The FairTax rate on purchases is actually estimated to be 30% on top of the price of goods and services.
I agree with the statement the we need to adjust the current system first as you say. Plus we need to reform the spending side of the equation, most importantly Social Security that is going to dwarf the rest of our spending a little ways down the road. This needs to be privatized.
Dear Amalie,
"Presently, all of my income is reported as Schedule C profit/loss, and I pay with a normal 1040."
Right. You pay ordinary personal income tax. You pay self-employment tax in lieu of FICA and Medicare payroll taxes. No federal income or other federal taxes that would be terminated by the NSRT.
You'd get back those taxes, and that would help you cope with the general increase in prices due to the application of the NSRT throughout the economy. So far, that's not so bad.
"Compliance on the Fair Tax will mean I need to CHARGE that tax above and beyond my normal retail charge - dropping it by 25% is not feasible, since my overhead does not CHANGE under a FairTax plan,..."
Right. If your business is like mine, you're looking around, trying to figure out where you're going to save all this money. As proposed by the NSRT proponents, you're not going to change the gross compensation of your workers - they're going to get back their federal income tax, and both sides of the payroll taxes. They'll be bleating about paying 30% on their health insurance premiums (whether you pay them or they pay them), and so you'll be doing well if you're not forced to pick up part of those costs. Ffor my average worker, just the NSRT on their health insurance premium will mean several thousand dollars per year in taxes - for many, it wipes out most of their "prebate." Oh well.
The landlord's not going to drop the rent. He's already generating income that's either tax-free, or pretty close to tax-free. In fact, he may want to raise the rent, if his real estate investments are throwing off enough tax shelter to reduce his taxes on other income (thus, he's not generating the tax savings to make up for the NSRT when he has to go out and purchase products).
However, as a business, you're exempt from paying the NSRT on the inputs for your business. So, the rent for your offices, the cost of your office supplies, the costs of any raw materials you buy, so on and so forth, will be exempt from the NSRT. I don't think that your overall business costs will rise, or at least, not by very much.
If you do not collect sales and use tax now, you WILL have to join that bureaucratic regime. And, because the tax is so very high, the enforcement will be tough, and compliance will be hard and high, so expect a rather rigorous compliance regime in that regard. And of course, even though you won't be dealing withholding of payroll and income taxes, you will still have to do all your accounting, you will still have to report wages and benefits (because benefits like health insurance will now be taxed with the NSRT) to the federal government for Social Security purposes, as well as for federal and state unemployment insurance, as well as to your private business insurer for workers' compensation, and for any life or disability insurance policies you may have for your workers through your company, etc., etc.
Nonetheless, if compliance costs rise, I expect they will typically rise by only a small fraction of overall revenues.
"I do not buy the idea that prices will fall, either."
I think it's possible they could possibly fall a few percent, although I'm not bettin' the farm on it. And I'd rather not bet the economy on it, either.
"The price will be what the market will bear, and getting a 400.00 check each month to simply offset food / clothing / gasoline / necessity purchases is a drop in the bucket."
Well, the check varies according to family size. A family of four will receive nearly $500 per month. Of course, a single individual will get only around $200 (I'm doing this from memory, so forgive me if I'm off a few bucks).
I know that the cost of gasoline is getting so high, the not-quite $500 per month will just about pay for the NSRT on my gas purchases (just kidding - but it certainly FEELS that way!! I just filled up two cars yesterday - $95 - YIKES!!)
"And, in truth, the IRS does not go away, since it will now be involved in making sure that tax collection is complied with; more hassle and expense for me."
Well, in all fairness, I don't think it will be called the IRS anymore. The federal compliance agency will be called something else. It will probably be smaller, too, because the federal government will likely "subcontract" a lot of the enforcement effort to the individual states. The states, I think, will get a small fee for collecting the tax. I imagine that the federal government will require some amount of enforcement to go with that. I'm sure most of the states will love that, as it will expand the tax-collecting empire of each individual state, and the federal government will be paying for it. Sorta like a hydra - cut one head off - the IRS, and 50 grow back in its place. Ouch.
"Frankly, the unfortunate part of the whole FairTax exercise is that I do not trust the government to enact it without special deductions, etc. anyway - in the end, regardless of what party is in power, it will not be fair."
Well, politicians COULD stop being politicians, I guess....well, okay, you're right, it's more likely to suspend the law of gravity.
Yes, I suspect that the liberals will push to exempt food and increase the tax on automobiles costing over $50,000. Or exempt rent or mortgage interest for residences valued under some arbitrary amount, and increase the tax on mortgage interest for residences above some arbitrary amount.
"It's fer the CHILRUN."
As well, because the NSRT will be passed without repeal of the 16th amendment, I suspect that we will eventually run into some "budget crisis" that will require re-instating a small, modest income tax on the "very rich" (defined by Bill Clinton, as an example, in 1993 as anyone who made over $75,000 per year).
"I also agree with the argument that the little money I have saved to date 'after tax' would now be taxed at 23% (which my feeling is that this is a conservative number; at this number, it would be at least 33% here in TN with the sales tax we already have in place) if and when I spend it."
Well, actually, if you look at it as we normally look at sales tax rates, it will be an added 30% on top of the cost of your purchase. Added to your state sales tax. In my state, it'll be a total of 35%. Ouch.
"It is not perfect, but IMO the current system should be adjusted before some change this radical is brought into the equation. Get rid of the AMT, make the Bush cuts permanent, and simplify the code section by section so that it is more understandable."
So, you're not willing to bet the whole economy on radical, disorienting change, either?
And you own a small business?
Hmmm.... seems to be a theme around here.
sitetest
"It is not perfect, but IMO the current system should be adjusted before some change this radical is brought into the equation."
We have been "adjusting" the current system for almost 100 years now and the result is the biggest mess that anyone has ever seen. Jimmy Carter referred to it as a "disgrace" in 1976 and it is far worse today.
"Get rid of the AMT, make the Bush cuts permanent, and simplify the code section by section so that it is more understandable."
".... at the rate we are going, by 2010 or so it will cost the country less (in terms of lost revenue) to jettison the income tax than it would to get rid of the AMT."
The FairTax Book, by Neal Boortz and John Linder, p. 156
So how would you propose making up the revenue lost by getting rid of the AMT?