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?

[lucysmom]

People decide what they think government is worth. All they have to do is check their purchase slip. If its too high, they can just stop buying.

OK, what happens if people "just stop buying"? Is it only government that is impacted, or the economy as a whole?

BTW, what will appear on the sales reciept; will the reciept break out the tax as 23% (inclusive) or as 30% exclusive?

[goldstategop]

Its ONE tax. Which would be collected by state governments and remitted to Washington. No new bureaucracy is needed. Every one does does get a prebate check to cover essential goods and services no one can do without. Every one though pays their fair share taxes because income is not taxed at all; just when they spend their money.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[goldstategop]

The sales tax is low because other taxes are also low but by design you get to paying more than under the Fair Tax. One tax at 23% is less extortionate than several taxes that add to 40%.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[lucysmom]

You insinuate the FairTax is ‘too good to be true’ when no one in the movement has made that claim. In fact people will still pay taxes, that is a given. The differences are that the FairTax is a superior form of taxation in terms of American values.

When the FairTaxers make the claim that their tax will be revenue neutral, stimulate the economy to unprecedented levels, reign in government spending, increase paychecks while lowering prices, and claim we'll all have more money to spend; they are saying it too good to be true.

[lucysmom]

You claim to be a real estate expert yet you confuse production costs with market risk.

I never claimed to be a real estate expert, just some one who has been around long enough and interested enough to make observations over time. Having a couple of contractors in the family doesn't hurt either, nor does a minimal understanding of human behavior.

[goldstategop]

If its inclusive just the amount added to your bill. The Fair Tax is transparent in that you know exactly what you are sending upfront to Washington. I would bet not a single Freeper, myself included, knows how much government really costs us under the current income tax system because the price tag is kept hidden from public view. We know how to price goods and services and decide if that's worth paying for in this country. We only wish we could have that sort of pricing information available to us about government so we know if its worth the taxes we pay for it.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[goldstategop]

The truth is we don't know what the effects will be. But we do know the income tax is inimical to human freedom. The moral argument alone favors the Fair Tax.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[Always Right]

Whereas the FairTax enforcement needs only to focus on about 3000 retailers, the enforcement is much more manageable under the FairTax.

What is this 3000 retailer BS anyways. The city of Indianapolis has more than 3000 retailers alone. There are about 10 million self-employed people who the government would have to watch. Every business to business transaction has to be monitored to ensure that it is not a personal item. The government still has to monitor every transaction to know whether it is a taxable transaction. It is really a lot more difficult than it sound. Even 'used' items will have to be tracked as it could be a taxable transaction if taxes had not been previously paid on the item. If I buy a desk for my business, it will be sales tax free. If I resell it used, by law I will have to collect sales tax. You think it is an easy job to track every item like that?

And then trying to tax services is a real mess that no state has yet to figure out, although a few have tried.

[lucysmom]

...you are challenged and fail to meet the challenges, shows clearly you have a stake in the ‘Income’ tax system.

Ah... the argument of last resort for the fairytaxer.

I have met the challenges, you're failure to comprehend is not my problem.

You are likely to be an IRS employee that is scared to death that talk of the FairTax is going to put you out on the pavement looking for your next job, a real job.

And here we have the argument of last resort repeated.

If I were an IRS employee (my business has nothing to do with taxes except that I pay them like everyone else), I would simply walk across the street and get a job with the new agency the FairTax creates.

[Always Right]

I would bet not a single Freeper, myself included, knows how much government really costs us under the current income tax system because the price tag is kept hidden from public view.

Except the $500 prebate check throws everything into confusion again and hides the real cost of government. On a day to day basis, you will be hit with $5 here, $10 here, $20 here. Who is really going to keep track of every sale and know how much they paid. I know exactly what I pay in income tax in a given year, I have no idea how much I paid in sales tax.

[Always Right]

I have asked Hostage three times whether he is paid by the fairtax organization. He has yet to answer. Come to think of it, he has yet to answer any question I have asked him.

[Hostage]

Nope, no one in the Congress or in the FairTax movement ever said it is 'too good to be true'. It is ***you*** that say it because ***you*** have a lack of understanding of the facts. Let's go over your list of the facts put out by the FairTax sponsors and check them off one by one:

their tax will be revenue neutral

Yep. By design.

stimulate the economy to unprecedented levels

Yep. American manufacturing will be revived because of the simple fact that American goods will be more competitive around the globe. The FairTax eliminates corporate income tax but goods exported will not be subject to the FairTax NRST, thus companies will have a windfall to sell their products on the world markets.

reign in government spending

Yep. People will see the NRST in their purchases and K Street won't be able to bribe Congress as easily. These and many other facts will cause enormous pressure on Congress to shun tax increases.

increase paychecks

Yep. By design.

lowering prices

Yep. Companies will no longer pay taxes at every point in the supply chain. Commodities will be cheaper and this will propagate up the supply chain just as it does now. Commodities are those things that are so prevalent among so many suppliers that it is impossible to establish an oligarchy and fix pricing. When commodity prices fall, the retail product price falls. Happens everyday. This is nothing new.

we'll all have more money to spend

Yep. Follows from above 'increase paychecks'.

These are facts not fantasies.

Your only point is that people are going to be mad when they see the level of taxation come out from the shadows. But we're going to compel the embedded Income taxes to come out before then, just watch and stay tuned. As more and more people gain awareness of what they are paying now, they will gladly vote for the FairTax as an alternative because they will know the game is up on K Street.

And besides the FairTax will come about as a result of enormous demographic change that is happening now. And that is something you can do nothing about.

Enjoy your Income tax job while it lasts. Like I said you got less than six years.

[lucysmom]

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.

You don't get it. It doesn't matter whether or not an additional $60,000 is offset by an increase in the amount of a buyers take home pay (assumption; what the increase will be is not defined), the issue is paying (and financing - think interest) $60,000 more for a home, not because its bigger, in a better neighborhood, has more features, but just because its new and a new tax has gone into effect.

[ovrtaxt]

Well, according to the links earlier in this thread, the "fair tax" proposal gives a government "rebate" back relative to your income (and soon to come other things I suspect).

It's actually relative to the Federaly calculated poverty level- and the prebate is the same, in dollar amount, for every individual. Income has nothing to do with it.

Everybody gets back the tax paid on the first 12K/year of expenditures- so that someone living at the poverty level od 12K/year pays no tax.

Yes, the poverty level would then become the political football- but the manipulation of that rate would be ONE SINGLE FIGURE. Much easier to track and be informed about, than the thousands of targeted and convoluted details that we currently have no way of understanding.

Personally, I also would like to see the prebate idea dropped, but I'm willing to accept it. The net result is light years ahead of the current code, in terms of personal freedom and returning power back to the taxpayers.

[Hostage]

It’s not BS. Once again you show you have not done your due diligence and you jump to conclusions without checking facts or performing calculations.

It’s on the FairTax website.

About 680 large retailers will account for about 80% of the NRST.

About 3000 retailers will account for about 95% of the NRST.

Check it out yourself.

Enforcement will be much more manageable under the FairTax. There is no debate on that issue, not even in Congress.

[Hostage]

You defend the ‘Income’ tax by attacking the FairTax.

You pop up on every FairTax thread and make statements that are hyperbole at best.

That is the sign of someone that fears the FairTax. It can only point to someone that has a stake in the ‘Income’ tax system.

[lucysmom]

What is it with fairtax supporters and being dishonest?

Dishonest or duped? Some of these guys are ripe for the con-man's picking.

[Hostage]

No you don’t get it and in light of your errors it is now completely laughable to read previously your claim to be some sort of real estate expert.

Here are the facts:

1. People need shelter, many will seek to purchase a home.
2. Most people can’t afford to pay cash for a home leaving them to seek financing.
3. Financing is dependent on how much available income the purchaser has demonstrated.
4. The FairTax increases the amount of available income for the purchaser.
5. The amount of increase in available income to the purchaser under the FairTax more than offsets the additional monthly payment of including the NRST in the mortgage.
6. The home purchaser under the FairTax still qualifies for the mortgage with the NRST included because they have higher income.

And all this occurs independently of the FairTax lowering effect on the cost of materials and labor of new construction.

Your trysts at focusing on a home’s price are ridiculous. People get transferred all the time and get promotions with increases in pay. At their new site they purchase a more expensive home because they have an increase in pay.

Everyone who presently pays an Income tax is going to have more pay available under the FairTax. That translates directly into the ability to handle higher mortgage payments.

[Polybius]

In you scenario, I would kiss the politician's feet because, being a high earner as well as a "Millionaire Next Door" frugal kinda guy with large savings, I would have paid no taxes while I earned the money under the Fair Tax and then, when I retired and he switched to an income tax, I would have little income and the heavy tax burden would then have shifted to the earners and not the retired spenders.

No taxes when I earned it. No taxes after I retire and spend it.

A Win-Win situation.

WOO HOOOOO!!! THANK YOU, FAIRY GODMOTHER!!!!

Now, in my real life, I have already paid tons of income taxes on my considerable post-tax savings and you now want to change the heavy tax burden in the coming years when I retire from the earners to the spender.

So, I will have carried the heavy tax burden when I was an employed earner and then I will carry the high tax burden AGAIN as an unemployed retiree when I spend my ALREADY TAXED savings in retirement.

A Lose-Lose situation.

Unless you Fair Tax guys figure out not to double-tax those of us who have already saved for our own retirement, your "tax what you spend" idea is going to be dead on arrival to our ears.

In regards to your "imbedded costs", every cost a business incurs while producing a product is tax deductable.

It's a wash.

Only profit is taxable and profit is not a cost of doing business.

[lucysmom]

If a store elects to not reduce prices based on savings from the removal of the embedded taxes that is their choice. But it will also lead to them going out of business because their competitor across the street will do so to try and get their customers.

According to Hostage, if the buyer can put the higher priced item on a credit card, it will make no difference because the buyers paycheck is bigger.