So what does everyone think about the idea of doing away with the current tax system and replacing it with a Fair Tax?
Personally, I'm for it.
Anyone want to contribute a pro and con list for discussion on the subject of a Fair Tax ?


So what does everyone think about the idea of doing away with the current tax system and replacing it with a Fair Tax?
Personally, I'm for it.
Anyone want to contribute a pro and con list for discussion on the subject of a Fair Tax ?
"It is a fact that cannot be denied: the wickedness of others becomes our own wickedness because it kindles something evil in our own hearts."
--Carl Jung





let's start with this ... from
(snip)"Countering the “FairTaxers” claims
AFT makes dozens of claims that are backed by only the most sketchy evidence. We don't have space to refute them all. But here are four examples of dubious claims and the realities behind them.
Claim #1: Goods would be cheaper. Proponents of the new tax say that their claimed 23+ percent tax rate wouldn't be so painful because goods would be cheaper. Without an income tax, businesses could charge less for the items they manufacture.
Maybe. And in a truly free market, even likely. But in our real world and our managed economy, this is far from assured. First of all, even if the income tax were repealed, the price of imported goods would have no reason to drop – and think about the huge percentage of our vehicles, electronics, clothing, and other goods that are now manufactured overseas (again, more on that in a moment).
Second, there is simply no guarantee that manufacturers would lower prices – or that the government would resist the temptation to continue placing various punitive taxes on makers of goods – which would force up their underlying cost. The income tax is hardly the only tax the government uses to make our goods more expensive.
And what about products and services whose prices are already set (or “supported”) by the government? Americans already pay three times the typical world rate for sugar, for instance, solely because of government price supports. Neither the income tax nor free markets have anything to do with it. Would powerful industries with high-paid lobbyists urge the federal government or state governments to set their prices considerably lower? Not likely.
Prices of domestic goods and services may certainly fall a bit. Some may fall substantially. But overall, we predict that the after-national-sales-tax price of goods (including the tax) will be higher than the after-income-tax price of goods. And once again we need to consider the worst case: what happens if we end up with both the national sales tax and the income tax?
Likelihood of goods remaining more expensive than the FairTaxers claim: High probability.
Claim #2: A national sales tax would create jobs and support American manufacturing. At first, this seems counterintuitive. A tax that boosts the price of all consumer goods by 30 percent (or more) would help manufacturers? Well, yes, after the U.S. economy recovered from the probable post-tax crash, in the long run the national sales tax actually might boost certain American industries.
What the FairTaxers don't tell you is that it would do so by making one enormous class of goods cost 30 percent more than competing goods. Here's the plan: imported products, which would not benefit by the planned repeal of the income tax, would suddenly be that much more expensive than their domestic counterparts.
That would be the big advantage gained by U.S. manufacturing – and no doubt many people reading this article are all for that. “Buy American!” they cry. “Quit sending our jobs overseas!”
Yet placing a 30 percent or higher penalty on foreign goods essentially forces us to carry U.S. companies on our backs – even when they're less efficient, less innovative, or produce poorer goods. Competition from overseas has often forced American manufacturers to improve their products (as Japanese autos did in the 1970s). Without competition, companies become complacent and sloppy – and their customers are the ones who ultimately suffer.
And again ... what happens if the price of American goods don't drop? Or if we still end up with the income tax on top of the sales tax?
Likelihood: Probable.
Claim #3: Ordinary Americans would be freed from record-keeping and tax filing. Initially – if indeed Congress were to abolish the income tax – this might be true. But not in the long run! Again, look at what the actual legislation says.
From HR 25 Section 101(d):
(1)The person using or consuming taxable property or services in the United States is liable for the tax imposed by this section, except as provided in paragraph (2) of this subsection.
(2) EXCEPTION WHERE TAX PAID TO SELLER- A person using or consuming a taxable property or service in the United States is not liable for the tax imposed by this section if the person pays the tax to a person selling the taxable property or service and receives from such person a purchaser's receipt within the meaning of section 510.
In other words, you, not the seller, are liable for the sales tax. Dr. Walby maintains that once you've received your receipt from a business, you're off the hook. According to her, the businesses will (not may, but will) be audited periodically to make sure they're charging and paying the tax. If they are, fine. If they're not, it's the business, not you, that will be in trouble.
We believe her when she explains that this is how the law is intended to work. We simply don't believe this is the way the law will work in the long run. No, when a business is caught not charging sales tax, eventually the federal government will seek to make criminals out of business customers – who are, after all, “conspirators” in tax evasion, black marketeering, and racketeering.
You'll have to have a receipt to prove you bought that can of beans, that computer, or that car “legally.” Lose your receipt and you could be required to pay that 30+ percent tax all over again – plus penalties and interest.
Worse, using the precedent of the drug war and the income tax, we'd be presumed guilty until we proved ourselves innocent. Or, under the legal fiction now used to perpetrate civil forfeiture, our property would be considered guilty if we had no receipts for it. Without due process, it could be confiscated.
Since current paper receipts are easy to forge, an ever-escalating federal program would have to be dedicated to designing – and eternally re-designing forge-resistant store receipts, which private businesses would be forced to adopt under penalty of law. New federal crimes would be created for receipt forgers or possession of forged receipts. Being found in possession of an item originally purchased by a relative or acquaintance could conceivably become a crime, if the tax is extended to used goods.
Yes, these are projections and they sound draconian. Nothing in the above several paragraphs is written into the current bill. But remember Lyndon Johnson's warning. And remember the way government works.
Likelihood: Certainty in the long run (of paperwork for citizens); High probability (of Draconian punishments and controls for failure to keep receipts and other records
Claim #4: A national sales tax is simpler than the income tax.
David Gross (6), an alert critic of both the present and proposed tax system writes:
National sales tax promoters promise that the tax will be a simple one, but I think they're using wishful thinking when they say things like: Exemptions are the work of special interests and their Gucci-shod lobbyists. The FairTax has no exemptions. Sure it doesn't have any exemptions – now -- when it's just an unamended bill on some congressman's desk. But if it gets closer to being law, you can bet that it will get more and more complicated.
What do you mean the tax is the same for bibles as it is for pornography? Are you saying that someone buying good, wholesome Iowa corn has to pay the same tax as someone who buys French wine? A poor family pays the same sales tax on baby food that a rich bachelor spends on his sports car? and before you can say Gucci-shod lobbyists, there are a thousand pages of regulations describing which sales tax rates apply to which items.
As we've noted above, the possibilities for using a national sales tax as a social engineering tool or as a carrot/stick for corporations are plentiful. To hungry politicians those temptations will prove irresistible. No matter how a “pure” a national sales tax is initially, it will soon become as complex, punitive, and manipulative as any other mega-billion dollar cash cow.
Anyone who believes a national sales tax would never be used for social engineering, or that it would never be used to favor one industry over another, or that it would never be jacked up even more sky-high that it's already proposed to be, or that it would never be used to persecute ordinary Americans, or that it would never lead to black markets, is simply naive about the ways of government and ignorant of history.
Read the “Fair Tax Act” for yourself. You'll discover there's absolutely nothing simple about the legislation. Already – before the inevitable decades of amending and tinkering – H.R. 25 is an enormously complex proposal that contains gems like these:
SEC. 602. (a) IN GENERAL- The sales tax administering authority may levy and seize property, garnish wages or salary and file liens to collect amounts due under this subtitle, pursuant to enforcement ...
SEC. 103. (f) BARTER TRANSACTIONS- If gross payment for taxable property or services is made in other than money, then the person responsible for collecting and remitting the tax shall remit the tax to the sales tax administering authority in money as if gross payment had been made in money at the tax inclusive fair market value of the taxable property or services purchased.
SEC. 905. (a) IN GENERAL- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.
Yes, that's right. That last provision is for an income tax and it's included in legislation that claims to “abolish the income tax.” And those are only a sample of the pitfalls and landmines you'll find within this terrible legislation. Read it. Then re-think whatever favorable attitudes you may have had toward it. (4)
Likelihood: Dead solid certainty (of complexity and punishments)
Advocates of the national sales tax are naive – or believe that we are.
Virtually all of the assumptions promoted by AFT are based on the rosiest possible projections. That there will be zero tax evasion. That all new goods and services will always be taxed equally, without social engineering or other political manipulation. That the base price of new goods will drop 22 percent across the board in the first year (and the price of all services will drop by 25 percent in the same period). That “compliance costs” under the new tax bureaucracy will be lower than those under the existing tax system.
They totally ignore, or breezily dismiss, the jolting disruptions to the economy that imposition of their plan will cause. They pretend there will be no black markets. Despite the clear statement of tax liability in the proposed law, they claim Americans will be forever free of paperwork. They simply don't deal at all with all the obvious implications for citizen tracking inherent in a national sales tax.
They assume that the IRS and a raft of long-time taxes will simply go away, despite every clue that history and the nature of bureaucracy has to offer.
They rightly call all income taxes a “tool of tyranny.” The FairTax, they say, “dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income.” But taxing income isn't the root of the problem – although indeed the income tax is a horrible Marxist system. The root of the problem is a government unchecked, a government that believes it has an inherent right to some government-defined percentage of our property, our time, our very lives. These starry-eyed tax advocated fail to see – or hope we fail to see – that other forms of taxation can easily fill that same role.
Above all, they make the stupidest possible assumption – or they ask us to. They assume that the federal government will not grow, that it will not get more greedy, that it will not consume an ever larger share of everything Americans produce. "(snip)





and let's look at a couple of other aspects which should be of particular interest to dancers ... as well as anybody who has been saving and investing via non-tax deferred bank and brokerage accounts ...
(snip)"The national sales tax will give government another reason to make cash purchases illegal. Because buying with cash will make it easier to evade the sales tax, taxing authorities will quickly conclude that buying with cash is a sure indicator of criminal activity. The federal government has already classed all large cash transactions (in some cases, that means amounts as low as $750) as “suspicious.” Expect cash purchases of all sorts eventually to become criminal under the sales tax regime. After all, as government and the media will soon tell us, “It used to be that big drug dealers and crooked businessmen evaded taxes on large purchases. But now millions of Americans are cheating their countrymen every day by evading tax on billions of small, but cumulatively huge, purchases of milk, coffee, CDs, and tee-shirts!” [add lap dances, VIP's and tips - sic]
Cash purchases, of course, will also make it more difficult for government social engineers and corporate marketers to make sure your buying habits meet their standards. Cash purchases make it harder to tell whether you're guilty of eating too much butter, consuming too much beer, or owning too many guns. That will be yet another reason to make all purchases trackable. But the excuse given will be to prevent the terrible crime of sales tax evasion.
Likelihood: High probability. "(snip)
... and the most insidious effect of all ...
(snip)"The FairTax is monumentally unfair to retiring Baby Boomers. People who have paid 1/4 or 1/3 of their income in taxes for 40 years will now have to pay an equally high tax on all the after tax income they've managed to put aside for their retirement. Every time Boomers buy anything with their lifelong savings, they'll be double taxed.
Likelihood: Certainty
Once again, we asked Dr. Walby about this double taxing. She wrote:
First, prices will decline once the 22 percent embedded [income] taxes are repealed. Second, they will get the rebate to pay the taxes up to the poverty level. If they have an IRA or 401k or pension plan in which they made deposits with pre-tax dollars, with the idea being that they would pay taxes on it when they drew it out, they will be better off. With the FairTax there will be no taxes to pay when they take their money out. So these income taxes saved have to be credited back against the taxes you said they paid under the income tax system.
The response about IRSs and 401ks is true as far as it goes. But this doesn't answer the question about savings in general. Your regular savings account, your CDs and other forms of savings which are not tax-deferred (as IRAs and 401ks are) will be double taxed.
In fact, we suspect that this (along with the ability to profit from inflation) is a prime motivation for the tax change, from Congress' perspective. Politicians know that retiring Boomers are soon to be paying less in taxes on their reduced incomes. They want their cut to continue! "(snip)





and last but not least, the 'Fair Tax' proposal benefits the same three groups who typically benefit from other social welfare programs. The 'working poor' benefit because they receive a 'sizeable' new check from the gov't every month - ostensibly intended to defray the 'Fair Tax' imposed on necessities, but a new gov't check nonetheless.
The 'very rich' benefit because they can easily avoid paying the 'Fair Tax' on major purchases. All it takes is a ticket to Europe or Asia to purchase that new car / yacht / private jet / designer watch / diamond jewelry ... drive it / wear it for a week while on vacation, and then ship it back to the USA as 'used goods' which are NOT subject to the 'Fair Tax'.
And of course the gov't also gets to add a whole new department of public service employees to administer the 'Fair Tax' system, cash transaction reporting etc. which will employ just as many people as the IRS ... and probably more.
The much more intense tracking of cash transaction 'Fair Tax' compliance will also be very likely to mutate into the mandatory use of a 'national cash card' instead of cash bills, so that ALL transactions will be able to be automatically tracked by the gov't and all due 'Fair Taxes' collected on those transactions. This of course would have many other ramifications in regard to gov't 'snooping' into the personal spending habits of Americans. However, adoption of a 'national cash card' ... or more likely the eventual adoption of a 'national chip implant' to avoid the possibility of card theft / identity theft ... would put a major dent into illegal businesses i.e. drugs / illegal alien workers / stolen goods / escorting & prostitution etc.
~
Last edited by Melonie; 09-29-2007 at 02:41 PM.


ok, so we have a large cons list from Melonie now it's for a pros list.
I know it's expensive so I won't waste tons of bandwidth by cutting and pasting entire web pages and full articles. Instead I will just add links to some info and people interested can click and read what ever parts they wish.
an
papers
here is a link that shows comparrision of fair tax, flat tax and current income tax
Last edited by Rinna; 09-29-2007 at 02:47 PM.
"It is a fact that cannot be denied: the wickedness of others becomes our own wickedness because it kindles something evil in our own hearts."
--Carl Jung
I think gym memberships and the purchase of personal training/nutritionist consults, etc, should be tax deductible. Dammit, by staying healthy we are saving money in insurance premiums, government medical care, etc. That MHO. More tax incentives for people who engage in healthy activities.
I don't know if this is what you wanted, its just been on my mind.
"Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
"And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion
Originally Posted by Mia M





Well, under the 'Fair Tax' i.e. 30% national sales tax system (the 23% figure is false advertising, if you buy something costing $100 you will also pay a $30 sales tax, which amounts to 30% in my book !!!), there would be NO tax deductions ... not for gym memberships, not for home mortgage interest payments or local property tax payments, not for the payment of state and local income taxes, not for 'business expenses', not for the purchase of a 'hybrid' vehicle ... at least as the proposed legislation is now written. If you abolish the income tax, you also by definition abolish the deductions and exemptions that go along with that income tax.I think gym memberships and the purchase of personal training/nutritionist consults, etc, should be tax deductible
Of course, as the author of the article in my link points out, there is nothing to prevent legislators from doing some 'social engineering' re tweaking the tax rates on specific industries, i.e. a 0% tax on ethanol versus a 50% tax on gasoline, or a 50% tax on lap dances / adult entertainment, or a 100% tax on cigarettes and alcohol.
However, enacting a complex maze of different national sales tax rates for different products would make retail cash transactions extremely burdensome, providing yet more incentive for the adoption of a 'national cash card' or chip implant for everyone, with all retail cash registers tied to a national financial data network which would not only look up and calculate the appropriate tax rate, but would also enter a record of the transaction in the national financial database.
The 'tin foil hat' crowd would tell you that the ultimate goal of 'Fair Tax' proponents is the creation of a 'cashless America', where the gov't is a party to every dollar earned, every dollar spent, every dollar saved or invested within the USA by every legally resident American.
If the problem is that taxes are too high, then that is the problem -- not the system of tax assessment.
I can think of no faster way for a consumer economy to come crashing down than a 23 per cent sales tax. Consumer spending will come to a screeching halt and then we will have one hell of a mess.
In order to cover our government's insatiable thirst for spending, we actually need to increase taxes! Right now they want more than they can tax so they are borrowing it.
The only way to reduce taxes is to reduce government spending.





Totally against it.
Why? Because I'm against taxation in principle. There is no such thing as a "Fair" tax. If so, then we should consider such things as "fair" extortion, etc.
The current system's inefficiencies is a GOOD thing.
Why make the government more efficient and taking away our money?
Consumption taxes work backwards up the chain of production. For example, a tax on yachts doesn't punish the rich, but it might put yacht BUILDERS out of business. Those are blue collar jobs. Not that there is anything holy about blue collar work.
The most harmful taxes are the ones on investing, because they also hurt our future standard of living by providing a disincentive to future-orientedness. Dividend taxes, capital gains, all that.
In terms of the economic effect outside of the obvious removal of voluntary-exchange money, the least harmful tax tends to be labor taxation. Tariffs seem like an easy target, but trade wars often turn to hot wars.
There's a lot of glibness in both the pros and cons. The cons cited by Melonie set up a lot of straw men and what-ifs to make their arguments while the pros that I've read so far do a fair amount of numbers obfuscation and smug assurances.
The percentage would be what the percentage would be. Just tell me how much tax I'm going to pay, period, on a $100 purchase, and I'll tell you the percentage that you're really charging me. Of course, then local and state sales taxes get added on. I can see where sketchy and struggling businesses would adjust their sales figures to try to increase their profits. And pardon me for not having read thoroughly. Is this a sales tax or a sales and services tax?
It probably would decrease goods consumption just from sticker shock. Very arguably, then, as American businesses saw their costs go down due to elimination of business taxes (uh... right?) and labor taxes, and as the consumers saw a higher paycheck due to no withholding and no costs of tax filing, and as the self-indulgent consumers still want to buy the stuff that they want, it's arguable that consumption would ramp back up.
But overall, if done right (and we're talking about Congress, right?), it's an interesting approach. The core argument against it, from both wealthy, middle class, and poor, really boils down to, "But then I'd really have to pay."





this one is actually on the record, due to the 'luxury tax' enacted a few years back. The end result was that American yacht / boat builders just about went bankrupt. The reason of course was that wealthy Americans could purchase yachts / boats from European or Asian boat builders and thus avoid having to pay the 'luxury tax'Consumption taxes work backwards up the chain of production. For example, a tax on yachts doesn't punish the rich, but it might put yacht BUILDERS out of business. Those are blue collar jobs. Not that there is anything holy about blue collar work.
(snip)" "Starting in 1991, Washington levied a 10 percent tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000. Democrats like Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share and privately about convincing President George H.W. Bush to renounce his 'no new taxes' pledge," the newspaper said in an editorial.
"But it wasn't long before even those die-hard class warriors noticed they'd badly missed their mark. The taxes took in $97 million less in their first year than had been projected — for the simple reason that people were buying a lot fewer of these goods. Boat building, a key industry in Messrs. Mitchell and Kennedy's home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77 percent drop in sales that year, while boat builders estimated layoffs at 25,000. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too. January 1 was disappearance day."(snip) from
as proposed, it is a 30% de-facto tax on all goods and services transacted within the United States. The 23% figure is backwards math, figuring that a $100 transaction with a $30 tax added constitutes 23% tax rate on the resulting $130 total price.And pardon me for not having read thoroughly. Is this a sales tax or a sales and services tax?
well this involves a whole lot of fine print. Social Security tax as a separate entity might go away. Corporate income taxes would go away. But insurance premiums for workmen's comp and unemployment insurance would probably NOT go away. The minimum wage law will not go away. Pre-existing obligations for retirement and medical benefits to employees / retirees would not go away. The compliance cost of OSHA and/or EPA mandated measures would not go away.Very arguably, then, as American businesses saw their costs go down due to elimination of business taxes (uh... right?) and labor taxes
At the same time, it is not clear whether present 'productive use' tax exemptions for electricity / fuels / raw materials purchased by corporations and used to produce their product or service would still be tax exempt, or would now be subject to a 30% price increase via the addition of the 'Fair Tax'. Thus realistically speaking, the enacting of a 'Fair Tax' would increase the cost of imported products to American customers by some 30%, and would perhaps decrease the production cost of domestic products to American consumers by some 10%, but adding back a 30% 'Fair Tax' on the 10% lower wholesale price still results in a probable net 20% price increase to American consumers for American goods and services.



This link is over eleven years old, but still relevant to this discussion,
http://72.14.253.104/search?q=cache:...lnk&cd=9&gl=us
Personally, after reading more about the FAIR tax organization, I don't think I will support such a tax in this particular form. But I'd still like to see the personal income tax replaced, on both the federal and state levels, with either a value-added tax or a sales tax. Or perhaps some hybrid of both. Whatever would eliminate the need for individuals to file a federal and state tax return.
I've been suspicious of the income tax ever since learning, while in my early teens, that the government used it to bring down Al Capone on tax evasion charges. It appears to me, that ever since, the federal government also wanted to keep the income tax as a tool to harass average citizens (not only gangsters) at the will of government workers.
The stuff that I briefly read, I think at fairtax.org, advocated a $25 tax on a $100 purchase. That would be 25 percent. If the effort is to try to make 30 percent seem like 25 percent, then that's just bad-faith marketing, as far as I'm concerned.
No, whatever the tax collection method would be, you would not expect that it would affect minimum wage or a separately negotiated benefits package. In fact, the people making minimum wage, it seems to me, are going to pay more tax under this sales tax scheme than they do presently. (I know we disagree on minimum wage, but I'm hoping we don't spin off-topic. I think we've hashed that one out.)
I like it for its simplicity. I've in favor of a flat income tax with no exemptions, and this tries to do the same thing through a different method. However, I see real problems with collections. You're not going to eliminate the IRS, but turn them into an audit agency with the producers of goods and services.
For instance, the dancer tells me she'll do three lapdances for $100. She's going to charge me $125 so she can pay her taxes. Will she report it? Or, I have a business of consulting manufacturers on widget production. I send out my bill for $1,000 with 25 percent added, and when I get paid, my bank account is a bit short, and that extra $250 turns into a nice loan from the government. Then it's a moral challenge for me to rustle it up at some point and a collections challenge for the government to ensure that it's getting paid.
At first blush, the thing I'm not liking from the practical side the moral burden, I guess, of ordinary cash transactions. There are many examples where customarily nontaxed transactions would now have a conspiracy element to them. Right now, if I pay that dancer $100, it's not my concern if she reports it or not. Under this scheme, if she says to me, "Just pay the hundred. It's fine," then now I'm in a tax evasion conspiracy. I'm using the dancer example here because it's convenient. But there's all sorts of casual transactions in society that would then have this collection/disclosure cloud hanging over them.
The corporate tax ... I dunno yet. So now under this tax scheme, I don't have corporate taxes. Very good. So I run down to Staples and pick up $100 of paper and printer toner and staples. I pay $25 tax on top of it. Is it more expensive to run my business? I don't know. I'm not paying the matchng SS/Medicare for my grunts, and my accounting and headache factors sure are lower by not withholding and doing the 941 and tax return thing. Does that equate out roughly to 25 percent surcharge for the stuff that I need to keep the doors open?
I'm not going to do that math for this thread, but I do guarantee that if it does cost more, I'm going to raise my cost to my clients accordingly. If that happens, then, yeah, they're seeing an extra hit out of this taxing scheme. If it works out the same or a little to the bad, then that's grand, especially since my life is a little simpler. You usually pay for convenience.
I'm unconvinced either way, but I really do want something simpler than what we have now.





Now you've hit the real 'pay dirt' for the taxation people. The distinct possibility of 'black markets' and 'anonymous cash transactions' under a 'Fair Tax' program is going to inevitably lead to new laws which will attempt to move all transactions 'on the record' ... such that the gov't can be aware that the transaction took place, and can collect the 'Fair Tax' due. Falling back to your dancer example, this would almost surely mean an end to direct customer / dancer transactions for lap dances and VIP's, with new laws requiring that the transaction be run through the club's cash register. In other words, if a customer wants to buy five $20 lap dances, the club would collect $130 and give the customer a receipt showing taxes collected and paid ... the club would remit $30 to the tax people ... the club would then pay out say $90 to the dancer at the end of the night ... and the club would retain the $10 balance to cover these additional costs of accounting and Fair Tax compliance documentation.At first blush, the thing I'm not liking from the practical side the moral burden, I guess, of ordinary cash transactions. There are many examples where customarily nontaxed transactions would now have a conspiracy element to them. Right now, if I pay that dancer $100, it's not my concern if she reports it or not. Under this scheme, if she says to me, "Just pay the hundred. It's fine," then now I'm in a tax evasion conspiracy. I'm using the dancer example here because it's convenient. But there's all sorts of casual transactions in society that would then have this collection/disclosure cloud hanging over them.
don't forget that a new gov't check to offset the Fair Tax for some minimum amount of necessary purchases is part of the proposal. Minimum wage workers would get exactly the same size new gov't check in US dollar terms as you and I would ! Thus the total tax liability for minimum wage workers goes from zero to 'below zero' i.e. a de-facto new cash subsidy from the gov't.In fact, the people making minimum wage, it seems to me, are going to pay more tax under this sales tax scheme than they do presently. (I know we disagree on minimum wage, but I'm hoping we don't spin off-topic. I think we've hashed that one out.)
you can be sure that new regulations will be put into effect that require companies / merchants to account for and pay out Fair Tax collections in the same manner as they must now account for and pay out state / local sales taxes. This will probably be far simpler than the present requirements for withholding income taxes from employees etc. but it certainly isn't zero.I have a business of consulting manufacturers on widget production. I send out my bill for $1,000 with 25 percent added, and when I get paid, my bank account is a bit short, and that extra $250 turns into a nice loan from the government. Then it's a moral challenge for me to rustle it up at some point and a collections challenge for the government to ensure that it's getting paid.





The current system is very complex for OUR benefit. People have lobbied to try and escape paying taxes. Making the tax system more "simple" means less ways to escape paying taxes. That's bad.
Making the government more efficient at collecting our money is the exact opposite of what we should want.
That said, unless a change decreases the amount of total money collected, it is a waste of time to even discuss it. "Revenue neutral" changes are just rhetoric as the net effect is going to be mostly the same. I don't care how complex the tax system becomes as long as it is moving towards 0% collected.





Again going back to the luxury tax and the expensive yacht example, the Fair Tax actually makes it far easier for the 'very rich' to avoid paying taxes. Under current income tax law, the IRS attempts to tax the foreign earnings of American citizens. However, under the Fair Tax, there is no attempt (and no jurisdiction) for the IRS to tax the foreign PURCHASES of American citizens. Thus if someone is rich enough to take a week's vacation in Europe or Asia, they can certainly purchase a new jet / car / yacht / painting / Rolex watch / mink coat etc. while outside the USA, totally avoid paying the Fair Tax on the purchase, and then ship / bring the item home as 'used goods'.Making the tax system more "simple" means less ways to escape paying taxes. That's bad.
Making the government more efficient at collecting our money is the exact opposite of what we should want.
If the gov't attempts to impose 'capital controls' in order to stop the cross-border transfer of 'used goods' a.k.a. 'assets', this would open an entirely new 'Pandora's Box' of potentially explosive issues.
And while were on the subject of entirely new potentially explosive issues, consider what the adoption of a Fair Tax at the federal level would do to state and local tax rates. One of the major tools used by states and localities to finance their gov't spending is the sale of low interest rate muni bonds that are exempt from federal / state / local income taxes. These have been a favorite investment for the 'very rich'. However, if there is no longer a federal income tax to be avoided, nobody in their right mind is going to want to purchase a bond carrying a very low interest rate. Thus, at the very least, states and localities are going to have to pony up 2-3% higher interest rate offerings in order to obtain long term financing. For a state like California that is trying to issue $35 billion in new bonds, the carrying cost difference between $35 billion @ 5% interest and $35 billion @ 7-8% interest is HUGE - and the only possible source of the additional funding is an increase in state and local tax rates !!!
Last edited by Melonie; 10-01-2007 at 07:36 AM.
I hadn't read that part, but it's not disturbing. Under earned income credit and various social benefits, the government's paid poor people to live anyway. If some broke slob struggling to meet his trailer payment gets the same check that I do for minimal subsistence, I'm not bothered. I mean, minimal subsistence for a given area would be a theoretic static figure.don't forget that a new gov't check to offset the Fair Tax for some minimum amount of necessary purchases is part of the proposal. Minimum wage workers would get exactly the same size new gov't check in US dollar terms as you and I would ! Thus the total tax liability for minimum wage workers goes from zero to 'below zero' i.e. a de-facto new cash subsidy from the gov't.
Well, right now, I make sure that my corporate balance is as close to zero at the end of the year so I don't have to pay out anything. And that's a whole exercise of juggling checks. If I'm a SubS, then I'm juggling to maximize my dividends without it appearing to look like normal income in order to avoid withholding, and that's a whole different exercise. Add to that the 941 calculations.you can be sure that new regulations will be put into effect that require companies / merchants to account for and pay out Fair Tax collections in the same manner as they must now account for and pay out state / local sales taxes. This will probably be far simpler than the present requirements for withholding income taxes from employees etc. but it certainly isn't zero.
So no, it wouldn't be zero, but it would be much more convenient, assuming I had a straight line accounting for tax collections and payments.
That's OK. We waste a lot of time discussing things that can't happen, like elimination of minimum wage and dissolution of the government.Making the government more efficient at collecting our money is the exact opposite of what we should want.
That said, unless a change decreases the amount of total money collected, it is a waste of time to even discuss it.
My sense is that the vast majority of people would agree that they need to pay something (taxes) for the services from government. Military costs alone are half a trillion dollars. Social programs, law administration and enforcement, public protection, national infrastructure, regulation of items involving public safety, and so on. We can waste time talking about eliminating them, but it won't happen, and people will keep paying for them. The levels and efficiency of delivery of those services, along with the need for ancillary services, are usually what gets people's panties in a twist.
I would consider that a concern for Customs and a bit of a red herring. I just cannot see where that's going to be anywhere near the larger part of the "very rich" purchases and subsequent tax, and if we're talking about the "very rich" buying a new jet, they may well want to go ahead and pay the tax, since they can afford it, and avoid the potential of legal action by the government if they're caught....Fair Tax actually makes it far easier for the 'very rich' to avoid paying taxes...if someone is rich enough to take a week's vacation in Europe or Asia, they can certainly purchase a new jet ...and then ship / bring the item home as 'used goods'.
I suspect, but really don't know, that for this reason, the states and local authorities would lobby hard to have public bonds exempted. (I also suspect that the government won't tax itself for its own purchases.)And while were on the subject of entirely new potentially explosive issues, consider what the adoption of a Fair Tax at the federal level would do to state and local tax rates...
However, this raises another concern I have, and that is of the trickle-down effect of this form of taxation. People in these here parts bitch about the level of sales taxes already in place, and I'm sure it's not even close to what is seen in the more urban centers like NY. If you have local/state sales taxes of up to 10 percent, or even higher for all I know, and you suddenly have another very large percentage tacked on for Federal taxes, that's going to create yet more of a sticker shock when the consumer looks at the receipt.
Plus, while I acknowledge the need to pay for government services that I value, the government is in a unique position to raise its prices unilaterally, without consequences of competition, and I simply don't trust the government not to say at some point, "We tried, but it's not working so well... we need to reestablish an income tax. Don't worry, it'll be minimal."
We had a fair tax - that was the Tax Reform Act of 1986. One of the most beautiful tax bills ever passed. Almost got rid of all deductions - kept the home mortgage, real estate taxes and state income tax deductions. Just a nice law - 2 rates 15 and 28%. No capital gains exemptions - since the highest marginal rate was 28%. Then over the years it was hacked by every special interest group and idiot politician. Still IRA and other savings vehicles..
The idea was to rid the tax implications from economic decisions. I think this was the best thing that ever came out of the Reagan era....
Id say roll the tax code back the TRA86 law and then lets work on the home mortgage deduction ( I am not a fan of that one - not sure why renters should have to pay a hidden tax), and tackle the issues of defining taxable income. Also a total revamp or rescinding of the AMT is in order. My 2 cents ( well one cent since I just gave GW the other penny!!!) ...





I hadn't read that part, but it's not disturbing. Under earned income credit and various social benefits, the government's paid poor people to live anyway. If some broke slob struggling to meet his trailer payment gets the same check that I do for minimal subsistence, I'm not bothered. I mean, minimal subsistence for a given area would be a theoretic static figure.
again, you have hit upon a second 'pay dirt' issue ... that of a future majority of American registered voters whose standard of living is 'supported / subsidized' at some minimum acceptable level via taxation and transfer of wealth from the the minority. The Fair Tax program very clearly defines that minimum acceptable level via the magnitude of the new monthly check paid out by the gov't to every American to ostensibly offset the Fair Tax liability on the purchase of a certain minimum level of purchases. However, the Fair Tax program does not recognize the non-cash value of other benefits that these Americans are receiving from other federal / state / local programs.
The 'tin foil hat' crowd will tell you that this Fair Tax proposal gravitates toward the establishment of a new 'majority' of 50% of officially 'poor' Americans voting to preserve their gov't checks and benefits, plus the richest 1% of Americans voting to preserve their de-facto tax avoidance loopholes, plus some additional percentage of Americans voting to preserve their civil service jobs and benefits whose worth vastly exceeds the private sector. Thrust into the voting minority are 'middle class' Americans in the 51% to 99% relative income bracket who must actually bear the tax burden for those gov't checks and benefits to the officially 'poor', who must make up for the revenue shortfall caused by legal tax avoidance by the richest 1%, and who must pay the salaries and benefits of the civil service employees.
yup if you are facing a situation where the purchase of a $100 item results in the addition of $30 in federal Fair Tax plus $10 if state sales tax plus $15 in hidden excise tax = $155, it could certainly constitute a sticker shock for many American consumers. However, this won't be an obstacle at all for visiting Canadians / Europeans / Chinese, whose exchanged home currencies can cover a US$155 price tag as easily this year as they covered a US$125 price tag last year.However, this raises another concern I have, and that is of the trickle-down effect of this form of taxation. People in these here parts bitch about the level of sales taxes already in place, and I'm sure it's not even close to what is seen in the more urban centers like NY. If you have local/state sales taxes of up to 10 percent, or even higher for all I know, and you suddenly have another very large percentage tacked on for Federal taxes, that's going to create yet more of a sticker shock when the consumer looks at the receipt.
The problem is ... what tax are they going to be exempt from ? ... or more importantly who is going to have to finance 'tax credit' payments in order to maintain the current interest rate spread that muni bonds enjoy ? Ultimately the existing situation amounts to a federal subsidy to states that choose to spend wildly and borrow deeply via the issuance of long term muni bonds. If the Fair Tax is enacted and the income tax abolished, suddenly you've got a whole bunch of 'rich' investors who bought 20-30 year muni bonds for income tax avoidance purposes that no longer have an income tax to avoid !!!I suspect, but really don't know, that for this reason, the states and local authorities would lobby hard to have public bonds exempted. (I also suspect that the government won't tax itself for its own purchases.)
In that scenario, 'rich' investors continuing to hold onto a low yield muni bond for another 18-28 years until maturity would be pure stupidity, such that massive muni bond selloffs and rotation into different investment sectors will quickly follow. Arguably a state and local financing tsunami similar in magnitude to subprime mortgages would quickly follow, as states and localities quickly find it impossible to market new bonds unless accompanied by interest rates commeasurate with other after-tax rates of return available on commercial paper of similar risk. State and local gov'ts having to pay out a 7% interest rate on new 20-30 year muni bonds vs 4% in order to market these new bonds results in a huge additional carrying cost of bond debt for the state / local budget. As mentioned earlier, the ONLY available source of revenue to service this higher debt carrying cost is higher state / local tax rates !
~
Last edited by Melonie; 10-01-2007 at 07:15 PM.


from the FAQ's of the website I linked to earlier in the thread regarding the subject of State taxes under a Federal Fair Tax system:
How are state tax systems affected, and can states adequately collect a federal sales tax?
No state is required to repeal its income tax or piggyback its sales tax on the federal tax. All states have the opportunity to collect the FairTax; states will find it beneficial to conform their sales tax to the federal tax. Most states will probably choose to conform. It makes the administrative costs of businesses in that state much lower. The state is paid a one-quarter of one percent fee by the federal government to collect the tax. For states that already collect a sales tax, this fee proves generous. A state can choose not to collect the federal sales tax, and either outsource the collection to another state, or opt to have the federal government collect it directly. If a state chooses to conform to the federal tax base, they will raise the same amount of state sales tax with a lower tax rate -- in some cases more than 50 percent lower -- since the FairTax base is broader than their current tax base. States may also consider the reduction or elimination of property taxes by keeping their sales tax rate at or near where it is currently. Finally, conforming states that are part of the FairTax system will find collection of sales tax on Internet and mail-order retail sales greatly simplified.
Last edited by Rinna; 10-01-2007 at 08:12 PM.
"It is a fact that cannot be denied: the wickedness of others becomes our own wickedness because it kindles something evil in our own hearts."
--Carl Jung


"It is a fact that cannot be denied: the wickedness of others becomes our own wickedness because it kindles something evil in our own hearts."
--Carl Jung





by equally valid speculation, the creation of a Fair Tax database which state sales taxes can 'piggyback' would indeed benefit state revenues. First, it would allow states to subject a broader array of goods and services to state sales tax. Second, it would provide vastly increased state sales tax revenues from interstate commerce collections and remittances of state sales taxes.If a state chooses to conform to the federal tax base, they will raise the same amount of state sales tax with a lower tax rate -- in some cases more than 50 percent lower -- since the FairTax base is broader than their current tax base. States may also consider the reduction or elimination of property taxes by keeping their sales tax rate at or near where it is currently. Finally, conforming states that are part of the FairTax system will find collection of sales tax on Internet and mail-order retail sales greatly simplified.
However, there is no reason to believe that states and cities will decide to either reduce state / city income tax rates or reduce state / local property tax rates as a result of a 'harmonized' Fair Tax to state sales tax database with enforced nationwide collections and remittances of sales taxes on out-of-state purchases made by state residents. Past experience has repeatedly shown that the sudden appearance of increased tax revenues almost certainly results in the gov't spending those windfall tax revenues rather than lowering present / future tax rates.


"It is a fact that cannot be denied: the wickedness of others becomes our own wickedness because it kindles something evil in our own hearts."
--Carl Jung





So how does that make a difference in states like California that continually spend more than they take in from state / local tax revenue, and make their state budgets appear to balance by the unending issuance of new muni bonds (from which the state immediately spends the bond principal and to which the state obligates the children and grandchildren of current taxpayers to keep paying interest for the next 30 years). In that scenario, every additional dollar of immediate tax revenue enhancement is going to be spent to cover current costs to the state gov't. In that scenario, the vastly higher interest rate spreads which will have to be paid by state gov't in order to sell marketable muni bonds in the future will create a strong incentive to stop selling new bonds ... and instead further increase immediate tax revenues even beyond the 'automatic revenue enhancement' in order to cover current state budgets.there is plenty of reason to believe it's likely considering they could bring in the same amounts but at a better or even much better rate.
I suppose this would be beneficial to those children and grandchildren of heavily burdened state taxpayers in the sense that by accepting a higher state tax burden now, 30 years down the road the existing state muni bonds would be paid off and new muni bond interest payments would not be taking their place. But what's probably much more beneficial for those children and grandchildren of heavily burdened state taxpayers is the likely decision made by their high earning parents to quickly move to a different state which has far lower obligations / costs to provide expensive social welfare benefits to a large percentage of the state's population !
I would agree w/ Melonie on this point - once they have your money, govts hate to give it back - except in a way that makes them look good ie govt spending. PLUS let us not forget that property taxes in many states go to the counties and cities. So why would they trade for a "guaranteed" revenue stream to one that is only collected when a new home is sold and be held hostage to cycles in new home building. ANd who thinks the new homes market will flourish under this fair tax scenario ... I saw a lot of funny numbers in their example at the fairtax.org website?!?!
I would see a lot of "used" purchases in my future under this tax...
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