Posted on 08/03/2004 8:09:52 AM PDT by CSM
BUT WHAT ABOUT THE POOR*?
OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right? We're actually going to forget, just for now, that poverty is largely a behavioral disorder and consider how they would survive under the fair tax.
We begin with a reality check. Right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly named Earned Income Tax Credit, for example. So right now the government is actually supplementing their income. How can they endure a 23% sales tax?
The implementation of the Fair Tax would fail in short order if, as the question presupposes, the net effect on the poor would be the that they would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.
Let's begin by considering two realities.
First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.
Second. Don't forget the 22% in imbedded taxes. It's lurking there in virtually everything poor Americans have to buy. As soon as the competitive forces of the free market work their magic these people will be paying 20% or more less for virtually retail purchase, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.
So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.
Pull out the calculators. Say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities.
Well, at this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. So, here's the clincher.
The Rebate
Under the Fair Tax plan every consumer will receive a check from the federal government every single month equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households.
Here's an example of how the rebate payments would have worked in 2003.
Let's say you're a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would receive $172 per month.
Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.
OK ... let's add it up for America's lower income citizens:
They get their entire paycheck. Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy. They get a check from the federal government every month to rebate any sales taxes they had to pay. Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.
So, my friends, if you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.
*Please note that I titled this chapter "But what about the poor?" and not "But what about the less-fortunate?" Look, I can't be expected to write this entire book without getting in a few digs at the language of political correctness, can I? To say that the poor are poor because of a lack of good fortune presupposes that those who aren't poor were just lucky. Sorry, but for the vast majority the benefits of an affluent lifestyle aren't a matter of luck, they're the result of attention to education, hard work and good decision making. Luck counts on the Las Vegas Strip, not Main Street.
Tax reform ping!
I've been listening to Neal this morning and I heard him mention this. He's speaking with Sec of Defense Donald Rumsfeld right now.
The fastest and best way to eliminate ALL of that instantly is to eliminate the entire tax code as it exists now. Without question, the greatest amount of money and lobbying done in DC is in regardes to the tax code.
The idea is catching. Neal didn't even mention the bounce that putting billions of dollars now spend on income tax compliance and tax lawyers and tax accountants to more productive uses.
Let us pray for the elimination of the hated income and SS taxes.
I like it except for the rebate portion. Why bother adding an extra level of complexity and bureaucracy? Do like they do in Nevada--just don't tax the necessities of life like food and be done with it. It's that simple.
That is it---
Food is a necessity...a CD player isn't.
What a refreshing quote.
There are some pop-ups, but being able to listen to Neal is worth it.
Indeed, one disadvantage of the rebate method is that it forces everyone to "register" their families with the government. In other words, if you have a new child, and you want to make sure that child gets figured into the tax rebate (which, if you don't make much, you certainly would), then you have to notify the government. Not that they wouldn't already know.
Having said that there are two disadvantages with the food exemption. (Well, one real, and one false.) First, the real one: food isn't the only "necessity" we have. For most people, a car is a necessity, so is gasoline. The rebate takes all of that into account, a simple food exemption doesn't. Now I really don't mind exempting necessities from the sales tax---but if you start adding exemption after exemption it will get complicated, and of course there will always be an interest in adding a new exemption.
The other one, which I already said was false, is a class warfare issue. If you exempt food, then that means that the person buying premium food at higher prices (presumably, the richer person) will be in effect receiving a larger "rebate". If you exempt cars, then the more expensive cars will in effect give a larger "rebate." (OK, so you could exempt, say, just the first $10K of a car purchase, but again, there's the complexity.) Like I said, this is not a "real" disadvantage, it's a political one---it's an angle that class warfare nuts can exploit if they are so inclined.
Indeed, one disadvantage of the rebate method is that it forces everyone to "register" their families with the government. In other words, if you have a new child, and you want to make sure that child gets figured into the tax rebate (which, if you don't make much, you certainly would), then you have to notify the government. Not that they wouldn't already know.
Having said that there are two disadvantages with the food exemption. (Well, one real, and one false.) First, the real one: food isn't the only "necessity" we have. For most people, a car is a necessity, so is gasoline. The rebate takes all of that into account, a simple food exemption doesn't. Now I really don't mind exempting necessities from the sales tax---but if you start adding exemption after exemption it will get complicated, and of course there will always be an interest in adding a new exemption.
The other one, which I already said was false, is a class warfare issue. If you exempt food, then that means that the person buying premium food at higher prices (presumably, the richer person) will be in effect receiving a larger "rebate". If you exempt cars, then the more expensive cars will in effect give a larger "rebate." (OK, so you could exempt, say, just the first $10K of a car purchase, but again, there's the complexity.) Like I said, this is not a "real" disadvantage, it's a political one---it's an angle that class warfare nuts can exploit if they are so inclined.
Could someone please explain how the sales tax rebate would work? Would I be required to keep every single receipt I get? Just curious.
The fairness of a tax code should be judged on the ratio of compliance and enforcement costs to the amount of revunue raised. Unfair taxes, like the income and capital gains taxes, require enormous amounts of information to be collected for compliance and enforcement. This information is essential for politicians and lobbyists who want to use the power of government for personal vendettas or personal enrichment.
Paying for government with an excise tax on demand deposit (M1) account transactions at U.S. financial institutions only takes an account number and transaction amount for compliance and enforcement. For progressivity, those who don't pay income taxes now could legally avoid any tax by using cash or barter.
IIRC, a 3% M1 transaction tax would easily balance the budget while providing a permanent tax cut amounting to hundreds of billions of dollars because virtually all compliance and enforcement costs would be eliminated.
I've used this arguement for tax fairness several times to silence leftists promoting the income and capital gains taxes.
"just don't tax the necessities of life like food and be done with it."
FairTax.org's FAQ covers this:
Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after income tax and after payroll tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.
Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.
Ancient_Geezer has a great table that shows how it works and he is much better at answering to the specifics that me, but I'll give it a shot.
Basically, the poverty levels dictate the amount of tax-exempt spending by an individual or family. Depending on the size of the family, the amount of spending that is tax-exempt will fluctuate. Assuming the poverty level is $20,000 for an individual, my first $4,600 in spending would be considered "tax-exempt" (20K*.23). Since it isn't possible (that I can figure) to track that spending by any specific individual, they would send me a monthly stipend of $383.333333.
A few of the FR opponents of the fair tax have brought up a valid concern for me. That is that this system would put all citizens on the government payroll, everyone would receive a monthly check. However, I see this one potential negative to be far outweighed by the positives of the entire paradigm shift.
The government figures out what the "poverty level" is for each family size. You tell the government where you live and they send you a check for the sales tax that would paid on the poverty level amount. No recordkeeping needed for the citizen. For example (numbers made up), if the poverty level for a family of 4 is $2,000 per month and the tax rate is 23%, that family would get a check for $460 every month. In effect, that family would have a net tax rate of 0%.
If Bill Gates had a family of 4, they would also get the same $460 monthly rebate. But his overall sales tax rate would be almost the full 23% because (presumably) he spends a lot more than $2000 per month.
I may have the tax-inclusive vs. tax-exclusive method of calculating messed up, but you should get the idea.
No receipts needed. They use a formula using family size, national poverty level and assumed amount spent on necessities.
Thanks all. I can see the potential bureaucracy associated, but it's gotta be much less than the current IRS.
Would there be tax on home sales? Wouldn't the tax benefit for home ownership disapear?
Is the 23% number mentioned here revenue neutral with income tax and SS/medicare eliminated?
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.