Fair Tax

[Choseph]

I've been reading lately about this "Fair Tax" idea and it seems to make sense. I definitely support it and wonder what people's oppositions to it are, if any. What do we need to do to get this passed into law?

[Connie]

I prefer flat tax.

[john doe]

Well, Choseph, what do you consider a 'fair tax'? I think you will find most people interested in supporting a fair tax, but what is your definition of it?

[Vanhin]

Currently I am a proponent of the "Fair Tax Act", which would "replace all federal income taxes[1] with a single broad national consumption tax on retail sales." (source)

Regards,

Vanhin

[marts1]

Wouldn't that mean those on government assistance whom I'm assuming don't pay income tax, would find themselves in a worse situation?

[Vanhin]

Wouldn't that mean those on government assistance whom I'm assuming don't pay income tax, would find themselves in a worse situation?

The proposal also calls for a monthly payment to all family households of lawful U.S. residents as an advance rebate, or 'prebate', of tax on purchases up to the poverty level.

...

With the [p]rebate taken into consideration, the FairTax would be progressive on consumption... (FairTax - Wikipedia, the free encyclopedia)

Regards,

Vanhin

[Choseph]

John Doe, yes as Vanhin said, the Fair Tax is basically a flat consumption based tax (~23% sales tax) that would be levied on everyone. However, it gets rid of all other taxes like income tax, payroll tax, etc. Also, stipends are provided every month so that people are not taxed up to the poverty level. The thinking is that necessities to survive like food and clothing are not taxed so it actually benefits the poor (and the rich too since they get the stipend as well). Everyone is treated the same, or fairly, hence the Fair Tax. See Americans For Fair Taxation: Americans For Fair Taxation for details.

Study after study shows going to a Fair Tax system is viable, will boost our economy, and allow our government to run more efficiently. Even after getting rid of the payroll tax, the Fair Tax will bring in enough to support things like Social Security (getting rid of that is a whole nother battle for a whole nother day).

[HiJolly]

I like it!

HiJolly

[TheMightyQuinn]

I really like the idea of switching from an income tax to a consumption tax, and the fairtax seems pretty good. Over and over again, however, there are issues the critics always complain about:

• The rate has to be really high to cover current expenditures. This isn't a problem with the fairtax, it's a problem with government spending.
• The "prebate" freaks some people out, calling it "welfare." It's needed to prevent lobbying for tax exemptions for certain products (food, clothing, services, etc.)
• Post-tax retirement accounts would be subjected to the fair tax, and some say this is not fair.

Overall I really like the idea of paying taxes when I spend not when I earn. I like getting the government out of my finances.

I think if it's going to have any chance of passing, Fairtaxers should focus on getting a state to try it out. Here in Washington we have a retail sales tax but no personal income tax, so moving to a fairtax wouldn't be as hard as other states that have personal income taxes.

Getting the politicians to rally behind a consumption tax would be difficult because it takes away their power to grant favors and penalties via the tax code.

[rameumptom]

I have been a proponent of the FAIR Tax for years. Here are some of the key reasons:

1. It is not regressive, because every family gets a monthly rebate check for the poverty level amount of tax that would normally be paid.

2. There are no corporate/business taxes. These are passed down to the consumer, anyway. With no business taxes, we encourage companies to move back here from overseas, because it will be cheaper to run a business here than in Europe or most of Asia.

3. The rich normally buy more things, and so they will pay more in taxes. They will not have loopholes they can use to pay less than regular citizens. IOW, right now Warren Buffet pays less percentage-wise in taxes than his secretary, but wouldn't in the future.

4. It encourages savings.

See more at FAIRTAX.org

At the very least, I would like to see a combination of a flat tax and national sales tax to replace all other federal taxes. There are so many hidden taxes that we end up paying 1/2 our wages in taxation, and we don't even know it.

[hordak]

I think it could be good for our disposal based consumer society. ( A 25% tax on goods will encourage people to buy used, hold on to stuff longer etc.) But at the same time it seem the vast majority of our products are produced over seas and people make money bases on our disposal consumer society so i wonder how it would affect the retail business.

Maybe Walmarts would be go out of business and they would have to extend the parking lots at the local pawn shops?

In either event i think changes this big should be tested at the state level first.

[Moksha]

If the Foundation for Apologetic Information and Research (FAIR) must be taxed, let it be in relation to the donut sales in Utah County.

[TheMightyQuinn]

I think it could be good for our disposal based consumer society

That's one thing I love about the fairtax proposal--only NEW goods are taxed. Used items are tax-free since the tax has already been paid. It's a tax cut for the poor and thrifty who often buy things used.

[john doe]

I'm in favor of a use or consumption tax as opposed to a tax on income.

[Moksha]

I'm in favor of a use or consumption tax as opposed to a tax on income.

What about a limousine service tax?

[john doe]

What about a limousine service tax?

I'm not sure if you're trying to make a funny here or not, but it seems obvious to me that a consumption or use tax would cover a limo service.

[Just_A_Guy]

I like it in principle, but I think there's be huge transitional issues. If suddenly I find myself taking home 25% more money, but a donut costs 25% more--I'm likely to save the money, and skip on the donut.

I suspect you'll see a short term rise in saving--good for individuals, but not so good for GDP. Let's tinker with this when we have an economy that will support it; right now, I think it'd just take us into a downward spiral.

[Dravin]

Edit: Wrong thread. The dangerous of multi-tabbed browsing. :) Edited March 3, 2010 by Dravin

[MarginOfError]

I need a little education. Is the "prebate" automatic to families, or is it something you have to apply for. We've seen time and again that the poor and uneducated often don't know where to go or how to get services that are available to them, and I would worry that if they have to apply for 25% of their money back they may not do it, further entrenching them in poverty.

If it's automatic, well, then I'm not seeing a lot of downsides. Works out for me anyway. I currently pay about 27% tax before sales tax.

[TheMightyQuinn]

Is the "prebate" automatic to families, or is it something you have to apply for.

The prebate is optional and based on household size and you'd need a valid SSN to receive it. You'd have to apply: how else would the government know where and how much to send? The optional thing is for privacy (or for those too rich to care or would rather donate their prebate to the government ).

[Traveler]

I have been a proponent of the FAIR Tax for years. Here are some of the key reasons:

1. It is not regressive, because every family gets a monthly rebate check for the poverty level amount of tax that would normally be paid.

2. There are no corporate/business taxes. These are passed down to the consumer, anyway. With no business taxes, we encourage companies to move back here from overseas, because it will be cheaper to run a business here than in Europe or most of Asia.

3. The rich normally buy more things, and so they will pay more in taxes. They will not have loopholes they can use to pay less than regular citizens. IOW, right now Warren Buffet pays less percentage-wise in taxes than his secretary, but wouldn't in the future.

4. It encourages savings.

See more at FAIRTAX.org

At the very least, I would like to see a combination of a flat tax and national sales tax to replace all other federal taxes. There are so many hidden taxes that we end up paying 1/2 our wages in taxation, and we don't even know it.

Not sure I agree:

1. We already know that a sales tax is regressive. Subsidizing the poor only makes the tax less regressive to those below the poverty line and ignores all other levels of regression

2. No corporate or business tax? Already owning a business is the best and most effective tax shelter for the rich – or anyone else for that matter. Most wealthy use businesses to purchase everything from a dinner out to a new car to a luxury trip to an exotic vacation spot. If anyone is employed in a service industry – your job and salary is already directly connected to this input to your industry.

3. The thought that the rich buy more things is misplaced – many rich are rich because they do not consume as much – especially in relationship to disposable income. As pointed out in #2 – the rich can afford very smart accountants to find loopholes. Historically the rich are the least likely to pay taxes. I was raised in a very wealthy family. We raised most of our own food, we canned a great deal, and we also hunted. Very little was store bought. My mother made most of our clothing, the house we lived in was bought for $7,000 and we repaired it and rebuilt it to over 3 times its original size. My first car was a Junker I was expected to fix before I could drive it. I could go on but hopefully the reader gets the point but I will add this. My father said that what makes someone wealthy is their willingness to work and the difference between what they earn and what they spend. According to him there were no other relevant factors.

4. I have never read anything in economics that indicate that the costs of goods and services have anything at all to do with the propensity to save.

It is interesting to me that our founding fathers intended that the federal government not have direct control over raising funds. The intent was that each state be assessed their “fare share” according to official census. It was up to the states to raise the cash by their own means. Under this system the states and citizens of states seemed to be much more interested in what the Federal government had to spend. I am thinking that we should return to such a system.

The Traveler

[RipplecutBuddha]

The Fair Tax, or flat tax, is a great idea, but there are problems....first of all, it would massively limit governmental power. This is the first reason it's not already in use now. The second reason is that it makes sense. Like any good corporation, the right idea is put at the bottom of the 'to do' list. Everything else is tried first.

BTW, when I say problems, I mean reasons the government will never voluntarily enact it.

What we need to do to get it going is to start at the state level and get a few states to put the program into place. As more states show how well it works, the Federal arguments against it will fall apart. It will take a lot of work, but it can be done.

Edited March 4, 2010 by RipplecutBuddha

[Traveler]

The Fair Tax, or flat tax, is a great idea, but there are problems....first of all, it would massively limit governmental power. This is the first reason it's not already in use now. The second reason is that it makes sense. Like any good corporation, the right idea is put at the bottom of the 'to do' list. Everything else is tried first.

BTW, when I say problems, I mean reasons the government will never voluntarily enact it.

What we need to do to get it going is to start at the state level and get a few states to put the program into place. As more states show how well it works, the Federal arguments against it will fall apart. It will take a lot of work, but it can be done.

The tax method is irrelevant and will not matter; fair or not fair (there will never be enough and taxes must always be raised) as long as the 800 pound gorilla called spending is left unchecked.

The Traveler

[Palerider]

Its only a matter of time and taxes will go up....stay tuned...

[rameumptom]

I like it in principle, but I think there's be huge transitional issues. If suddenly I find myself taking home 25% more money, but a donut costs 25% more--I'm likely to save the money, and skip on the donut.

I suspect you'll see a short term rise in saving--good for individuals, but not so good for GDP. Let's tinker with this when we have an economy that will support it; right now, I think it'd just take us into a downward spiral.

The thing is, donuts WON'T cost 25% more. There are so many hidden taxes right now, your donut would cost about 2% more. Why? Because companies have to pay exorbitant amounts to prepare taxes. Every decision they make has to include a consideration for additional taxes, tax loop-holes, tax breaks, or tax penalties. Also, when a company buys a part, it pays tax on it, which then it passes onto the consumer as part of the price. All of these hidden taxes add about $400 billion a year in extra expense to American companies.

Once you take out that huge expense, suddenly prices drop and are balanced by the new Fair tax.

Because companies no longer pay taxes here, products can be made here cheaper. You will see companies leave other countries and move here to work, where they can have good American workers and a cheap, tax-free playing field. More jobs means more Americans at work.