Fairtax
Pirate Jo was mentioning Fairtax the other day in the comments. What is Fairtax? Well, from Americans For Fair Taxation:
The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.The FairTax Act (HR 25, S 13) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.
The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.
The FairTax:
-Enables workers to keep their entire paychecks
-Enables retirees to keep their entire pensions
-Refunds in advance the tax on purchases of basic necessities
-Allows American products to compete fairly
-Brings transparency and accountability to tax policy
-Ensures Social Security and Medicare funding
-Closes all loopholes and brings fairness to taxation
-Abolishes the IRS
Myths and realities here. For example:
"The FairTax is regressive and shifts the tax burden onto lower and middle income people"
The truth: The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most.
In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.
How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here. Secondly, not everyone's average net tax burden falls. For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system.
Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.
Why the Fairtax will work here.
So...you for or against? And why?
Fairtax sure sounds great, I was a Fairtax cult member early on.
However, I stayed after a meeting one night and asked some questions.
http://fairtaxfineprint.blogspot.com/
It's a much, much different plan that their books, videos, and speeches claim.
Mark at March 3, 2011 9:02 PM
"In addition to receiving the monthly FairTax prebate..."
I'm not seeing where making people dependent on government checks is a good thing. But that's just me, I guess.
Not Sure at March 3, 2011 9:24 PM
We are entering a period where large numbers of baby-boomers will be spending their savings on their retirement. These savings were already taxed. The Fair Tax gives them the opportunity to have their savings and investments taxed again as they finally trade them in for consumption.
To make the Fair Tax progressive, people will need to file tax returns to determine the tax rate they pay as a "sales tax".
The "pre-bate" is a government check handed out to everyone claiming a low income. How will the government prevent fraud in this massive handout?
Investments are taxed at a lower rate of 15% because the principal in the investment was already taxed.
Andrew_M_Garland at March 3, 2011 10:45 PM
"I'm not seeing where making people dependent on government checks is a good thing. But that's just me, I guess"
Well, it's not like they aren't already dependent upon government checks.
Though I haven't done a lot of research into the fair tax details, my first impression of this is that the 'prebate' is essentially a refund of taxes already paid (sales taxes, etc.).
In the current system, most of those below the poverty level (at the point it is defined), don't pay much, if any taxes, but still get back amounts for EIC, etc., that are over and above.
Now, to be honest, I'd rather toss off a few extra bucks at the below 'poverty' families, as long as its predicated on actual need, rather than some arbitrary threshold.
My initial take on the fair tax (presuming it can be implemented in a manner that actually does get rid of the current tax structure (and we know how tenaciously the bureaucrats love to retain existing processes)) is that it is at least a decent step in the right direction (tax consumption instead of income, this leverages the underground economy while not penalizing thrift and savings).
It seems to have some value to it.
There are some who call me 'Tim?' at March 3, 2011 11:11 PM
Not really crazy about the whole prebate but if it gets rid of the IRS and the 16th amendment, I'll go for it.
Sarah at March 3, 2011 11:24 PM
First, without not just abolishing the 16th amendment, but doing so in a manner to prohibit any sort of income or corporate taxation, this will end up being just another tax.
Second, this will lead to a VAT tax, which will cripple the economy just as VAT taxes have done elsewhere.
Third, the politicians will tinker with the taxes until it is more complex than the current system. Corruption will be rampant.
Fourth, the paperwork required for this will end up being just as bad as the paperwork for income taxes.
Fifth, this program would be very difficult to administer and enforce.
Sixth, someone has to administer this complex program. That someone will be the IRS under a different name. Nothing will change.
The real solution is a flat tax with a standard deduction for dependents. "C" Corporations would not be taxed but ALL distributions would be, including benefits. (In other words, if the company buys a condo in Hawaii and an employee uses it, that would be considered income comparable to the rental rates in that area and taxes accordingly.)
The advantage of this solution is simplicity and simplicity is much easier to enforce.
Under the current system, simply getting rid of itemized deductions and income credits and prohibiting someone from getting back more than they paid in would massively reduce fraud and increase fairness.
Joe at March 3, 2011 11:53 PM
I don't see how it will manage to work. Seems like one would need to track the sales tax they paid, or the government will have to issue some id that you will have to use for every purchase so it can be tracked.
Still won't affect the underground market (I have seen some of the proponents claim it close these). I don't see how it would affect them. I can see it now: "Ok buddy, that $100 for the crack plus $23 in sales taxes." "Great! Here is my tax number." "Hear is your id card back....Oh dear! Its the cops! Run!"
The Former Banker at March 4, 2011 12:22 AM
A couple of points:
- The biggest weakness of the Fair Tax is the idea of prebates - essentially, monthly checks handed out to every single person in the country. This is psychologically dumb, and will initiate huge amounts of fraud. This is apparently the only solution they have been able to find, to prevent the tax from being regressive. Let the darned tax be regressive - opening the bag of snakes is just not worth it.
- Joe says that this will turn into VAT. Frankly, VAT is a far better system than sales tax. Morever, VAT has never crippled an economy. What cripples economies are high tax rates, in whatever form. A 30% VAT-rate or sales-tax will kill your economy, whereas a 5% rate won't. The problem with VAT (as with any tax) is that governments always think they can increase it "just a bit", or "just temporarily". The rates go up, but never go down.
The beauty of the Fair Tax idea is it's simplicity (if we can get rid of the stupid prebates). The catches are: one must prohibit all other forms of federal tax, and one must limit the maximum possible tax-rate (or the maximum possible spending).
a_random_guy at March 4, 2011 1:55 AM
Joe is right. When you have a proposal that essentially begins with:
"Step One: Amend the Constitution to Repeal the Income Tax"...
Well, you're living in fantasyland. (Call me if this happens, though. I'm all for repealing the income tax and starting over.)
Anything short of that, and they're playing with fire here, pretty much guaranteeing that we end up with an additional tax on top of the income tax.
AB at March 4, 2011 5:09 AM
I'm for anything that prevents the Feds from monkeying with the tax code. Ideally that would be a flat tax on all income, no exemptions, no credits, no rebates, no exclusions, no games. Everybody pays, even mothers on welfare. They get to vote, they get to pay.
Require two thirds of both houses and the president to concur on any change in the rate, with an immediate recall election for every single one of them within thirty days of making a change. Anyone voted out of office in the recall is barred for life from serving in the Federal Government.
I want accountability. We need some level of government. I think we have too much and it costs too much. Maybe you are OK with paying, for example, corporate farmers agricultural subsidies. I am not.
MarkD at March 4, 2011 6:12 AM
Fifth, this program would be very difficult to administer and enforce.
Yeah, just like all those other sales taxes are difficult to administer and enforce...
I R A Darth Aggie at March 4, 2011 6:58 AM
A Value Added Tax is levied upon goods at each stage in production. The Fairtax is only imposed at the final point of sale.
In terms of the "prebate," the idea is that you shouldn't have to pay taxes up to the poverty level of spending. So everyone gets it, because no one pays taxes on the first, or poverty level, layer of spending.
This provides a huge incentive for poor people to buy second-hand goods, because the Fairtax only applies to new retail items. Theoretically, if you bought most of your consumer goods second-hand, you could actually get more money in the prebates than you would pay in Fairtaxes. The EIC would be eliminated along with the rest of the income tax system.
Pirate Jo at March 4, 2011 7:22 AM
You try being on the other side of the sales tax transaction. I've got to collect it and remit it to the state, but their rules are so fucked up that they can't even explain when a given rate or exemption applies.
And I'm the one on the hook if they advise me incorrectly.
brian at March 4, 2011 7:30 AM
The concern I have with proposals like Fairtax and the Flat Tax are that they completely eliminate one of the two tools government has to influence behavior. If, as a matter of social policy, the government wants people to engage in certain behaviors, there are really only two tools available: taxation and legislation.
The tax code provides a means of encouraging behavior without mandating it. For example, the mortgage interest deduction encourages home ownership through reducing the income tax burden. Alternative energy credits encourage early adoption of renewable sources of energy.
If the government does not have this tool available, the only other option available is legislation that will mandate the behavior with fines or jail time for people who do not comply. I picked the mortgage interest and alternative energy credits because I know those are two items that have been somewhat controversial here.
Governments do set social policy; that's why we elect them. It's a given that not every voter will agree with every policy. With that in mind, do we want to remove the one tool available that incents participation instead of mandating it?
Incentives Matter at March 4, 2011 8:59 AM
"With that in mind, do we want to remove the one tool available that incents participation instead of mandating it?"
Yes, yes, and GOD yes. I don't want the government "incenting" private behavior. It's none of the government's damn business. It has no business mandating good behavior either, only punishing bad behavior, i.e., behavior that hurts someone else.
Let the free markets provide incentives. When gas gets too expensive, we'll use other kinds of energy. Future supply/demand is already built into current prices.
Pirate Jo at March 4, 2011 9:08 AM
One of fair or flat tax's APPEALS is that it eliminates the ability of the government to set social policy.
ahw at March 4, 2011 9:10 AM
"Let the free markets provide incentives. When gas gets too expensive, we'll use other kinds of energy. Future supply/demand is already built into current prices."
I agree with less is more when it comes to government regulations on our lives and the economy - but that kind of change typically takes a long time so pure free market ideology won't do us any favors. "Us" being non-millionaires.
Gas can get too expensive very quickly. One natural disaster or war and suddenly gas goes to $15+ a gallon, which trickles down into all aspects of the economy, not just our abilities to drive...manufacturers and suppliers will pass the costs of expensive fuel on to us so we'll be paying more for EVERYTHING. By the time a viable, sustainable, reasonable solution for alternative energy is found that can relieve the pressure on the entire economy, Americans will be rioting in the streets begging for something to happen. Not walking around with signs - like tearing shit down.
When a gallon of milk costs $20 because the cows are in Vermont and you're in Boston, and the price of eggs increases by dollars a day, we're in post WWI Germany. You remember what happened there? They were saved, alright.
Free market economics is great when things can move at a reasonable pace. But when something happens really suddenly we have no guarantee that technology, science, medicine, or free market economics will be able to fix it for us on its own.
I don't *like* saying it, but in extreme situations we have to pull together and maybe having the government in a position to do that isn't bad? We give them our money to act as proxy decision makers in areas we have no expertise or ability and to do things we can't. Like fund and train and oversee the dispatch of an army.
The problem is that those powers are abused (I can see that very army being used against us really quickly) by corrupt people. I don't think the solution is to go to the extreme of a totally free economy.
Gretchen at March 4, 2011 9:47 AM
1 as we've never ever tried a true free market, how about we give it a try before declaring it impossible - its not like our current system is perfect.
2 as far as Fair Tax, how about instead of prebates we just dont tax utilities under a certin treshold, and not tax staple food items like raw produce, flour, beans, raw meat, ect; but do tax things like chocolate, ice cream, pre cooked meals.
Seems easier then a conplicated system requiring a whole new work force to calulate and mail checks
lujlp at March 4, 2011 10:20 AM
'Incentives Matter' took the words out of my mouth. No matter how idealogical you are, you have to admit that it is valuable for our government to have a few dials to adjust.
It's a dial we can turn to influence consumer behavior that affects us all as in the cases of encouraging university attendance, military service, or scientific research. It's hard to argue that there will never be a time where we won't say something like, "gee, I wish there was more scientific research going on", or something similar. A progressive tax system, while a complicated pain in the ass, gives society a way to make adjustments.
This fairTax thing is clearly an idea hatched by the very wealthy in that it targets only retail spending. If you make a million dollars in a year, you don't go out and buy a million dollars worth of stuff.
The conservative answer to this is, "why should the government get their grubby hands on that hard earned money?" Well ... infrastructure, defense, all that shit, costs a lot. It's got to come from somewhere.
We have pretty low taxes in the United States. The problem we have isn't how we can pay less taxes, it's how we can get more bang for the buck. There's an awful lot of waste.
whistleDick at March 4, 2011 10:23 AM
Lujip says, "Seems easier then a complicated system requiring a whole new work force to calculate and mail checks"
You've hit on a funny irony of this fairTax thing. The fairTax people have, as one of their primary arguments, the idea of abolishing the IRS and all its bureaucracy while necessitating a brand new bureaucracy that will have to do largely the same thing. I presume they won't call it the IRS.
whistleDick at March 4, 2011 10:28 AM
Show me where in the Constitution the government is given the authority or power to influence behavior.
You can't because it's not there. The government's purpose is not to influence behavior, it is to act as a neutral arbiter in disputes between individuals. The bulk of federal laws should not exist.
No. Not only is it not valuable, it gets us nothing but hell. You're asking people who tend to be marginal thinkers to "adjust the dials" of society as though by virtue of being elected they are imbued with the wisdom to do no harm.
Wrong. The law is a ass. It needs to be as restricted as possible.
We do not have "pretty low" taxes. Our government is consuming more than 50% of GDP. That needs to be closer to 10%.
And allowing the government to do anything is a prescription for waste.
brian at March 4, 2011 10:47 AM
So obviously the solution is a government that can simply point a gun at their head and order them to take a loss, right? So instead of gas going to $15 a gallon and being a little available, it becomes unavailable at any cost.
Unless of course you want the government to start throwing money around, which makes everything more expensive anyhow because there's more dollars chasing fewer goods.
government is not the solution. I don't know what is, but it's pretty clear that government only makes things worse.
brian at March 4, 2011 10:49 AM
Gas has been cheap here, but that's only because taxes and borrowing (by the government) have been so high. If anything, our government has given us a DISincentive to invest in other energy sources. Had we always been paying the free market price of gas, we might have converted to other primary energy sources long ago.
Pirate Jo at March 4, 2011 11:02 AM
I am with a flat tax FOR EVERYONE, no ifs ands or buts. IF people actually have to pay for the government they vote for, it might put some common sense back into government. On top of that, Tariff the hell out of all these cheap Chinese goods, lets put the jobs back in america. And for all the freaking Indians flooding IT, make them give up half their first year's pay as a "TAX" for the privelage of taking American jobs
ronc at March 4, 2011 11:13 AM
Hi Brian,
"Show me where in the Constitution the government is given the authority or power to influence behavior"
You're absolutely correct. It's not there. That doesn't mean that a society can't decide that it would be valuable.
"... as though by virtue of being elected they are imbued with the wisdom to do no harm"
Oh, I never said that they could do no harm. There have been many bad decisions made. However, we do send them there to represent us. It could be argued that the lack of wisdom lies with us and our apathetic, uninformed ways.
I understand your frustration with government. It's a frustrating thing. I'm just not willing to scrap everything and start living in the forest somewhere. It's a fallible system, but a pretty decent one.
whistleDick at March 4, 2011 11:18 AM
Jo - We ARE paying the market price for gas. It's subsidised in some countries (Iran, for instance). It's taxed to death in Europe and Canada. In fact, the entirety of the difference between us and Europe is taxes.
Hasn't done anything except get people into more dangerous little cars over there.
And our government is so rotten with corruption that the only alternative they are willing to do anything with is "lets convert food to gasoline and starve the third world."
brian at March 4, 2011 11:19 AM
I don't want to scrap it either. I just want to put it back in its little box that the founders created for it. If the people want to experiment with "government as tool of social justice" let them do that in the states or towns. We're back to "keep your laws off my body" territory.
brian at March 4, 2011 11:21 AM
"So obviously the solution is a government that can simply point a gun at their head and order them to take a loss, right?"
Yes. That's obviously what I am saying...
I'm just saying the free market cannot react to a lot of situations quickly enough - neither can the fed. But in situations of crisis do you want to figure out the solutions all by yourself, or should we try and figure it out together? Maybe hire some smart people to help?
The problem is the people we have working for us are a bunch of fuckers and we lost control of them - they're supposed to work for US, and right now it's the opposite. That doesn't mean the idea of government is bad. Just that it needs to be torn apart and rebuilt.
If anything I am advocating total rebellion. Just let me get my little solar/wind powered self sustaining farm going fist.
"government is not the solution. I don't know what is, but it's pretty clear that government only makes things worse."
I can't disagree with that statement.
Gretchen at March 4, 2011 12:12 PM
"If the people want to experiment with "government as tool of social justice" let them do that in the states or towns."
That's a fair point. But, as it turns out, states or towns don't really have the sort of reach to make that viable. The market, however, does have the sort of reach that makes it matter to me whether people in Wisconsin (or some other far away state) are buying houses and investing in business, etc. That makes it a better job for the Federal government.
While I understand and sympathize with your idealogical argument, it is a practical matter.
whistleDick at March 4, 2011 12:13 PM
"I'm just saying the free market cannot react to a lot of situations quickly enough"
Sure it can -- if it's allowed to. Do you know why the price of gasoline goes through the roof every time there's some kind of oil panic? Because the federal government won't let the petroleum industry do anything to increase supply. There hasn't been a new refinery built in the U.S. in something like 20 years because the permitting process is impossible. New well drilling isn't happening either, and the U.S. government is busy withdrawing permits for existing production. Everything that the government still allows to run is running at 100% and that's still not enough to meet demand. So there's no capacity to react to market variations.
Cousin Dave at March 4, 2011 4:09 PM
Dave, it's more like 30 years, and when the plant tries to modernize, they have to come into compliance with ALL new environmental regs. Which is why we are not importing finished goods. Between the Greens and the NIMBYs, we can't make anything in this country.
They just can't understand why the oil companies won't operate at a loss to meet their fantasies.
brian at March 4, 2011 6:07 PM
You're absolutely correct. It's not there. That doesn't mean that a society can't decide that it would be valuable.
There is a difference between law and custom. Social institutions (i.e. churches, local or national organizations) can make the difference. Compelling me to act a certain way via laws (the old 55 speed limit) breeds resentment and contempt. Using taxes also breeds the same contempt as society changes. In earlier years giving a tax break for home ownership made sense. Now how many people work in the same job for 10 years? How many people live in the same home, let alone a city for 30 years.
That's a fair point. But, as it turns out, states or towns don't really have the sort of reach to make that viable.
That is because you are living in the current concept that the federal government has overreaching rights to tell your state and city what to do. Do you know that the reason the drinking age in all states is now set at 21 because if the states didn't change it they would not get the federal highway funds? Essentially the fed extorted the states. Same as the old laws on the 55 speed limit. The NCLB also has funding tied to compliance with the fed.
As far as states and town having viable options:
look up Ithaca Hours
While I understand and sympathize with your ideological argument, it is a practical matter.
Why can't my state (or county, or city) have its own decision on health care, gay marriage, education requirements, gun laws, etc. Some things I agree need a higher level preemption. But some things need to be consistent.
An example: I can carry a concealed weapon in Ohio with a CCW license. That is universal across the state. Any organization has the right to post their premises to be gun prohibited. The CCW is a state level preemption. The state government has the right to say that the right to own and carry a weapon in Ohio is legal in general. The private individual or business has the right to disagree. The individual counties don't have the same rights because they are a government.
The way it should always work is that the less restrictive laws should always apply locally. The more restrictive should be preempted by the larger authority.
Jim P. at March 4, 2011 9:29 PM
The FairTax redistributes income from renters to homeowners. Homeowners get to enjoy untaxed spending and consumption on their homes, while renters must pay tax on all their housing spending and consumption.
Terry at September 5, 2011 3:05 PM
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