"Fair Tax" (Split from Eastman Thread)

[ibanez2k]

Out of curiosity. What do you guys think of Fair Tax (http://www.fairtax.org)? This concept sounds awesome to me and I endorse it! I can't see that there would be any issues. It even eliminates the IRS all together and eliminates the possibility of tax evasion completely.

[Cpt Banjo]

From the link you posted:

In concept, the FairTax plan is simple. Abolish the income tax completely, and get rid of the Internal Revenue Service. Repeal the 16th Amendment so income cannot be taxed. Replace the income tax revenue with an equal amount using a national sales tax.

Repealing the 16th Amendment won't prevent income taxes, since the authority to impose such taxes comes from Article I, Section 8, Clause 1. You'd need to repeal the 16th and amend Article I to specifcally prohibit income taxation. That's not a good idea, since you never know when spending will drop or the need for revenue will rise.

The FairTax is established to be administered equally to all. No favors, loopholes or exemptions.

Really?

The only exceptions are used goods and education.

Exceptions # 1 and 2. By the way, what's included in "education"?

No tax is to be paid on basic essentials.

Exception #3. Why do I feel like I'm reading about the chief weapons of the Spanish Inquisition?

No more complicated tax forms, individual audits, or intrusive federal bureaucracy. Retailers will collect the FairTax just as they do now with state sales taxes. All money will be collected and remitted to the U.S. Treasury, and both the retailers and states will be paid a fee for their collection service.

Who will audit the retailers? Who will audit the educational institutions to make sure they are bona fide, rather than subterfuges? Who will make sure that someone claiming a prebate on the basis of having 5 children is telling the truth?

This concept may seem fine in theory, but I don't think it will do everything its supporters claim. Whether it's better than our current system is debatable.

[Famspear]

Depending on the details of the proposal, enacting the "fair tax" would not get rid of the IRS, either. Getting rid of the federal income tax and replacing it with the "fair tax" would of course get the IRS out of the business of administering the income tax.

But there's a lot more to federal taxation than just the income tax, so the IRS would presumably still have work to do.

[Dr. Caligari]

Depending on the details of the proposal, enacting the "fair tax" would not get rid of the IRS, either. Getting rid of the federal income tax and replacing it with the "fair tax" would of course get the IRS out of the business of administering the income tax.

But there's a lot more to federal taxation than just the income tax, so the IRS would presumably still have work to do.

Not only does the IRS have existing work to do other than the income tax, someone would have to enforce the new national sales tax.

[Thule]

Out of curiosity. What do you guys think of Fair Tax

(How much does the IRS raise)-(How much would the FairTax raise)=loss/gain

I skimmed through the site, and they are keen on telling you how much you would save, keeping your income without payroll tax and all. But what would Joe Average pay instead?

[Prof]

And, the Fair Tax would add significantly to the costs of goods and services, for local authorities generally survive on a sales tax base -- e.g., cities and towns in Texas. The local sales tax on all but most groceries, services, medicine, in San Antonio is 8.25%. If a national sales tax requires another 15%, that means that on many products and (now services) will require collection of approximately a 25% tax.

Of course, states will still be free to collect income taxes, etc., and school districts, which generally fund with ad valorem real estate taxes, would still get their bite.

Then, the IRS would still be around for excise taxes, capital gains taxes, interest income, and other federal non-income tax levies.

Doesn't sound so simple to me, but what do I know?

[LPC]

What do you guys think of Fair Tax (http://www.fairtax.org)? This concept sounds awesome to me and I endorse it! I can't see that there would be any issues.

To me, the "Fair Tax" is as economically viable as a chain letter that promises that everyone makes money. The math doesn't add up.

It's no different than the recent Center for Tax Policy study that concluded that the Romney tax plan won't work. You can't (a) lower the top tax rates and (b) raise the same amount of tax revenue without (c) raising taxes on the lower income brackets.

It's not "class warfare," it's just math.

[JamesVincent]

What do you guys think of Fair Tax (http://www.fairtax.org)? This concept sounds awesome to me and I endorse it! I can't see that there would be any issues.

To me, the "Fair Tax" is as economically viable as a chain letter that promises that everyone makes money. The math doesn't add up.

It's no different than the recent Center for Tax Policy study that concluded that the Romney tax plan won't work. You can't (a) lower the top tax rates and (b) raise the same amount of tax revenue without (c) raising taxes on the lower income brackets.

It's not "class warfare," it's just math.

What I find interesting is this from the WSJ.

http://stream.wsj.com/story/campaign-20 ... S-2-39745/

It was done by scholars working with the nonpartisan Tax Policy Center, including a former Obama administration economist.

Kinda hard to prove your bi-partisan when you worked for the opposition, especially considering it is the direct opposite of what the WSJ has reported before.

http://online.wsj.com/article/SB1000142 ... 56628.html

Its even funnier that Ive found people that would argue that both parties tax plans make no sense, but Romney's would be the better if the details are worked out. And even the CTP admitted they do not have all the information needed to properly calculate the actual impact on all classes. So is Romney over-reaching? Possibly. Would you rather have someone who tried to make it more fair across the board or just continually try to raise taxes on one segment? Cuz we either have Romney's plan, which proposes reducing taxes on the middle-class which are the ones truly suffering. Or you have Obama's, which as far as I can see is just a tax hike for middle and upper income families all around.

http://finance.yahoo.com/news/romney-ob ... 09385.html

Probably the most un-biased assessment Ive seen of both sides.

[.]

Dan. The Center for Tax Policy Study?

Surely, you jest. If your mind isn't totally closed, take two minutes and read this:

http://online.wsj.com/article/SB1000087 ... on_LEADTop

[Burzmali]

So do corporation now pay 15% tax on all purchases? That doesn't sound very friendly for American manufacturers.

[Thule]

So do corporation now pay 15% tax on all purchases? That doesn't sound very friendly for American manufacturers.

I understand that the sales tax will be levied on final consumers, i.e. corporations will not pay a tax on business-related purchases.

[Burzmali]

So do corporation now pay 15% tax on all purchases? That doesn't sound very friendly for American manufacturers.

I understand that the sales tax will be levied on final consumers, i.e. corporations will not pay a tax on business-related purchases.

Woot! With a system like that, living tax free is finally an option!

[ibanez2k]

Thanks for the comments. Was wondering what others had to say about this. I'm no tax expert but the idea sounds pretty good to me. It seems even if you charged a less percentage on this sales tax than they currently charge for income tax, they would bring in a lot more money. People avoid income taxes all the time. No way to avoid the Fair Tax, unless you just never buy anything in the United States. Seems like a much more solid revenue source. It allows you to keep more of your paycheck up front and rewards you for being thrifty. Obviously if you are someone who saves more and is more frugal with your money you will pay much less in taxes than others. Those are definite positives I think.

[LaVidaRoja]

And obviously, if you have a family, are making less than the Federal poverty rate, and don't have any ability to save (due to the cost of living) you will pay a much higher percentage of your income.

[Prof]

Sales taxes are collected at the point of sale and held in trust by the merchant.

The opportunities for fraud and the events of default are very significant. Further, you must replace the IRS with a sales tax audit and collection force, like that used in every state for sales tax collections (except New Hampshire and Delaware, I think, as the only non-sales tax states).

First, the opportunity for avoidance/fraud still exists. The incidence of cigarette and liquor tax avoidance has been a fruitful ground for organized crime. But now, instead of bootleg booze or fake tax stamps on cigarettes, we have bootleg beef and fake tax stamps on hams.

As to default, many small businesses fail to remit the sales taxes collected. Even though held "in trust," those tax funds will be invaded when necessity arises. Even though not dischargeable in bankruptcy, you can't get blood from a turnip.

And, many non-sales tax items would be taxed -- such as necessities, professional services, and the like, all of which play a part in the "fair tax schemes."

Finally, with an income tax, we can sort of tell who cannot be taxed because those persons earn so little. With a sales tax, all buyers are taxed, irrespective of ability to pay. So, if I want a pair of jeans, I have to pay even if one pair is all I can afford. If the sales tax jumps from 8.25% (typical for most cities in Texas) to 25%, the price of a pair of $15 jeans just went from $16.24 to $17.25. Non-taxed milk would go from $1.00 per quart to $1.25 per quart.

In other words, this regressive tax hits all pretty equally, at least where clothing and food are concered.

[webhick]

Further, you must replace the IRS with a sales tax audit and collection force, like that used in every state for sales tax collections (except New Hampshire and Delaware, I think, as the only non-sales tax states).

NH does have Meals & Rentals tax, so it would just be a matter of expanding that.

[notorial dissent]

If nothing else, it would mean a MUCH larger state and/or federal tax collection and record keeping presence, which would somehow be cheaper???? Not in any gov't exercise I have yet to come across. The record keeping alone would be a nightmare, both for the merchant and the gov't, and the burden, not to mention the temptation on business would make some of the current banking scandals pale by comparison.

[ibanez2k]

While some are legitimate, many of the questions and concerns I'm seeing arise here have already been addressed on their website.

Would this really get rid of the IRS? What about other services and tax collections the IRS handles?

According to the website, the legislation would not only replace income tax but all federal personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes with the new federal retail sales tax.

Who will handle auditing?

Existing State sales tax authorities will handle this the same as they do state sales tax.

What about low income families? Won't they have to pay more in taxes than wealthy people because their income barely covers their necessities?

Read about the prebate. This protects low income families.

Couldn't a family lie about the number of children they have for the prebate amount?

No. There are specific household qualifications and a form that must be filled out and every resident of a "qualified household" must be a U.S. citizen and have a valid Social Security number.

EDIT: I should add that you are not "required" to fill out this form, only if your household wants the monthly prebate. I assume most will though. Free money pretty much so not many would pass that up I'm sure.

What are considered "basic necessities"?

This question, I think, arises from a misunderstanding of the prebate. The prebate is based on poverty level of your area and size of your family. You will essentially be able to buy whatever your family considers "necessities of life" tax free because of this prebate.

Here's a link to the main FAQ. It's may be helpful to have a direct link to.

http://www.fairtax.org/site/PageServer?pagename=FAQs#1

Again, thank's for all the input from those who have contributed. This is all giving me more to think about and consider.

[rogfulton]

Finally, with an income tax, we can sort of tell who cannot be taxed because those persons earn so little. With a sales tax, all buyers are taxed, irrespective of ability to pay. So, if I want a pair of jeans, I have to pay even if one pair is all I can afford. If the sales tax jumps from 8.25% (typical for most cities in Texas) to 25%, the price of a pair of $15 jeans just went from $16.24 to $17.25. Non-taxed milk would go from $1.00 per quart to $1.25 per quart.

I don't know where a read it (maybe a link in a prior post somewhere here on Q) but as I remember, in order to make up for the revenue generated by the current system, the 'fair tax' would need to be something north of 30% which would be on top of whatever the local rate was.

I could be wrong and I couldn't find the info when I searched for it before writing this post.

[jg]

Not only would there need to be administration and enforcement for collection; most of the proposals I have seen included some sort of rebate or payment to those (primarily with lower income) that are adversely affected by the tax.

For example, from http://usgovinfo.about.com/cs/taxes/a/aafairtax.htm

The FairTax would provide every family with a rebate of the sales tax equal to spending up to the federal poverty level. The rebate would be paid in advance and updated according to the Department of Health and Human Services poverty guidelines. Based on the 2003 guidelines, a family of four would be able to spend $24,240 annually tax free. They would receive a monthly rebate of $465 each and every month ($5,575 annually). Therefore, no family would pay tax on essential goods and services, and middle income families would be effectively exempt from tax on a large portion of their annual spending.

If we currently have issues that are not easy to resolve with welfare fraud, Earned Income Tax Credit fraud, income tax refund/identity theft fraud (and so on) the rebate, or prebate, would seem to open the floodgates for much more fraudulent activity.

Besides, the concept of a monthly payment from the government to rebate such a tax is repugnant to me due to the efficacy, intrusiveness, dependency, bureaucracy and so on of such a program.