The FairTax

[SwampdonkeyPLD]

And I still don't understand why you think the benefactors of the Fairtax are the rich, please explain.

See my post earlier in the thread about effective tax rates compared to income. People who spend less of their income (locally) pay much less in taxes percentage-wise.

I read that post and the Fairtax has a "pre-bate" system. No one, rich or poor, will have to pay taxes on the necessities of life. Even still, I suppose the poor person might still have a higher tax percent because they might still be spending more of their income. So here is my train of thought. The income tax and the capital gains tax hurt the poor more than they do the rich because the rich already are rich. So what if you take 1 mill in taxes from a guy who has 20 mill. Both of those taxes do more harm to people trying to become rich than those who are already rich.

If a rich person doubles what they make with the Fairtax so what? The rich person was already rich in the first place. But with the fair tax you give people who are trying to be rich more of an opportunity to become rich, which is surely more beneficial than a rich person becoming even more rich. Income taxes and the capital gains tax only hold people back. The Fairtax holds no one back.

Did that make any sense?

[evilbau]

I thought your point was that the cost of goods is NOT being reduced, only the tax on the profit, which I disagree with. If that was your point then that study is not out of context because it proves the cost of goods will most likely be reduced. If that wasn't your point, what was it?

And yes I think it will magically get the government off our backs as far as taxes go. I have no clue what enterprise zones are, but I think their tax break is they no longer have to pay income taxes. Surely thats not worse than their tax breaks already. As far as tax credits for hybrid/electric vehicles go, there won't be any along with other tax breaks. I will admit there are downsides to the fairtax, but I think the benefits outweigh them.

Edit: And I still don't understand why you think the benefactors of the Fairtax are the rich, please explain.

I'll admit I made the remarks regarding the cost of goods without sufficient information. After reading a lil more about the Fair Tax, they propose VAT (value added tax) which i guess is an intermediate tax instead of the full tax to businesses so that they don't get the full effect of the tax. Or they aren't subject to the tax at all on non-final product goods. Since there are so many proposals I can't effectively argue against it. Although I can see opportunity for abuse there (e.g. claiming to be a company reselling to avoid paying sales tax) and would like to point them all out, there are simply too many variations, each which seeks to silence some form of opposition, to be able to argue it.

Regarding Enterprise Zones: basically to encourage development in a certain area, they provide tax breaks to business located there if they fulfill certain requirements. 'Surely thats not worse than their tax breaks already.' Sure you are right, but what incentive is there to build and run a business there then? This has been an effective way of trying to turn around ghettos. My point was that there would have to create an alternative which will be built upon and built upon (along with similar programs) in coming years to the point to where we are now: a complicated tax code that has lots of exceptions so that the government can encourage/discourage certain behavior.

Plenty of ways it benefits the wealthy... well we can go through them one by one:

AMT - essentially created to make sure that if you make a certain amount of money, you will pay a 'minimum' amount of tax. Created to essentially force people to pay a certain amount of tax regardless of their deductions. This hits high-middle class and lower upper classes the hardest by this. Pretty obvious who it benefits. I mentioned it needs reform because it isn't inflation adjusted and as the years go on, it is increasingly burdening the middle class.

Estate Tax - I said it before, but seriously, dead multi-millionaires don't need a tax break. You could make a case for the agriculture industry, but overall eliminating this is really ridiculous.

Cap Gains - It affects everyone but it is the rich who have the most to gain by eliminating the cap gains tax. It is typically the rich who invest the most and who get the most income from capital gains. One example is the hedge fund manager. Already they avoid income tax (top bracket 35%) and pay only long term cap gains (15%). Yeah they really need the tax break on that $1.5 billion. Their business is equities, futures, derivatives, etc. so it most likely wouldn't be subject to the sales tax. 'Oh but we'll get that money back when they buy stuff!' *rolls eyes*

Other than benefiting the rich, there is also the issue of 'Will it generate enough revenue?' There are also enforcement issues.

[evilbau]

And I still don't understand why you think the benefactors of the Fairtax are the rich, please explain.

See my post earlier in the thread about effective tax rates compared to income. People who spend less of their income (locally) pay much less in taxes percentage-wise.

I read that post and the Fairtax has a "pre-bate" system. No one, rich or poor, will have to pay taxes on the necessities of life. Even still, I suppose the poor person might still have a higher tax percent because they might still be spending more of their income. So here is my train of thought. The income tax and the capital gains tax hurt the poor more than they do the rich because the rich already are rich. So what if you take 1 mill in taxes from a guy who has 20 mill. Both of those taxes do more harm to people trying to become rich than those who are already rich.

If a rich person doubles what they make with the Fairtax so what? The rich person was already rich in the first place. But with the fair tax you give people who are trying to be rich more of an opportunity to become rich, which is surely more beneficial than a rich person becoming even more rich. Income taxes and the capital gains tax only hold people back. The Fairtax holds no one back.

Did that make any sense?

it does make sense (the theory) but in practice it will probably make us more of a welfare state as families in poverty will come to depend on those pre-bate checks. Also, I don't think income taxes hurt the poor that much. They pay the least $-wise and the least % wise while receiving the full benefits of this country. Under the 'fairtax' they are paying the full rate on everything they buy and get a rebate of $200 (with an additional ~$70 per child) to offset the 'unfairness'. I personally don't think thats very fair.

Edit: AND the compensation program will probably be very expensive and probably impossible to reverse. Even if we found out it was a mistake, and changed tax schemes again, we would probably have this hanging around our necks forever. It could become the 'new welfare'.

[Charla]

Don't forget that two people will probably have a very different opinion on what the "necessities of life" constitute. The federal poverty line is well below the actual cost of living in some areas, and well above it in others. Trying to standardize something like that across the whole nation and then building it into the basic tax code is probably not the best idea. Trying to take regional differences into account to generate a different prebate for each county is just asking for a different kind of trouble, as I'm sure you can figure out.

[SwampdonkeyPLD]

There were to many points to quote so I'll respond without quoting them.

The Fairtax is NOT a VAT tax.

As far as becoming a welfare state, I don't think the Fairtax would make us a welfare state. Social Security, Medicare, Food stamps, etc already do that for us. The monthly "pre-bate" of the Fairtax is a pre-bate on the taxes, not the price of the goods. If a couple spends $100 a month on the necessities of life they would get $23 at the beginning of each month, therefore people would not become reliant in the sense that was mentioned.

As far as benefiting the rich I think I asked the wrong question. Obviously any tax cut benefits the rich. I guess what I meant to ask was how does this solely benefit the rich? It seems people think it ONLY benefits the rich. But it doesn't, sure it will help them more, they have more money, so of course it will. But it helps the poor to!

As far as the Enterprise Zones goes, I can't really argue with you. There are downsides to the Fairtax and I guess thats one of them. But I think the positives outweigh the negatives.

As far as enforcement goes, if by that implementation is meant, then it will be implemented the same way as sales taxes are now.

The Fairtax is about so much more than just Rich vs. Poor though. Its about bringing jobs back home. Its about more economic freedom. The Fairtax is also the ONLY tax, the ONLY tax, that could surive the repeal of the 16th amendment if that were to happen (which I the Fairtax bill repeals the 16th amendment.)

[Jimmayus]

But it helps the poor to!

to what?

I think you are being a little too sweeping in describing the benefits. Sure it could potentially 'bring jobs back home' (except that a good deal of companies moving jobs away from the U.S. would have no real incentive to un-outsource because workers in (for example) India still charge less for their services), but so could other changes to the tax system proposed by others.

Also, regardless of what you say, any tax discussion does boil down to 'is this going to benefit the rich more so than the poor or not', because theoretically, amendments to the tax system are supposed to benefit those who are taxed closer to the maximum of their income (see Aurik's post).

[SwampdonkeyPLD]

But it helps the poor to!

to what?

I think you are being a little too sweeping in describing the benefits. Sure it could potentially 'bring jobs back home' (except that a good deal of companies moving jobs away from the U.S. would have no real incentive to un-outsource because workers in (for example) India still charge less for their services), but so could other changes to the tax system proposed by others.

Also, regardless of what you say, any tax discussion does boil down to 'is this going to benefit the rich more so than the poor or not', because theoretically, amendments to the tax system are supposed to benefit those who are taxed closer to the maximum of their income (see Aurik's post).

Alright, in terms of actual dollars yes it probably helps the rich more. But the rich have more money to work with in the first place so of course it will be easier for them to generate more money. But under the Fairtax a poor person will only have to pay taxes when they buy something they don't need. Right now, a poor person still has to pay taxes. Under the Fairtax the benefit to the poor is that it makes it easier for them to become rich, which in my opinion is more beneficial to a poor person than a rich person doubling what they already have. And as far as the rich having to pay less taxes on their income. Warren Buffet only payed 17% on his income this year.

[simozene]

I would also like to point out something that has not been discussed yet. There are two groups of people in the US who currently avoid paying taxes. Illegal immigrants and Underground markets (like people who sell drugs...etc). Currently there are no income taxes on these two groups. Under the FairTax, these two groups of people would finally be taxed because it does not matter how they make money, it matters how they spend it. I feel that this is a good thing.

Also, all foreign tourists who come to the US on vacation will be paying taxes with every retail purchase they make. Some people might argue this is unfair but from a US citizen's perspective I think this is fantastic. (Keep in mind that the price of retail good will stay about the same when the fairtax is included and corporate taxes are excluded. So the foreign tourist won't really notice the difference.)

[Khamsin]

Instead of a pre-bate check, wouldn't it be simpler and more cost effective to just remove the tax off items such as unprepared food and water, rather than tax them but send out pre-bate checks?

[Fyrie]

Um.. how will someone that decides to buy weed get taxed?

and wouldn't products cost 23% more instead of costing the same as you say?

[simozene]

Instead of a pre-bate check, wouldn't it be simpler and more cost effective to just remove the tax off items such as unprepared food and water, rather than tax them but send out pre-bate checks?

That was considered, but the prebate seems better because once they start making exclusions of not taxing certain things suddenly that opens the doors to a LOT of future exclusions.

Um.. how will someone that decides to buy weed get taxed?

and wouldn't products cost 23% more instead of costing the same as you say?

The person who sells the weed is technically making income, and does not pay any income tax on that profit. In our current system he does not pay this tax. Under the fairtax this 'weed merchant' would pay taxes whenever he buys stuff. Basically it does not matter how one makes his money (current system), it's how he spends it (fairtax).

And no products won't cost 23% more. There's already 20%-30% of hidden corporate taxes in the products we buy. The fairtax eliminates these taxes so the cost of production decreases, therefore the product sale price will decrease as well.

[Khamsin]

In short, we just stop paying income tax. All other effects of the bill are transparent, we pay the same prices we always have, and the government gets as much money as they had been with income tax.

[Yensho]

Ok, call me stupid, but I'm still not seeing something. Maybe I missed it. Anyway, let's say you're lower class, and you do get prebate checks. You get all your paycheck, and you go buy something. It has 23% tax on it, which is all fine and dandy, but if they want to give you money back from what you've spent, how do they know who bought what, and give them money? Do they monitor your income, see what you spent, and give it to you, or what?

[Avinor]

And no products won't cost 23% more. There's already 20%-30% of hidden corporate taxes in the products we buy. The fairtax eliminates these taxes so the cost of production decreases, therefore the product sale price will decrease as well.

So if products magically cost the same (or less!) than before, whats the point of the prebate checks?

[SwampdonkeyPLD]

Ok, call me stupid, but I'm still not seeing something. Maybe I missed it. Anyway, let's say you're lower class, and you do get prebate checks. You get all your paycheck, and you go buy something. It has 23% tax on it, which is all fine and dandy, but if they want to give you money back from what you've spent, how do they know who bought what, and give them money? Do they monitor your income, see what you spent, and give it to you, or what?

The government already determines how much a household needs to spend per person for needed items. They would use the same system do determine how much you would spend on the necessities of life and give you back 23% of that.

And no products won't cost 23% more. There's already 20%-30% of hidden corporate taxes in the products we buy. The fairtax eliminates these taxes so the cost of production decreases, therefore the product sale price will decrease as well.

So if products magically cost the same (or less!) than before, whats the point of the prebate checks?

The point of the pre-bate check is to give people back their taxes on the necessities of life.

[Avinor]

The point of the pre-bate check is to give people back their taxes on the necessities of life.

Well you've assured us they're not gonna cost any more than before, but ok.

New question - where is the money coming from to pay for the prebate checks?

[SwampdonkeyPLD]

The point of the pre-bate check is to give people back their taxes on the necessities of life.

Well you've assured us they're not gonna cost any more than before, but ok.

New question - where is the money coming from to pay for the prebate checks?

The tax will be collected from the previous month I guess, and then be sent back I guess.

[Avinor]

The tax will be collected from the previous month I guess, and then be sent back I guess.

So even less money the government collects, essentially. I know you think the government should only build roads and maintain the army, but I bet it would struggle to do just those with the amount of funding cuts you've proposed.

But lets assume it can. Heres what we know will happen: the lower class will be, at best, as well off as they were before. Generously assuming prices do indeed remain constant and they still get their prebates, all the government social programs will have already been cut due to lack of funding (your goal in the first place). So that prebate money will be going towards making up for the lack of said programs in many cases. Even if the economy surges and they can all get jobs, their wealth is stagnant.

The middle class is doing ok. The upper middle class is doing quite nice, especially with no capital gains taxes to boot. And of course the upper class is raking it in like never before for those very reasons. We have taken the already widening gap between our richest and poorest people and released every form of dampening mechanism. This is not healthy. This is not smart. And while you may be able to convince yourself its more 'fair' under a narrow set of criteria, its sure as hell not a good idea. Trickle-down voodoo economics should have died long ago, but I see its alive and kicking with another new slant.

[SwampdonkeyPLD]

The tax will be collected from the previous month I guess, and then be sent back I guess.

So even less money the government collects, essentially. I know you think the government should only build roads and maintain the army, but I bet it would struggle to do just those with the amount of funding cuts you've proposed.

But lets assume it can. Heres what we know will happen: the lower class will be, at best, as well off as they were before. Generously assuming prices do indeed remain constant and they still get their prebates, all the government social programs will have already been cut due to lack of funding (your goal in the first place). So that prebate money will be going towards making up for the lack of said programs in many cases. Even if the economy surges and they can all get jobs, their wealth is stagnant.

The middle class is doing ok. The upper middle class is doing quite nice, especially with no capital gains taxes to boot. And of course the upper class is raking it in like never before for those very reasons. We have taken the already widening gap between our richest and poorest people and released every form of dampening mechanism. This is not healthy. This is not smart. And while you may be able to convince yourself its more 'fair' under a narrow set of criteria, its sure as hell not a good idea. Trickle-down voodoo economics should have died long ago, but I see its alive and kicking with another new slant.

What proof do you have the government will collect less money? The point of the 23% sales tax is that it will collect the amount of money it needs.

Did I state somewhere that my goal was to cut government funding to social programs? The sales tax replaces how they are funded, it does not get rid of the programs.

Now about that last paragraph. If the ONLY way you measure the success or failure of the Fairtax is the dollar amount a rich person gains versus the amount of dollars gained by a poor person, then your right, the Fairtax is not better. I can't argue that no one can. But I disagree thats the only way it should be measured. If a rich person has 10 million dollars and then the Fairtax gets passed and they can suddenly increase their wealth to 20 million in a short time, so what? Now they can get a bigger yacht, they can get a more expensive car, and an even bigger house. I believe the real success in the Fairtax should be measured in how much easier it will be for a poor person to become at least middle class, and that is what the Fairtax does. Prices will be the same, and poor people will have more money than they did before, (whats wrong with everyone getting more rich?) however it's up to them to decide what to do it. JFK said it best when he said, "Our present tax system...exerts to heavy a drag on growth...It reduces the financial incentives for personal effort, investment, and risk-taking...the present tax load...distorts economic judgments and channels an undue amount of energy into efforts to avoid tax liabilities." The American Dream is a lot of things, I believe one of them is financial security, and under the Fairtax that will be much easier for everyone.

[simozene]

What proof do you have the government will collect less money? The point of the 23% sales tax is that it will collect the amount of money it needs.

The inclusive FairTax rate of 23% was calculated by economists to produce the same amount of revenue for the government as the current tax scheme. In other words it's the same amount of money, it just changes how the government collects it.

Did I state somewhere that my goal was to cut government funding to social programs? The sales tax replaces how they are funded, it does not get rid of the programs.

Yes, we realize that there are problems with government spending. Let's not get too ambitious though. If the FairTax bill also tried to change the way the government spends its money it would never get passed. Basically, let's change the way the government collects money now, and in the future change the way it spends it.

The American Dream is a lot of things, I believe one of them is financial security, and under the Fairtax that will be much easier for everyone.

I agree wholeheartedly.