more concerned about our non-existent national savings rate.
"At over 40 percent of GDP, China has one of the world's highest savings rates. The heavy flow of foreign investment into China pales next to the investment the Chinese themselves are making."
p. 73, "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East", Clyde Prestowitz.
This begs the question: if high consumption rates are the key to economic growth, how is it that the Chinese growth rate has been double that of the USA for the past few years when our consumption rates are much, much higher than theirs?
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