Posted on 01/22/2008 3:43:13 AM PST by xcamel
Look up the word “fair” in Webster’s dictionary and you’ll find this definition: “Free from favoritism or self-interest or bias or deception.” Ironically, the so-called “fair tax” proposal that has been getting some attention lately is fraught with favoritism, self-interest, bias and deception.
The phrase “fair tax” is a new way to refer to the old proposal to create a national retail sales tax. Such a tax would replace essentially all federal income and payroll taxes with a national sales tax levied on all purchases. So instead of having Social Security and Medicare taxes taken out paychecks and filing those April tax returns, Americans would pay a national sales tax on every purchase they make. There are four myths about this tax proposal that must be dispelled in order to have a meaningful debate about its merits.
The first such myth is that the rate would need to be set at 23% in order to raise enough money to run the federal government. Not so fast. Under the proposal if you buy a $100 item the tax would be $30. Most of us would describe that as a 30% tax. But proponents would have us believe that the tax rate should be calculated by dividing the tax amount by the total purchase price including the tax. So divide $30 by $130 by and you get 23%. That is truly fuzzy math at its finest.
The second myth that needs to be addressed is that the IRS could be abolished because the federal government would no longer collect income and payroll taxes. That might technically be true but a new massive bureaucracy would have to be created in its place. This new agency would be in charge of sending every single American an approximately $450 check at the beginning of every month that presumably reimburses them for taxes they pay on their income up to the federal poverty level. This new agency would also be charged with making sure that anyone who sells anything is collecting the tax. So the guys who live out in the country near my home who shell the pecans that grow on my trees would have to start charging me sales tax and send that money to the federal government. And for each of these types of services that aren’t taxed or retailers that aren’t discovered, the tax rate on other purchases has to be that much higher.
This brings me to the third myth – that a 30% rate would be adequate to run the federal government. There is no way that a national retail sales tax could pay for current federal programs without setting the rate at least 45%. The allegation that a 30% rate is sufficient relies on some strange assumptions such as requiring government to tax its own spending and even taxing free services like free checking accounts and free care at veterans’ hospitals. It also assumes that every single transaction is taxed, including lots of things that aren’t taxed currently. So, imagine adding $90,000 to the purchase of a $200,000 home or adding $450 to your $1,000 monthly rent. Better yet, imagine adding $4,500 for every $10,000 paid in college tuition.
Fourth, and most importantly, it is a myth that the tax is “fair.” A deeper look at the proposal clearly shows that it would raise taxes substantially on most Americans while giving the wealthy a substantial tax cut. That’s because most Americans must spend most or all of their incomes to make ends meet, while better-off people can afford to spend a much lower share of their incomes. According to the Institute on Taxation and Economic Policy, the typical middle-income North Carolinian who earns about $34,000 per year would pay an additional $3,800 in federal taxes. The state’s wealthiest 1% of taxpayers whose average income is over $700,000 would get a tax break of around $150,000 per year.
It’s not fun to be in the role of defending the current federal tax system because it is confusing and not always fair. But ideas for replacing it need to be grounded in sound tax policy principles. An idea that relies on myths and gimmicks to get attention is not one worth considering.
Elaine Mejia is the Director of the N.C. Budget and Tax Center
“It would likely make small government conservatives out of the yellow-dog Democrat “working” poor. They would quickly tire of watching all their income being eaten by federal sales taxes.”
You say that like it is a bad thing or did I miss the sarcasm tag again. That is one if the main selling points of the fair tax you know what uncle sugar costs you every time you buy something.
So what? How will we stop a rise in the rate? The "rich" can afford - I can't. What is to stop the feds from simply taking more. The same question can be asked about any tax structure.
BTW, I pay an effective tax rate of about 10% federal. How would I save?
I suppose a FLAT TAX is just too simple a concept?
Even after I WROTE it was a good thing? Read it again, please.
...printing a myth on your receipt... that would be a good trick...(TFTBS)
The cut off for 10% is $7,825 taxable income.
Assuming you take the standard and personal deductions (for a single person) you have a total income of (7825+8750) $16,575.
Based on the FairTax Prebate you would only pay taxes on 16,575-10,210 = $6,365. The total taxes on $6,365 is $1,464. Therefore under the FairTax system you would reasonably expect to pay about $1,500.
Under the current system, you are paying (based on a taxable income of 7825) $782.50 in income taxes, plus another $1,282 in payroll taxes (SS/M, not incl employer portion), for a GRAND TOTAL of $2,064 in Total Federal/Payroll Taxes.
You’d save about $600 under the FairTax system.
You are so wrong. I said my "effective tax rate" is 10%. I make a heck of a lot more thant $8k. I still don't see where the savings would be.
I have the same response to the ‘Fairy Tax” myself...
Debt level?
Mtg payments?
retirement contribs?
Spending habits?
LLS
How do you not understand that corporations will pay 23% on everything they buy and then pass that on to the consumer/customer?
One of the claims of fair taxers is that their are embedded taxes in all goods. How would that disappear when a company has to pay 23% on (take a large printer, for instance) ink, paper, rags, chemicals, uniforms, electricity, etc? Everything they buy will taxed at 23% and they simple pass that on to the customer. Wouldn't the cost of producing something immediately go up 23%?
How is that any different than what is going on now?
While you’re at it don’t forget that the 16th Amendment was never properly ratified by the senate. There were plenty of shenanigans over that one.
Oh quit throwing facts into the argument - it just makes things more complicated....
There is a drastic difference between taxable and gross income. You haven’t given me anything more than a “10% bracket” so I didn’t have much to go one.
If you want a real-world answer, you have to give me real-world data.
You nailed it.........bump
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.