Posted on 12/05/2005 2:36:33 PM PST by Eaglewatcher
Imagine if all of these trillions of dollars were added back to the American economy. On top of that, imagine saving the $500 billion compliance costs every year. These two things would give a huge boost to the American economy. Fortunately, there is a plan to make this happen, a plan sponsored by Georgia Representative John Linder. The plan is called The FairTax, or H.R. 25. Part II of this paper will describe The FairTax.
Officially called the FairTax Act of 2005, the FairTax would do many things to simplify the way Americans pay taxes, including completely abolishing the Internal Revenue Service. The FairTax would replace many of the taxes Americans pay, including the individual income tax, the alternative minimum tax (AMT), corporate and business income taxes, capital gains taxes, Social Security taxes, Medicare taxes, the self-employment tax, estate taxes, and gift taxes (Boortz 74-5). The elimination of all of these taxes would allow workers to take home all of their paychecks. No withholding and no income taxes. That's right, people would get to choose when they had to pay money to the Federal Government, and that would be at the retail counter. Their money would not be forcibly taken from them.
Notice the word replace in the paragraph above. Many politicians tried using scare tactics in the 2004 election, telling the people that their opponents who supported the FairTax would be adding the FairTax on top of all those other taxes. This is simply not true (81-2). The FairTax would replace all of those taxes. The FairTax is neither a tax cut nor a tax hike, but an alternative method of gathering revenue for the Federal Government (75). Remember the 22-cents-out-of-every-dollar embedded taxes described in Part I of this paper? Take all of those taxes out, and institute a 23-cents-of-every-dollar consumption tax, and the prices of goods and services haven't changed much.
What is the FairTax? The FairTax is a proposed national consumption tax on new goods and services at the retail level. Only new goods are included for two reasons: First, goods should only be taxed once, not every time they change hands and second, taxing only new goods keeps things simple. Imagine the bureaucracy that would be needed for all people to keep track and correctly file their taxes whenever they sold their car, etc. We are trying to move away from all of that complexity!
In Part I of this paper, I mentioned the IRS tax code and how it exceeds 54,000 pages and 2.8 million words (Americans for Fair Taxation). Ordinary Americans do not have the time to interpret this abomination called the tax code. We have to pay others called CPAs (Certified Public Accountants) to do it for us. Think about this: we have to pay people money in order to pay the government money. How ridiculous! With the FairTax, businesses would just collect the consumption tax at the time of purchase, much like they already do in states where there is a sales tax. This saves time, and money. Americans will be paying the same amount of taxes, while not having to pay CPAs. More money in the pockets of Americans (generated by not having to waste time and money with CPAs) means that Americans will have more money to spend on consumer items, and thus will be creating even more tax revenue! Additionally, those 5.8 billion hours (Boortz 43) that I mentioned earlier will be spent on producing. When Americans as an aggregate spend 5.8 billion hours trying to pay the Federal Government money, they are not at their jobs or at home doing anything truly meaningful. They are, in essence, wasting time. With the FairTax, and without the IRS, those 5.8 billion hours would add to the economy, generating more income for people to spend, which would then generate more revenue for the government. Those hours would also allow for more quality of life, giving parents more time to spend with their kids, etc.
While companies are forced to make tax-decisions they are hindered in making economic and capitalistic decisions. Eliminating the income taxes, both personal and corporate, and instituting the FairTax would help businesses. This is especially true of small businesses.
"President Bush recognizes that supporting America’s small businesses is critical to ensuring continued job creation. Small businesses create two-thirds of new private sector jobs in America, employ more than half of all workers, and account for more than half of the output of our economy." (The White House)
Small businesses employ more than half of all workers and generate more than half of our economy. Wouldn't it make sense to help small business owners? Help them out, and what do you get? More employment and an extended production possibilities curve. What kinds of things hinder small businesses? Taxes, and more specifically, personal income taxes and self-employment taxes. Because small businesses are small, the owners typically pay taxes on the personal level or as small corporations. Because they are small, these taxes hit them much harder than they would a larger corporation. Eliminating these costs would allow all businesses, small and large, to focus their attention on producing goods and services, generating wealth for themselves and taxes for the government.
More people would be subject to this tax as well, thus generating more revenue for the government (I keep mentioning more revenue for the government; I know that the government needs to greatly reduce its spending, but that's another argument for another time). Who else would be paying into our tax system? Illegal immigrants and tourists. Think about it, under the current system, neither pay income taxes or Social Security taxes anyway, because illegals don't want to get caught, and tourists don't work here. With the FairTax, they would pay into the system with every purchase they made at the retail level. Some people dislike the idea that foreigners should pay into out system, but I don't and here's why: if they want the privilege of being in this country (whether working illegally or visiting legally), then they should contribute. Don't think for a minute that Americans don't pay Germany their Value Added Tax (VAT) when we buy their products.
The FairTax would also tap the large shadow economy of the United States. Whenever you buy the services of a landscaper, maid, house painter, or hot dog vendor, and you pay them in cash, it is not likely that they are reporting most if not all of that income, and this is known as the shadow economy. That income escapes the clutches of the Federal Government, but is that really fair? If you have to pay taxes on your income as a college professor, but I don't pay taxes on my income as a theoretical house painter, is that fair? The answer is no. Under the FairTax, we both keep all of our income, and pay taxes at the cash register. In his book, which I have cited often in this paper, Neal Boortz cites a 2000 survey claiming that the “shadow economy accounts for more than 10 percent if America's GDP. . .†(93 *). Maybe that kid who mows your grass doesn't pay an income tax on the money earned by his services, but he'll pay the consumption tax when he buys a new video game at Blockbuster.
Many jobs are sent overseas when American companies take their corporate headquarters and manufacturing plants there. Why would they move away? Under the current tax system, businesses are burdened by the regulations and costs associated with compliance. How much money is overseas? “[T]he 2000 Merrill Lynch & Gemini Consulting study World Wealth Report estimates that one third of he wealth of the world's high-net-worth individuals is held offshore. How much would that be? Try $11 trillion - $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15†(Boortz 97). Think about the size of that number. $11 trillion is enough to give 11 million people a million dollars each. This $11 trillion is not in the American economy. This $11 trillion is not producing jobs in this country, nor is it investing in capital or technology in this country.
Let's start putting all of this together, assuming that the IRS has been abolished, and the 16th Amendment has been repealed. People get to take home their whole paycheck every week or two. Their employers can hire more people because they have more money and a higher production possibilities curve. The cost of goods and services stays about the same as before because the 23% consumption tax is about the same as the previous 22% embedded tax (that most people don't even know they were paying). The shadow economy is drastically reduced. Additionally, businesses from overseas begin to come home to this relatively tax-friendly environment, bringing with them even more jobs and capital. Sounding pretty good so far, right? Now for the Grand Finale: The Prebate.
Lyndon B. Johnson launched his War on Poverty in the mid-1960s, and so far, not much has happened. Let's try a new War on Poverty: The FairTax. With this newly implemented FairTax, lower-income workers are already getting to keep their whole paycheck. Most of them never paid any appreciable amount of income taxes, but now they are not having to pay withholding taxes either. They have more money in their pockets. Goods and services cost about the same as before, so already these lower-income workers are doing better than before the FairTax. Let's help them out even further. H.R. 25, or the FairTax, provides for a prebate on the basic necessities of life. A prebate would be a check from the government given monthly to all working Americans to cover their costs of taxes on essential goods and services at the poverty line. That's right, the government would give Americans, and we'll focus on lower income Americans, a check to cover the taxes needed to pay for food and shelter up to the poverty line (Boortz 85).
Think about this for another minute, not only would lower-income Americans have more money in their pockets, but the cost of taxes on goods and services (the bare essentials) up to the poverty line would be eliminated by this prebate. This would essentially lower the prices of these goods needed by lower-income workers. Here's how this all flows out: 22% embedded taxes are eliminated, 23% sales tax is implemented, all Americans receive checks to cover this 23% up to their determined poverty line, lowering the costs yet again. The combination of more income and lower costs would greatly increase the purchasing power of lower-income workers, and would do wonders for the anti-poverty movement.
The FairTax would allow all Americans to keep their whole paycheck, while cutting taxes on goods and services up to the poverty level. The FairTax would eliminate $500 billion of waste every year, putting 5.8 billion hours to better use. The FairTax would tap the purchasing power of both illegal workers as well as perfectly legal tourists. The FairTax would greatly reduce the shadow economy in our country. The FairTax would bring back $11 trillion to our country. The FairTax would utilize all of this to generate more money for the Federal Government. The FairTax would grow the economy and help lower-income Americans. The FairTax is “about making April 15 just another beautiful spring day. . .†(Boortz XV). The FairTax Book by Neal Boortz and Congressman John Linder is a must-read, both informative and entertaining.
Bibliography Boortz, Neal & John Linder. The FairTax Book. New York: HarperCollins Publishers, 2005.
* “Friedrich Schneider and Dominik H. Enste, “Shadow Economies: Size, Causes, and Consequences,†Journal of Economic Literature, 38 (March 2000), pp. 77-114.†Cited in Boortz' The FairTax Book, page 93.
McConnell, Campbell R. & Stanley L. Brue. Economics: Principles, Problems, and Policies. 16th ed. McGraw-Hill/Irwin, 2005. Online. Americans for Fair Taxation. . Online. Tax Foundation. . Online. The White House: President George W. Bush.
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I was intrigued by your #379 (though considerably put off by your arithmetic skills and obvious ignoring of any single positive aspect of the FairTax despite your claim to have been "on board" with it). But, hey, fun is fun - right???
BTW, don't think for a minute this ploy of yours is being taken for what you pretend it to be. In view of the fact that you have "cherry picked" the situation and data and have intentionally excluded benefits of the FairTax it is a greatly-biased set of circumstances (which you undoubtedly realize having presented in such an obsequious manner).
Working with YOUR data in YOUR hypothetical, then, and analyzing it we have (2005 figures):
$600,000 mortgage; $4,500/mo. mtg pymt; 18 units at $450/mo. each ($8,100 before expenses allowing a net of $5K-$10K/yr.).
We'll assume that these 18 families are an average of M2K (married, 2 kids and file a 1040a with only wage income and no tax credits, etc. nor welfare goodies to complicate things). Each family is earning at very near the poverty level and has gross wages of $25,000/yr. for the single wage earner. This would give them a taxable income of about $2,200 AGI and an income tax of roughly $221 (bet there are lots of people who wish theirs was that low) so they can now plead with Uncle to return money - in other words thay've made an "investment" by loaning Uncle all that money for no interest ... but forget that!!! It's only money, right?
OK. From the $25,000 we subtract the MFJ (married filing jointly) deduction of $10,000 and then a bit further down on the form have the exemption of $12,800 for the 4 people. Not too shappy, eh? That leaves an AGI of $2,200 which translates to a tax due of $221. Not so bad either, but maybe there's a reason why they're living in your slumlord property (joke; lighten up) and paying such a huge rent of 22% of their before tax bux.
Hooo Boy ... here comes the FairTax that's going to - you claim - drive you into poverty if not bankruptcy since those poverty level folk can no longer pay your exhorbitant rate as you're now going to bump it from $450/mo. to $585/mo. and all because of that "nasty" FairTax that SQLers hate so. Let's check that out and see what the mechanics of the situation are. By your loaded definition of your hypothetical you've set things up so you, Mr. Slumlord, cannot save even a thin dime due to FairTax savings ... so let's pretend that is true (emphasis on PRETEND). Your tenants now receive their full $25,000 (and actually a bit more since they'll probably get the additional $1,913 of the ER payroll withholding; but let's drop that off, too - pretend it's gone, too).
Next we have to consider the prebate which is $5902 so that the renter now is $5,902 + $1,913 = $7,815 "richer" or better off by a bit over $651/mo. --- whoops, what's this --- he really CAN afford the rent ... better jack it up a bit, eh Slumlord??? But wait ,,, there's more!!!
You'd be a foolish Slumlord indeed it you didn't refinance the mortgage since I assume at $4,500 (actually $4,508 to be preciser) and a $600,000 nut, you have, say, a 20 year loan at 6.6% APR. Under the FairTax that would easily be dropped by a couple of points, say to 4.6% yielding payments of $3,828 or a savings of $672/mo. or a tad more that $8,000/yr. - sufficient to play Scrooge for all those poor folk at Christmastime if you can find a suitable Tiny Tim.
But it gets even better, you see. With this lowered mortgage rate, you'd save something like $163,000 over the life of the loan. Sufficient, probably, for a lifetime of haircuts at the barber of your choice.
The upshot of all this is that
Have you been drinking again, Nightie?
"In view of the fact that you have "cherry picked" the situation and data and have intentionally excluded benefits of the FairTax it is a greatly-biased set of circumstances."
Stop making statements you can't backup-- it makes the rest of what you say not as believable... the is a real situation of a business associate of mine. He wanted/wants me to go in on it for a fairly safe 10% ROI.
So your response boils down to:
(a) the tenents should be able to afford the rent increase based on all the assumptions of FairTax's claims regarding increasing wages coming true.
and
(b) FairTax is is going to drop long term interest rates by 30% thus everyone needs to refinance the day it is implemented.
I'll admit to overlooking (b) but not intentionally. Even if the claim pans out it comes to $33/unit/month -- much less than the $135/unit/month tax.
More name calling (scrooge) does not help you case. It is a real scenario that is in today's world a decent financial investment -- I'm questioning what is going to happen to it. And I have to take the somewhat risky assumption that everything you claim about taxes, wages, interest, and prices will come true in their best case scenario (and quickly to for the slumlord). That to me is a risky investment.
Now who is it that can't recognize a bit of humor or sarcasm??? That's hardly name calling nor was it done in that vein.
Despite your claim, you HAVE cherry-picked the situation and are still trying to do it by claiming that nothing in the FairTax can possibly be real until it comes true. With that attitude in the 1700's we'd still be beholden to King George. If you can't study the very good information on the FairTax website and realize how valid it is, you should never, never invest in anything. In fact, you should go hide your head under a rock and stick your rear end out like an ostrich.
Whether you realize it or not kpp_kpp, not everything in this world you don't agree with - or that is not shown the way you'd like to have it listed - is incorrect or invalid.
As far as I can tell you've done no real research into the FairTax details at all except to note things you don't like and continually carp about them.
As far as backing up the analysis I made, it is clear that you completely ignored the fact that the renters would be getting their full wages (even without the ER half) and so that certainly qualifies as "cherry picking". In addition you made every adverse assumption you could to try to bias the situation against the FairTax. Whether done intentionally or not, that's the upshot of your choices. That's exactly the tack taken by most liberals in attacking the FairTax so it makes you no different from them from what I can observe.
You've repeatedly on this thread claimed you're a mugwamp (fence sitter) and yet you can't even acknowledge the most basic economic claims shown by many of the economic studies that have been done on the FairTax. You even claim to have been "on board" with the FairTax which obviously is untrue in view of your lack of understanding of it. AFAIK all you will admit to is 3 or 4 vague generalities that are pretty much unrelated to the detailed economic effects of the FairTax and all else you reject or look totally askance at since "it ain't happened yet". You won't even acknowledge that wage earners will get all their wages. Whether you admit it or not - THAT'S cherry picking (along with the other benefits you ignored).
If you're looking for risk-free investment you will look forever. Your childish pretense about the FairTax will not help you analyze this or any other investment. And BTW it is not something I claim, but something that many economists have studied and believe will behave as presented by the FairTax website.
If you think it's risky under the FairTax, I'll have to tell you that it's going to be far riskier under the present system as income taxes are going to become more onerous and spiral right on upward as is the inflation rate which is merely another hidden tax. There's no free lunch and there's no unrisky investment. Thinking you can find one shows your naivete. You'd probably be better off not investing in anything as you'll only be disappointed wihen it falls apart.
btw, the congress extended the tax cut today. At least we have THAT going for us.
Fair tax bump.
* how can you say i've cherry picked? do you want the address of the property?
* regarding risk: i know how today's system works, how to invest, what is high risk, low risk, etc. i never claimed "no risk". you have a bad habit of puting words in my comments that don't exist and then arguing with them. i want to know what the risks are to today's good investment that i won't lose my shirt on the day fairtax comes along.
"Whether you realize it or not kpp_kpp, not everything in this world you don't agree with - or that is not shown the way you'd like to have it listed - is incorrect or invalid."
* same right back at you. i do plenty of research, that is why i keep questioning. i know that things are not as black and white as you claim. some supporters are much more honest. for example:
http://www.fairtaxblog.com/20050903/what-immediately-happens-to-prices/
Dale follows this by saying:
What Fair Tax people are promising is a free lunch. They promise that a) tax revenues will be neutral, b) prices will fall, and c) wages will rise.
In all honesty, this is a fair criticism. The idea that when embedded taxes are gone as a cost to business, prices will drop, is true. Competition will force the prices down to an equilibrium level that reflects these cost decreases. However, the immediate reaction to the FairTax will not remove all of the embedded taxes as a cost to business. The reason is that when politicians offer to end withholding, most workers are not going to allow their salaries to be cut. This means personal income taxes and the “employee contribution” to payroll taxes will not disappear. They will be paid to employees rather than to the government.
This means that prices cannot immediately drop 22%
I hate to have to concede this fact, because it makes the FairTax sound worse. The pre-tax price of products will, of course, fall. Removing the employer contribution to payroll taxes, removing corporate income taxes (and income taxes for self-owned businesses), and doing this across all levels of the supply chain will drop prices. But unless workers take salary cuts at the same time, the drop will not be 22%.
Have you been drinking again, Nightie?Nope, no Kool-Aid for me.
"if the prebate wasn't there the dems would very easily be able to claim fairtax was shifting the tax burden from the wealthy to the poor."
Many Dems say that anyway. Facts often don't matter to some of the more radical leftists of the Dem persuasion.
You speak of "honest"??? Give me a break. You still pose as a mugwamp trying to play both sides against the middle.
The fact that you reject any detailed economic benebfits as "problematic" or "risky" or "unlikely" unless they have already occured.
Want the address - no, certainly not. I'd merely like you to admit that you reject any of the detailed economic benefits that may occur due to the FairTax and that you consciously did so in your example. You take the "if it ain't happened it ain't real" approach. That's crass foolishness. With that attitude I seriously doubt that you can do a decent evaluation of an investment.
You don't even seem to understand the risk you would be taking in something you THINK you can evaluate - such as Slumlord Estates. There are things even in that situation as you pose it (the cherry-picked scenario) that can hugely affect your investment risk and yet you seem unaware of that.
I'm certainly not too impressed by the link you post either, but I'll not bother to argue it since you obviously have a completely closed mind that can admit no other possibilities than those he conjures up.
"as for flattax, yes it is a whole different beast - but, in my OPINION, it does accomplish many similar goals."
Agreed. In fact, Denis Calabrese, an economist who was Dick Armey's Chief of Staff when he developed his flat tax plan, said that the flat and fair taxes are similar in many respects, but in every case where there are differences, the fair tax is superior.
http://www.geocities.com/cmcofer/confess.html
LOL
(shaking head)
"I'm certainly not too impressed by the link you post either, but I'll not bother to argue it"
fits you to a tee!
the fact that you are not the sole source of absolute truth regarding FairTax is quite painful i see.
keep preaching it brother, you've got a temple to build.
thanks for the link.
"The prebate is a necessary component of the FairTax. Knowing that it is voluntary most people will volunteer to give up their privacy to get it. It is always a voluntary option."
What privacy are you giving up to get the rebate? Your SSN? Your mailing address? Compared to the current system, this is trivial. Isn't it amazing that we are talking about the privacy compromises of the FairTax, rather than the current system, which are exponentially greater?
"i think it is just further proof that the prebate is carrot for liberals."
You are welcome to your opinion, but that opinion is not supported by the facts.
Here are the facts. The FairTax was developed in part using market research to determine what the American people wanted in a tax system. Focus groups, phone polling, targeted advertising and other techniques were used and one of the findings was that the American people were overwhelmingly opposed to a "regressive" tax system. Some FReepers on other threads have argued passionately for a regressive system. Any such system would be politically DOA. It is important to note that the market research was designed to obtain a cross section of Americans - not conservatives, not liberals.
It is therefore accurate to say that the prebate was developed as the simplest mechanism to administer, as well as the fairest way to ensure that a National Retail Sales Tax would not be regressive.
This means personal income taxes and the “employee contribution” to payroll taxes will not disappear. They will be paid to employees rather than to the government.And if the employer doesn't pay the employee the employer half of payroll taxes the employee/consumer will take a hit at the register.This means that prices cannot immediately drop 22%
The Fairtax rate of 23% is for the first year only. After the first year it's the "combined rate" the SS half of the "combined (sales tax) rate" would be determined by bureaucrats at SS to equal 15.3% of reported wages and self-employment income.
See "Trust Fund Revenue" paragraphs (d), (e) and (f) in HR25.
Whoa - hey - Mr. Peacefulness hisself now begins the namecalling.
My, my - will wonders never cease! And talk about putting words in someone's mouth ... I have never claimed to be the "... sole source of absolute truth regarding FairTax ..." so your claim that I am that is more of your dishonesty. Clean up your act, goofus, before you start a namecalling contest. Believe me, you're not well equipped for it.
"btw, the congress extended the tax cut today. At least we have THAT going for us."
I heard earlier this week that congress was debating a 1 year moratorium on the AMT. Wonderful idea! We ignore the long term problem and "kick the can down the street" until next year. Does anyone have any up to date info on that bill?
What was it that made you so loopy??? Shorts 2 sizes too small???
if you get a chance to stop posturing and do some research here is some reading material for you:
http://www.findarticles.com/p/articles/mi_qa3699/is_200504/ai_n14715569/print
i apologize in advance if it is a bit over your head.
i agree with that assessment.
you say "politically DOA" i say "carrot".
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