The FairTax Crowd Answers Jerry Bowyer

realclearmarkets.com ^ | January 11, 2008 | Louis R. Woodhill

[Mojave]

Income will not be a factor to determine the size of the prebate.

Or sales taxes actually paid. Welfare.

[ovrtaxt]

High federal sales tax on SOME TARGETED retail items IN ADDITION TO HIGH INCOME TAXES, vs. high federal sales tax on all retail items, with no income tax.

Like I said, you’re being disengenuous and you know it. It’s a weak argument and a bad example.

So, in your opinion, why did the luxury tax “fail”, as you put it?

[foxfield]

Q. How do we determine the interest portion of mortgage payment?

Bowyer's question about mortgage interest seems like a red herring.

I'm no expert, but here is how I undestand it. Under the Fair Tax, the tax is imposed when the house is purchased. The seller has to remit the tax to the government. The amount of the tax is included in the list price of the house. The amount of mortgage principle and interest would be calculated just as they are now and would not be taxable.

[ovrtaxt]

Your experience is a lot different than mine. FL, which is funded without an income tax, is WAY better to deal with than the incompetents at the IRS.

By the way, the FL Dept of Revenue will do spot audits from time to time, looking for sales tax fraud. They’ve always been efficient, since it’s a lot easier to detect than income tax fraud.

I guess CA is a different ballgame.

[robertpaulsen]

You're right. Only the Fair Tax can be avoided this way.

State sales tax income is based on a percentage of the retail price. On a $100 retail item in Illinois, for example, my state collects $6.75 today.

Under the Fair Tax, the retail "cost" of the item drops to $77 and the Fair Tax of $23 is added, making the retail price I pay at the checkout the same as before. Now, does my state apply their 6.75% tax to the $77 or the $100?

I think you see where I'm going. If I buy a computer for business under the Fair Tax, I avoid the Fair Tax. But doesn't the state lose money?

[foxfield]

OMG. You relly don’t know much about the Fair Tax. Please read Boortz’ book and visit the FairTax.org Web site. Many of your misconceptions have already been addressed.

[mad_as_he$$]

Kalifornia FTB does audits all of the time they even try to show up in neighboring states and audit you for their taxes. Since I moved to Nevada they have show up several time and i have turned them away in all but on instance ( because the guy asked politely I let him peek at a small business I had). Not because I have anything to hide or have done business in Kalifornia but they come because I have employees who live there and they assume we sell to their state. Foolish logic.

[ovrtaxt]

You know, I never thought of that!

If anything, this illustrates the multiple levels o ftaxation upon taxation that we pay out. The price is inflated in order to absorb the tax costs of producing, mrketing and selling the item, then the state levies a sales tax on that already taxed item.

Makes me wonder how many other ways we’re getting screwed and we don’t even realize it.

[Caramelgal]

The IRS must go/change, this is not the way to do it. It only grows the government bureacracy.

Bingo! You understand as few evidently do.

Employers will still have the burden of reporting wages to SSA – presumably to validate whether a worker is eligible for the “pre-bate” (those at the Department of Health and Human Services poverty guidelines and I dare anyone to live under those guidelines) not to mention the reporting burden of the individual to prove that they qualify and the additional administrative burden of states in issuing all those monthly pre-bate checks.

States and retailers and service providers will have the additional burden of collecting and remitting the Federal sales tax. Yes the bill provides for a “collection fee” to states for collecting the taxes but what about states that have no sales tax currently? Are the Feds going to pay the entire costs for those states to create and implement brand new tax collection agencies? What about those service providers who are not currently subject to collecting and remitting sales tax? What about the added burden and costs for them to comply? They will certainly pass those additional costs on to the consumers.

According to the Tax Foundation, the top 50% of wage earners pay an average of 13.84% in Federal income tax.

The top 1% pay 23.13%

Summary of Latest Federal Individual Income Tax Data

On day one of the Fair Tax, I will pay (rather optimistically) 23% more for all purchases including my groceries including food that is not currently taxed by most states, rent or mortgage payments, car payment, utilities, gasoline, doctors visits, prescriptions, tuition, hair cuts, service calls, HOA fees….pretty much every time I exchange money with someone, there will be a 23% tax on it. That is on top of state income and sales taxes. Presuming I am in the top 50% of the income bracket at 13.84% and now pay 23% that means a tax increase to me of over 9%.

But the Fair Tax crowd will counter that without Federal corporate and employment taxes, the costs of good and services will decrease and without Federal personal income tax people will have more money in their pockets and all will even out.

They also propose that states will have a motivation to eliminate State income and corporate taxes and replace with their own version of the fair tax. So if the states follow the Fed’s lead and impose a 23% state sales tax, every time I purchase a new good or service that is not currently taxable, it could potentially cost me 46% more?

The math just doesn’t add up. The working class and working class poor, those just above the poverty level and retirees who have already paid taxes on their income and are on fixed incomes will be hit especially hard.

And since businesses will have already paid tax under the old system on their inventory and the cost of doing business, on day one of the Fair Tax, they will most likely not decrease the sales price proportionally – it will take some time for those decreased costs to trickle down to consumers.

In the short term, this could be disastrous to the economy. People who are now only paying an average of 13.84% will be paying a lot more and since the Federal sales tax will apply to every day necessities like food, rent, gas, utilities and medical care, average average people will be forced to eliminate any other goods or services not an absolute necessity. And since the Fair Tax does not tax used goods, people will have a greater incentive to buy used and not new goods and that will have an impact on domestic manufactures and retailers who are already struggling.

But my biggest problem with the Fair Tax is that it is intended to be “revenue neutral” meaning that the Feds will collect the same amount of tax they do today but will just shift the burden and the collection method.

No tax reform can really be called tax reform without a meaningful decrease of Federal spending and fiscal responsibility.

We need real tax reform but the Fair Tax is not the answer as it only shifts the burden of tax collectors and tax payers and does nothing to stem the tide of Federal spending and the elimination of the Federal deficit.

[Cannoneer]

"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed-that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them."

This is probably the single most important point of the Fair Tax. It cojoins the tax suppression efforts of the traditional lobby interests with individual taxpayers. The only objective will be to seek the minimum rate. Imagine the universal uproar and the constituent pressures that legislators would feel with any increase in a base tax rate above the initial 23/30% (for all you incluseive/exclusive debaters) tax rate. Not to mention the immediate market effects.

I agree that the keystone to any tax plan requires a balanced budget ammendment. We should no longer allow our governemnt to spend more than we allow them to collect!

[mad_as_he$$]

Read it and asked the “experts” here on FR several questions. Pipe dream and foolish inexperienced nonsense on how businesses work. The one major question that is critical to businesses is UNANSWERED relating to accumulated depreciation it is critical part. The book is written for populist hate of the IRS. Believe me in a few years everyone will hate the unFair Tax Agency just as much as the IRS. If a man made it I can beat it or find someone who can - except that this ting will be still born in Congress.

[lucysmom]

Not to mention the fact that the article clearly indicates why it will never pass - the number of lobbyists who work in tax issues will make sure it never passes.

Some of those lobbyists work for the FairTax group, in fact, the Argus Group wrote the FairTax bill.

[mad_as_he$$]

Who paid for it?

[foxfield]

If I buy a computer for business under the Fair Tax, I avoid the Fair Tax.

Only if you are in the business of selling computers to others. If you keep it, you would owe the tax, even if you use it in your business.

Under the current income tax system, you would get a deduction for the computer. But, the Fair Tax is not an income tax, so deductibility is irrelevant.

Your concern about the state sales tax is wll founded. It the state imposes sales tax on the list price, you are paying double tax, i.e., the state sales tax is applied to the list price, which includes the Fair Tax. Maybe states will change their laws to avoid the double taxation, but don't count on it.

[ovrtaxt]

Only if you are in the business of selling computers to others. If you keep it, you would owe the tax, even if you use it in your business.

That is correct.

[lucysmom]

The difference is that the "fair tax" would be far more massive.

And far more destructive.

[mjp]

I am retired and pay no income tax. A 23% consumption tax is a deal breaker for me. I will vote Democrat for the first time in my life rather than vote for a tax increase for me.

[robertpaulsen]

"Hey, if you’re going to use the inclusive 35% rate when spaking of the income tax, plase use the comparable inclusive FT rate of 23% for consistency’s sake. Thanks."

I was being consistent. I was comparing the perceived benefits of tax avoidance.

Avoiding income taxes gives a perceived benefit of 35%, does it not? I earn $10 million. I owe $3.5 million. If I cheat I benefit in the amount of 35% do I not?

Under the Fair Tax, the item costs me $100. That includes $23 in Fair Tax, does it not? If I cheat, I only pay $77, correct? That means I avoided the 30% in sales taxes that were added to the price.

Now, if you want me to use 23% I will. But only if you stop calling it a sales tax. Calling it a sales tax means that if I cheat I save the sales tax which is 30%.

It's about perceived savings.

[Lynne]

ALL of that personal income information would still have to be reported for Social Security earnings purposes, it would ONLY be eliminated for the income tax purposes.

[foxfield]

The one major question that is critical to businesses is UNANSWERED relating to accumulated depreciation it is critical part.

What is your question? What about it makes it so critical?