FairTax: Double Taxation, An Admission

Townhall ^ | January 23, 2008 | By Hank Adler

[Man50D]

So, for it to be revenue neutral, one of two things must happen. 1) We all end up paying the same proportion of our earnings in taxes, which means no advantage and no reason to change to a different systems; or 2) the tax burden is shifted from one group to another. If the highest earners and already paying an unfair amount of the taxes, is the new system making that situation worse? If not, then those of us lower in the income chain will end up paying more.

It will be revenue neutral without increasing the tax burden. The tax will be spread out over many more people. There are more than 300 million consumers who will pay a tax when they make a purchase compared to only 140 million income tax filers. The effective rate(after the prebate) will lower the tax rate to less than the maximum of 23%.

The tax burden on an individual will be dependent on the person's spending habits since the tax will be applied to spending. People spend more as their income increases. Consequently higher income people will bare a higher tax burden because they spend more. Most importantly The Fair Tax gives everyone the freedom to choose how often and how much much they will be taxed. The income tax takes away that freedom by taking our money before we see our paychecks.

[RangerM]

Recalculate the current income tax on an “exclusive” basis, and then compare the two.

[Paladin2]

Nice try, but using FT b0t v1.0 on this issue is a non-starter.

We need to see the equations behind your assertion along with a couple of examples for those of us who are mathematically/numerically challenged (as determined by baybabe).

[Wolfie]

I hear ya. In one breath they say it will be “revenue neutral”, in the next they say it will “starve the beast”. Go figure.

[Earthdweller]

Most responsible people have bought all the junk that they need before they retire and are finished with keeping up with the Jones’. This is a straw-man argument.

[savedbygrace]

That’s a non-responsive reply to the issue raised. Not only that, your reply makes zero sense in response to the issue raised.

The savings of Americans, particularly retired Americans, will be double taxed under the misnamed Fair Tax.

Two people go into the widget store. One retired, the other a young person. Both buy a widget and are taxed an additional 29.87% for the misnamed Fair Tax. The young person’s purchase money is being taxed for the first time, but the retired person’s money has already been taxed as income before he deposited it into his savings account.

The retired person pays for the $77 widget with $100, just like the young person. However, to save that $100, the retired person had to earn more than $117 of income to retain that $100 after paying income tax on it. So, the retired person had to earn $117 to pay for his $77 widget with money that he has saved, while the young person only needed to earn $100 to pay for his $77 widget.*

That’s the issue.

* (Only? I can hardly believe I wrote ‘only’ WRT the amount added by the 29.87% tax.)

** The retired person might or might not have earned interest on his savings, but he also might or might not have been taxed on that earned interest. Too many variables to include in the above calculations, but they don’t result in much bottom line difference, so I’ve ignored them. In the interest of full disclosure, I’ve footnoted them, at least.

[Proud_texan]

Ya know, off the git go I was kind of interested in the concept but the execution has proved to be positively Clintonian.

It'll never happen but I've fallen back to the flat tax.

But while the method of taxation is a problem it's a fly on the elephants butt compared to the big problem...the beast.

You see it, I see it and most of us here see it but the effort is made to rearrange the deck chairs.

Go figure nails it.

[Paladin2]

Turns out that the 30% to too low. When the States (who will be forced by the Feds to get on board) modify their tax structures to FT also it could easily hit 45% in some States.

Ask the FTers for the expected rate by State (and city in many cases) should the individual States "get on board".

[Smokin' Joe]

Rats! I thought you were trying to be SUBtle.

[Turbo Pig]

anyone who has after-tax savings will pay tax on that money again when they spend it....even a change for the better, without a transition....This is the biggest negative for the Fair Tax.

Doesn't this problem go away, as people grow old and pass on? Eventually, there would be no one alive who paid in under the current tax scheme, and the problem dis appears, right?

[Wolfie]

The highest earners might pay the highets taxes, but I woudln’t call it the highest burden. They seem to live quite well with the small pittance the government lets them keep.

[wolfcreek]

“No one believes your embedded taxation BS anymore, as it has been disproved time and time again.”

I believe in those embedded taxes because I believe everything is taxed along the way, from raw material to my doorstep.

If you have time, please explain why you don’t believe there are *embedded* taxes?

[Question Liberal Authority]

Gross Domestic Product for the USA is around $13 Trillion. Personal Income taxes in 2008 were $1.25 Trillion. Corporate Income taxes were $315 billion.

Replacing this money would require a sales tax rate of approximately 12%. Why is 30% bandied about so much?

[ksen]

Nice pic to post since you were the one complaining about name-calling and such.

[Paladin2]

It’s not an ADDER its a MULTIPLIER. Think about it some more and get back to me later.

[Paladin2]

Were not.

[ReignOfError]

Doesn't this problem go away, as people grow old and pass on? Eventually, there would be no one alive who paid in under the current tax scheme, and the problem dis appears, right?

Right. That's why I used the word "transition." In the short term, some folks will take it hit. In 30 or 40 years, that will no longer be a factor at all. In 10 or 20, it won't be much of a factor. Folks who have a 401(k) or IRA won't be double-taxed.

[Wolfie]

What we really need is “spending reform”, but quite frankly, most Americans (include many FReepers) want the Government to spend, spend, spend. Any one particluar rat-hole the Feds pours billions and even trillions into has the support of a substantial number of Americans. We’re more than willing to sacrifice some other guy’s pet rat-hole, but not our own. And that’s how we got here.

[Paladin2]

There are embedded taxes, but they are not uniform across all goods and services and, in most cases, not of the magnitude claimed as part of the FT scheme. Taking the post in context will demonstrate that.

[Man50D]

That’s a non-responsive reply to the issue raised. Not only that, your reply makes zero sense in response to the issue raised.

Actually it's right on point. The Fair tax will reduce the overall tax burden in the long run. The double taxation fallacy with The Fair Tax is a short sighted point of view.


The retired person pays for the $77 widget with $100, just like the young person. However, to save that $100, the retired person had to earn more than $117 of income to retain that $100 after paying income tax on it. So, the retired person had to earn $117 to pay for his $77 widget with money that he has saved, while the young person only needed to earn $100 to pay for his $77 widget.*

Once again you deliberately omit a key factor to mislead people with your example. That $100 widget includes 23% of hidden taxes. The actual cost is $77 with a 23$ inclusive tax. That inclusive tax consisting of corporate taxes passed onto the consumer will be eliminated by abolishing corporate income taxes and their related compliance costs. Under The Fair Tax will apply that $23 externally, appearing as a separate entry to the $77 as the exclusive tax rate of 30%. Consequently the dollar amount collected will be the same as the inclusive tax rate with the income tax and the price of the item remains at $100.