DougMacG
Thank you for your response and I look forward to hearing more from you. Your points made me look into this more and I am still in favor of the Fair tax. I am still open minded and if we could come up with a better solution I am all ears. I touched on each of your points and would be happy to go into depth on them more though that would require more time that I spent on this response and more research but I would be happy to do it.
1) Changing over to the 'FairTax' requires the repeal of the 16th amendment. You will not see 2/3rds of Nancy Pelosi's House, 2/3rds of Harry Reid's Senate and 3/4ths of the legislatures, including states like Senator Amy Klobuchar's Minnesota and Senator Hillary clinton's New York, voting to 'permanently' cancel the authority of the federal government to tax income at all while their careers are fully focused on "raising taxes on the wealthiest among us" to pay for health care and more government of all kinds.Granted this is a real problem and the main obstacle to the fair tax, but you can not win a fight by standing idle. The support must be large enough to move the Harry Reids aside or to the cause. With enough press I think it can be done.
2) A 23% "inclusive" tax is a 30% sales tax. When you buy a $1 item you pay $1.30. The inclusive version is fine for comparing with income tax rates but this is a sales tax and you add 30% (best case) to the price.Inclusive or exclusive is just a numbers game the amount of tax is the same it is just in how you chose to do the math. Your 1 dollar example is weighted in the wrong direction if you pay a dollar you pay 70 cents for your item and 30 cents tax if you run the numbers exclusive so tax is 30%. You also fail to take into account the taxes imbedded in the cost of good which will no longer be there. Studies have shove this to be as much as 24% so the amounts balance out.
How does the FairTax affect wages and prices?
1. Americans who produce goods and earn wages must pay significant tax and compliance costs under the current federal income tax. These taxes and costs both reduce after-tax wages and profits and are then passed on to the consumers of those goods and services in the form of price increases. When the FairTax removes income, capital gains, payroll, estate and gift taxes, the pre-FairTax prices of these goods and services will fall. The removal of these hidden taxes may also allow wages to rise. Exactly how much prices will fall and wages will rise depends on market forces. For example, in a profession with many jobs and too few to fill them, wages will likely increase more than in fields where there are too many employees and not enough jobs.
3) Unless you live in South Dakota or another location without a state income tax you will still need to file a complete income tax return including all of the schedules with the government every year. (Who really thinks the states will soon quit taxing income.)These states with state income taxes I believe will fall into line once the people see how easy it is to do their taxes. They will demand their states change. The power of goverment lies with the people. If this is no longer the case then our civilization is on the downward slope. I still have hope we can fix it.
4) Somewhere approaching 40% of the economy are the government purchases. You can make them FairTax-exempt and then adjust the 30% tax WAY upward for the rest of us. If we make them not-exempt, then adjust our public spending 'needs' up by 30% to cover the tax.It is my understanding that even the government would pay the fair tax. It was stated in the fair tax book and on their web page.
5) The so-called "prebates" that remove the harshness of sales tax regressivity also remove the simplicity which was the primary strength, purpose and justification for the 'Fair Tax'.There are already systems in place in our govt. that would allow us to send out the checks and the form you send in to apply for a prebate is one page and easy to do. The expense is negligible when compared to the IRS now. Here is a PDF explaining the system.
http://www.fairtax.org/PDF/FairTaxPrebateExplained2007.pdf6) New items are taxed and used items are not taxed again because they already were, yet 'used' homes will be taxed! Again, there goes the simplicity and the lobbying as it means the rules are negotiable.It is my understanding the used homes will not be taxed. Here is an example from the firtax.org site it uses cars but a good is a good.
Does the FairTax tax used items?
1. The FairTax does not tax “used” goods but it is important to note that HR25 has a legal definition of the term “used”. This is necessary to ensure that items are taxed only once and to prevent tax cheating.
Under the FairTax, for an item to be considered “used” it must be:
(1) purchased before the FairTax is enacted, or
(2) the FairTax on the item must have been previously paid.
Let’s look at (1) above. Assume that Joe bought a new car in January of 2005. Let’s further assume that the FairTax went into effect on Jan. 1, 2006. Since Joe owned the car before the enactment of the FairTax, it is considered a “used” car. It has the taxes from the existing tax system embedded in its price. Therefore, when Joe sells that car to Bill, Bill will not owe tax on the transaction.
Now, let’s consider (2) above. The most common example is that Joe buys a new car for personal use and pays the FairTax on it. If Joe then sells his car to Bill, there would be no tax on it because the tax had already been paid. Let’s look at another example. Assume that Joe owns a flower shop business and buys a van to use when making deliveries to his customers. No tax is charged on purchases for business purposes so that the FairTax on goods sold to consumers does not double tax, or put a tax on a tax.
If Joe decides to sell the van to his friend Bill (who is not in business) for use as his personal vehicle, then it would be a taxable sale to Bill. Why? Because Joe did not pay tax when he bought the van for his flower shop. Since no FairTax has been previously paid on that van; it is not considered used and the sale to Bill would be taxable.
If later, Bill decided he did not like driving a van and sold it to someone else, it would not be a taxable sale. Why? Because the tax had been previously paid (when Bill bought it from Joe) making the item “used” and not subject to tax.
7) Fairness? For whom? Those who worked hard, paid taxes and saved for the future and now want to enjoy it will be openly double taxed. So much for fairness. Again, if we adjust for fairness, out goes the simplicity.What about senior citizens, retired people, and anyone on a fixed income?
As a group, seniors do very well under the FairTax. Low-income seniors are much better off under the FairTax than under the current income tax system.
Some erroneously believe that people who live exclusively on Social Security pay no taxes. They may not know it, but they are paying hidden corporate income taxes and employer payroll taxes whenever they buy anything. Under the FairTax, seniors pay $0.23 out of every dollar they choose to spend on new goods and services.
Plus, seniors, like everyone else, receive a monthly prebate, in advance of purchases, for taxes paid on the cost of necessities which more than pays for all of the taxes they would pay if they received the average Social Security benefit amount and spent it all. If seniors choose to work, they are freed from regressive payroll taxes, the federal income tax on wages, and the compliance burdens associated with each. They pay no more hidden taxes on goods or services, and used goods are tax free. There is no income tax on their Social Security benefits.
The income tax imposed on investment income and pension benefits or IRA withdrawals is repealed. Pension funds, IRAs, and 401(k) plans had assets of $12 trillion in 2004. An income tax deduction was taken for contributions to most of these plans. All beneficiaries and owners of these plans expected to pay income tax on them upon withdrawal, but are not required to do so under the FairTax.
All owners of existing homes experience large capital gains due to the repeal of the income tax and implementation of the FairTax Plan. Seniors have dramatically higher home ownership rates than other age groups (81 percent for seniors compared to 65 percent on average). Homes are often a family’s largest asset. Gains are likely to be in the range of 20 percent.
The FairTax makes the economy much more dynamic and prosperous. Consequently, federal tax revenues grow. This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.
How does the FairTax help seniors who have paid taxes on their retirement savings or invested in Roth IRAs?
Simply put, the FairTax is a revenue-neutral proposal, raising no more money than does the current system. The FairTax only changes where the money is raised, not the amount.
Additionally, some erroneously believe that people who have invested in Roth IRAs will never pay taxes on this money again. They may not know it, but they are paying corporate income taxes, employer payroll taxes, plus the associated compliance costs that are hidden in the price of every retail purchase they make. Under the FairTax, these hidden taxes are driven out of retail prices. And note, they can determine the amount of tax they pay through their own lifestyle choices.
Furthermore, used goods are not taxed because they have already been taxed once -- when they were new. Therefore senior citizens, like all Americans, do not lose purchasing power, but gain it instead. Moreover, the FairTax preserves the purchasing power of Social Security benefits, and seniors receive a monthly prebate so they don’t pay taxes on the purchase of necessities. Tax-deferred investments get a one-time windfall. Savings invested in any long-term, income-generating asset such as a stock, real estate, or a long-term bond that can’t be called, increase substantially in value. Finally, complex estate planning is an artifact of an earlier age.
8.) What kind of real and restructuring tax reform is revenue neutral? Those who want reform generally want lower tax burdens. Those who preach the populist 'tax the rich' message of today oppose efforts to lower or remove the burdensome taxes on production.
Revenue neutral simply means this tax plan would raise a similar amount of funds as the current system would. The difference is 1) we take the power out of the politican’s hands and move back to the people, 2) we now tax the underground economies and become hugely more competitive in the world market. Many of the businesses driven offshore by taxes would now have incentives to come back to the U.S.
9) The false promise (IMO) of ending taxation on income has split and damaged the already feeble movement to truly reform our massive, incomprehensible tax system. Case in point, look at the GOP contest in Iowa (2008) that will spread from there. The already thin minority of Iowans who are inclined to be a) caucus-goers, b) fiscal conservatives and c) have a tax reform orientation are now split candidates with income tax reform proposals and one who just recently co-opted the 'FairTax ' banner. IMO that means certain defeat for the larger cause of simplifying and lessening the burden.What system do you prefer? Where is your support going and why
10) I take issue with the nomenclatures and slogans of "FairTax" and "revenue neutral". They remind me of telling us that taxes are mere "contributions". Changing to consumption-based taxation is not fairer, it is just different. It is not revenue-neutral to the individual taxpayers. It would shift burdens around and half the people would certainly cry out 'unfair!'.
I have explained revenue neutral earlier.
Is the FairTax fair?
Yes, the FairTax is fair, and in fact, much fairer than the income tax. Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses, and expensive jewelry. The FairTax taxes them on these purchases. If, however, they use their money to build job-creating factories, finance research and development to create new products, or fund charitable activities (all of which help improve the standard of living of others), then those activities are not taxed
Bonus, 11) A national 30% sales tax would compete and worden the state and local sales taxes that are as high as 7% and higher. States and localities would then shift taxation heavier toward the income side, potentially removing most or all gains after adding an enormous new layer of taxation. Imagine your local public schools looking at all that new revenue potential. Nothing in the federal constitution or future amendments removes the ability of the state, county, local, school, or waste, stadium or transit commissions to go after any revenues that the feds leave on the table.The people prevent the state and local governments from getting out of control.
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.
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