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.
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. That was Australia's experience with a 10% Goods and Services Tax, implementation of the tax precipitated a recession.
FairTax supporters will argue that the GST is not the same as the FairTax because it left the income tax in place, and that's true; however the income tax was lowered to compensate for the GST, and the 10% rate was much lower than the proposed FairTax.
It is irrational to assert that the FairTax bestows freedom on the taxpayer to choose when and if he pays the tax while presuming all those individual choices wouldn't add up to negatively impact the economy.