This is my first post to FreeRepublic, and I see some reasonable voices, so I like to pose a suggestion and get some feedback.
I should say upfront that I am a supporter of the FairTax and have been for several years. I am convinced by the arguments, including the hidden taxes in retail goods, the inefficiency of those hidden taxes, and free market (cuthroat) competition reducing prices pre-sales tax.
However, I am not entirely happy with the FairTax as written.
One issue: PIT-Deferred Savings vs. non-Deferred Savings
Many people like myself have been putting money away into tax-defferred 401k's, IRA's, and pensions. When it was put away, we understood that we had not escaped the PIT, only deferred payment until a later date. Many others have saved outside of tax-deferred accounts or even converted tax-deferred into non-deferred accounts like a Roth.
Take two people who had $200K in a 401k. One chose -- for what seems like sound reasons under current PIT -- to convert to a Roth. The other did not. After the FairTax is implemented, they will have unequal buying power. Through no fault of his own, the Roth holder has only $120K remaining to spend while the 401k holder has $200K.
While I am not a fan of government spending, the fact is that we (the people) have committed to spending.
The government, reasonably, expects those future PIT payments from those tax-deferred accounts as a revenue stream.
Those that put money away in tax-deferred accounts understood that they would have to pay the PIT later -- hopefully at a lower rate than current income, but still pay it.
Those tax deferred accounts total more than $11.5T today. If those accounts were disbursed over a seven year period and a flat-rate PIT charged at 15%, the government would have an average revenue stream of $300B per year.
That would allow the FairTax rate to be 19% rather than 23%.
That rate would be more palatable to those that claim enforcement and evasion rise exponentially as the rate rises. I think a 19% rate would make passage of the FairTax easier, as well.
If the economy expands as the AFT claims, and as I am convinced it will, then 19% for the long haul will be enough.
Before somebody attacks me as one trying to spitefully grab PIT from those with money in tax-deferred acounts, I'll tell you that 80% of my savings is in a 401k. So I am advocating taking a hit for the good of the country as a whole and the passage of the FairTax.
Sorry ...
"claim enforcement and evasion" s/b "claim enforcement difficulty and evasion"
The government, reasonably, expects those future PIT payments from those tax-deferred accounts as a revenue stream.The money in deferred accounts would be taxed when it is finally spent. It's the people with money in the non-deferred accounts that get double taxed (once when they earned it and then again when they spend it).
Those that put money away in tax-deferred accounts understood that they would have to pay the PIT later -- hopefully at a lower rate than current income, but still pay it.
I suspect that by the time the FairTax becomes law, the revenue-neutral rate might very well be 19% rather than 23%. As time goes on and economic activity expands, the rate will probably decrease even further.
That does not mean we shouldn't conceentrate on reducing goveernment spending ... 'deed we should. It's way too high but when people finally see what "their" government costs, they may take a bigger interest in doing just that.