Skip to comments.Taxing Sales under the FairTax – What Rate Works?
Posted on 10/19/2006 5:11:50 PM PDT by pigdog
As specified in Congressional bill H.R. 25/S. 25, the FairTax is a proposal to replace the federal personal income tax, corporate income tax, payroll (FICA) tax, capital gains, alternative minimum, self-employment, and estate and gifts taxes with a single-rate federal retail sales tax. The FairTax also provides a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no taxes net on spending up to the poverty level.
Bill Gale (2005) and the Presidents Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23% rate. This study, which builds on Gales (2005) analysis, shows that a 23% rate is eminently feasible and suggests why Gale and the Tax Panel reached the opposite conclusion.
This paper begins by projecting the FairTaxs 2007 tax base net of its rebate. Next it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. It then determines if an effective rate of 23% would be sufficient to fund 2007 estimated spending or if not, the amount by which non-Social Security federal expenditures would need to be reduced. Finally, it shows that the FairTax imposes no additional real fiscal burdens on state and local government, notwithstanding the requirement that such governments pay the FairTax when they purchase goods and services.
(Excerpt) Read more at people.bu.edu ...
The upshot of the paper is that a 23% tax inclusive rate is sufficient to maintain revenue neutrality even though the paper is a static analysis only, meaning that it does not take into account the many benefits of the FairTax for the U. S. economy and most of its taxpayers.
An excellent article by several well-respected economists - and very much worth the study ...
Hong Kong did well under a 15% tax rate, but it is a city , not a large country.
Except the paper still fraudulantly insists that governments can raise money by taxing themselves. The report also states that state governments will have to raise their tax rates to make up for the additional revenues because of the taxes imposed on the states. Not a honest third party analysis, but an analysis by a paid for fairtax shill.
It doesn't matter what the rate is. The point is that if it is a sales tax people will be constantly reminded of what their real tax rate is. From this they can make education decisions when they vote.
Whatever it might start out at, my guess is that it will steady out at around 15%.
"Why hasn't anybody thought of this before?"Excellent question ... and I really don't know but it's been "thought of" now - and in fact been extensively and intensively studied by a number of economists of which these are a few.
But to answer you oher questions ... YES, that's just what it means.
In fact, it is the most thoroughly studied and reviewed tax bill ever put before Congress.
Your post is merely nonsense and utter gibberish and merely indicates you either haven't read or don't understand the paper (or both).
Best damn B$ they can buy... again.
You can't dispute anything, but you do win the award for posting the first personal attack on this thread. Shocking, I tell ya....
"The problem is spending."
Indeed, ONE problem is spending, but spending by itself accomplishes very little (and hasn't for almost 100 years now) and if spending were reduced it would vault right back up there since he pols can hide and play games with the reams and reams of arcane tax laws under the present system. It is the taxing system that must first be changed or reducing spending is hollow indeed.
I suggest you read the paper with understanding and realize that the income tax, its laws, its people (the IRS) and its records are ALL eliminated by the FairTax. With enough votes to pass the FairTax there will certainly be enough to retain it - especially as taxpayers realize how it reduces their effective tax rate.
In addition, the FairTax calls for the repeal of the 16th amendment. With the FairTax in place if we as voters let the government get by with the present out of control spending habits we deserve what will indeed happen.
A very good analogy. Never heard it put that way, but dead on. The #1 problem by far is most definitely runaway spending.
"... you do win the award for posting the first personal attack on this thread. Shocking, I tell ya ..."
Sorry, but no - your #5 has that "distinction" and there'll no doubt soon be more from you considering your posting habits.
No kidding. The last time any politician talked about the Balanced Budget Amendment was 1994.
(Outside the incessant whining about personal attacks)
There is absolutely no reason the HK system wouldn't work here - if not even better.
If you think HK is so red hot why don't you put a bill before Congress? Or are you all hat and no cattle???
I attacked the report. You persoanlly attacked the poster. You would think after you have been suspended so much recently, you might begin to get it.
Because when someone does make a point about the paper, you ignore the point and go straight for the personal attack.
"Because when someone does make a point about the paper, you ignore the point and go straight for the personal attack."
I'm afraid you've confused me with Always Right and some of the other FairTax opponents.
Kotlikoff before the ways and means commitee April 2000:
"Tax rates:OH boy! Where do I sign up for a temporaray rate reduction (40% instead of 43%) by paying a NEW tax on the (arbitrary) rental VALUE of my own home?
Simulation analysis and a variety of empirical calculations suggest that the retail sales tax rate needed for revenue neutrality under the Fair Tax, assuming no decline in the real value of government purchases, would be roughly 30 percent when measured on a tax-inclusive basis. This tax rate could be expected to decline by 3 or so percentage points over time as the economy expands. Moreover, if the Fair Tax were structured to include the consumption of existing housing services in its tax base, the initial Fair Tax rate would probably be about 3 percentage points lower. This could be accomplished by assessing the tax on the imputed rent on housing, where the calculation of imputed rent is based on a fair market valuation of housing real estate. This valuation could be done by local municipalities in the course of appraising houses for local property taxes.
A tax-inclusive consumption tax rate of 30 percent translates into a tax-exclusive consumption tax rate of 43 percent. While the 43 percent rate sounds very high, proper comparison of the Fair Tax tax rate with the current payroll and income tax rates requires evaluating the consumption tax rate on a tax-inclusive basis. Even a 30 percent tax rate may sound like a high rate. But one needs to bear in mind that middle and upper income households in America are typically in combined income tax and payroll tax marginal tax brackets of 40 percent or more and that low income Americans are typically in even higher tax brackets once one considers the phase out of the earned income tax credit. Hence, given the state of U.S. marginal taxation, 30 percent is a low number.
There is some serious math in this piece. I cannot comment on its accuracy, but I like moving from a tax that taxes achievement to one that taxes consumption.
Even if the tax take is EXACTLY the same, the American people will be more aware of the tax burden if their money comes into their personal hands first, and then is paid out later as a tax. Most American people, sadly, think in terms of their take-home pay, which takes the focus away from the tax burden they are paying.
Please see my most recent statement on running for Congress, here.
I'll show up and vote my conservative principals this November, but if the Republicans get tossed out I won't shed a tear.
Please explain. The gov't taxes itself now in that it taxes the wages it pays its own employees. How does the gov't currently raise money from its own employees? Please explain.
I don't know why politicians don't glom onto this.
I'm having a hard time believing this. The burden of rebates (or what ever you call them) will require each State to increase or build another form of bureaucracy. Checks just don't write themselves. Second, as families change, so does the status of the rebate. Out of work, new job with much higher pay, etc. Who monitors this? And I would assume that fraud will still happen. Don't kid yourself, it will happen. Everyone is assuming that there will be no black market
Also out of State purchases could be interesting. The bottom line is, there is no safe sane method of taxation. (Period)
The FairTax is that you will get all the money you earn and the cost of goods should be less because of the less taxes employers pay. No Way. Think this out. It's a wash. What you gain in the paycheck if withholding is not taken out will only be taken out at the time of purchase. Oh, I forgot, buy used goods - no tax. Good news for the poor. Whoopee, yard sales!!!!!!! Hey, flea markets, best goods straight from Mexico, China, etc.
"OH boy! Where do I sign up for a temporaray [sic] rate reduction (40% instead of 43%) by paying a NEW tax on the (arbitrary) rental VALUE of my own home?"
Glad you asked. Just go back to the year 2000 and live.
Isn't it interesting what 6 years can accomplish in the way of learning new information, refining formulas, and understanding costs and revenues. I've no doubt that even Kotlikoff would tell you he's learned a lot in those 6 years. But it appears you haven't since you still seem to not understand the presentations in the 2006 paper. Might help to read it?
The poster negative.
Those who stand to lose under the FairTax:
Tax shelter hucksters.
130,000 IRS employees, more than the total employment of the FBI.
The life insurance and annuity industry. They mistakenly think that without the tax-deferral their products will be harder to sell. If their products were any good they would NOT be harder to sell.
K-Street lawyers. If you have ever been to D.C. you have seen the multiple square miles of towering office buildings full of attorneys and lobbyists. Here's how it works: Some F. CAT invents a new hot water heater. He goes to his congresscrook and explains that the device will save energy AND, he will give the congresscrook SOMETHING (cash, a deal, a favor, another congresscrook's okay on something else, a block of votes, a pile of gold). The congresscrook introduces a bill that will allow everyone who buys the new water heater a tax credit. WOW!! Do you think that will help sales?
Municipal Bond Industry. These guys have a dubious past anyway.
Tax lawyers, CPA's, small time street corner instant tax jobbers who make hundreds of thousand of dollars getting people their "check".
I could go on and you can probably create a few of your own.
TAX ME WHEN I SPEND IT, NOT WHILE I'M TRYING TO MAKE IT. LET ME ACCUMULATE WEALTH. PLEASE!!!
The rate isn't the problem. The argument about the rate is bogus. You tell me, what should the rate be? The debate should be about the method.
"The government is never going to relinquish its taxing authority."
Of course it isn't ... nor should it since that's written into the Constitution. What can and will happen though is that the Congress will listen to we the people and, once they realize we want it, change their taxing authority to comply with the FairTax which has the very fine benefits of helping most taxpayers and the country as a whole by boosting the economy.
Congress will only do what the voters allow them to do. If we allow them to commit the sort of "atrocities" you mention it's our own fault. With the FairTax there's a good start since the income tax, the tax code, the tax workers (the IRS) are eliminated and the tax records are required to be destroyed. In addition the bill calls for the 16th amendment to be repealed. If that's not a kick in the teeth of the atrocities you mention, I don't know what might be.
If taxing government is a good idea for raising revenue, why not just tax government?
Great letter to Columbia U., BTW. Hope you got a response (but doubt it). You deserved one.
The FairTax is a true tax on retail consumption. You might read the first couple of pages of the paper - or the bill itself.
Is any of that supposed to make sense to anyone but you?
LET ME ACCUMULATE WEALTH. PLEASE!!!Let you? Who's stopping you? If you're a loser and don't know how to accumulate wealth without an act of Congress that's your fault. The opportunities for wealth are endless. If you're waiting for Congress to act, you lose.
I think after cost savings from all of the "unfair taxes" an 8-12% rate would suffice.
Horse hockey - there's still going to have to be some sort of gov't bureaucracy to collect the funds.
Oh, yeah, the reduction in force or total elimination of the IRS would furthur reduce revenue necessities. I am sure there are related agencies that could be cut as well. A thin government is a healthy government.
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