Winners and Losers under the 'FairTax'

hripka | September 28, 2005 | self

[Tenacious 1]

Wrong generation, the Greatest Generation is in its final years. You are talking about the front end of the Baby Boomers.

[Final Authority]

What makes you think that consumption will rebound? Why would products be cheaper? The government is taking the same amount of money out of the economy, aren't they, so the total burden to any producer will be the same, and if it is not, who will shoulder the tax burden? How can workers earn more while the producer is charging less for its goods? If you do the math comparing the difference in the prices you cite (20%) and the employment tax, you are off by more than 10%.

I think you haven't thought through this, and just making claims is not making sense, in and of itself.

[hripka]

The question about savings was never savings at all, it was the statement made that both income and savings would increase. If everyone saves everything they earn starting tomorrow, then how long would the economy stay afloat?

This is why I mentioned that retail sales would decline. Hopefully income and exports would increase.

BTW, there is no incentive to save under the consumption tax like there is with an income tax.

Wow, I thought that the income tax hurts income (i.e. interest). The FairTax consumption tax at least doesn't tax that.

[rollinginmybuggy]

bunch of faulty assumptions in your list.

[Always Right]

Not the case.401K income is not taxable the day you retire.It is taxable as you withdraw it over 20 years at the rate of withdrawal perscribed by the Gov.The retired person comes out ahead.No income tax on retirement no consumption tax on basic neccesities(where most of spending goes)

Retirees will take it in the rear under the fair tax. All the money they saved over their whole career will overnight see a reduction in purchasing power of roughly 20%. If you call that coming out ahead, I don't know what to tell you. People earning income will see their paychecks go up to compensate, fixed income people are S-C-R-E-W-E-D.

[kjam22]

If you pay a high income tax rate right now... it's because you choose to.

[kjam22]

Oh you forgot... they're gonna let you have food and water without paying taxes on it. :)

[RobFromGa]

The average worker will IMMEDIATELY see his paycheck jump by 25% or more (think gross pay instead of net pay).

This has been shown to be FALSE. The FairTax study assumed that wages would be reduced to current take-home pay levels in order to remove the embedded tax costs from the pricing in products. See these threads for the whole story:

JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
	Posted by RobFromGa On News/Activism 08/25/2005 12:40:44 AM EDT · 701 replies · 7,599+ views
MONEY finds flaw in 'FairTax' bestseller [FairTax myth busted by major magazine]
	Posted by Your Nightmare On News/Activism 09/08/2005 7:48:28 AM EDT · 238 replies · 2,830+ views

[hripka]

Hurt - illegals, Drug Dealers, the cash economy

Assume I am purchasing an illegal item (drugs, prostitution, etc.)

1. Under a FairTax I don't pay tax on my income.

2. I don't think that the dealer/prostitute will be collecting ANY sales tax.

3. When the dealer/prostitute spends my money, then it will be taxed. But remember, I wasn't taxed in step 1, so wouldn't it be the same as now, just taxed at a later step?

The Mob

The Mob might be a great beneficiary of a FairTax due to vastly increased smuggling opportunites.

[kjam22]

You know..... I think most people who favor the consumption tax are small business people who just don't want to fill out forms. They don't want to go through the red tape that is currently required to be a small buisness owner. This whole thing I think is about them cutting through red tape. For most it's not really about Congress reducing spending, lowering the deficit, generating more income or whatever...

Do you think?

[Final Authority]

If you save using a conventional IRA, isn't it still savings? It isn't taxed until one retires and withdraws it, but under the consumption tax proposal, it will be taxed at a much higher rate (for most retirees) than the tax rate they would have after retirement when they are taxed at a much lower tax bracket. Or, if they do save using a Roth IRA, they have already paid the tax (savings after tax) and could withdraw it and pay no tax, unless there is a consumption tax. Why do you think there are malls on the NH, MA border or the DE, MD border, because people like to pay consumption taxes or because they don't?

In the income tax, interest earned is offset by interest paid, but if you do not own a home and have no mortgage, how would I expect you to know? But, even if you don't, you benefit anyway, by the standard deduction, which by any measure is way too progressive.

[Final Authority]

WRT 48, thanks Rob.

[hripka]

bunch of faulty assumptions in your list.

Could you expand on that please?

[Tenacious 1]

"What makes you think that consumption will rebound? Why would products be cheaper?"

I am saying that the before tax price is cheaper. I am not completely convinced that the after tax price will be cheaper. I am still a little skeptical in this area but believe it will be within 5% of the pre-Fair-Tax-implementaion. Consumption will rebound based on citizens having more disposable income.

"If you do the math comparing the difference in the prices you cite (20%) and the employment tax, you are off by more than 10%."

I was using round numbers because I am not completely convinced that Boortz/Linder have their percentages correct and there is lots of debate. I didn't do math just used an example.

"I think you haven't thought through this, and just making claims is not making sense, in and of itself."

On the contrary, I have thought this through extensively. I have and continue to educate myself on it. I have several concerns with the details that I have cited in posts before. I am not a dead head, die hard advocate of all of the details, but the premise of the Fair Tax is ideolically and economically sound. I don't drink Fair Tax Coolaide, I am expressing my thoughts and opinions like everyone else. I am an educated, articulate, active, voting member of society that pays way too much in taxes to a government that spends way to much money on wastefull politically driven pet projects that are never fiscally well accounted for.

I do not always spell to good though (this is intellectual humor).

[RobFromGa]

3. Savers. Thrift and frugality will now be rewarded.

But anyone who saved money before after paying taxes on it, will be HURT because the same money will be taxed again when it is useed for consumption.

John Linder refers to the FAIR TAX very often as a "tax on accumulated wealth". He did this again last week on the air with Boortz at a luncheon with FairTax supporters in the audience.

He also stated that he can't believe the Democrats are not all for it because it will heavily impact people like Teresa Heinz-Kerry who have a lot of money accumulated. They continue to refer to the plan as a financial "bonanza" even though obviously there can't be a bonanza for everyone and collect the same amount of money.

The FairTax Plan is snake oil and until the proponents are willing to argue their plan honestly there is no real point in debating it.

[hripka]

I am surprised no one has attempted to answer my first Three questions (from Post 1):

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?

3. Also, if a 'FairTax' is only levied on final retail sales, the 'fair tax' rate will have to be MUCH higher than 23% (inclusive) or 30% (exclusive rate). Today the feds spend 2.5 trillion. The GDP is over 11 trillion. Approximately two-thirds of that (7.26 trillion) is consumer spending. 2.5 trillion divided by 7.26 trillion is a federal sales tax rate of 34%. To say that government will pay taxes to itself is a circular argument. On a 77 cent item, everyone pays $1. When the government pays for it, it goes back into its own pocket. Sure a dollar comes out of the government's right pocket, but 23 cents goes immediately into the left pocket. If that isn't the epitome of an 'embedded' tax, then what is?

[hripka]

I put Roth IRA holders in the 'loser' category for precisely the reasons you state.

[Tenacious 1]

Please don't go back to that again.

I read all of it, the posts, the articles, the studies, everything. Lots of reading and time spent. There are compelling cases that amounts to the percentage of the tax relative to what company's would have to do to lower the pretax price of goods based on the studies. It is simply symantics of what the price of goods would be within a couple of percentage points based on the final percentage of Fair Tax applied to goods.

[RobFromGa]

I think most people who favor the consumption tax are small business people who just don't want to fill out forms.

Most small business people spend a small percentage of their time and money for filling out corporate tax forms. Almost every single small business owner I have talked with doesn't want to see a major change like this made which endangers the entire economy and everything they have built in the likley case that the FairTax proponents are wrong in their rosy assumptions.

They continue to lie about the plan, so I have no confidence in their statements.

[kjam22]

You may be correct....