Posted on 11/10/2005 3:18:48 AM PST by Man50D
Since 1954, the size of the United States' tax code has increased by almost 500 percent. Tax regulations created by the Internal Revenue Service have increased in volume by 939 percent, and in April 2006, Americans will spend a combined total of 6.5 billion hours, at an estimated cost of close to $500 billion, in order to simply pay for the privilege of footing Washington's bill.
It is time for the FairTax.
Perhaps you have heard of the FairTax by now. It is a comprehensive plan for the dissolution of the IRS that would replace all income taxes with an embedded personal consumption tax. According to the website of Americans for Fair Taxation (www.fairtax.org), the FairTax would abolish "personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment and corporate taxes." In their stead would be a 23 percent national sales tax on all consumption goods: a simple, one-time tax that is collected at the retail level.
However, the FairTax is unlike the current sales taxes that exist in this country. These taxes are imposed on top of embedded income tax and compliance costs. In the FairTax Book, written by libertarian radio personality Neal Boortz and Congressman John Linder, a loaf of bread is used as an example to illustrate these hidden costs. For every loaf of bread, the seed producers pass tax costs onto consumers. The shipping company does too. In fact, processors, bakeries, distributors and grocery stores all pass a portion of their income tax burdens onto consumers, no matter how rich or poor they are. Eliminating these costs initially, by eliminating the income tax altogether, would reduce the market price of all products by an average of 22 percent.
Don't take my word for it, though. Take the word of the Harvard Economics Department.
So when these costs are abolished, the FairTax is added and returns the prices of consumption goods to - you guessed it - exactly where they are today. The difference is, of course, that people who are purchasing these things keep every last penny of their paychecks. For low-income families, this would mean an immediate average increase in pay of 25-30 percent.
If you are trying to think of ways in which to oppose this plan, I need to know one thing: why?
The federal government would still steal - I mean, collect - the same amount of tax revenue as it does today under the FairTax. The FairTax does not cut funding from any cherished socialist programs like welfare or Social Security. It is merely a new way for the federal government to pay for its existence.
But wait, it gets better. The FairTax Act of 2005 (yes, it has already been written and is ready to be passed) also contains mechanisms for a "prebate." Based on government figures, the federal government would calculate the "annual consumption allowance" of a household - that is, the amount of money that household can be expected to spend on the necessities of life for that year - and refunds the money. Every household in America gets a tax refund, every year.
In case you had not noticed, wealthy individuals tend to spend more money than poor individuals on consumption goods; thus, the wealthy would end up paying more in taxes than the poor. Most people seem to like this idea.
Finally, the economic impact would be astounding. Driven by the "increasing burden of taxation and Social Security payments, combined with rising state regulatory activities and labor market restrictions," American businesses have been seeking out "tax havens" in other countries with much friendlier tax structures. The media buzzword for this phenomenon is "outsourcing," and believe it or not, our government has been causing it all along.
Passing the FairTax Act would make the United States the "only nation in the world whose companies could sell into a global economy with no tax component in the price system." Companies would rush to bring jobs back to the United States, and their American workers would keep all of the money they earn.
The FairTax is a typical libertarian solution to a greater social problem. Instead of promising more regulations, like many Republicrats typically do, we reduce them. It is a novel concept, I know. The results would be revolutionary.
The FairTax is not a panacea. It does not lower taxes, and it does nothing to curb the spending orgy the Republicrats have been having in Washington. It does not stop pork barrel spending, nor does it re-evaluate how federal money is spent. The responsibility for affecting change in those areas falls squarely on us, as voters.
However, the FairTax would be an enormous stake in the heart of the monstrosity that is the IRS. The thought is enough to make any libertarian smile happily and sleep better at night.
We need the FairTax now.
Scott Wagner is the president of the College Libertarians Club. He writes political satire for the Web site The Enduring Vision and thinks you should go read it. He can be contacted at swagner1@nd.edu
Excellent! I love a party!
There's a whole web-site about the fair tax. Did you know that?
There is a whole website about gullible fools, did you know that?
I actually don't find it amusing at all. I think Protagoras and Final Authority are probably pseudonyms used by the same 11 year old brat.
He adds nothing to the discussion as his stated goal is simply to irritate others.
There are one or two SQL's who post reasonable arguments on here. But there are many more who don't. It does the fair tax crowd a big favor when the anti's are so belligerent and fail to make logical arguments.
FA,
Could you please provide an example of one of these
"retirees who have post tax investments to spend and have planned on financing their retirements otherwise at a very low marginal income tax rate."
Please provide the amount of their investments, the type of investment, how much of the investment gain is still unrealized, how much depreciation has been taken on real estate rental property, the average post-inflation rate of return, SS income and single/married status, and how their money will be spent in retirement. Also, their current income and what year they plan to retire, if they are not already retired.
I didn't ask for any personal information about you.
I asked for a hypothetical example. You have stated several times that this group of people would lose out under the FairTax. If you cannot provide a simple example of such a person, then you are working off nothing but rhetoric and assumptions. Each of the questions I asked was relevent to the calculation of such a person's taxes under the two tax systems.
I put together a very detailed example for Polybius in another thread, in the interest of honest discussion. I was willing to do the same for you.
As to who I am, I think that is clear. I am the person trying to honestly debate an issue. You are the person making wild assertions, refusing to offer any sort of proof, and getting belligerant.
So put up or shut up. Show us all an honest example, rather than just screaming invective.
Are you operating under a set of FairTax assumptions that assume that the price of goods are going to come down by 22% on average so that the 30% FairTax can be added, and prices will stay the same?
If you are operating under that assumption, then your calculations are going to be all screwed up.
Assume that the hypothetical couple are both retired, 63 years old, and have $1,000,000 saved-- $500,000 after tax money invested in safe dividend-paying investments and $500,000 in their home which they plan to live in for ten more years then sell it and move into a smaller place and invest the proceeds. They have saved up all their life and they plan to spend money now travelling the USA and buying stuff that appeals to them.
They also have a $200,000 Roth IRA which they have paid income taxes on and a $200,000 regular IRA. These guys have scrimped and saved, and by God, now they are going to enjoy the fruits of their labor.
Make whatever other assumptions you want about Mr. and Mrs. Accumulated Wealth.
No, Rob, I don't assume the 22% price drop. I work my examples without a price drop and then see how much prices would need to drop, if any, for that particular person to come out even or ahead under the FairTax.
My additional assumptions about Mr. and Mrs. Accumulated wealth are these:
1) Retired early in 2004, with last-year income of $60K, SS benefit $1245/mo =~$15K/yr.
2) Cost-basis of dividend-generating stocks in after-tax investment account is $200K, with $300K unrealized capital gains. Dividends of 3%/yr ($15K) under Income Tax system, Dividends increase to 4%/yr ($20K) under FairTax. Reduction of tax rate on dividends and capital gains historically results in higher dividend payouts -- corporate savings from eliminated taxes must go back to shareholders.
3) Regular IRA with $200K rate of return 5% subject to ordinary income tax rates.
4) Roth IRA $200K will grow at 5%/yr, and withdrawn with no Income Tax due.
5) Home appreciating in value 3%/yr faster than inflation. Original purchase price $75K. FairTax on new construction (consequence of no Price Drop) bumps price of existing homes so they are competitive.
6) Planned life expectancy is to age 95.
7) All rates of return are inflation adjusted.
Income tax 1st ten years:
Income = $15K(SS) + $30K(AT) + $15K(IRA) + $15K(Roth) = $75K
Taxable income = $7.5K(SS) + $15K(AT) + $15K(IRA) - $10K(Married Std Ded) = $27.5K
Income Tax bill = $3K
Spendable income = $72K
At end of ten years:
AT account down to $328K
IRA down to $137K
Roth down to $137K
Home sold for $675K, capital gains in excess of allowed for couple is $100K, tax collected is $15K, net invested is $660K, rate of return is %5.
Next 32 years of income tax:
Income = $15K(SS) + $16K(AT) + $8.7K(IRA) + $8.7K(Roth) + $42K(HOUSE) = $92.4K
Taxable income = $7.5K(SS) + $9K(AT) + $8.7K(IRA) + $33K(HOUSE) - $10K(Married Std Ded) = $48.2K
Income Tax bill = $8.4K
Spendable income = $84K
The income tax bill would actually fall a little each year as less of the withdrawn amounts are interest/dividends.
FairTax 1st ten years:
Income = $15K(SS) + $44K(AT) + $15K(IRA) + $15K(Roth) + $4K(FCA)= $93K
Taxable income = 0
Income Tax bill = $0
Spendable income = $93K ($72K price + $21K FT)
At the end of ten years:
AT account down to $214K
IRA down to $137K
Roth down to $137K
Home sold for $877K ($675*1.2987), net invested is $877K, rate of return is %5.
Next 32 years of FairTax:
Income = $15K(SS) + $12K(AT) + $8.7K(IRA) + $8.7K(Roth) + $55.6K(HOUSE) + $4K(FCA)= $103K
Taxable income = $0
Income Tax bill = $0K
Spendable income = $103K ($79K price + $24K FT)
It looks like it is about a wash to me. The money lasts until age 95 with approx the same purchasing power under Income Tax and FairTax. With no Price Drop figured into anything, Mr. & Mrs. Accumulated wealth have $5K less to spend each year during their last 32 years.
This supposes that they spend none of their time traveling outside the USA, and they buy everything brand new at retail - no used vehicles, no previously owned artwork, no educational expenses.
To break even compared with the Income Tax, Mr. & Mrs. Accumulated Wealth would like to see an average Price Drop of 4%, or a lower FT Rate.
That is quite a debating method you have there. I last encountered it among a group of 11 year old brats.
Now that you are defeated, don't go away mad. Just go away. Slink off into a corner and sulk because you couldn't think up an example. We'll all pretend we don't hear you crying.
Are you operating under a set of FairTax assumptions that assume that the price of goods are going to come down by 22% on average so that the 30% FairTax can be added, and prices will stay the same?No but s/he makes the assumtion everyone has more money to spend than they earn without mention of where the extra money comes from...The fairtax money tree I guess.
Not to mention s/he assumes receiving a yearly rebate for a family of four for 32yrs into RETIREMENT....s/he also didn't account for the 25% interest rate reduction. Interest rates effect investments as well as lending.
It's "HE" if it is bothering you.
No, I didn't mention where the FCA comes from. The FairTax rate of 23% supposedly covers this amount. That would be an issue for a separate thread.
The FCA amount for a family of four according to the 2005 tables would be $5,902. The amount for a married couple is $4,402. I rounded down to $4K.
Yes, interest rates do affect investments. Lower interest rates mean higher corporate earnings and higher dividends can be paid out. Rob didn't say the hypothetical couple's money was invested in CD's or bank accounts. He said "dividend-paying investments" and I was allowed to choose the investments. I chose high-yield mutual funds.
I'll take a look at this closer later, a few quick questions:
1. how did you calculate the $44k AT income in the FairTax example? (as compared with only $15k AT income off the exact same amount of money under the present scenario. by depleting the AT nest egg?)
2. how do you figure that all used homes will be worth 30% more plus real estate continue to rise at 3% over inflation after the FairTax is enacted? This is illogical to me.
3. did you mean next 22 years for the second phase?
4. Income tax for MFJ at 48,200 per year is $6500, not $8400. (and capital gains are taxed at a lower rate of 5% for those in the lowest two tax brackets so I think the taxable income would not even be as high as you state).
at first glance it looks like this hypothetical couple makes out better as you describe it by depleting their after tax next egg much faster until they sell their house, but then the additional amount of home appreciation you predict under the FairTax makes up for it and restocks the money they spent out of their nest egg.
if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:
present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000
1. how did you calculate the $44k AT income in the FairTax example? (as compared with only $15k AT income off the exact same amount of money under the present scenario. by depleting the AT nest egg?)
[Yes, I had to deplete it faster in the FairTax to maintain the same purchasing power as in the income tax. My goal was to maintain as close to the same purchasing power between tax systems for as long as possible.]
2. how do you figure that all used homes will be worth 30% more plus real estate continue to rise at 3% over inflation after the FairTax is enacted? This is illogical to me.
[Over the last 30 years, real estate has averaged 3% over inflation. If you don't allow for any price drop, then a new home that is currently selling for 'X' will sell for 1.3*X under FairTax. Since existing home prices are generally competitive with new home prices of the same size in the same area, it seems reasonable to assume that existing home prices would have a final price similar to FairTaxed new homes. Since the FairTax won't apply, that is all benefit to the seller.]
3. did you mean next 22 years for the second phase?
[Oops. I did intend that, but all my numbers came from using a retirement calculator called "I'm retired, how long will my savings last ?" http://www.fincalc.com/ret_06.asp?id=12221 and I used 32 years after the initial 10. So my example turns out to run out to age 105. That income stream looked a little low to me for a $1.4M nestegg. Thanks for pointing out why.]
4. Income tax for MFJ at 48,200 per year is $6500, not $8400. (and capital gains are taxed at a lower rate of 5% for those in the lowest two tax brackets so I think the taxable income would not even be as high as you state).
[Well, the lower capital gains tax is slated to sunset in 2009, so I ignored the lower rate. But you may be right about the $6,500. That would make their spendable another $2K higher.]
at first glance it looks like this hypothetical couple makes out better as you describe it by depleting their after tax next egg much faster until they sell their house, but then the additional amount of home appreciation you predict under the FairTax makes up for it and restocks the money they spent out of their nest egg.
[Yes, they do go through their nestegg faster at first and benefit later from the higher home value. But the FairTax still penalizes them. They come out better under the income tax. To come out ahead under the FairTax, they'd need to get some Price Drop, spend some money not subject to FairTax, or buy under a lower FairTax rate. It looks like it is really the Roth IRA that is penalized most when compared to Income tax. Which makes sense, of course. Theoretically, if someone was relying entirely on Roth IRA money, they'd be really screwed.]
"if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:
present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000"
Interesting, isn't it ? This couple spends about $200K less over the 42 years, but the government revenue is $565K higher.
I'll have to think about how that works.
"if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:Kellis91789:present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000"
Interesting, isn't it ? This couple spends about $200K less over the 42 years, but the government revenue is $565K higher.For starters one is a tax on "spending" the other is on "taxable" income. Not all income is taxable but all spending would be. You also include the "rebate" as income...It's a rebate. It's only a welfare check if it's your only income and then it's still only worth 77% of it's face amount (the first year of enactment).I'll have to think about how that works.
As posted by Robfromga, Linder has openly said and Kotlikoff the economist's report to the Fairtax proves, the Fairtax is a tax on accumulated wealth. IOW, the people who accumulated wealth, survived the tyrannical tax system you all despise would once again be the wipping dog. Only this time it would be the tyranny of the fairtax.
In your quest to prove how much better off a retiree would be, you did just the opposite. You can't even prove it by using made up figures.
No, I didn't mention where the FCA comes from. The FairTax rate of 23% supposedly covers this amount. That would be an issue for a separate thread.It's not an issue for a separate thread when you add it to your gross income as if it's a welfare check. If everyone get extra income to spend, where does it come from?
The FCA amount for a family of four according to the 2005 tables would be $5,902. The amount for a married couple is $4,402. I rounded down to $4KYou're correct, I looked under at the table for a single person's FCA.
Elderly Childless Households - 2002
Income
Income +
Payroll +
Corporate
Income
Tax Rate
Tax Inclusive
Spending
(including
$4,076 FCA)
FairTax
Paid
FairTax
Paid
(Gross - FCA)
FairTax
Rate
Decrease in
Tax BurdenLowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile All
Source for Gross Income and Effective Income, Payroll, and Corporate Income Tax Rates: Congressional Budget Office
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