Tax return money: How will you spend it?

[evilbau]

23% of the final price will be the retail tax. but the tax will be 30% of the product price. I tried to use the right number where appropriate.

You still seem to have a 'money for nothing' approach where everything will be the same except everyone will have more money (which is the classic example of inflation, btw. Its also worth noting the authors of the FairTax literature assume no inflation which is pretty unrealistic as well). Through everything I've said, I've tried to show that won't be the case. Well, if you don't see the discrepancy in tax revenue from even the upper class/uber wealthy, I really don't have more time to go over it again. I already wasted many work hours, but maybe i'll get into it later.

[Beckwin]

So just to clarify, we'd see increases in the costs of goods and services in order to pay this "fair" tax, right?

Just kinda hit me last night watching WGN; Illinois state has several counties raising sales tax to upwards of 9.5%. State/city/county consumption taxes would compound the burden on middle and lower class families with FairTax.

Apparently there's also a 1% no exemption tax being tossed around now. Not even sure how feasible that is; it'd seem to rely more on businesses and trade to generate revenue, which doesn't seem very stable. But I've kinda stayed out of this discussion so far because economy in general isn't a strong area for me, much less tax plans.

[SwampdonkeyPLD]

Hasn't read carefully enough

Lower-middle class people actually pay MORE taxes because:

-currently they are taxed at ~15% on 100% of their income.
-after fairtax, they will be taxed at ~23% on their consumption, which is 100% of their income.

Hmm, I'm gonna copy and paste here and let you do your thing.

Chart of marginal federal tax rates on work.
30 45 60
$10,000 -23.1% 23.0%* -23.2% 23.0% 29.8% 23.0%
$15,000 33.3% 23.0% 33.8% 23.0% 22.4% 23.0%
$25,000 34.2% 23.0% 47.7% 23.0% 26.2% 23.0%
$35,000 50.2% 23.0% 28.3% 23.0% 29.0% 23.0%
$50,000 28.2% 23.0% 22.4% 23.0% 36.5% 23.0%
$100,000 27.6% 23.0% 27.5% 23.0% 28.6% 23.0%
$250,000 41.5% 23.0% 37.2% 23.0% 35.5% 23.0%
*Note the important difference between marginal rates (the rate of tax paid in the last dollar spent) and actual average
rates. Under the FairTax, no taxpayer in this chart pays any FairTax at all until they spend above the poverty level,
whereas the first dollar spent above the poverty level has a marginal rate of 23 percent.
10

The same document also claims that average lifetime tax is much less under the Fairtax than our current system.

I think I finally get what your saying though. If this chart is bullshit, the income taxes saves more money because 15% is a lower dollar amount than the tax on spending?

So just to clarify, we'd see increases in the costs of goods and services in order to pay this "fair" tax, right?

No you wouldn't because the embedded costs of our current system would disapear. Those are around 22% and the Fairtax is 23%.

Edit: I spaced that chart out, not sure what happened. It goes marginal federal tax rate on work, fairtax, different age group, marginal fed tax rate on work, fairtax, different age group etc. The first column is obviously income.

[aurik]

"Future lifetime tax burden" is a complete bullshit sham statistic.

You still haven't pointed out how the so-called FairTax magically doesn't increase the burden of tax on the middle class who spend nearly all their income regardless.

[Beckwin]

No you wouldn't because the embedded costs of our current system would disapear. Those are around 22% and the Fairtax is 23%.

So... where does the money come from? Consumers pay it like a standard sales tax? So the "embedded costs" disappear, we don't pay the income tax anymore but tack on 23% onto everything we buy (so a wash or worse for middle class and below) and we rely solely on fairly large economic growth (and the sustaining of that growth) to make up the difference?

[SwampdonkeyPLD]

No you wouldn't because the embedded costs of our current system would disapear. Those are around 22% and the Fairtax is 23%.

So... where does the money come from? Consumers pay it like a standard sales tax? So the "embedded costs" disappear, we don't pay the income tax anymore but tack on 23% onto everything we buy (so a wash or worse for middle class and below) and we rely solely on fairly large economic growth (and the sustaining of that growth) to make up the difference?

The Fairtax erases all pretty much all federal taxes. Consumers would pay it like a sales tax. There is no tax on spending up to the poverty level so it's better for the poor. I can't find any data yet to disprove the idea that it hurts middle class. It's designed to be revenue neutral so there is no "difference" to make up.

Edit: Aurik, do you just know all this stuff about economics because you picked it up along the way or because you have a favorite economist or something?

[thegimp]

can u saaaaaaaaaaaaay SSBB+Wii?? or maybe ill blow it all on a tattoo............

[HAcoreRD]

Mine's going in my savings account.

[aurik]

Edit: Aurik, do you just know all this stuff about economics because you picked it up along the way or because you have a favorite economist or something?

Because I actually listened/read when I was taught economics. It's really just a system with some funky math, so it comes easy to me.

Just because a tax is regressive does not automatically mean it's a bad thing. But definitely it's a factor to consider.

Anyway, more about regressive taxes: http://en.wikipedia.org/wiki/Regressive_tax
And from the Fairtax page (http://en.wikipedia.org/wiki/Fairtax):
"However, opponents of the tax argue that while progressive on consumption, the tax could be regressive on income,[6] and would accordingly decrease the tax burden on high income earners and increase the tax burden on the middle class.[3][7]"


And a decent article on the subject that sums up exactly where we've arrived
http://money.cnn.com/2005/09/06/pf/taxe ... ntax_0510/
"The rebates help make the FairTax progressive -- tax jargon for "richer people pay more." For the very rich, however, that's not quite the whole story. Say you earn $2 million a year. You can live pretty well spending $1 million, and as a result pay a mere 11 percent of that year's income in taxes. If the very rich pay less, that means more of the total tax burden in any year has to fall on somebody else, most likely the middle class. Reasonable people can disagree about whether this really matters -- over time, a consumption tax looks more progressive because the rich savers or their descendants eventually spend the money and get taxed. But Boortz and Linder say that all this worry about progressivity at the top is just jealous carping anyway."

and

"The FairTax bill pegs it at 23 percent in order to fund the government at current levels without raising the deficit. (If you think of the FairTax like a state or local sales tax, you'd say that this is a markup of 30 percent on prices at the store. See the chart above.) But economist William Gale of the Brookings Institution says that this number is way, way too low. "They're telling kind of a big lie about tax reform," he says.

Gale calculates that a 23 percent rate would blow a $7 trillion hole in the budget over 10 years, and that a more realistic rate is 31 percent, and higher still if you allow for evasion. And if lobbyists convince lawmakers to exempt things like health care or other necessities -- a real possibility, given the culture of Washington -- the gap looks even bigger. "

[evilbau]

stuff

good stuff, pretty much what we've been saying.

Back to OP, I would be very careful about the final language of how this stimulus package is funded, I think it is very likely it will be funded from your 2008 return essentially making it an advance rather than a true rebate. I don't think the proposed bill is fully scored yet so watch out. I'll be sure to mention it here once the final bill passes.

Someone else on another forum mentioned that they interpreted this rebate as a bank bailout and I think there may be some truth to that, especially since I'm sure a lot will use it to pay down debt or save it.

[Norelco]

stuff

good stuff, pretty much what we've been saying.

Back to OP, I would be very careful about the final language of how this stimulus package is funded, I think it is very likely it will be funded from your 2008 return essentially making it an advance rather than a true rebate. I don't think the proposed bill is fully scored yet so watch out. I'll be sure to mention it here once the final bill passes.

Someone else on another forum mentioned that they interpreted this rebate as a bank bailout and I think there may be some truth to that, especially since I'm sure a lot will use it to pay down debt or save it.

Well, I'm the OP, and I just asked how everyone will be spending their tax return money, not to get into a lengthy discussion that only 4 people care about.

[evilbau]

stuff

good stuff, pretty much what we've been saying.

Back to OP, I would be very careful about the final language of how this stimulus package is funded, I think it is very likely it will be funded from your 2008 return essentially making it an advance rather than a true rebate. I don't think the proposed bill is fully scored yet so watch out. I'll be sure to mention it here once the final bill passes.

Someone else on another forum mentioned that they interpreted this rebate as a bank bailout and I think there may be some truth to that, especially since I'm sure a lot will use it to pay down debt or save it.

Well, I'm the OP, and I just asked how everyone will be spending their tax return money, not to get into a lengthy discussion that only 4 people care about.

haha yeah sorry about that but sometimes people push the right buttons to get a heated response from me, and i usually lurk but if there isn't anyone representing a nuanced pov, i feel obligated to step in.

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

[archibaldcrane]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

[aurik]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

So you're saying it will come out of our 2018, 2028, and 2038 returns?

[archibaldcrane]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

So you're saying it will come out of our 2018, 2028, and 2038 returns?

Yep. Well, except that we don't seem to care at all about things like a 'balanced budget'.

[evilbau]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

Its not unthinkable, they did it in 2003.

edit and 2001

[archibaldcrane]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

Its not unthinkable, they did it in 2003.

edit and 2001

Source me, I find this...hard to believe.

[evilbau]

I said back to OP because if it does come out of your 2008 return, everyone who spent their 'rebate' will be down 600 bucks in april 09

I highly doubt it will "come out of your 2008 return". More accurately, it will "add to the national debt".

Its not unthinkable, they did it in 2003.

edit and 2001

Source me, I find this...hard to believe.

http://findarticles.com/p/articles/mi_q ... _n10172229

Remember that "tax rebate" that you got from the federal government last year? The checks from the U.S. Treasury were usually written out for $300 or $600 that taxpayers were supposed to spend to stimulate the faltering economy. Well, it wasn't exactly a tax rebate that you got between July and September of 2001 because it didn't apply to money that you already contributed to the federal coffers.

Instead, it was an advance on the money that the federal government anticipated that you wouldn't have to pay for 2001 because of a tax reduction. "The government truly did reduce the tax rate. But instead of just reducing the tax table, it looks better if you are sending people checks," says Elizabeth Peppo, a certified public accountant who prepares tax returns in Slidell and in Jefferson Parish. The tax tables won't change for the 2001 tax return because most taxpayers already got the benefit of the cut in the form of the check. However, the tax tables will get adjusted next year to reflect the change in tax rate. Most taxpayers won't see the benefit of the tax reduction when they file their 2001 taxes because they already received that money and spent it.

edit another one: http://www.rockymountainnews.com/news/2 ... te-checks/

There's plenty to be said about our government's response to the current economic travails, with a goofy one-time cash payment representing the "big idea" in place of more substantial economic reforms.

I will not say it, however, since plenty of ink, bytes and air already have been expended on such commentary. Instead, I want to get micro with you and return to one of my favorite topics in my time at the Rocky Mountain News.

Already, we are calling the Bush administration plan to give households $800 to $1,200 in cash a "tax rebate," much as the smaller 2001 checks were described.

That was a misnomer. The summer 2001 "rebate" checks were not a rebate of taxes paid the previous April, as many thought. Instead, they were an advance on the refund taxpayers were going to get in April 2002.

That meant refunds in April 2002 were $300 smaller than they would have been without the summer 2001 checks. And those who owed taxes faced a tax bill $300 higher.

last one, a little more reputable, less editorial-ish: http://www.fool.com/taxes/2001/taxes010608.htm

The tax rebate and you
Heck, even something as simple as the rebate checks can get tricky. As you have read, single filers will receive a $300 rebate later this year. Head of household filers will receive $500, and married folk will receive $600. This "rebate" is really an advance refund check, representing the difference between the 15% rate and the new 10% rate for the first $6,000 of income for single filers ($12,000 for married filers, and $10,000 for heads of households).

[archibaldcrane]

The tax rebate and you
Heck, even something as simple as the rebate checks can get tricky. As you have read, single filers will receive a $300 rebate later this year. Head of household filers will receive $500, and married folk will receive $600. This "rebate" is really an advance refund check, representing the difference between the 15% rate and the new 10% rate for the first $6,000 of income for single filers ($12,000 for married filers, and $10,000 for heads of households).

Ok, this is what I was looking for. I didn't know there was a compensatory adjustment in next year's tax rates. Now it makes sense. ...borrow from Peter to pay Paul eh?

Lame.

[evilbau]

The tax rebate and you
Heck, even something as simple as the rebate checks can get tricky. As you have read, single filers will receive a $300 rebate later this year. Head of household filers will receive $500, and married folk will receive $600. This "rebate" is really an advance refund check, representing the difference between the 15% rate and the new 10% rate for the first $6,000 of income for single filers ($12,000 for married filers, and $10,000 for heads of households).

Ok, this is what I was looking for. I didn't know there was a compensatory adjustment in next year's tax rates. Now it makes sense. ...borrow from Peter to pay Paul eh?

Lame.

Indeed. There is no indication that this will be the case for the 2008 rebate checks but some commentators have mentioned it and it is certainly something me and others will be looking out for. So far the language I have seen is making it a tax credit for the first $6000 (essentially making the first $6000 of your AGI taxed at 0%) but the Dems cried foul as that makes lower income households ineligible, arguably those who need it most. They are still battling it out over the details.