Posted on 08/03/2005 4:51:43 PM PDT by RobFromGa
A simple question...
So, under the FairTaxI get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month. And businesses pay no taxes.
Where is the extra money coming from...
What is wrong with this reasoning below?
1. Right now the government collects $X in the form of all taxes.
2. All taxes are really paid for by consumers in the end result, either directly, or in the cost of their purchases which allow businesses to collect money in order to pay taxes. Companies do not really pay taxes they jsut collect them and pass them on.
3. The FairTax will collect the same $X per year in the form of taxes but using a different method.
4. Under the FairTax, the price paid for goods will not rise because getting rid of all the taxes built into goods will cause the prices to drop, then the FairTax will add onto the new lower price, resulting in the same price paid by consumers.
5. So, for a given taxpayer, shopping (consumption) will be revenue neutral. Ie. Prices are the same as before.
6. And each given taxpayer will get a "prebate" check every month that they are not getting now.
7. And each taxpayer will pay no taxes on capital gains, or on savings.
8. And, each taxpayer will no longer pay any taxes on income, or payroll taxes.
9. And, there will be no Fair Taxes on any purchases made for a business.
Are these all true so far?
Again, I get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month.
Where is the extra money coming from???
Can someone who understands this proposal please explain where the money is coming from?
can you or someone else knowledgable about Flat Tax answer this question?
Compliance costs. Running an IRS. Underground economy. Tax haven net increase in trade. There are trillions being either wasted or hidden right now.
I don't think you get to keep your whole paycheck under this system. It will just tax everyone at the same rate and remove the IRS code. So there will be no money wasted on just figuring out how much to pay.
Since everything else is neutral to the taxpayer, then you are saying that the compliance, underground, IRS costs, etc are equal to the entire revenue collections of the US government under the present system?
Another point to consider is that you are no longer being punished for working harder and earning more. You only get punished when you spend a lot.
A trillion annual on IRS operating and enforcement expenses alone.
How are you "punished" for spending a lot if the prices haven't gone up?
Not so. Under the fairtax system there is no longer any uncome tax.
We all wish it could be reality but I think most people know that it never could be.
I am behind it 100% but there are way too many people that will oppose it.
Dear RobFromGa,
I own a small business. My own compliance costs with the current system amount to about a quarter of one percent of my revenues. In some years, a half of a percent.
That should pay for it. Yeah, that's the ticket.
LOL.
sitetest
No one ever accused fairtaxers of being intellectually honest. Few of their claims withstand intellectual scrutiny, but you can NEVER convince one of them of that.
Because you have to pay the tax. If you don't spend it, they won't come along and take it from you either.
They are, all told, quite substantial. A more interesting issue, however, is that certain monies that exist today on which tax has already been paid would be taxed again under the new system. The "transition effects" would probably be signifcant, but I don't know exactly what they'd be.
"A trillion annual on IRS operating and enforcement expenses alone."
Hey, it's only money.... we can print more, right?
/sarcasm off.
see my tagline
That's higher than mine. I want to meet this business that is paying 30% of their gross in compliance costs.
I am still trying to figure out how they are going to get Trixie the local prostitute to collect and remit a 30% sales tax.
Amazing, 1/2 of all current federal tax revenues go to the IRS. I never knew....
I'm a senior who has many questions about the fair tax. But talking to Congressman Linder he assures me that all questions I have will be answered to my satisfaction and will make me a Fair Tax supporter.
Have you checked out the www.fairtax.org web site? Perhaps some of your questions will be answered there. I saw Linder and Boortz on Cavuto today and they claim everyone's paycheck will have NOTHING deducted....no SS..no medicare...no taxes whatsoever will be taken out.
I'm sure I have the same questions everyone has...if there are no taxes taken out how do we know the consumption tax will raise enough revenue to run the country? How can they tell for sure how much revenue will come in each year? What happens in years where sales are down and people aren't spending? How do we know the 23% won't be raised every few years? Trust me I want reform...just want to make sure we aren't going to be getting into a bigger mess!!
Or are you conveniently leaving that out again?
Dear Always Right,
"That's higher than mine."
I'm trying to be nice. I'm counting all my costs of meeting payroll as being associated with compliance with the current system, even though many of those costs would remain under the proposed system. I'd still be obligated to report wages to the IRS so that they could calculate what goes where for FICA and Medicare. I'd still have to comply with the states' revenooers, and I'd still have to comply for the purposes of workers' compensation and unemployment insurance.
But, hey, I'm in a generous mood, so I'm lumping all those compliance costs in.
Actually, under the new system, as I'd be forced to document every one of my transactions as either being to a final end-user (taxable) or to a business (non-taxable), my own compliance costs would go up.
sitetest
Ya think Trixie pays ANY taxes now? ;-)
Sales prices will probably rise, but not so much as incomes do, because all the deadweight in the IRS will be sent packing. (And, for that matter, at Turbotax, H&R Block, etc. Tax court judges, collection agencies, tax attorneys will all have to find real jobs.)
She will later. When she buys douche, condoms, and in AR's case... Lysol.
They aren't all true. Bad information leads to bad conclusions.
I think by extra money they mean that your paycheck will be larger.
Don't waste your time worrying about it, the 16th needs to be repealed first and that'll never happen in a million years.
This isn't correct. This proposal is not a flat tax where you would pay X percent quarterly or annually. This proposal is a national sales tax. The more you buy, the more tax you pay. Therefore Rich people who buy more, and more expensive items will pay more tax.
I don't get why we don't just put duties or tariffs or whatever on imports. We import a lot of cheap shite. And wouldn't that basically be a consumption tax paid by foreigners? Works for me! Why not cut into THEIR bottom line for a change? Why invent a new scheme?
Its like this... how do you get a Heinz Kerry with a house in the Hamptons and only ends up paying $1500 a year in income taxes (or whatever the number is)...?
There is a huge portion of the economy that is NOT taxed because its not based around people's actual lifestyles. A lot of people simply set aside a few million (post tax) to live on aka "their play money" in the local bank...yet they invest such so they are only getting an occassional capital gains tax here or there...and they pay tax only on interest earned or whatnot...
So in reality the guy has $100 million bucks and lives a million dollar a year lifestyle, yet he only paid taxes on about $75,000...worth of "income" as its defined by the IRS and probably lots of local property taxes too... (thats the way it is now)...
Its not the illegal underground economy I am talking about... its the above ground economy thats perfectly legal but only accessable to the rich.
They are only pro-tax when they can make corporations and rich people pay them.
Now, that being said, one of the things that REALLY interests me is that with no Corporate tax, there would no longer be much of an incentive for U.S. businesses to go offshore. Actually, we would probably see an influx of foreign businesses coming here to produce their goods and ship them home for sales.
Under the FairTax, the price paid for goods will not rise because getting rid of all the taxes built into goods will cause the prices to drop, then the FairTax will add onto the new lower price, resulting in the same price paid by consumers
If I assume that the cost of any item is made up of 70% payroll, 20% corporate profit and 10% imports. I assume the cost of any goods have the same distribution for the suppliers. If the embedded tax on payroll is 7.65% (SS + Medicare, ignoring the drop of SS after $90k and that most benefits are tax fee), the embedded tax on profits is 30%, and the embedded tax on imports is 0%, then the total embedded tax is about 11.4%. Adding other minor taxes and compliance costs still don't boost this up to 23%.
If someone has better numbers I would love to see them.
Which is why a "fairtax" type of system will never happen. Not unless there are all kinds of loopholes and exceptions to keep all those people employed.
Think of it this way... if you are now paying $100 for a foreign built television set, and we impose a Tariff to the manufacturer of 10%, what do you think happens to the cost of that television?
Answer: New price of television will be $110 (television + tariff). The foreign country doesn't end up paying the tax, the consumer does.
This is why we have such a large trade imbalance with China. We do not charge tariffs on goods coming in, but they do. Therefore their goods are cheaper here, while their consumers have to pay "extra" for the privilege of buying U.S. goods.
Because it won't cut into their bottom line, it will cut into yours' when you go to the store and buy all that more expensive shite.
Boortz goes on and on about how the poor people will pay less under this plan as if this is a good thing. The Dems wil be against it because they will no longer be able to buy votes, not because of any flaw with the plan fiscally.
Why did it take me 5X as many words to say the same thing?!!? ;-)
Agreed. But this is also the part of Boortz' plan I don't understand. Currently "poor" people pay very little tax, and with the gadgets in the current code, they can actually get money "back" that they never paid into the system.
Some of that would be offset because they won't be paying Socialist Security Tax or Medi-Scare anymore.
It gives 2001 numbers for the income tax and fair tax bases to derive the rate. It includes the rebate.
I'm sure a_g can give a more recent and better link...
Because I didn't feel much like typing. Getting lazy tonight...
Where is the extra money coming from???
There is no "extra" money, it is already there contained within the economy as a whole in retarded growth as well as inefficient misallocation of production resources that are merely sterile exercises acting as surcharges on the backs of business and the economy.
The wage is what you are contacted to receive by your employer, gross paycheck without withholding.
The FCA sales tax rebate, is included in the tax rate charged.
Current prices of all goods and services are affected by a large component of tax related costs associated with the current tax system including, not only the tax remitted by business to government but costs associated with, tax planning and research as the tax code continually changes, the costs of services associated with any schemes for tax sheltering of income, the costs associated with tax litigation, fees and penalties arising from controverisies and audits with the IRS, any all costs born by business in lost productivity related to planning, accounting, filing, remitting the income/payroll tax. When those costs and taxes are removed from business, competition for market volume maximizing profit will drive prices downward in much the same manner as has happened with the consumer electonics industry with continuing technological productivity improvement in that field.
The net effect of repealing the requirements for income and payroll tax withholding and business taxes generally will be to reduce the overall burdens that now exist in the economy driving production down and pushing costs to the consumer higher, limiting investor gains, and driving wages for labor lower than they would otherwise be.
Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf
"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "
LOL! You have just encountered the usual fantasy BS that the FT fans provide regularly here on FR.
You forgot to add in the cost of the matelial for the item. On the labor side, consider also the unimployment insurance and workman's comp. Boortz and the congressman said that the built in taxes in the price of any item are about 22%. Don't know how true it is.
The 22% is the costs of the tax system, not just the taxes per se.
I also own a small business and compliance costs are negligible. There are many similar businesses.
This brings up another concern with Fair Tax...
Right how when I spend money on business right now I get to deduct it as a business expense, and never pay taxes on it.
As a salesman many of these expenses are travel (airfare, auto mileage, hotels, meals), office expenses (phones, faxes, supplies, admin services), and marketing (postage, printing, promotional items, gifts). Supposedly I will be able to flash a card and that will save me the FairTax at the point of purchase.
Who is in charge of compliance here? Does the hotel front desk person question if my hotel stay is a business expense or am I on my honor? Since I will no longer have any compliance costs that means I won't be spending money on keeping records and defending myself in any kind of audit-- right?
I predict that almost every person will start a business and get a card.
Which aren't true? I listen to Boortz almost every day, and John Linder is my congressman so I've been following this. I just don't get it.
I think that the one that isn't true is that prices will remain about the same, I think they will go up by 25-30%.
Can this really be true? Can it be proven to a sufficient level of certainty to make it worth risking the health of the entire US economy (the best in world history) that you and the other Fair Taxers are right?
Boortz's response to a near identical question:
It's illegal now .. it will be illegal then. That same tax avoidance scheme is available to you right now. Why don't you get out there and try it? Let us know how it works out.
Trixie (and her pimp) are gonna buy stuff.
Right now there is a compliance method, I have to keep records and fill out forms and defend my expenses. Under the Fair Tax, since all the savings are coming by getting rid of compliance expenses, and there is no IRS to come after me, what would catch the person who cheats the system?
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