People come out ahead under 'Fair Tax' plan

islandpacket.com ^ | February 17, 2008 | Scot Parsick

[Man50D]

This is a response to the Feb. 7 letter "Most families come out behind in 'Fair Tax' plan."

The writer states that 80 percent to 85 percent of Americans spend most of their income. Money magazine does a yearly survey of all age groups, and the worst savers of them all are the 18- to 25- year-old group, and 21 percent of them have some form of savings or 401k.

What the "Fair Tax" would do among other things is bring back more jobs to America by making our products more competitive around the world. According to the more than 70 economists on fairtax.org, we would no longer be selling our products with a 22 percent embedded tax cost. There would be no reason for companies to hide money offshore to dodge their tax responsibilities. And companies would not have to pay the corporate tax, small-business tax, or matching Social Security and Medicare taxes.

Another benefit is that the "poor" would see an increase in their buying and saving power to move them up in life. True they do not pay income tax usually, but they do pay Social Security and Medicare taxes at a rate of 7.65 percent and 1.45 percent respectively. They would take home all this money. They also would get the national prebate as long as they have a valid Social Security number. This works to ensure they pay no taxes at all and can begin to save. And when they do save, the money they earn is tax free.

[Man50D]

Fair Tax ping!

[freespirited]

Would someone comment on whether the Fairtax will affect the value of our homes? IOW, is the mortgage deduction part of the perceived value of a home—especially in high tax states like CA and NY?

[ReleaseTheHounds]

Let me posit that almost all American families would also come out ahead with a flat tax plan (17%) with the standard recommended adjustments (excluding the first $40K of income or whatever the threshold is... And I would also posit the same for the 2-tiered alternative flat tax recommended by Fred Thompson (give the tax payer the alternative to pay the traditional way or 10% on the first $100K of income and 25% for income in excess of $100K). Please excuse if my numbers don’t perfectly match Fred’s policy paper...

The point is: all of these are better than our current system. There’s no way the Fair Tax is going to come into being — so why not press for modifying the current system. At least it might have a chance.

[ex-snook]

If it was fair it wouldn’t have to be sold as fair. Fair is in the eye of the begetter.

[Paladin2]

People come out ahead under 'Fair Tax' plan.

not necessarily.

[tx_eggman]

but they do pay Social Security and Medicare taxes at a rate of 7.65 percent and 1.45 percent respectively

Those that can't even get the real facts straight deserve a bit of suspicion.

It's 7.65% total

Social Security = 6.20%
Medicare = 1.45%

[AndyTheBear]

...but they [the poor] do pay Social Security and Medicare taxes at a rate of 7.65 percent and 1.45 percent respectively.

Arguably one should include the employer paid portion of Social Security as well. Except for the legal fiction on the paycheck, the employer is paying both amounts and the employee is earning both amounts.

Thus the poor pay about 7.65 + 7.65 + 1.45 = 16.75 percent of there earnings in taxes. And the rest of us wage earners pay more on top of this.

[ari-freedom]

I think mccain would want to do away with the tax code and go with this 2 tiered plan.

[AndyTheBear]

If so, then it is:

6.20 + 6.20 + 1.45 = 13.85

Including the equal part of Social Security that the employer supposedly pays (see my last post).

[Man50D]

Would someone comment on whether the Fairtax will affect the value of our homes? IOW, is the mortgage deduction part of the perceived value of a home—especially in high tax states like CA and NY?

The Fair Tax eliminates embedded corporate income taxes and associated compliance costs included in the price of all goods that are passed onto the consumer under the income tax. Eliminating this overhead so will lower the mortgage e interest rate interest rate. Fair Tax FAQ #21 Used homes(with a previous owner) will have lower prices since used items under The Fair Tax will not be taxed. The MID will be irrelevant with The Fair Tax. The deduction is against your federal income tax. The Federal income tax will be abolished negating the need for the MID.

For more information about housing under the Fair Tax you can read Impact On Home Ownership

[tx_eggman]

If so, then it is:

6.20 + 6.20 + 1.45 = 13.85

Nope.

For both Employer and Employee

2008 FICA Taxes = 6.2% of first $102,000 in wages
2008 Medicare Taxes = 1.45% of wages, no limit

Total = 15.3%

For the Self Employed

It's also a total of 15.3% but it's only imposed on 92.35% of the net earnings (discounting the 7.65% that an employer pays for it's employee).

[groanup]

You are correct that most would be better off under a flat tax system. However, we have tried again and again to reform taxes to a flat/simple system only to have the monster crawl back.

If we convert to a consumption tax there will be more day to day visibility of how much we are paying to fund the government thus giving the idea of smaller government a better chance than we have now. Not only that, complicated retirement plans and IRA's would no longer be needed. But the greatest benefit IMHO is that the taxpayer would have a choice about when and where to pay his taxes. And we would no longer have an agency of the Fed Gov actively violating the Bill of Rights.

[AndyTheBear]

Used homes(with a previous owner) will have lower prices since used items under The Fair Tax will not be taxed.

Great! Thus people who have invested their already taxed income in their home are not given a double-whammy :-)

This is good news. It eliminates one of the strongest objections that I have heard raised (at least eliminates it as a valid objection, though not necessarily from those raised in the confusion of debate).

[Digital Sniper]

Agreed on all counts. And in making this move, there must be constraints put in place ahead of time to assure that no exceptions are added later and that it remains a flat tax by all measures.

[AndyTheBear]

t's also a total of 15.3% but it's only imposed on 92.35% of the net earnings (discounting the 7.65% that an employer pays for it's employee).

Fair enough, and thanks for the extra details. My point was one shouldn't leave that part off. And yes I saw the variations in the denominators of the percentages of Social Security paid, which is why I initially said "about".

So its "about" 15%, rather then "about" 8 or 9%.

[Man50D]

Let me posit that almost all American families would also come out ahead with a flat tax plan (17%) with the standard recommended adjustments (excluding the first $40K of income or whatever the threshold is... And I would also posit the same for the 2-tiered alternative flat tax recommended by Fred Thompson (give the tax payer the alternative to pay the traditional way or 10% on the first $100K of income and 25% for income in excess of $100K).

I agree. They will come out ahead with a flat tax plan but on consumption instead of income. The dirty little secret with the income tax is that it began as a flat tax when enacted in 1913 for the purpose of taxing only the wealthiest income earners. People paid 1% on the first $20,000 and 7% over $50,000. So few people earned more than $20,000 it was essentially a flat tax. At that time only .5% were taxed. Today more than 80% are taxed. Fred Thompson's or any flat tax income will simply be more of the same and eventually morph back into the oppressive multi tiered monster we have today only it will occur much quicker thanks to the lobbyists that didn't exist in 1913.

All that ignores the fact a flat tax on income retains the oppressive IRS that The Fair Tax abolishes.

There’s no way the Fair Tax is going to come into being — so why not press for modifying the current system. At least it might have a chance.

The Fair Tax stands a far better chance of passing than any of the flat tax bills. The four flat (income)tax bills (Freedom Flat Tax Act ,Flat Tax Act of 2007 ,Simplification Act of 2007, Fair Flat Tax Act of 2007 ) combined have a total of 9 cosponsors. Two bills have zero cosponsors. The Fair Tax alone has 73 cosponsors.

[Bigun]

Dr. Walter E. Williams, The John M. Olin Distinguished Professor of Economics at George Mason University, recently said in a speech on the subject of taxes that "a working definition of slavery is that you work but do not have any rights to the fruit of your labor."

Is their anyone who will argue with him on that? Certainly not I. In fact, I would argue that he put the problem with an income tax, ANY income tax, in a nutshell with this comment.

In this country we do not have first claim on the fruits of our labor and worse, there is nothing in the law that would limit the amount that those who DO have first claim can take if they wish. That being the case, it follows that most of us are nothing more than slaves under the income tax. The Fairtax would restore to every American first right to the fruits of his labor. That fact alone means that we would ALL be better off under the Fairtax regardless of ANY financial considerations. The fact that the VAST majority would be FAR better off financially as well under the FairTax is just icing on the cake if you ask me!

[Man50D]

Dr. Walter E. Williams, The John M. Olin Distinguished Professor of Economics at George Mason University, recently said in a speech on the subject of taxes that "a working definition of slavery is that you work but do not have any rights to the fruit of your labor."

Excellent post Bigun! Thanks!

[Bigun]

It occurs to me that the greatest upheaval ever endured in this country had at it’s heart the argument over slavery yet we have ALL become slaves to the income tax over the last ninety odd years and few say a word about that!

It seems to me that rectifying THAT situation ought to be priority number one for any FREEDOM lover and the FairTax is the only game in town for getting it done!