A FairTax Tale

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?

50 some odd percent of the population is on the public take - their vote being purchased by whichever party promises them a bigger cut of my pie.

The FairTax prebate plan would put 100% of American and legal immigrant families on the public take. Think of the campaign possibilities!

“But the current tax system is used to disguise the cost of that spending, by hiding it as a non-itemized VAT within the prices of goods and services.”

I believe you hit the nail on the head.

The Fair Tax would make taxes VISIBLE.

I suspect that is the major unspoken reason that people either support it or oppose it. I would love to have the size of the bloated government made obvious.

People who like big government also tend to like “hidden” taxes. All taxes are ultimately paid by non-wealthy individuals.

Businesses don’t pay taxes, they collect them.

For law abiding people there is no avoiding taxes, whether the FairTax or any other tax.

When it comes to saving 30%, people tend not being so law abiding. It will become common to have businesses make personal purchases so they will be taxfree. That is done today, but will be a more popular when people can see the immediate savings. Currently many of the taxes are embedded and can not be removed and the savings to most people is not as great.

Every transaction will have to be tracked to ensure tax compliance, not just those of 3000 retailers. That is a fairytale.

I'd be willing to make the switch... so I don't have to fill out useless paperwork and I can really watch my financial portfolio GROW... without seeing it ever taxed. Plus, I only pay the government what I think its worth, not what the politicians think its worth. For all the above reasons, I think the Fair Tax is an idea whose time has come.

"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

You’ll never get spending under control until you get it out in the open where everybody can see it.

The only way to do that is through the FairTax. The needed rate to replace all current revenue will be a fully understood commentary on spending.

First, the FairTax replaces some taxes, not all taxes.
Second, as long as the government can borrow, spending remains just as hidden as it does now. Consider Bush's tax cuts and the doubling of the debt (total debt, not the budget deficit - we'll just let the kids and grandkids work that one out)
Third, what would prevent government from increasing the taxes that remain or creating new taxes without touching the sales tax?

Why should I trust a tax system to do what its creators claim it will do when they use deception after deception in an attempt to sell their plan? For instance, what is the tax rate, 23% or 30%? You will take home your entire paycheck (yippee), but they don't define exactly what tax savings will go to the employee and which will remain with the employer.

“Why work harder for diminishing returns? I’ve got enough now...”

To stay employed?

Do you think an Einstein or Edison would knock off work early to avoid being bumped into a higher tax bracket?

As the demand for older ("untaxed") homes rise, their prices will too, until the cost advantage of old vs. new settles back to equilibrium again (people will pay extra for new homes because they believe they get extra value for them).

Of course the exception is the investor who buys the new home, tax free, which gives him an advantage when competing with private buyers for new homes.

Because all business and investment purchases are tax free Avis can purchase a fleet of new cars without paying the 30% FairTax. A year later when Avis sells a used car to a private party, the tax becomes due. Does the private purchaser pay the FairTax based on the new car value, or the used car value?

Seems to me that if I have to pay the 30% FairTax on an Avis used car, Avis would have to greatly reduce its selling price to make its used cars competitive with other used cars, or even new cars. If Avis has to reduce its selling price to compensate for the sales tax, then, in effect, isn't Avis being taxed?

When the FairTax removes income, capital gains, payroll and estate and gift taxes, the pre-FairTax prices of these goods and services will fall.

I have asked this question before and not gotten an answer - how do estate and gift taxes effect the cost of new goods and services?

Your comments and questions are poorly worded and misleading.
Which parts did you not understand? This question shows poor understanding of financing and market valuations. A used home has a market value which means the price that a seller and a buyer agree on. Just as homes under the 'Income' tax have embedded taxes in their valuation, the FairTax will also be included in a home valuation based on market.
You contradicted yourself. Every realtor will understand that a home market value includes all costs and taxes whether those taxes were in the form of an 'Income' tax or a FairTax.

the FairTax will also be included in a home valuation based on market. Every realtor will understand that a home market value includes all costs and taxes...

HUH? Were you saying something about poor understanding of valuations and financing?

Adding taxes to the purchase price isn't going to increase value even if the "Realtor understands".

Adding 30% to your mortgage for taxes would be worse than any sub-prime loan...Period

BTW, you failed to include the 30% tax you'd pay every month on any interest above the fed fund rate...or maybe you don't really know as much about the Fairtax as you think you do.

You were told the FairTax NRST will be financed in new home sales as part of the mortgage and that the increase in monthly payments will be more than made up with an increase in pay.

That is one of the unadvertized problems with the FairTax - it taxes what one buys, not income one has. A buyer must pay the 30% when he makes a purchase, and if he finances his purchase, he pays interest on what he borrows to pay the additional tax. Further, when "entire paycheck" remains undefined we can not assume an increase in take home pay or what that increase will be or whether or not the additional sales tax will be more than made up for by an increase in pay.

You were told the FairTax NRST will be financed in new home sales as part of the mortgage and that the increase in monthly payments will be more than made up with an increase in pay
Post a quote or a link to the part of the Fairtax law (HR25) that dictates any changes in pay.

Let's eliminate the fantasies and stay with what we know and is in black and white...

There was no contradiction from this end. There is only vaccuous babbling emanating through your fingertips from a deficiency in cortisol and ribose.

The fact of the matter is that the increase in mortgage payment by financing the NRST is more than offset by the increase in take-home pay.

That fact can be backed up by simple calculations. But maybe simple math is not in your toolbox.

Unbelievable! You are here attempting to bash the FairTax and you are questioning whether HR25 has any impact on pay?

Are you daft? You think people won’t be taking home more pay under the FairTax?

I will reference this post in any future response as indicating you have not read and studied the FairTax. I will broadcast it wherever our paths cross on FR.

I cannot believe you would commit such stupidity on these threads! But I am happy to point that out to others.

I got news for you Einstein, people are already financing taxes when they purchase a home.

The taxes embedded into labor and materials is priced in the cost of a new home.

So your argument leads nowhere except to illustrate how dense you are.

You cannot win against the FairTax because it replaces the ‘Income’ tax and payroll taxes; it adds no new taxes.

Whether a tax is put on a price at the retail end or whether it is buried in the price from the beginning, no one is going to avoid the tax.

And by the way ‘unadvertized’ is spelled 'unadvertised'.

Every realtor will understand that a home market value includes all costs and taxes
Speaking of Realtors, in addition to the 30% tax on the purchase of a new home there would be a 30% tax on realtor fees as well as a 30% tax on escrow/closing costs...and of course 30% taxes on escrow and realtor fees would be imposed even on "used" real estate sales.

Hope that was worded simple enough for you to understand.

Post #153 and the response to it Post #155 are all that readers need to know about you.

Realtors pay the Income tax now and under the Fair Tax they won’t. If they want to try and tack on 30% to their present fees, let them try. I guarantee there will be a competing real estate brokerage that will keep their fees the same under the FairTax on all new homes sales. And if there isn’t a nearby competitor then buyers and sellers are going to tell them to take a hike.

You’re blowing smoke here and getting nowhere.

Post #153 is all the people need to know about you.

Realtors pay the Income tax now and under the Fair Tax they won’t.

Actually Realtors will have to submit 23% of their gross income for taxes since services are taxable under the fairtax. Technically, the consumer is liable for the tax though, the realtor will just have to provide the consumer with a proper sales tax receipt, collect the money, and remit the money to the government with the proper form.

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