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 President’s 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 Gale’s (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 FairTax’s 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 ...
Like many ideas on their face, brilliantly simple but impossible to impliment. It is similar to saying the secret to a happy life is to find happiness.
FICA and income taxes are hidden. The hundreds of taxes buried in the price of a new car (except the sales and registration taxes) are hidden. Got the distinction?
John / Billybob
Please tell me why not.
When you pay a tax at the grocery store, you've already gotten the money and know when you are paying it out.And then what, stop buying groceries?...Oh wait I know, we can complain to tax loving deaf ears in Congress.
That's not an argument. That's rhetoric. But I can respond to one part of it. The items brought here haven't been taxed. They would be under the FairTax. Border adjustment.
Now there's a classic example of Congress failing to predict accurately what Congress would do in the future.
John / Billybob
Perhaps you would like to expand on my delusion. Why can't 50 clerks do the job of the IRS? I'll give you a thousand auditors.
"... OK. Now I get it. You mean if the tax is partially hidden and misleading people may buy into it being a good deal.Kinda like the Fairytax when they say its going to be a 23% sales tax, but when you buy a $1 item, after the tax is added it wont be $1.23. It will be more.
Great idea, hiding what the real tax will be. I'll bet that will help to get people on board with this."
No, obviously you DON'T get it. You're seriously misinformed on almost every point you make. You'd help yourself a great deal just by reading the first 3 or 4 pages of the report and then the paragraph headed "3.3 Tax-Inclusive versus Tax-Exclusive Rates" that starts at the bottom of page 10 of the paper.
There is no "hiding" of the tax rate - quite the opposite since a receipt is required with each taxable sale that shows the rate clearly.
If you were really worried about "people's time" you'd resign from FR now, instead of waiting to get banned again.
It is not the complexity of the code which makes the requirement for having thousands of tax collectors. It is the incentive to cheat the system. There will still be millions of people trying to avoid taxes and it will still take the watchful eye of an intrusive and abusive tax collection agency to collect 2 trillion in taxes. If you think having a few clerks sitting in Washington DC can do the job, you are delusional.
"Do you hate the IRS? (yes) (no)"
Even a politician isn't that stupid.
Actually, it doesn't tax itself, it taxes its employees and directly withholds the money from them. If the tax rate was 10%, instead of paying a $100 wage to an employee, the Federal government only has to pay $90 though it accounts, on the books, the full $100. In effect, it pays a discounted actual wage and inflates both the "wage paid out" and the "tax received in" entries in the Federal books by the same amount: the amount of the tax. In doing so it generates no net revenue. The actual spending burden it only 90% of the accounted burden. The tax out/in exactly balances and is, in effect a virtual accounting gimmick.
For simplicity, let's assume that under the FairTax, the magnitude of the tax base is the same, and the revenue requirements are the same. In essence, the $100 income that used to generate $10 of tax still needs to generate $10 of tax.
Working under the "keep all your paycheck" scenario, the government has to pay the full $100 wage, in cash, to the employee. That alone raise the cash required to operate by 11%. Of course, since the FairTax used the "virtual tax received" under the Income Tax to set the rate, you'd think: "No problem the tax rate is sufficient to generate the additional cash the Federal Government didn't need before because of the accounting gimmick." Well, if the tax base was entirely in the private sector, you'd be right.
The problem arises because that $100 wage is part of the FairTax base but is "consumed" in the public sector. "Revenue neutrality" demands that the $100 still generate $10 of tax ... it's part of the tax base. But, NO MATTER WHAT THE TAX RATE, the $100 generates NO net tax revenue to the Federal Government ... just as before. If the Rate is 10% (exclusive) the government pays the $100 out, pays an additional $10 in tax, and receives the additional $10 as tax: NO NET TAX REVENUE!
That is why the FairTax is flawed from a Revenue Neutrality perspective.
BTW, the problem is a bit different at the state and local level, but Kotlikoff, in the very paper cited above, agrees that S&L governments will need to raise their own tax rates to collect enough money to pay their FairTax.
"... >"any government" employee's wages salaries and benefits would also cost 30% more under the "Taxable Employer" clause ... "Untrue - both as shown in the paper and has been explained to you many, many times. Why continue to post something you know is not true?
The tax on governmental non-education employees is a tax paid by the government on the gross wages of those employees and it is 23% less the 7.65% ER FICA less another adjustment for the educational employees ER FICA that no longer is paid either. That is all accounted for in the 23% revenue neutral derivation the paper presents.
Actually taxing government IS a good idea and it's done at present (as has also been explained to you many times) but we've decided to shortcut all of that and just you pay the entire tax amount for all taxpayers ... OK???
And if you were really worried about the method of taxation you'd debate instead of jabbing about banishment and personal attacks. Have you ever thought about the issue? Do you have an opinion? Have you given serious consideration to methods of taxation? Have you studied these issues? Have you ever added anything to these debates other than poking around trying to get someone banned? Are you nothing more than a groupie hanging on to every word your fellow SQL's spout? Buck up man. Read something.
Rather than hovering around the abuse button may I suggest reading a book on taxation?
And with this outburst, I am going to puff meagerly on a cigar and be off to bed. I'll look forward to communicating tomorrow.
Having those things not taxed helps reduce your effective FairTax rate considerable which you'd see if you were to use the rate calculator linked to earlier.
read the paper or the first 8 or 10 pages and you'll see it's a carefully worked out amount.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.