A Harvard study showed that out of every dollar you spend, about 22-23% of it goes towards paying the tax liabilities of every company associated with that product (essentially a hidden tax on the consumer by the government). This includes the time and money spent on tax consultants and lawyers to determine the tax consequence of a decision.

If we remove corporate, capital gains, payroll, and income taxes, all these costs disappear, and economic forces would drive the prices down by the same amount. The Fair Tax would be a 23% inclusive sales tax to replace this cost difference, so that the $100 toaster you bought before would still cost $100. The price tag would show the cost of $77 and a tax of $23.

Other Specifics:
The fair tax would apply only to new goods and services. Sell your house? Don't pay the tax. Buy a used car? Don't pay the tax. Not fair to tax the same item twice.

To protect the poor, every household would receive a prebate check at the beginning of the month to pay for the sales tax they're expected to pay up to the poverty line for that household. No one should have to pay taxes on the bare necessities of life.


Benefits:
-Revenue neutral. The tax rate is designed to fund the government at it's current level.

-An estimated $12 trillion dollars in overseas investment shelters would flow back into the US. The majority would flow back "within 6 months" (according to Alan Greenspan)

-The trillions of dollars in the underground economy would become taxed. Drug dealers, etc who don't file income taxes now would now have to pay into the system when they buy their new escalade.

-US goods would compete overseas tax free making the US much more competitive.

-The US would become the new world wide tax haven, and THE place to setup shop. An informal poll of 500 asian and european companies were asked how they would change their business strategy if the US switched such a system. Something like 80% said they'd open their next plant in the US. The rest said they'd move here entirely.

-About 55% of the lobbyists in DC are tax lobbyists. Because of them, there is actually a tax break for a specific manufacturer of ceiling fan. They throw money at politicians in order to get them to tweak the code in their favor. With the Fair Tax, these people are out of jobs.

-Incentive to immigrate legally. To enjoy the prebate check, you have to be a US citizen. Illegal immigrants not paying taxes before would also be paying into the system without getting anything out.

-The millions of visitors to our shores every year would also pay into the system (social security, etc) without getting anything out.

I've written this a bit quickly before I head off to class, so there may be some details missing, but that's the gist of it. I'm a supporter of this, and was hoping to create a discussion.

Questions? Thoughts? Opinions? Criticisms?

I'll check back and try and respond.

3/24/2008 2:46:34 PM

Who does the tax burden shift to?

Quote :

"The fair tax would apply only to new goods and services. Sell your house? Don't pay the tax. Buy a used car? Don't pay the tax. Not fair to tax the same item twice."

Say for arguments sake I am an antiques dealer, would I have to collect taxes when I sell a product at one of my stores? After all these are not new goods, rather they are used goods that have accumulated price via their rareness and the cultural desire to purchase those items.

Wouldn't this also create an entirely new black market for goods and services?

Quote :

"The trillions of dollars in the underground economy would become taxed. Drug dealers, etc who don't file income taxes now would now have to pay into the system when they buy their new escalade."

They already pay taxes when they buy their new escalade and everything else they buy. Furthermore, tax evasion is one of the best methods the government has to get the people who perpetrate such a crime. after all, we didn't get Capone on murder or any of the other massive crimes he committed, rather we got him on tax evasion charges.

Quote :

"these people are out of jobs."

We then create a whole new problem where people are out of jobs. The service sector of the economy that deals specifically with taxes is a large source of employment for people in America and is a multi-billion dollar enterprise. How do we accommodate the massive job loss and the billions of dollars lost when that sector of the economy folds?

[Edited on March 24, 2008 at 3:00 PM. Reason : .]

3/24/2008 2:53:04 PM

A fairtax is a regressive tax and places the tax burden on the middle class increasing the amount of tax payed by the average american and decreasing the amount payed by the upper classes.

This is only the most obvious of problems.

You should have googled the findings of the dept of treasure commission on tax systems before making this post.

3/24/2008 2:53:43 PM

23 percent "inclusive" is a bogus way to sell it. It means a 30% tax on the retail price. Which is the same way we advertise tax rates right now - not by the "inclusive rate." Trying to massage the number such that it looks lower may make it an easier sale, but it's dishonest in the extreme.

Further, while the argument for the Fair Tax is that it's only on "new goods," the architects themselves propose expanding it to a whole host of services not currently under the reach of sales taxes - including - you got it - services. Meaning dentists, lawyers, doctors, and all other kinds of professionals. It's this broadening of the base which allows the FairTax to even stay at 30% while slashing all other taxes.

Even more importantly, the "prebate." In order to offset the inherent regressivity of a national sales tax, the FairTax proposes a monthly "prebate." Which is good in principle, and all. Except for the fact that the cost of this prebate would easily make it the single largest entitlement to date - larger than Medicare, Medicaid, or Social Security.

Then there's the issue of evasion - which based upon estimates from a non-partisan panel tasked to study reform of the tax system would add on another few percent to that 30% number.

I like the idea of a radical simplification of the tax code, and a National Sales Tax certainly has appeal over the current tax code. But there's just too many problems inherent with it - and the fact that the architects of the FairTax feel it necessary to be so disingenuous about their pitch (including the bogus "tax-inclusive" rate) hardly gives me any confidence in the robustness of their argument.

3/24/2008 2:56:32 PM

But its got 'Fair' right there in the name..

3/24/2008 2:57:43 PM

^^^ how is it regressive?

i'm not sold on the idea, although i think it might likely be better than the current system.

i'd like to explore the idea of a VAT.

3/24/2008 3:03:07 PM

Quote :

"-The millions of visitors to our shores every year would also pay into the system (social security, etc) without getting anything out."

I'm sure if we were to instituted a system like this, we'd do it like the Europeans where they reimburse foreigners whose home country are not part of the VAT compact

Quote :

"If we remove corporate, capital gains, payroll, and income taxes, all these costs disappear, and economic forces would drive the prices down by the same amount."

Wouldn't it also drive the prices up in the same amount. For instance: I own a trucking firm. I contract with Goober's Widget company to transport his widgets, I would have to tax Goober 23% for the service I rendered to his company. Also, Goober would be required to pay a 23% tax to Heinrich's Widget Precursor Material company and a 23% tax on the transportation service provided by whomever Heinrich's Widget Precursor Material company contracts with to transport the items he sells.

In the end, we haven't gotten rid of or reduced the tax liability on companies or individuals who provide goods and services to the consumer, rather we've more than likely made it worse.

3/24/2008 3:13:43 PM

I like Obama's plan. Employment and bank interest information is already collected by the IRS. It would be difficult, but quite possible, for the IRS to compile this information for you, mailing you a post card with this information already filled in. You sign it and mail it back or, if needed, file a tax return.

That said, if radical change is possible then a Visible Value Added Tax would be much better at tax collection than a sales tax as it dramatically reduces the incentive towards tax evasion.

My ideal tax scheme:
1) a national Value Added Tax charged at 10%
2) A 15% corporate tax rate (to match whatever it is in Ireland)
3) An income tax of 25% applied to all income above $200k (the first $200k is tax free and no return needs to be filed)
4) a moderate carbon tax

This should be about revenue neutral.

3/24/2008 3:18:09 PM

a carbon tax? Fuck that shit.


Get that shit out of here.


Lets tax people on unproven science! BRILLIANT!

3/24/2008 3:26:26 PM

Hey, we have to tax something. I would rather tax carbon than either labor or investment. That the emission of carbon is usually associated with the emission of pollutants, such a tax should reduce pollution in addition to reducing the domestic usage of oil and coal.

3/24/2008 3:44:07 PM

Consumption tax.

3/24/2008 3:54:39 PM

Duke

Its regressive because as your income grows, your tax contributions are a smaller part of your overall income. However, the less you make, the tax is a greater part of your overall income.

3/24/2008 4:10:36 PM

Quote :

"Say for arguments sake I am an antiques dealer, would I have to collect taxes when I sell a product at one of my stores? After all these are not new goods, rather they are used goods that have accumulated price via their rareness and the cultural desire to purchase those items. Wouldn't this also create an entirely new black market for goods and services? "

An antiques dealer would not have to collect the Fair Tax on those used items.

Some people are bound to try and cheat the system, just as they do now. And it will happen. However, rather than the IRS trying to find fraud among hundreds of millions of taxpayers in a hugely complex tax system, there will be only thousands of companies that would need to be audited. Also, a company is less likely to commit fraud and sell items under the table to people, namely because the stakes would be so high. If a company could lose it's ability to do business if caught doing such a thing. I doubt it would be as rampant as you suggest.

Quote :

"They already pay taxes when they buy their new escalade and everything else they buy. Furthermore, tax evasion is one of the best methods the government has to get the people who perpetrate such a crime. after all, we didn't get Capone on murder or any of the other massive crimes he committed, rather we got him on tax evasion charges."

These people aren't paying income taxes though. They are paying some local car taxes and sales taxes, but taxes to the federal government go unpaid, which is what this tax addresses.

Quote :

"We then create a whole new problem where people are out of jobs. The service sector of the economy that deals specifically with taxes is a large source of employment for people in America and is a multi-billion dollar enterprise. How do we accommodate the massive job loss and the billions of dollars lost when that sector of the economy folds?"

With all the money coming into the economy, many of these people will be able to switch to planning people's and company's investments. But you're right, some people will have to find other lines of work. But I hardly think we should have said no to the computer, just because it would have put typewriter manufactures out of business. The trillions of dollars flowing into our economy, and the economic boom it would create would far outweigh the detriment to a small sector of the service industry. Such is the way of progress

Quote :

"You should have googled the findings of the dept of treasure commission on tax systems before making this post."

I did, and that commission did not evaluate the Fair Tax in it's current form at all, but rather a general tax on consumption.

Quote :

"23 percent "inclusive" is a bogus way to sell it. It means a 30% tax on the retail price. Which is the same way we advertise tax rates right now - not by the "inclusive rate." Trying to massage the number such that it looks lower may make it an easier sale, but it's dishonest in the extreme."

The Fair Tax is designed to replace the income tax, which is quoted on an inclusive basis, and quoting it as such is far from extreme. It's two ways of looking at the exact same number. It's quote as such because it's simpler and makes more sense. If you were go to a store and buy a product that cost $100 today, it would still cost about $100 after the Fair Tax. It would say $100 on the price tag of the item, and below that it would say $23 federal sales tax. Hence 23%. If you're going to criticize the Fair Tax, come up with something more substantial.

Quote :

"Further, while the argument for the Fair Tax is that it's only on "new goods," the architects themselves propose expanding it to a whole host of services not currently under the reach of sales taxes - including - you got it - services. Meaning dentists, lawyers, doctors, and all other kinds of professionals. It's this broadening of the base which allows the FairTax to even stay at 30% while slashing all other taxes."

Service industries still have to deal with all the embedded taxes discussed earlier. They're not immune either.

Quote :

"Even more importantly, the "prebate." In order to offset the inherent regressivity of a national sales tax, the FairTax proposes a monthly "prebate." Which is good in principle, and all. Except for the fact that the cost of this prebate would easily make it the single largest entitlement to date - larger than Medicare, Medicaid, or Social Security."

The poor don't pay income taxes now either, which means we already have "the single largest entitlement to date". So what if it is? The Fair Tax has been shown to be revenue neutral, which means the government will still be bringing in the same amount of revenue it was before. And, it's designed to tax people at a rate about what they're paying now. Except, the process is streamlined, and adds transparency to government operations. Politicians can't play games with the tax code to benefit lobbyists, and every single American sees how much each dollar they spend is being used by government. All of a sudden, more and more people are asking themselves, what is the government doing with all my money?

The Fair Tax is essentially a consolidation of tax collection, getting it all at one point instead of thousands of others using thousands of pages of tax code. All those thousands of pages disappear and get replaced with a hundred or so pages. Currently, Americans spend something like $400-500 billion for the government to collect $900 billion. That hardly sounds cost effective.

[Edited on March 24, 2008 at 4:35 PM. Reason : .]

[Edited on March 24, 2008 at 4:38 PM. Reason : .]

[Edited on March 24, 2008 at 4:39 PM. Reason : .]

3/24/2008 4:24:15 PM

Quote :

"The Fair Tax is designed to replace the income tax, which is quoted on an inclusive basis, and quoting it as such is far from extreme. It's two ways of looking at the exact same number. It's quote as such because it's simpler and makes more sense. If you were go to a store and buy a product that cost $100 today, it would still cost about $100 after the Fair Tax. It would say $100 on the price tag of the item, and below that it would say $23 federal sales tax. Hence 23%. If you're going to criticize the Fair Tax, come up with something more substantial."

Uh, no, it wouldn't. It would say $30 Federal Sales tax. Because 23% of $130 is... $30! (Amazing!)

Look, how about you familiarize yourself with your own proposal before you tell me I don't know what I'm talking about, m'kay?

Quote :

"Service industries still have to deal with all the embedded taxes discussed earlier. They're not immune either."

They are also not traditionally subject to the purvue of a sales tax. Which means introducing a new, above-board tax to areas which are not normally subject to direct tax. In other words, it's a lot broader than advertised.

Quote :

"The poor don't pay income taxes now either, which means we already have "the single largest entitlement to date". So what if it is?"

So what if it is? Do you realize the problem we have with the politicalization of entitlements now? And now we add a new, even bigger one?

Quote :

"The Fair Tax has been shown to be revenue neutral, which means the government will still be bringing in the same amount of revenue it was before. And, it's designed to tax people at a rate about what they're paying now."

Given fairly generous assumptions.

Quote :

"Except, the process is streamlined, and adds transparency to government operations. Politicians can't play games with the tax code to benefit lobbyists, and every single American sees how much each dollar they spend is being used by government. All of a sudden, more and more people are asking themselves, what is the government doing with all my money?"

Here is where I pull a Fox Mulder and say, "I want to believe." But if you don't believe they could find a way to screw up a sales tax to special interests, you've obviously never looked at sales taxes. Exemptions occur all the time - exempt this good, not that one. The sales tax code of places like Illinois and Chicago is so byzantine due to special interest lobbying that many retailers don't even know the right tax to charge.

There's plenty of compelling reasons for national sales tax, and certain transparency is a huge selling point, but let's not pretend it would be entirely immune to rent-seeking. No tax system is.

Quote :

"The Fair Tax is essentially a consolidation of tax collection, getting it all at one point instead of thousands of others using thousands of pages of tax code. All those thousands of pages disappear and get replaced with a hundred or so pages. Currently, Americans spend something like $400-500 billion for the government to collect $900 billion. That hardly sounds cost effective."

You will hardly find me acting as an advocate of the status quo. However, given the sheer volume of revenue going to the federal government right now, a more honest reckoning for the requirements of an alternative tax system like a national sales tax is in order. Bogus hand-waving about "tax-inclusive rates" and weak arguments hardly make the case for this above other alternatives.

3/24/2008 5:45:20 PM

paging EarthDogg come to the aid of you fellow fair tax champion.

3/24/2008 6:03:30 PM

Quote :

"Uh, no, it wouldn't. It would say $30 Federal Sales tax. Because 23% of $130 is... $30! (Amazing!) Look, how about you familiarize yourself with your own proposal before you tell me I don't know what I'm talking about, m'kay?"

Ok, I guess I really need to dumb this down for you DrSteveChaos. Let's say today, a toaster costs $100, after the Fair Tax the actual cost of that toaster will drop to $77 and then $23 will be added. The price tag on the toaster will then be? That's right $100 not $130. Quoted inclusively (as our income tax is) this is 23%. Quote exclusively it's about 30%.

Quote :

" They are also not traditionally subject to the purvue of a sales tax. Which means introducing a new, above-board tax to areas which are not normally subject to direct tax. In other words, it's a lot broader than advertised. "

That's true. However, this is advertised. I mentioned in the original posting.

Quote :

"So what if it is? Do you realize the problem we have with the politicalization of entitlements now? And now we add a new, even bigger one? "

You and others call it an "entitlement". Whatever you call it, it keeps the tax base for the poor the same as it is now. So using that as a reason to say it shouldn't be passes makes no sense. It essentially does what the current tax system does.

The added benefit of course, is that this system encourages people to save. Savings and investments wouldn't be taxed. Under our current tax system, you're penalized for saving, and rewarded for spending. If you're responsible and smart and invest or save your money, you get capital gains taxes, but if you spend it on flashy items, it doesn't get taxed. There's a disinsentive to save in this country, which is partly responsible for the situation we're in.

Not enough money in banks means companies needing loans for investment capital have to find it overseas. Which is happening.

Quote :

"But if you don't believe they could find a way to screw up a sales tax to special interests, you've obviously never looked at sales taxes."

You're absolutely right, there's no reason to say this won't happen in the future. But here's the thing, it's happening in the income tax right now! And it's getting hidden inside thousands of miles of tax code. With the Fair Tax, there would still be attempts. Absolutely. But it would be harder to conceal it in a haze of tax complexity.

Just because it doesn't solve ALL our problems isn't a good reason to pass it. At least be glad it'll make it harder for politicians to take advantage of the tax code.

The Fair Tax is not perfect. I repeat, the Fair Tax is not perfect. However, it is a HELL of a lot better than what we have going right now. It'll kick our fucking economy in its ass and get it moving like you wouldn't believe. I don't know about you, but I'd love to have people in other countries cursing under their breath saying, "Dammit, our fucking jobs are going to America." instead of the other way around.

Lets be the China and India of the world.

[Edited on March 24, 2008 at 7:27 PM. Reason : ]

[Edited on March 24, 2008 at 7:28 PM. Reason : ]

[Edited on March 24, 2008 at 7:28 PM. Reason : ]

3/24/2008 7:26:30 PM

My ears were ringing!

Quote :

"Say for arguments sake I am an antiques dealer, would I have to collect taxes when I sell a product at one of my stores? "

The basic idea is that the FairTax is paid only once on new goods as well as services. I'm sure some type of decision would be made on things like antiques and collectables.

A black market might happen. People will attempt to evade the FairTax just as they evade the income tax.
The difference is that it only takes one person to cheat the income tax where it takes at least two to cheat the Fairtax- retailer and buyer. And most retailers are not going to put their business in jeopardy just to cut you a deal on your MP3 player.

Quote :

"The service sector of the economy that deals specifically with taxes is a large source of employment for people in America "

Should we have stopped the advance of the automobile to protect the horse and buggy industry?

Quote :

"A fairtax is a regressive tax and places the tax burden on the middle class increasing the amount of tax payed by the average american and decreasing the amount payed by the upper classes."

The monthly prebate pays every family the amount of FairTax paid up to the fed. poverty level. So the poor still pay no fed tax. With the FAirTax, they also no longer pay the payroll tax which is incredibly regressive.

Quote :

"23 percent "inclusive" is a bogus way to sell it. It means a 30% tax on the retail price. "

The fed tax is expressed inclusively...so the FairTax is also to keep the comparison the same. When you go to the store and pay $100 for something. $23 of it will go to the feds. The $23 isn't added to the price at the register as it is with a state sales tax. The Fairtax is embedded into the price.

Quote :

" including - you got it - services. "

It is true that the FairTax base will be much broader than the income tax. Remember that your paychecks will no longer deduct any fed taxes including social security and medicare.

Quote :

"this prebate would easily make it the single largest entitlement to date "

The Prebate is how the gov't acknowedges our right to cover our basic needs before funding the fed gov't. It is no different than the home mortgage deduction..which could also be seen as a huge entitlement to only those who own homes.

Quote :

"Visible Value Added Tax "

You keep tweaking the name of this idea everytinme you forward it for our consideration. How would a VAT ever be visible to the retail customer?

There should be no talk of a carbon tax until someone brings suit to Al Gore and his buddies to prove their case before a critical and questioning jury.

Quote :

"Its regressive because as your income grows, your tax contributions are a smaller part of your overall income."

Again, the prebate answers this. The poor will pay no fed taxes including the payroll tax.

[Edited on March 24, 2008 at 7:34 PM. Reason : .]

3/24/2008 7:33:15 PM

I love the idea of the fairtax. I like the idea of being able to control how much taxes you pay, not being penalized for working, saving, or investing. I also think it will end class warfare. IE its alot harder to push new programs when EVERYONE will pay some share of it.

Someone said that you pay less the more money you make. I dont think that is true. Rich people buy more pricey things, so they would pay more for those. Tax on a new civic is a shitload less than tax on a new A8. However, that same person could choose to simply buy the civic. Power to the people!!!! I love it.

Sadly, this will never happen.

3/24/2008 7:39:55 PM

Quote :

"Wouldn't it also drive the prices up in the same amount. For instance: I own a trucking firm. I contract with Goober's Widget company to transport his widgets, I would have to tax Goober 23% for the service I rendered to his company. Also, Goober would be required to pay a 23% tax to Heinrich's Widget Precursor Material company and a 23% tax on the transportation service provided by whomever Heinrich's Widget Precursor Material company contracts with to transport the items he sells."

The sales tax is collected ONLY at the final point of sale where the private consumer purchases it, so this isn't an issue.

3/24/2008 7:41:28 PM

Quote :

"The fed tax is expressed inclusively...so the FairTax is also to keep the comparison the same. When you go to the store and pay $100 for something. $23 of it will go to the feds. The $23 isn't added to the price at the register as it is with a state sales tax. The Fairtax is embedded into the price."

No, no, and no. For all that you people try to sell it, I wish to God that one of you would break out a goddamned calculator and punch in a number or two. Twenty-three percent tax-inclusive means the price with tax comes out to twenty-three percent. Which means it's a 30-percent tax on the value of the good.

Do it with me now.

$100 * 1.3 = $130
1- $100 / $130 = 0.23
$130 - $100 = $30

THIS IS WHAT IS MEANT BY "TAX INCLUSIVE."

Suffice it to say, I should not be the one who has to instruct you as to the basic mechanics of your own proposal.

I'm not even going to bother debating the rest of the issue until you guys can wrap your heads around this much of it. I shouldn't have to spell it out three separate times.

[Edited on March 24, 2008 at 7:49 PM. Reason : Really, I shouldn't. And check my math - you know you want to.]

3/24/2008 7:41:50 PM

I applaud you aikimann

3/24/2008 7:42:10 PM

Quote :

"$100 - $30 = $30 "

?

3/24/2008 7:46:02 PM

Fixed. I was typing that a little too fast.

3/24/2008 7:47:25 PM

AAAAAAND DrSteveChaos clearly didn't read my earlier post where I explained what inclusive and exclusive meant. Hell I even agreed that the exclusive rate would be 30%. Here it is again.

Price tag on toaster before Fair Tax: $100

After the Fair Tax is passed, the cost of that toaster will DROP to $77, then $23 will be added, and the new price tag on the shelf will be, $100.

23/100 = 23% (Inclusive Rate)
23/77 = 30% (Exclusive Rate)

Either way you look at it, the price of the toaster isn't gonna change after you pass the Fair Tax, which is why this whole argument is ridiculous. I agree with you DrSteveChaos that the rate is 30% quoted exclusively. I've agreed with that from the beginning.

23% inclusive? 30% exclusive? It's the same thing. Except retractors of the Fair Tax hope quoting 30% will scare the ignorant out there.

Once again, find something better to criticize the fair tax for instead of playing word games.

3/24/2008 7:51:36 PM

Go fuck yourself - the only one who needs things "dumbed down a shade" is you. The only reason to call it a "tax-inclusive rate" is to hedge the actual tax rate.

We don't express sales taxes as "tax inclusive." Therefore, hedging the rate like that is nothing but a charade, no matter how much you want to dance around it.

Meanwhile, it's wildly optimistic to assume prices will uniformly drop by 23%, particularly on tax bases which previously were exempt from direct tax.

[Edited on March 24, 2008 at 7:57 PM. Reason : Whatever.]

3/24/2008 7:55:20 PM

[Edited on March 24, 2008 at 7:56 PM. Reason : .]

3/24/2008 7:56:03 PM

^Dude, it's taxes. Don't take things so seriously.

3/24/2008 8:01:01 PM

Quote :

"Twenty-three percent tax-inclusive"

Taxes are expressed as either inclusive or exclusive. The income tax is expressed inclusively. The FairTax isn't designed to replace an exclusive-expressed sales tax. It is designed to replace the inclusively-expressed income tax.

If you quote the income tax exclusively, it can look pretty ugly. A 33% income tax rate becomes a 48% rate when expressed exclusively.

3/24/2008 8:02:44 PM

^^Just refrain from insulting my intelligence and we're cool.

I do math for a living. And contrary to your characterizations, I'm not some scheming ultra-left-wing socialist - I'm actually quite sympathetic to a radical simplification to the tax code. I just think the FairTax is being overhyped in several ways which actually hurt its own credibility.

If it's a good proposal, it can be sold above-board. No tricks, no shenanigans.

[Edited on March 24, 2008 at 8:03 PM. Reason : .]

3/24/2008 8:03:00 PM

Quote :

"Taxes are expressed as either inclusive or exclusive. The income tax is expressed inclusively. The FairTax isn't designed to replace an exclusive-expressed sales tax. It is designed to replace the inclusively-expressed income tax."

Regardless of what it's replacing, where it's being applied is crucial to understanding it in comparison with the domain of other taxes it would be applied with (as we're not getting rid of sales taxes at the state and local level). A 9.5% sales tax like in Chicago doesn't sound as bad at the "tax-inclusive" rate of 8.68% - it's still a pretty raw deal.

Since the FT is going to be functioning as a sales tax, using the parlance of the sales tax is the honest way to put it. Quibble all you like about how it's the "replacing" a "tax-inclusive" system, the fact is, 30% is what people are going to freak out about at the register. And they're going to freak out a whole lot more if they think they're being conned by quoting them an inappropriate "inclusive" rate.

3/24/2008 8:09:26 PM

Quote :

"The sales tax is collected ONLY at the final point of sale where the private consumer purchases it, so this isn't an issue."

so products and services purchased by a company are no longer taxed?

3/24/2008 8:12:42 PM

^That's correct. Only the company that finally sells the product to the consumer will actually collect the tax.

[Edited on March 24, 2008 at 8:18 PM. Reason : ]

3/24/2008 8:18:05 PM

Quote :

"30% is what people are going to freak out about at the register. "

This is where the concept of embedded taxes comes in that aikmann is talking about.

If People freak out.. it will be over the joyous fact that they get their whole paycheck.

Right now, we are paying an ave. of 20% in various fed tax components of every prodyuct and service we purchase. This includes the income tax and payroll taxes paid by manufacturers and suppliers. They do not absorb these costs, they include them into the price they charge the next step of manufactering...and so on.

These embedded fed taxes will be removed from products and services under the FT. Competition will bring prices down. In fact John Linder was privately assured by a major retailer that they would immediately lower prices 20% the day the FT was passed.

We would be replacing the embedded income taxes with the embedded FairTax...but prices would remain relatively the same. AND you would be getting your whole paycheck. You would decide when you want to pay fed taxes. Foreign tourists would now be paying for your social security.

We would be taxing the wealth of the super-rich who no longer earn any income...everytime they buy cavier for a big shindig.

3/24/2008 8:19:48 PM

hell yeah, I'm starting Nutsmackr's Widget company and never paying taxes ever fucking again.

3/24/2008 8:20:20 PM

Quote :

"Duke Its regressive because as your income grows, your tax contributions are a smaller part of your overall income. However, the less you make, the tax is a greater part of your overall income."

i think you have that backwards.

though the less you make, the greater % of your after tax income is accounted for by basic living necessities.

this is accounted for by the "prebate".

I don't know if it's as progressive as the current system (which is somewhat overly progressive, in my opinion), but I'm pretty confident that it wouldn't be REGRESSIVE.


in any case, I think it would better than what we have now by a wide margin. I also would like to explore the option of either a pure VAT or a combination of a greatly simplified income tax with some sort of consumption tax (either some type of national sales tax or national VAT).

3/24/2008 8:21:14 PM

Quote :

"hell yeah, I'm starting Nutsmackr's Widget company and never paying taxes ever fucking again."

Good luck proving to the government you're actually running a legitimate business. There's still going to be oversight, and I'm sure fairly large consequences for people who try to abuse the system.

Keep in mind that the IRS no longer has to contend with hundreds of millions of possible fraud cases. Instead, they get to concentrate all that wonderful attention to just thousands of companies.
"Hmmm, Nutsmackr's company hasn't been collecting ANY sales tax? Time to do what the government does best and crawl up his ass with a microscope. Johnson, fetch the gloves and lube"


[Edited on March 24, 2008 at 8:27 PM. Reason : added a few more thoughts]

3/24/2008 8:24:14 PM

Quote :

"I'm starting Nutsmackr's Widget company and never paying taxes ever fucking again"

With far fewer tax-payers to keep an eye on, the feds will have extra time to crawl up the asses of people like you to make sure you're a bone-fide business... save your reciepts!

[Edited on March 24, 2008 at 8:29 PM. Reason : LOL aikmann... now that was spooky!]

3/24/2008 8:27:56 PM

Quote :

"Right now, we are paying an ave. of 20% in various fed tax components of every prodyuct and service we purchase. This includes the income tax and payroll taxes paid by manufacturers and suppliers. They do not absorb these costs, they include them into the price they charge the next step of manufactering...and so on. These embedded fed taxes will be removed from products and services under the FT. Competition will bring prices down. In fact John Linder was privately assured by a major retailer that they would immediately lower prices 20% the day the FT was passed."

Look, I'm not denying the concept of embedded overhead - which actually one of the reasons I think a VAT is a worse idea than anything else of the table, regardless of its ability to pick up on tax avoidance. My point is sticker shock, which I can guarantee you people will freak out about regardless of how good they have it. Because people are like that. They're going to hear "23%" and think it's equivalent to sales tax - which means they're in for a nasty surprise when they see "30%" on the receipt.

"But," you argue, "prices will adjust downward. The net tax burden is the same!"

Let's assume they do. Awesome. Then it shouldn't be necessary to run the short-con through loaded language - if it's being sold as a sales tax, people expect the same language as a sales tax. Applying the language of an income tax appears to be almost deliberately deceptive, and will earn public backlash - namely because average people don't tend to nuance these things.

Again, I actually agree with the notion of a more transparent tax. And I further agree with the notion of tilting taxation toward consumption rather than savings. My objections come from the disingenuous way it is sold and the massive new entitlement required to make this particular incarnation work. I don't think this has to be the One and Only way to do it, and I certainly think it could be sold a lot better if it didn't rely on sleight-of-hand calculations.

3/24/2008 8:30:28 PM

I can absolutely see your side of the argument when it comes to trying to sell the idea of the Fair Tax. But my opinion is, since it's replacing an embedded inclusive tax, it should be quoted the same. If you want to quote it as 30% exclusive that's fine too, just be sure to tell people the embedded tax is 30% too.

Also, I HOPE there will be sticker shock. Sticker shock would be a good thing. They go to the grocery store to get the usual, and they give the cashier the same amount of money they normally do. Except when they look at the receipt, they actually see how much of it is going to the federal government. Right now, most people are oblivious to the fact that 23% (or 30% exclusive) is going to cover the cost of taxes. It'll make people think twice when voting for their senator or congressman, if they vote at all. In fact, it'd probably get more people upset about big government and increase voter turnout!

[Edited on March 24, 2008 at 8:37 PM. Reason : typo]

3/24/2008 8:36:41 PM

Quote :

"if it didn't rely on sleight-of-hand calculations"

Wouldn't you agree that selling any tax system is doomed without some degree of sleight of hand?

The income tax was originally sold as a way to punish only the super-rich.

If you don't like the 23% vs. 30% aspect, fine. Please try to work in the concept of embedded taxes if you talk about a 30% rate.

And, granted, the prebate could be seen as a massive entitlement. But the FairTax folks know only too well that no tax reformation will get much support in Congress without keeping the poor off the tax-rolls. It simply won't sell without it.

3/24/2008 8:41:32 PM

so when a roofing contractor goes into Home Depot to buy supplies, how is he distinguished from a DIY customer? Should a homeowner not pay taxes at the same store? After all, home improvements are currently a tax-deductible expense. Could HD then display tax-free prices and mark up to unqualified buyers at the register?

How do you distinguish between a company that deserves to be tax exempt and one that isn't? Profit? Plenty of startup companies go years before achieving profitability. Sales? Plenty of companies don't get to market for years, or have very small sales.

What if I have an LLC? I should be able to get tax-free supplies that might otherwise be sold to consumers with tax, but can I get tax-free gas if my LLC owns the car I drive, but the gas isn't really necessary for my hobby business?

Oh look! We're back where we started with the huge overhead for regulating taxation!

3/24/2008 9:16:22 PM

Quote :

"how is he distinguished from a DIY customer? "

The contractor could either be issued a tax-exempt number such as is done today. The store would keep a copy on file. Or the contractor could deduct his tax paid from the tax he sends in from his customers.

Just keep the basic idea in mind, that the FT is charged only once on all new products and services purchased by the non-business consumer.

Most of the FairTax will be collected by big corporations. There will be some fraud, but as I said enforcement will be easier. There are about 165 million tax-payers the feds have to watch currently. With the FT, there will be about 25 million businesses to keep an eye on. If you are faking a business with little or no activity, ther will be plenty of time for both the state and the feds to check your authenticity.

3/24/2008 9:32:03 PM

^^ A tamper proof ID of some sort with tax payer number etc and a photo ID will probably be used to verify you are indeed a legitimate business owner. All companies purchasing goods from another company would be tax exempt. There's no criteria for "deserving" to be tax exempt. However, a lack of sales tax collection may vary well trigger an audit. While some fraud is likely to be attempted, as it is still today, the government has the benefit of only having to keep track of whole companies, and not all individuals.

Does anyone else care to chime in? This is something where I can't speak specifically to how it would be implemented. However, I feel it could be done simply enough.

Ah, thanks for chiming in EarthDogg.

[Edited on March 24, 2008 at 9:38 PM. Reason : EarthDogg beat me to it]

[Edited on March 24, 2008 at 9:38 PM. Reason : ]

3/24/2008 9:37:19 PM

i don't like this tax for a number of reasons. but i'll focus on one that isn't all that controversial:

wouldn't this drastically cut into our consumer culture in america? (which consequently would wreck the fuck out of our economy)

[Edited on March 24, 2008 at 10:13 PM. Reason : .]

3/24/2008 10:13:44 PM

Quote :

"wouldn't this drastically cut into our consumer culture in america? (which consequently would wreck the fuck out of our economy)"

That's a good question.

Since prices will stay the same, there won't be too small a dip in consumer spending. But you're right, people will be encouraged to invest and save under this system (since savings and investments won't be taxed), so consumer spending will drop some. But, keep in mind, within a few months trillions of overseas dollars will flow back into the US economy, driving the value of the dollar up. Foreign companies will begin to open up shop here, and US companies will move back. While consumer spending may drop, business expenditures will rise dramatically. These growing business will be looking for more employees, increasing demand for workers, and driving up wages.

While I can see why one would be worried at first, I think the end result would be more money in everyone's pocket and a roaring economy.

[Edited on March 24, 2008 at 11:00 PM. Reason : ]

[Edited on March 24, 2008 at 11:00 PM. Reason : ]

[Edited on March 24, 2008 at 11:00 PM. Reason : ]

3/24/2008 10:58:50 PM

Quote :

"-About 55% of the lobbyists in DC are tax lobbyists."

about 85% of statistics are made up on the spot

3/25/2008 1:06:53 AM

hey isnt this like socialism? like once this were to happen it would be hard to change if it fucks up?

[Edited on March 25, 2008 at 1:25 AM. Reason : like healthcare?]

3/25/2008 1:25:10 AM

I'd be skeptical that businesses would actually adjust prices to reflect the supposed 24% savings on their production, to make it so that we aren't being shafted with a 30% sales tax.

On top of that, that 23% was an average, which means certain things will jump significantly in price. Depending on what these things are, it could have a big impact on how the fair tax is distributed.

And finally, it's a regressive tax, which apart from making it a tad unethical, congress would never pass thatt.

3/25/2008 1:43:20 AM

hopefully not...food prices done rose enough

3/25/2008 2:48:45 AM

^^again, how is it regressive with the prebate?

less progressive than the current system, maybe, but regressive?

3/25/2008 5:43:47 AM