[Benny Hicks]

How many of you are familiar with the Fair Tax Plan (H.R. 25 and S. 25)? I've recently been turned onto this and I've evolved into a full-fledged supporter. If you have no idea what I'm referring to, check out FairTax.org. I'm interested in seeing what opinions people have on this. I really think the tax structure in the US is ridiculously and unnecessarily complicated, and I totally support tax system reform. What do you all think?

Here is a summary of the Fair Tax Plan, available here:

The Act is called the “Fair Tax Act of 2005.”

As of Dec. 31, 2006, it repeals all income taxes and payroll taxes, specifically:

• The individual income tax (including capital gains taxes and the alternative minimum tax)
• The corporate income tax
• All individual and employer payroll taxes including Social Security, Medicare and federal unemployment taxes
• The self-employment tax (a self employed person pays both the individual and the employer portions of Social Security and Medicare taxes)
• The estate and gift tax

Effective January 1, 2007 it replaces the above taxes with a national retail sales tax on all goods and services sold at retail, except that used goods are not taxed. The tax rate is set to be revenue neutral – at the level necessary to replace the revenues generated by the repealed taxes.

A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal consumption of new goods and services. Exports and the purchase of inputs by businesses (i.e., intermediate sales) are not taxed. The sales tax must be separately stated and charged on the sales receipt. This makes it clear to the consumer what the amount of the tax is and that he or she is paying it.

The FairTax provides every family with a rebate of the sales tax on spending up to the federal poverty level (plus an extra amount to prevent any marriage penalty). The rebate is paid monthly in advance. It allows a family of four to spend $25,660 tax free each year. The rebate for a married couple with two children is $492 per month ($5,902 annually). Therefore, no family pays federal sales tax on essential goods and services and middle-class families are effectively exempted on a big part of their annual spending.

Funding for Social Security and Medicare benefits remains the same. The Social Security and Medicare trust funds receive the same amount of money as they do under current law. The source of the trust fund revenue is a dedicated portion of sales tax revenue instead of payroll tax revenue.

States can elect to collect the federal sales tax on behalf of the federal government in exchange for a fee of one-quarter of one percent of gross collections. Retail businesses collecting the tax also get the same administrative fee.

Strong taxpayer rights provisions are incorporated into the Act. The burden of persuasion in disputes is on the government. A strong, independent problem resolution office is created. Taxpayers are entitled to professional fees in disputes unless the government establishes that its position was substantially justified.

[jfahler03]

Seems like textbook fiscal conservative thought to me. I'll take a closer look at it in a later some more to be fair.

Here's what I've got for now:

I don't personally like the idea of a "fair" tax that abolishes the income tax for more than a few reasons. I'm a bit liberal (or...conservative if you're a European) fiscally and don't personally understand how an abolition of the income tax would serve the nation or the nation's economy in any way.

Take the abolition of the corporate income tax for example. Why on earth is this even necessary? Are you telling me that with the recent tax cuts, corporate rebates, and exponential profits that the average corporation is being impeded by taxes... in one of hte most economically free economies in the world?

Further, I have major issue with this:

A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal consumption of new goods and services. Exports and the purchase of inputs by businesses (i.e., intermediate sales) are not taxed. The sales tax must be separately stated and charged on the sales receipt. This makes it clear to the consumer what the amount of the tax is and that he or she is paying it.

1. 23%?!!! This is an absolutely ridiculous number. How on earth is this going to encourage foreign and domestic dollars being pumped into our economy?
2. "Exports and the purchase of inputs by businesses... are not taxed" - big problem here. America was built on tariffs (though it does seem that exported goods are not taxed it doesn't mention imported I would assume this would be in the spirit of tarrif-busting as our push towards "free trade" has already busted many tarrifs). We've always needed them to survive. Then again, if we outsource our entire secondary sector of the economy I suppose it doesn't matter anymore...

I basically see this as a sorry excuse for corporations not to pay taxes. Let's say we abolish income taxes (which I will concede do need reformed) and make up the difference with sales tax. There *has* to be a loophole here. If you're a company, you're trying to make profit. You will find that loophole - say purchasing China's version of Widget A for $2 each instead of the $3 which the 25% sales tax requires (higher for state and local adjustment). Now you're joining the millions of individual Americans and businesses pushing money out of our economy.

What exactly is this supposed to accomplish economically?

Also, I noticed that the highlighted co-sponsors include one senator and three representatives... and guess what? They're all Republicans.

So in other words I hope if fails. For a few reasons:

1. It's obviously upon party lines and very partisan (look at the news for July 28

July 28 Liberal Idealist Gives Fair Tax Big Thumbs up By Tom Jackson, Tampa Tribune

- note "liberal idealist" and the fact that the news source is amazed that he's in for the deal.

2. It's much to extreme of a measure.
3. It makes no economic sense (I see the site lacking any economic theory of what a near 25% sales tax would do to our economy in real terms, rather it seems to be more interested in stocks and bonds as well as the money pumped into the tax system. My problem with the money being pumped into the tax system is that eventually the market will "figure things out" and stem that flow of money - especially if consumers are deciding to with the earlier mentioned "loop holes" (e.g. internet purchases, foreign purchases, black market, etc)

[Casey]

23% isn't that big of a deal. You're already paying at least a 22% tax on everything you buy says the book.

Damn. What really sucks is that it's so hard to explain to people about the fairtax book. The best way is just to get them to read it. It's a relatively short and enjoyable read. How about this jfahler: I just finished the fairtax book and am now letting my step-dad read it. If you don't buy it by the time he's done, I'll ship it to you for free just so you can read it.

I myself am a liberal, but after reading about the fair tax, I'm convinced that it's probably the best thing we could do for America right now economically. Though, I am open to criticism.

I thought about starting this thread myself, but what stopped me is this very thing: you really have to read the book to get a good understanding of it.

So yea jfahler, I'll ship you the book, then you give your thoughts and comments. Whaddya say?

[Xkcer Man]

What happens to transactions between private citizens, such as selling a car or buying something on eBay? Are these exempt, or do you have to submit taxes for them?

[JerryLove]

23% isn't that big of a deal. You're already paying at least a 22% tax on everything you buy says the book.

It disadvantages poor consumers and advantages corporations.

[jfahler03]

Originally Posted by JerryLove

It disadvantages poor consumers and advantages corporations.

Ditto.

And no, by the way on the book. My reading time is currently being taken up with 19th century American religion.

Anyway, this source:

http://www.taxadmin.org/FTA/rate/sales.html

seems to say otherwise. From that source it looks like the consumer would have their taxes go up by 3x according to this plan. Again, do you actually think that prices will go down to compensate for this? Of course not. People will be working around it, just as they always have and always will. It'll just be easier in this case.

[Benny Hicks]

Originally Posted by jfahler03

Seems like textbook fiscal conservative thought to me.

This has nothing to do with conservatism or liberalism, it's simply an alternate way of collecting revenue. Representatives Bob Filner (D - CA) and Collin Peterson (D - MN) both support the Fair Tax Plan. The plan does not alter the amount of funding available to the federal budget at all, it just affects the way revenue is collected.

Originally Posted by jfahler03

I'm a bit liberal (or...conservative if you're a European) fiscally and don't personally understand how an abolition of the income tax would serve the nation or the nation's economy in any way.

For starters, there would be a massive rush to invest in American markets because there would be no taxes on capital gains, and payroll taxes would be done away with. The American tax system is a major reason why outsourcing is such a problem. It is cheaper for major corporations to move to places with more favorable tax systems in other countries.

Originally Posted by jfahler03

Take the abolition of the corporate income tax for example. Why on earth is this even necessary? Are you telling me that with the recent tax cuts, corporate rebates, and exponential profits that the average corporation is being impeded by taxes... in one of hte most economically free economies in the world?

Hate to break it to you, but America is not the most economically free economy in the world.

Originally Posted by jfahler03

1. 23%?!!! This is an absolutely ridiculous number. How on earth is this going to encourage foreign and domestic dollars being pumped into our economy?

A study produced by Harvard concluded that there already exists a 20% imbedded tax on retail goods, which would be removed when all the other taxes are gotten rid of. So by putting in place the 23% retail tax, you'd really only be increasing the tax by 3%. Now, keep in mind that though this is a 3% increase, Americans will now be taking home 100% of their paychecks.

Originally Posted by jfahler03

2. "Exports and the purchase of inputs by businesses... are not taxed" - big problem here. America was built on tariffs (though it does seem that exported goods are not taxed it doesn't mention imported I would assume this would be in the spirit of tarrif-busting as our push towards "free trade" has already busted many tarrifs). We've always needed them to survive. Then again, if we outsource our entire secondary sector of the economy I suppose it doesn't matter anymore...

I believe this refers to American businesses. I'm pretty sure the government would be free to raise tariffs against foreign goods, but don't quote me on that.

Originally Posted by jfahler03

Let's say we abolish income taxes (which I will concede do need reformed) and make up the difference with sales tax. There *has* to be a loophole here. If you're a company, you're trying to make profit. You will find that loophole - say purchasing China's version of Widget A for $2 each instead of the $3 which the 25% sales tax requires (higher for state and local adjustment). Now you're joining the millions of individual Americans and businesses pushing money out of our economy.

Don't you see? That is already occurring. There is no loophole.

Originally Posted by jfahler03

What exactly is this supposed to accomplish economically?

(A) There will be far greater incentive to invest in the US.
(B) All these shady off-shore accounts in Switzerland and Bermuda would suddenly surface and move to the US, because no one who invested in the US would be taxed.
(C) The consumer would never have money withheld from him by the government, and then be fooled into thinking he's actually being given money on his tax return. April 15 would just be another day. The billions of dollars and manhours spent trying to do taxes correctly and the money lost by those who fall through the cracks of the IRS would disappear.

Originally Posted by jfahler03

Also, I noticed that the highlighted co-sponsors include one senator and three representatives... and guess what? They're all Republicans.

So clearly it's a faulty plan... Judge the plan on its own merits, not by the sponsors. Partisan bickering doesn't need to interfere with the passing of something that would be genuinely good for America. And by the way, there's way more than three co-sponsors. In addition to the two primary sponsors in the House and the Senate, there's fifty seven co-sponsors (three in the Senate, fifty four in the House).

If you're interested in learning more and getting some background on proponents of the Fair Tax Plan, check out this article in CNN Money.

[Benny Hicks]

Originally Posted by Xkcer Man

What happens to transactions between private citizens, such as selling a car or buying something on eBay? Are these exempt, or do you have to submit taxes for them?

They are exempt.

Originally Posted by JerryLove

It disadvantages poor consumers and advantages corporations.

Assuming you understood the concept of the prebate, I don't see how this is the case.

[JerryLove]

Assuming you understood the concept of the prebate

Essentially product leasing, where a company offers a lower cost in exchange for a guarentted action later, such as lexmark selling ink cartreges at a reduced cost in exchange for an EULA that says that the consumer will return the cartridge to Lexmark after use.

I don't see how this is the case.

You don't see how removing corporate taxes and raising consumer taxes advantages corporations and disadvantages consumers?

That seems obvious enough that I'm not sure where to begin an explanation.

[Nate]

We could just stop spending so much.

[JerryLove]

This has nothing to do with conservatism or liberalism, it's simply an alternate way of collecting revenue. Representatives Bob Filner (D - CA) and Collin Peterson (D - MN) both support the Fair Tax Plan. The plan does not alter the amount of funding available to the federal budget at all, it just affects the way revenue is collected.

That's not accurate at all. It changes how taxes are assessed and who is burdened by them. It increases heavily the burden on those whose money heads primarily into public purchace (such as the poor who spend their money on food, gas and clothing) while drastically lowing the burden on those who are not end-consumers (companies), those who spend the bulk of their money on private purchases (that picasso from Brando), and those whose purchaces are siginifigant enough in price to simply leave the US to make it (25% off the cost of a Lamborghini certainly pays for the trip to Italy).

For starters, there would be a massive rush to invest in American markets because there would be no taxes on capital gains, and payroll taxes would be done away with. The American tax system is a major reason why outsourcing is such a problem. It is cheaper for major corporations to move to places with more favorable tax systems in other countries.

I'm not sure where you imagine this. The corporate tax problem is generally solved by offshoring the handling of money to the Bahamans.

Offshoring of actual labor is because labor is cheaper, and the importing of foreign goods is because the goods cost less. Moving more of the tax burden to the American worker is not going to make him cheaper. Quite the opposite.

Hate to break it to you, but America is not the most economically free economy in the world.

That would be Somalia. How are they doing?

A study produced by Harvard concluded that there already exists a 20% imbedded tax on retail goods, which would be removed when all the other taxes are gotten rid of. So by putting in place the 23% retail tax, you'd really only be increasing the tax by 3%. Now, keep in mind that though this is a 3% increase, Americans will now be taking home 100% of their paychecks.

100% of their paychecks will have 75% of the buying power if spent in the US.

Corporations operating in the US would benifit. They would be able to move money around without penalty. You will remove the tax burden paid to a CEO operating out of the Bahamas. You will, however, reduce the effective capital of the lowest incomes by 23%.

(A) There will be far greater incentive to invest in the US.

What incentive?

(B) All these shady off-shore accounts in Switzerland and Bermuda would suddenly surface and move to the US, because no one who invested in the US would be taxed.

They would become shady on-shore accounts which generate no produce, no jobs, and no taxes. How is that better?

(C) The consumer would never have money withheld from him by the government, and then be fooled into thinking he's actually being given money on his tax return. April 15 would just be another day. The billions of dollars and manhours spent trying to do taxes correctly and the money lost by those who fall through the cracks of the IRS would disappear.

He'd have 23% witheld with every purchase. All consumer prices would immediately increase 23%.

[Nate]

Really, as much as I do like the idea of a sales rather than income tax in general, Jerry is spot-on with his assessment of this particular incarnation of that idea. Read this list:

As of Dec. 31, 2006, it repeals all income taxes and payroll taxes, specifically:

• The individual income tax (including capital gains taxes and the alternative minimum tax)
• The corporate income tax
• All individual and employer payroll taxes including Social Security, Medicare and federal unemployment taxes
• The self-employment tax (a self employed person pays both the individual and the employer portions of Social Security and Medicare taxes)
• The estate and gift tax

Effective January 1, 2007 it replaces the above taxes with a national retail sales tax on all goods and services sold at retail

Who pays capital gains taxes? The wealthy.

Who pays corporate income taxes? Corporations.

Who doesn't want to pay SS/MC/UE? The wealthy.

Who pays the SE tax? The wealthy (...and me ).

Who pays estate/gift taxes? Mostly the wealthy.

Who pays retail sales taxes? Primarily the poor.

Your amount of retail consumption does not rise terribly as your income rises (for some "luxury" goods, it certainly does... but not for typical retail goods like food, clothing, gas, appliances, etc). Your amount of consumption of things like financial investments, stock ownership, estate planning, etc rises considerably, however. Very few middle-class workers have financial portfolios or corporate interests. Very few wealthy people do not have them.

[JerryLove]

Who pays estate/gift taxes? Mostly the wealthy.

That one I actually would like to see nixed. What it does to familiy businesses is appaling.

[Benny Hicks]

Originally Posted by JerryLove

It increases heavily the burden on those whose money heads primarily into public purchace...

Every individual in society spends their private money on public purchase.

Originally Posted by JerryLove

...while drastically lowing the burden on those who are not end-consumers (companies)...

A point made in the book is that companies really never pay taxes, they simply pass those taxes on to either the consumer in the form of higher prices or to the stockholders in the form of decreased profits. In either instance, both of these groups of people will be equally affected by the new tax structure.

Originally Posted by JerryLove

...those who spend the bulk of their money on private purchases (that picasso from Brando)...

An interesting point, though I don't know enough to respond. Is this not the way that private auctions already function today?

Originally Posted by JerryLove

...and those whose purchaces are siginifigant enough in price to simply leave the US to make it (25% off the cost of a Lamborghini certainly pays for the trip to Italy).

I know that this already takes place.

Originally Posted by JerryLove

The corporate tax problem is generally solved by offshoring the handling of money to the Bahamans.

Offshoring of actual labor is because labor is cheaper, and the importing of foreign goods is because the goods cost less. Moving more of the tax burden to the American worker is not going to make him cheaper. Quite the opposite.

I disagree. If there were no payroll taxes and no corporate income tax or capital gains tax, companies would find it much more profitable to exist in the US, for purposes both of transportation, the huge market, and the stable economy.

Originally Posted by JerryLove

That would be Somalia. How are they doing?

Far better than if they had a more restrictive economy. Tell me you aren't trying to say Somalia would rival the US if it had a different economic system.

Originally Posted by JerryLove

100% of their paychecks will have 75% of the buying power if spent in the US.

You're forgetting the 20% imbedded tax already present in current retail prices. So, technically, 100% of their paychecks will have 97% of the buying power.

Originally Posted by JerryLove

They would become shady on-shore accounts which generate no produce, no jobs, and no taxes. How is that better?

Investing in the US would be good for the US economy. Do you disagree?

Originally Posted by JerryLove

He'd have 23% witheld with every purchase. All consumer prices would immediately increase 23%.

Again, you're forgetting about the embedded tax.

[JerryLove]

Originally Posted by Xkcer Man

What happens to transactions between private citizens, such as selling a car or buying something on eBay?

Originally Posted by Benny Hicks

They are exempt.

Originally Posted by JerryLove

It increases heavily the burden on those whose money heads primarily into public purchace

Originally Posted by Benny Hicks

Every individual in society spends their private money on public purchase.

I assume you mean "primarily on public purchase" which, in addition to being a contradiction of what you've already said, would be wrong.

The bulk of *my* money went and goes to a house. Which I baught from an individual, not a company... therefore exempt from sales tax. (BTW, that alternative is a 23% "transaction fee" on all house exchanges, which funcatilly makes home ownership impossible).

The person living at or below the poverty line is generally spending the bulk of their income on food, clothing, elecetricity, etc... generally public sales. They are not spening their money buying paintings, collectable coins, houses and other private-sale items.

As such, a far greater percentage of low-income expenditures will be taxed than high-income expenditures. Not only does it fail to increase the comparative tax load on the most wealthy, it actually *lowers* the percent they pay.

A point made in the book is that companies really never pay taxes, they simply pass those taxes on to either the consumer in the form of higher prices or to the stockholders in the form of decreased profits. In either instance, both of these groups of people will be equally affected by the new tax structure.

Please explain to me how a US sales tax will affect the consumer in Germany buying a Ford.

I can certainly explain to you how a corporate income tax on the Ford motor corporation effects that buyer.

An interesting point, though I don't know enough to respond. Is this not the way that private auctions already function today?

Yes, private purchases are free of sales tax. That's far less of a problem in a country whose income is not based on a sales tax.

I know that this already takes place.

Not that often anymore... and rarely if ever for the reason that it saves money.

I disagree. If there were no payroll taxes and no corporate income tax or capital gains tax, companies would find it much more profitable to exist in the US, for purposes both of transportation, the huge market, and the stable economy.

Define "exist". Put their accounting office? Yes. But that doesn't help the economy. Put their manufacturing? No, that's based on worker costs.

Far better than if they had a more restrictive economy.

ROTFLOL I think I just squirted coke out my nose. I'm guessing you are *very* unfamiliar with somalia.

You're forgetting the 20% imbedded tax already present in current retail prices. So, technically, 100% of their paychecks will have 97% of the buying power.

No. I'm really not.

You would have to establish that a 20% decrease would occur accross-the-board to even begin to discuss making up the difference. I guarentee you that would not happen when this went into effect.

But that's just mentioning the difficulties involved in such a complete change in where tax occurs. The far bigger issue is the move of burden. Every industry with no produce would cease to generate tax revenue (banks for example). Do you really thing they would get rid of their fees? Nope. But our taxes would go up to make up for the money not being made in taxing them.

Let's imagine that everyone actually did spend all their money on public purchase (which we know is not true). The guy making $12k per year would loose 23% to taxes (right now he looses none), and the guy making $500m per year would loose 23% to taxes (right now he looses more like 30%). You are raising taxes on the poor to lower them on the rich.

Investing in the US would be good for the US economy. Do you disagree?

Taking medication is good for your health. Do you disagree?

It depends on what is invested and in what.

Again, you're forgetting about the embedded tax.

I am not. You simply keep assuming that there's no shipf in burden.

Heck, if you were right about the "embedded tax" then you've defeated your own argument. Your proposed change does nothing but change the paperwork.