'Fair' income taxation

[beachFool]

If you are familiar with the proposal you know that every household gets a "prebate" to reimburse taxes on basic goods, ie. food, medicine etc. So, the effective rate goes down as income goes down. And the fairtax is voluntary in that if you do not buy anything new, you pay no tax. So if you object to paying 13,000 for a 10,000 new car, buy a used one and pay no tax. And to make up for the fact that there is no morgage deduction you get in return no capital gains, no death tax and no FICA/Medicare tax.
I'll take that deal.

Americans For Fair Taxation: The FairTax Rate: a 23% tomato or a 30% tomato?

I am very familiar with the proposal and at 24% it is not sufficient to replace all the taxes that are cancelled-unless there is a magical tax fairy.

In 2010,

Capital gains is 15%

Medicare/FICA is 15.3% (employees pay half)

Fair Tax 30%-40%

Most people will pay more taxes under a Fair Tax.

The 25% tax bracket goes to $137,300 (joint -married) 28% up to $209,250 with deductions, exemptions, etc the effective rate is much lower.

 

[TNJed]

I am very familiar with the proposal and at 24% it is not sufficient to replace all the taxes that are cancelled-unless there is a magical tax fairy.

In 2010,

Capital gains is 15%

Medicare/FICA is 15.3% (employees pay half)

Fair Tax 30%-40%

Most people will pay more taxes under a Fair Tax.

The 25% tax bracket goes to $137,300 (joint -married) 28% up to $209,250 with deductions, exemptions, etc the effective rate is much lower.

Doesn't comparing 30-40% sales tax to ~25% income tax assume people will spend 100% of disposable income on consumer related purchases? What if under a fair tax people spend within their means? That's a philosophical quandary which isn't factored into a spreadsheet. Kinda like the inevitable greed which always seems to wreak havoc on a 'free market' but is never factor into a profit/loss statement.

 

[beachFool]

Doesn't comparing 30-40% sales tax to ~25% income tax assume people will spend 100% of disposable income on consumer related purchases? What if under a fair tax people spend within their means? That's a philosophical quandary which isn't factored into a spreadsheet. Kinda like the inevitable greed which always seems to wreak havoc on a 'free market' but is never factor into a profit/loss statement.

But a 25% marginal rate with deductions/exemeptions. means an effective tax rate lower than 20%.

The fair tax sounds grandiose but it is economic demagoguery (or however you spell it).

I am not saying the current system is "right" rather I think the fair tax would make things worse because most people would pay more in taxes.

 

[futurebeachbum]

From the government's POV there are several basic problems with a National Consumption Based tax.

• First, it gives the citizenry too much control over how much control over their tax burden. As someone mentioned earlier, you just don't buy a new car. (They might add use taxes on private resales, but you can bet lots of folks would just keep their stuff longer.)
  
• Second, this type of tax encourages the citizenry to save, rather than to consume. As one of the major consumer powers of the world, the folks who have invested big bucks in our politicians don't want to see that happen. Many of the world's economies depend on US consumerism.
  
• Third, Government bureaucracies can only grow in size and power. They can't diminish in scope. (Case in point: Health Care 'reform' increased the power of the IRS. No one in their right mind would associate the IRS with health care, yet it happened.) Most of the mechanisms for capturing transaction taxes are in place in most states. That wouldn't bode well for the IRS. That alone insures that it won't happen.
  
  That's not to say that the government would be opposed to adding a VAT in as another layer of taxation.

 

[TNJed]

Enjoying all the comments and debate. I admit, there's a lot I don't know about this issue. The facts seem endless. I see good arguments on both sides. I think we can all agree whatever the solution it must be simpler. I do a lot of thinking out loud and appreciate the congenial candor on this board.

 

[idlewind]

But a 25% marginal rate with deductions/exemeptions. means an effective tax rate lower than 20%.

The fair tax sounds grandiose but it is economic demagoguery (or however you spell it).

I am not saying the current system is "right" rather I think the fair tax would make things worse because most people would pay more in taxes.

These economists disagree with you:

http://www.fairtax.org/site/News2?page=NewsArticle&id=8351

 

[idlewind]

Enjoying all the comments and debate. I admit, there's a lot I don't know about this issue. The facts seem endless. I see good arguments on both sides. I think we can all agree whatever the solution it must be simpler. I do a lot of thinking out loud and appreciate the congenial candor on this board.

Read this book and I think you will be on board. Only bureaucrats, IRS agents, tax consultants and financial advisors want to keep the status quo. If I made my living on helping people through the IRS maze I would probably fell the same way.

You can purchase this book and others about the fairtax at www.fairtax.org

 

[Lynnie]

30,000/100,000? :shock:

 

[beachFool]

Read this book and I think you will be on board. Only bureaucrats, IRS agents, tax consultants and financial advisors want to keep the status quo. If I made my living on helping people through the IRS maze I would probably fell the same way.

You can purchase this book and others about the fairtax at www.fairtax.org

Make sure you get the book with the corrections-Boortz and Linder made a few errors the first go-round.

Here is a strong rebuttal to their arguement.

FactCheck.org: Unspinning the FairTax

While I am a Certified Financial Planner, I am confounded by the IRS maze.

My major concern is that the fair tax will only be effective if the rate is much higher 30%-40%.

 

[beachFool]

From Bruce Bartlett, economic advisor to Reagan and GW Bush

FairTax - Bartlett's critique#

"One problem with analyzing the distributional consequences of the FairTax is that its supporters sometimes argue that after-tax incomes will rise by enough to pay the higher prices for goods and services once the 23 percent is added to the prices people pay today. At other times, they argue that prices will fall once income taxes currently embedded in prices are removed, implying a free lunch in which everyone is better off and no one is worse off. Actually, it?s a double free lunch because not only do you get to keep all the taxes currently withheld and pay no more for goods and services now, but you get the rebate as well..."

If you believe in the tax fairy.....


The author closes with:

The most important question to ask, I believe is - "If the FairTax is revenue neutral, someone groups will pay less in taxes than they do now, some more. Who will pay more?" Usually the answers I get are "it doesn't matter" (sure), "no one" (which is impossible if the FairTax is revenue neutral) or "tourists and illegal immigrants who are now paying sales taxes" (but the FairTaxers will argue that the FairTaxes are just replacing the 'embedded' taxes in prices; so if you believe that this must be false as well).

The real answer: People making between $30,000 and $200,000 a year