A FairTax Tale

Nealznuze ^ | 5-11-07 | Neal Boortz

[Dick Bachert]

I have a little scenario I would like to paint for those of you out there who just insist on finding something wrong with the FairTax. Admittedly, the FairTax isn't perfect. No tax plan is. How, after all, can you come up with a perfect way for a government to take its operating funds from its subjects? If you know an easier and more equitable way to do it, by all means, let me know!

I'm going to ask you to crank up your imagination for a moment here ... and by "you," I mean those of you who think that this FairTax thing is a bad idea and you're not prepared to come on board.

I want you to imagine a scenario. Don't worry about whether or not this scenario is possible .. Just accept it as I present it, and then consider the alternative picture I'm going to also present. Simple as that.

Let's imagine that the FairTax is the law. We've been operating under the FairTax since the day you drew your first paycheck. It's all you know. Here is your imaginarily "reality."

On every payday you get your complete paycheck. There are no deductions. If you earn $2,000 per week, you get a check for $4,000 every two weeks. You never have to save receipts or create any records pertaining to federal taxes. You can invest money without paying any taxes on it. You don't have to pay taxes on the money you earn through your investment portfolio. You pay no taxes on any money you put in your savings account. When you die you get to leave your entire estate, everything you own, to whomever you wish. The federal government will take no taxes from your estate. Your death is not a taxable event. When you go to the store to buy an item, and the price tag says $19.99, you will had a $20 bill to the cashier and get one penny back. The price tag is the price. There are four people in your household. You, your spouse and two rug rats. At the beginning of every month you get a check or a credit to your checking or charge card account in the amount of $506.00 to compensate you for the federal sales taxes that are included in the price of everything you buy; right up to the poverty level.

All in all .. not such a bad deal. You keep all of the money you earn and you get five hundred bucks a month from the feds. Plus .. you only pay taxes when you spend money.

Now .. .here comes some politician who has a grand scheme for a new tax system. He wants to explain it to you. Here's his great idea ..... give him a listen and tell us what you think.

The plan is simple. First the federal sales tax is going to be removed from the price of everything you buy. This will mean that everything will cost 23% less than it does now. But ... he's going to levy an income tax on every single individual and business who plays any role at all in bringing those products to the marketplace. These people and companies are all going to pass the cost of these taxes down the economic line to the final consumer of the products they manufacture. These taxes will end up embedded into the prices of products in our retail marketplace, bringing those prices right up to the current level. So .. no loss, no gain.

Next your political benefactor is going to take away your $500 per month prebate from the government. In its place he's going to tax every penny you earn. It doesn't matter where the money comes from. Your salary, your investment income, winnings at the track ... whatever you earn and however you earn it, it's going to be taxed.

Wait! He's not through. He's also going to tax your wages for Social Security and Medicare. He's going to try to soften the blow by telling you that your employer is going to match the taxes he takes out of your paycheck, but you're employer has made it clear that this money is all going to come out of the money he has budgeted to hire you. You'll probably lose out on your next raise while the boss his accounting in order.

There are some more nifty ideas in your congressman's tax reform plan. When you die your family is going to have to file a complicated estate tax return. A huge amount of the wealth you have managed to build during your life is going to be sent to the government. Your survivors may well have to sell the family business in order to come up with the money to pay for these death taxes.

One more thing .. you're going to have to keep records of all of your financial transactions. Every year you're going to have to spend no less than about 30 hours or spend hundreds of dollars to hire someone to fill out tax forms for you. If mistakes are made you will be hit with a huge penalty and interest. Oh .. and the government is going to have access to all of your financial records to make sure that you are paying everything you "owe."

The question, of course, is why does this politician want to change the tax system in this way? Power, that's why. They want to be able to enact little changes to the tax code that will benefit certain constituents ... which constituents will then benefit the politicians -- with money or with votes. Under the FairTax system these politicians have no power to favor one group of voters over another for the benefit of votes. The new system would give them that power.

Your choice, my friends. If we had the FairTax now ... would you be willing to make the switch?

[Phantom Lord]

Yes, but you will NEVER see the fairtax opponents mention the 23% aspect. That is their dishonesty. They also show it as an exclusive tax, when it is an inclusive tax.

[Phantom Lord]

???? Back up what? That homebuyers would perfer to spend 20-30% less? That kind of falls into the category the sky is blue.

Market conditions drive the price of homes, both new and used. Existing housing will not have an instant 20-30% "advantage" for lack of a better word. Around 22% of a new homes price is already embedded taxes, which would be replaced by the FairTax for a net effect on the price of zero.

And as a supposed home builder, do you price a new construction home at consistent and flat X% over cost or do you get as much as the market will pay you?

[Phantom Lord]

Tell me, if the NRST is implemented and I buy an item that costs $100, how much actually comes out of my pocket to pay for the item, about $123 or about $130?

Neither. A $100 price tag item in the store costs you $100 at the register (plus your local/state sales tax). Because as I have said several times, the tax is INCLUSIVE!

[Smokin' Joe]

Funny you should argue the British are not subjects, when my point was that Americans are not subjects.

If the British, who have been referred to as "subjects of the Crown" are not "subjects", I would submit we are even less so.

Which was my original point.

Americans are not subjects, but citizens.

Freegards!

[William Terrell]

Neither. A $100 price tag item in the store costs you $100 at the register (plus your local/state sales tax). Because as I have said several times, the tax is INCLUSIVE!

I'm sorry if I've left out some details and definitions. I thought you would assume them being commonsense as they are.

I'll try to be clearer.

Tell me, if the NRST is implemented and I buy an item the raw price of which is $100, how much actually comes out of my pocket to pay for the item, about $123 or about $130?

The raw price is the price figured by the store owner with his markup that is to be charged before any sales taxes are included. In any taxable sale there is a starting price that the store will charge for its product.

That price is the price you pay in the absence of sales taxes. Now, sales taxes are figured. Let's assume no state sales tax to keep it simple. What amount does the buyer actually pull from his pocket to pay for the item.

Please do not make it complicated; it's not. I work with this every day. Please do not say "$100". If you do, you are saying there are no sales tax. Please don't assume that $100 raw price will change even one cent after the implementation of the NRST. To so assume is erroneous because the store may not elect to reduce any savings.

I've tried to be as clear and precise as I can. Do you understand what I'm asking?

[kevkrom]

Which set of assumptions do you want me to figure it on.

Figure it on the income tax as it exists today.

You're the one posting the fairytale that an item that costs $100 today has no tax burden built into it, and that people who buy it didn't pay taxes on that money.

[kevkrom]

Tell me, if the NRST is implemented and I buy an item the raw price of which is $100, how much actually comes out of my pocket to pay for the item, about $123 or about $130?

Same question to you... what does an item with a "raw cost" of $100 cost today, under the income tax? And how much would someone have to earn to buy that item, after their income and payroll taxes are removed from their gross pay?

The fact that you can't actually answer that question is, in and of itself, a great reason to get rid of the income tax, because no one has a clue what their actual burden is.

[Hostage]

Why do you care what the price is if you have extra cash in your pocket to pay for the thing you want?

If an NRST is applied and prices have reached equilibrium (meaning costs have come down), you may pay $116 for an item that previously cost $100. You may pay $120 or $130. But what does it matter of you are getting an extra amount in your pocket to compensate for the increase in pricing? (if there is an increase in pricing)

The FairTax is not about avoiding taxes. It’s about getting the KGB IRS out of our lives. It’s about alot of other things too.

For example, if American corporations are no longer obligated to pay corporate income tax because there will be an NRST on finished products, then they will become inmediately competitive overseas where an NRST is not applied. No more corporate income taxes means corporations can sell their products in foreign markets for less and therefore they will be more competitive. This aspect of the FairTax alone will help revive American manufacturing.

So forget how much comes out of your pocket on a purchase (except in routine decision making for the purchase) and start thinking how much goes into your pockets because of the FairTax.

Again you’re not going to avoid tax..

but you will see upfront how much the tax is on purchases because right now under the ‘Income’ tax you can’t see the level of tax on your purchases,

and you will have no papers to file with the KGB IRS, and they won’t be able to coerce you into penalties and interest on unpaid taxes that your accountant said and still says you don’t owe,

and people will start to do something that previous generations used to do on a regular basis, something so basic that they would never have given it a second thought...

SAVE.

[lewislynn]

Neither. A $100 price tag item in the store costs you $100 at the register (plus your local/state sales tax). Because as I have said several times, the tax is INCLUSIVE!

LOL! Really? When did they change the part of the law that states the tax shall be separately stated and charged?..Oh and BTW speaking of local/state sales taxes the Fairtax, by law, is "23% of the gross payments"...that means the Fairtax taxes other taxes, fees etc included in a "gross payment".

The Fairtax law was not written for the consumer. The law was written for the business collecting and remitting the tax. It means just what it says, it says to send "23% of the gross payments" for taxable property and services...In order for the business to survive the exorbitant tax it has to increase prices by 30% or lose the business because of the Fairtax demon...It's not any more complicated than that.

[lewislynn]

New home sales will not be impacted at all. The NRST will be financed as part of the mortgage. The increase in monthly payments is more than offset by the increase in the paycheck.

Interesting, mortgages are funded by appraised value, would the 30% tax on a new home increase the appraised value 30% on day one of the purchase?

What if you sold the USED home before the mortgage was paid? The tax on the full amount has already been disbursed and you still owe the lender the balance, any savvy home buyer can see they'd be upside down for a lot of years to come because of the Fairtax.

[Thermalseeker]

I read the and understand the bill numerous times, thank you.

Read it, maybe, but as far as understanding it, no. Among other things you continually misquote the proposed tax rate, but that seems to be intentional.....

[Hostage]

Your comments and questions are poorly worded and misleading.

mortgages are funded by appraised value

Appraised values for real estate are almost always based on market value.

would the 30% tax on a new home increase the appraised value 30% on day one of the purchase?

Your question is better worded 'would the NRST increase the market value by the amount of the NRST?' The answer is yes just as the present day income taxes are embedded into the cost of labor and materials increase the market value.

What if you sold the USED home before the mortgage was paid? The tax on the full amount has already been disbursed and you still owe the lender the balance, any savvy home buyer can see they'd be upside down for a lot of years to come because of the Fairtax.

This question shows poor understanding of financing and market valuations. A used home has a market value which means the price that a seller and a buyer agree on. Just as homes under the 'Income' tax have embedded taxes in their valuation, the FairTax will also be included in a home valuation based on market. Every realtor will understand that a home market value includes all costs and taxes whether those taxes were in the form of an 'Income' tax or a FairTax.

The FairTax replaces the 'Income' tax. The 'Income' tax is already in the price of homes sold. The FairTax merely brings it out in the open and puts it up front.

There is no avoiding taxes with the FairTax. What the FairTax gets rid of is the KGB IRS, it rids this abomination out of the lives of Americans. It also puts the level of tax front and center so that everything is known. Some politicians and government hacks don't like the stink of taxes out in the open where everything can be seen. So as the FairTax replaces the Income tax, some politicians are going to object because it makes getting bribes for tax legislation much more difficult.

The reason the FairTax is possible now and not a hundred years ago is because of technology. For a brief historical context see Post #117 of this thread:

http://www.freerepublic.com/focus/f-news/1831865/posts?page=117#117

[Always Right]

Read it, maybe, but as far as understanding it, no. Among other things you continually misquote the proposed tax rate, but that seems to be intentional.....

I understand it just fine, perhaps you don't. An item that costs $100 pretax under the fairtax ends up being $130 with the fairtax. 99.9999999% of the people on this planet call that a 30% tax. The fairtax folks call that a 23% inclusive rate (23% of 130 = 30). Or did you not understand that is what they do?

[Always Right]

There is no avoiding taxes with the FairTax.

Black market purchases, unreported foreign purchases, non-reported register purchases, privately contracted goods and services not reported. Actually, there is a huge opportunity to avoid taxes under the fairtax, which is why there will need to be a huge gestopo-like agency under the fairtax whether their supporters think so or not.

[Thermalseeker]

An item that costs $100 pretax under the fairtax ends up being $130 with the fairtax.

And you derive this from?

Applying a 23% sales tax to an item that cost $100 ads $23 to the item, not $30.

Utterly amazing how many FairTax critics change the plan in order to make and justify their arguments......

[Always Right]

And you derive this from? Applying a 23% sales tax to an item that cost $100 ads $23 to the item, not $30. Utterly amazing how many FairTax critics change the plan in order to make and justify their arguments......

If I show you I am correct, would you agree that it is extremely misleading on the fairtax folks part to say their rate is 23%?

[Thermalseeker]

Black market purchases, unreported foreign purchases, non-reported register purchases, privately contracted goods and services not reported.

Yeah, and we do such a good job of catching this under the current tax system, don't we?

The FairTax would indeed catch those folks who work for cash, as well as income derrived from illicit drugs, unreported gambling receipts, etc.

Is it perfect? No. Is it better than the current system? Absolutely. FWIW, I live in a state where there is no income tax, only a sales tax, and we are doing just fine. IOW, virtually none of the gloom and doom you cite. So, we can continue to argue your opinion, or we can look at places where a sales tax is being used. In my state it works quite well so long as we keep state spending in check.

[Hostage]

For law abiding people there is no avoiding taxes, whether the FairTax or any other tax.

There are more opportunities under the ‘Income’ tax to commit tax evasion.

The FairTax has to concentrate on only about 3000 retailers. The ‘Income’ tax has to monitor 200+ million individuals.

Anyone can see that it is easier to enforce the FairTax on 3000 retailers than it is the ‘Income’ tax under 200+ million individuals.

Try selling a new home without paying the NRST under a FairTax. It is the same as selling a car without paying state sales tax. When the new owner is registered, the property or state office is going to require the tax be paid. It’s as simple as that. The consequences are jail for not paying. Ask any new car dealer.

Give it up, you have a weak argument. And you still haven’t backed up your previous absurd claim so you have no credibility.

When you are man enough to concede your previous claim can’t be backed up, then we will talk.

[Thermalseeker]

If I show you I am correct, would you agree that it is extremely misleading on the fairtax folks part to say their rate is 23%?

If you show me you are correct without changing the plan to suit your opinions, I might agree. However, I should caution you I am already pretty sure what you are going to say and it has already been successfully refuted by literally dozens of economists who support the FairTax.

Take your best shot and I'll get back to you later.....

[Always Right]

There is really no debate on the issue.  Here's some sources for you, if you wish:

FairTax from Wikipedia

Fair Tax not what it appears

And even the fairtax FAQ admits it, if you bother to read down to Question 47...

ABOUT THE FAIRTAX

47.  I know the FairTax rate is 23 percent when compared to current income and Social Security rate quotes. What is the rate of the sales tax at the retail counter?

30 percent.