What about all that money sitting in roth accounts that has already been taxed?

4/29/2008 9:36:02 AM

People don't seem to want to address my complaints with the system:

As DrSteveChaos pointed out, the sales tax is not 23% but in fact 30%. Similarly, as DrSteveChaos also pointed, I did fail to include the payroll taxes that employers do pay (FICA, SS, etc) which he said was about 6.5%. Therefore, accepting Marx's labor-price theory, we can asume retail pre-tax prices will fall 6.5% due to tax savings before jumping 30% due to the tax. So, what previously sold for $100 will now sell for $93.50 + $28.05tax = $121.55 for an after-tax price increase of 21.55%. This is fine for the employed because their wages are fixed by contract between employer and employee. In effect, everyones bank account will have been marked down about 21% and everyone's contracted salary will have been marked up 21%. Thus, the old and currently wealthy will be poorer overnight and the young and employed will be richer overnight by exactly the same amount.

No one has mentioned any part of the Fair Tax which would make me question my analysis.

4/29/2008 10:38:46 AM

Quote :

"What about all that money sitting in roth accounts that has already been taxed"

You will be paying embedded taxes on everything you purchase with your Roth IRA money..so fed taxes will still get you again.

After the passage of the Fair Tax..
The embedded taxes will be removed from the price of the items you buy and will be replaced with an inclusive retail sales tax that will pretty much keep prices about the same.

You will basically pay the same as you are now. You'll also now get a rebate of the taxes you paid on purchases up to the poverty level. Also no more tax on social security checks.

Quote :

" pre-tax prices will fall 6.5% "

A 2006 study "A Macroeconomic Analysis of the FairTax Proposal" found that in the long term, the tax would gradually raise ave. prices about 25%. But, (and this is the part the anti-FT people leave out), wages are predicted to go up over 27%.

And keep in mind that you'll pay the FairTax only on whatever portion of your income that you generally decide to spend. And all investments and savings will no longer be subject to a income tax.

4/29/2008 11:47:56 AM

Well that sucks.

4/29/2008 12:07:48 PM

except the opposite?

or are you saying the current way sucks?

4/29/2008 12:09:09 PM

i think im one of the only democrats to actually like the idea of fair tax. Am I the only one? Whats wrong with me

4/29/2008 12:09:54 PM

nah...i know 3 others(myself included) that like it

4/29/2008 12:11:09 PM

I'm saying it sucks for people who have a ton of money saved up that has already been taxed.

4/29/2008 12:56:56 PM

yeah it sure sucks for people that have a lot of money built up...

4/29/2008 12:57:58 PM

Quote :

"i think im one of the only democrats to actually like the idea of fair tax. Am I the only one?"

No you're fine.

The FairTax wasn't designed to help either party. Rumour has it that the Democrat leadership loves it but wanted to wait until they were in total control before bringing the bill to the floor..so they'd get the credit.

Quote :

"it sucks for people who have a ton of money saved up that has already been taxed. "

When you pull out money from your Roth IRA, you will be spending it on products that have the 22% embedded federal taxes. So even with no FairTax, you still pay more taxes using your IRA money.

Either way, with the FairTax or without...your Roth money will be taxed again. That's the little tidbit of info the gov't didn't tell everyone when the Roth IRA was set up.

4/29/2008 5:18:57 PM

Quote :

"You're paying about 23% now in embedded federal taxes. And we don't have rampant black markets. All the Fairtax does is take the embedded fed. tax component of products and services and re-embeds it as a sales tax. Therefore, no more need for the income tax and handing over your personal income information to the gov't every year. "

We aren't talking about existing goods, we are talking about new goods under a new system.

Currently, the CONSUMER pays 6-12% sales tax. You are absolutely blind if you don't think a DOUBLING of the sales tax to the consumer will not result in massive black market shifts. The whole argument of embedded versus real is only applicable for long term thinking. People do not think long term. They think "I can pay 20 dollars legally, or 12 dollars illegally". Guess which one people will go for?

And you didn't address at all my concern about what constitutes new vs. used.

Nor how states will manage this shift. Doubling the sales tax in the south will have a much greater impact than in the northwest and northeast. Pre-bates or not.

4/29/2008 5:37:08 PM

^
I've already answered what is considered a new product..check a few posts back.

I would suggest visiting the FairTax.org website for detailed answers on the other minutia of the bill.

What is tiring is when people change the FairTax in someway and then attack it.
The plan isn't perfect. I'm not claiming that. What I'm saying is that it's miles better than the current crappy system.

4/29/2008 6:02:49 PM

If any dem was running and proposing a fairtax or flat tax, they would get my vote. Period.

If there was a chance they could get it through. Which will never happen, bc it takes away one of thier election tools...class warfare.

4/29/2008 6:05:03 PM

Quote :

"When you pull out money from your Roth IRA, you will be spending it on products that have the 22% embedded federal taxes. "

Are you saying all products are already taxed 22%?

4/29/2008 9:54:34 PM

^
Yes. Companies pass along the costs associated with paying thier share of payroll taxes, along with the federal tax components all along the production process.

The farmer raising the wheat, the company making it into bread, the companiy that makes the bag to hold the bread, the company that ships it to the store, the grocery store that sells it. Each company along the way passes along their federal tax components in their prices.

The embedded tax is higher in some products and lower in others..but the ave is 22% of the price.

The FairTax eliminates federal income tax, Social security and medicare witholding, as well as capital gains, and death tax. It shifts these embedded taxes into a 23% inclusive embedded sales tax.

The amount that is collected stays the same, just the method is changed.

4/30/2008 12:09:21 AM

i think a negative side effect of this is that people will be more stingy...plus the underground black market is the shit for me cause then i'd really be saving a lot of money

4/30/2008 12:14:20 AM

^ Just start a small business and right everything off as a business expense.

It's the white-people-method* of paying taxes.

* as coined by South Park

4/30/2008 12:20:28 AM

Quote :

"i think a negative side effect of this is that people will be more stingy"

Typical american thought process. Why we have a negative savings rate.

4/30/2008 12:23:40 AM

^^for real...that oil change was business related yo

[Edited on April 30, 2008 at 12:23 AM. Reason : .]

4/30/2008 12:23:47 AM

Quote :

"The FairTax eliminates federal income tax, Social security and medicare witholding, as well as capital gains, and death tax. It shifts these embedded taxes into a 23% inclusive embedded sales tax."

So, do I get a refund for all my money that I have already paid federal income tax, ss, and medicare?

4/30/2008 9:44:50 AM

Quote :

"plus the underground black market is the shit for me "

Remember that with the current system, it just takes one person to lie on his 1040 to cheat the system. With the FairTax, you'll need at least two people- the seller and buyer to cheat.

And I don't think Wal-Mart is gonna risk their empire by skipping the tax on your toaster.

Quote :

"Just start a small business and right everything off as a business expense. "

Make sure you have a good way to prove you are a bonifide business when you send in your sales reports. Since the IRS will be checking a much smaller pool of tax-payers (mainly retailers), they'll have some extra time to check out your fake-business pretty closely.

4/30/2008 11:39:49 AM

I still don't understand. You say the taxes are shifted but then you say the taxes are already embedded. Which is it? As someone else pointed out the prices of stuff would go up, wouldn't they now.

4/30/2008 11:55:59 AM

Quote :

" The embedded tax is higher in some products and lower in others..but the ave is 22% of the price."

And which taxes would those be? Corporate taxes are only paid on profits, which usually makes up less than 10% of any product. As such, the current 35% corporate tax rates would reduce prices by only 3% if it was all passed along to customers, which it wouldn't be for a long time. The only other taxes that directly apply are the payroll taxes paid by employers for employees. But this is only 6.5%. All other taxes are income taxes paid by employees, not employers. And since the wage listed in the contract with my employer is not after-tax, this will not represent a savings to employers at all since everyone's salary would stay the same.

As such, IF we assume all taxes filter through instantly, which they wouldn't, pre-tax prices would fall only 10%. Then you slap on the 30% sales tax. So, a $100 product today would optimistically sell for $90 + $27tax = $117 under the fair tax.

4/30/2008 12:41:46 PM

^
From FairTax.org:
Remember that everyone will be getting more of their paycheck, and the prebate returns even more spending power. This from FairTaxGroups.com:

Quote :

"The relationship between prices and spendable income will not be significantly impacted. There is a very good argument to be made that average spendable incomes will increase under the FT (if employees demand their entire current paycheck....and I think most will). That increase in income will result in two pressures that will push retail prices up. 1) retail prices will not drop the full 22% (10-15% of that 22% is employee's withholding), so adding the FT will result in an 11-16% increase in retail prices over current. 2) when the supply of dollars increases, the demand for them increases as well. if everyone has an extra 30% in their pockets, they'll have no problem paying 30% more for stuff. the sellers will have no problem charging them 30% more for stuff, and in the long run, nothing changed. so, while the after FT numbers might not look like pre FT numbers, the relationship between them will not change. "

5/1/2008 1:56:40 AM

Quote :

"Remember that everyone will be getting more of their paycheck"

What about people who do not work?

5/1/2008 9:48:49 AM

Quote :

"a carbon tax? Fuck that shit. Get that shit out of here. Lets tax people on unproven science! BRILLIANT!"

I know that this is from the first page, but as a college graduate you should know that science does not "prove" anything.

5/1/2008 10:10:43 AM

EarthDogg, that is more right than not. I was directing my ire at people that argued prices would not rise because of 'hidden taxes' which was bullshit. Now, prices relative to take-home pay will improve markedly: all those with a high paying job in the 25+% tax bracket will be absolutely better off (not by much, but there is no doubt they will improve). This benefit, however, is coming from those in a low tax bracket which are now paying 17% more for all goods above the prebate. In other words, if the pre-bate covers $17k of spending, then anyone earning $25k which previously paid little or nothing are now paying 17% more on $8k of it. Similarly, those without a job, such as the retired which are living on savings which previously paid 0% are now paying 17%.

So, like we keep saying, the fairtax shifts economic well being between the young, old, or under-employed to the middle-aged or well-employed.

5/1/2008 10:22:48 AM

Quote :

"If any dem was running and proposing a fairtax or flat tax, they would get my vote. Period. If there was a chance they could get it through. Which will never happen, bc it takes away one of thier election tools...class warfare."

+1

5/1/2008 10:38:09 AM

Do you guys not see how much old workers will get fucked over by this?

5/1/2008 10:38:42 AM

Quote :

"the retired which are living on savings which previously paid 0% are now paying 17%. "

Also the retired, many of whom live off of stocks, and stock funds in some way...no longer pay any capital gains tax. Also, their social security check is no longer taxed. And if they do continue to work ...they keep much more of their checks.

The FairTax people acknowledge that prices may rise. Competition will keep prices from getting too much higher.

But the other benefits make the FairTax appealing. Everyone's spending power will increase. Power will shift away from politicians in Washington. Workers get to keep more of their paychecks. People will be able to better control when they want to pay fed. taxes through personal spending decisions. Savings in time and money from no longer having to fill out income tax returns. A huge return of capital from off-shore back into our economy. And a transparent and easy to understand tax system.

5/1/2008 10:55:12 AM

so because some would not benefit as much as others, we should continue to use the broken system forever? I am sure FairTax could be tweaked to ensure nobody comes out on the negative.

5/1/2008 10:56:08 AM

Why don't we just get rid of social security too, while we are at it? That would greatly benefit young people like me.

5/1/2008 10:58:04 AM

you are right, we need to get rid of it, or fix it. you and I will never see a dime of the SS money we are paying in. that money would be better served in our own private investments.

5/1/2008 11:03:49 AM

Yeah, but currently old people are depending on it.

5/1/2008 11:47:41 AM

just because you strive to fix a system like SS doesnt mean you take it away from those depending on it. something like that is gradual...you grandfather in a group a certain age and higher.

you are so worried about them but what about the rest of us? as I said, likely, none of us will ever see a dime of the millions we put into it. thats not right.

5/1/2008 12:17:09 PM

Well it's not right for them to not receive any of the money they put in either.
So, what do you propose. 40+ you get SS but less than that, no SS for you?

5/1/2008 1:04:15 PM

40 is probably a little low...I would say 50 or so and above to continue to receive the money they have been promised. The rest of us would have the option of putting aside that money in our own private investments.

Anyone who is 40 and counting on SS as their retirement is screwed at this point anyway. You cant live on that income.

5/1/2008 1:10:38 PM

How could old people continue to receive money if people our age wouldn't be funding it any more?

5/1/2008 1:16:17 PM

logically, there would be some gap for the government to bridge. however, the longer we wait, the larger that gap gets before it completely runs out and is in the red.

5/1/2008 1:21:00 PM

Make sense to me, but you'd piss off a lot of 40 year olds who have been contributing to SS for 20+ years.

5/1/2008 1:22:55 PM

hell, most 20 and 30 year-olds I know now are pissed that we knowingly still give a substantial percentage of our paychecks to SS and will never see a dime of it.

5/1/2008 1:25:13 PM

Well yeah, I'm pissed, but obviously the younger people are going to be more for this than the older people.

5/1/2008 1:26:02 PM

Quote :

"so because some would not benefit as much as others, we should continue to use the broken system forever? I am sure FairTax could be tweaked to ensure nobody comes out on the negative."

No, because the most needy among us will be substantially harmed. There is no tweaking to fix the huge negatives because the system already gave away the benefits to the high-income employed.

And that has nothing to do with whether or not the system should be implimented. I was merely attacking the "everyone wins, no one looses!" fallacy.

The system should not be implimented because history and logic shows that a 30% sales tax is market distortive to unheard of levels. An income tax makes those it taxes poorer, which is what we want. But a sales tax does more than just make us poorer, it also distorts product and resource markets. The incentive to walk new goods out the back door and sell them as used goods on craigslist, the incentive to keep repairing old cars when a new car would be more efficient, the incentive to make do with current housing stock, etc. etc.

To be blunt, the Fair Tax would wreck the economy. I am sorry, you simply cannot fund our current bloated government with just one revenue source. It is simply not plausible.

Now, my ideal tax system would be the following:
10% Visible-Value-Added-Tax
25% Corporate Tax Rate
15% income tax on all income above $100k (below this no need to file a return)
Whatever current import tariffs exist

5/1/2008 3:52:18 PM

Quote :

"To be blunt, the Fair Tax would wreck the economy."

...in my opinion.

You left out that last part. Your expertise notwithstanding, the FairTax is the result of many years of study and $22 million worth of research.

Quote :

"Now, my ideal tax system would be the following: 10% Visible-Value-Added-Tax 25% Corporate Tax Rate 15% income tax on all income above $100k (below this no need to file a return) Whatever current import tariffs exist"

Again, in my opinion, ...
VAT tax.. hidden from consumers, easily manipulated by lobbyists & politicians. Very complicated.
Corporate Taxes...are passed along to consumer in the form of higher prices.
Income Tax: Remember the original income tax form was designed to punished the rich as your plan would. It gradually sucked in more and more wage-earners until it became the gigantic disaster we have today.

[Edited on May 1, 2008 at 6:41 PM. Reason : .]

5/1/2008 6:41:03 PM

And it is your opinion that the Fair tax would be better than the current system. My objection is scale and you did not address it. A 30% sales tax is not new, it has occured before in history. It always ended poorly. There is a reason the highest sales tax in the nation is only 10.25%; much above that and the tax stops collecting more money.

Meanwhile, income taxes are currently assessed well above 50% in many countries today with little devastation to show for it.

The reason this proposal has received any research is because it sounds nice, nothing more.
http://econlog.econlib.org/archives/2008/01/why_the_fair_ta.html

And I mention a VAT because it, and only it, can collect such percentages as you are suggesting, economically speaking.

5/1/2008 9:09:35 PM

Quote :

"A 30% sales tax is not new,"

The FairTax is more than just a 30% sales tax...and you know that my friend.

With the prebate, The poor will pay little or no actual federal tax. The middle class will be at about 15-17%. Only the super-rich will get close to the full 23%.

Support for the FairTax bill (HR25) is growing steadily. Congressional sponsers number in the 70s currently. As people learn about it, they like it more and the current system less.

5/1/2008 11:54:59 PM

Quote :

"With the prebate, The poor will pay little or no actual federal tax"

just like they do now (the EITC covers their 6.5% payroll taxes).

Quote :

"Support for the FairTax bill (HR25) is growing steadily. Congressional sponsers number in the 70s currently. As people learn about it, they like it more and the current system less."

Good point. What a relief. There is exactly zero percent chance of this becoming law. I am not here to stop the bill, I am here to do you a favor.

5/2/2008 12:23:24 AM

If this ever passes I'm moving when I retire.

5/2/2008 10:20:14 AM

Quote :

"There is exactly zero percent chance of this becoming law."

With that thinking, you probably would've included yourself with the 2/3rds of the colonial population that snickered at Washington, Jefferson and the other revolutionaries and went with the smart money that there would be zero chance of breaking away from the most powerful nation in the world and start your own country.

5/2/2008 10:45:45 AM

You think the old rich guys in congress will pass it?

5/2/2008 10:52:34 AM