Sunday, November 12, 2006

The Fair Tax Act

One of the issues confronting the new congress is how to fix the US tax code. The current IRS tax code is overly long, cumbersome, and hard for anyone to understand. It doesn’t do a good job of collecting tax fairly. President Bush commissioned a tax advisory panel shortly after arriving in office. The panel made its recommendation without seriously considering any alternatives other than reworking the current cumbersome tax code. I have been a supporter of the Fair Tax Act for some time.

What is the Fair Tax? The Fair Tax Act (HR 25 and S 25) is a new law that replaces the IRS and our current tax code with a national 23 % sales tax on new goods. No more filing taxes in April. No more federal withholding. If you make $40,000 a year, your pay check will be for $40,000 a year minus any state or local taxes you pay. Those may go away as most states pattern their state taxes after the federal code. Everyone pays their taxes at the cash register when they buy something. No more loopholes to be exploited and even drug dealers and terrorist will have to pay taxes if they buy anything new.

When I first started studying the Fair Tax, I was worried about the national 23% sales tax. I would get to keep my entire pay check, but it didn’t sound like a good deal if everything I was going to buy would suddenly cost 23% more. The more I looked into the Fair Tax, the more I found that this didn’t equate with real world economic examples. Since federal the federal tax system will go away, many of the taxes businesses pay will disappear. The cost of producing any item will go down. Most economic studies project the price of goods to fall by around 21% to 22%. This means that if you pay $100 for an item now, after the Fair Tax is implemented, that same item will cost around $102. In addition, you now have more money in your bank account because you are getting all of your pay check, and not paying the federal withholding taxes.

Some people complain that this is unfair to the poor, and will cause a higher tax burden on those in the poverty level. The authors of the Fair Tax have an answer for this as well. At the beginning of each month, the head of household will receive a “prebate” check for the amount of taxes that family is expected to pay in the month for the essentials in order to survive. This check will vary with the number of people claimed as dependents by the head of household. The great thing about this is the check is the tax payer’s money to spend as they wish. If they wish to spend it on whatever, they can. If they wish to invest the money, or save it for a rainy day, they can. The federal government issues it to keep those in the poverty level from paying taxes on the things they must have. If that family wants to cut back for a month or two and save the money, it is their money to do with as they please.

The Fair Tax really is a win-win. The reason the federal sales tax would be set around 23% is to keep the money that currently comes into the federal government the same as the money the government would collect after the Fair Tax started. The US government would collect the same amount of money, and the tax payers get to keep their pay check. I haven’t been able to find a down side. I encourage anyone to look into the Fair Tax and prove me wrong. I have a link on this site to the Fair Tax website. I have read the book by Linder and Boortz outlining the Fair Tax. If you disagree, tell me, because I think this is the best system for America.


Domesticated Dog said...

Hmmmm.... I have to read up on this to find out how the credit card and lending institution models fit into this entire mix.

This Fair Tax sounds like a boon to them. If my memory serves me right (and it may not) you are not taxed for your credit you use, because it is not income. But, with a flat sales tax it sounds like you could get taxed on money you have not earned, if purchases are made using credit.

I do like the Fair Tax Act, based on what I have heard, but I really need to read it to understand what it is that I like about it. Of course,it does say "Fair", so it must be. :)

Andy D said...

The Fair Tax Act is not an income tax. It is a comsumption tax. Under this system, you are only taxed when you make a purchase. As far as the credit and lending institutions, I don't know that they get any boon from this at all. If you purchase something using credit under the Fair Tax, it would only be an additional 1% - 2%. And if you pay for it using a debit card, check, or cash, it has zero impact on the credit and lending institutions. I really encourage everyone to look into this. I was initially against it until I checked it out and then became a convert.

Domesticated Dog said...

The sponsor John Linder give a pretty rosy picture of the whole scenario.

This tax definitely looks like it favors the savers over the spenders - but boy would it free up a lot of cash. Does about nothing for the poor because they spend all they got all the time and save little or nothing. This seems like it would worka s a tax hike for the lower income american - of course it would be incentive to be more financailly adroit as well. There does seem to be a recognition of this flaw in flat tax plans - as the sponsor identifies the benefit up to the poverty level.

On the surface it looks good and it would allow th indidual to have a little more control over his cash flow and make corporations far, far richer and able to employ more - but they will still outsource. :)

johnwk said...

The alleged fair tax, H.R.25, is rejected at a conservative site in a NEW POLL by more than a two to one margin in favor of our Constitution's original tax plan!

Seems the supporters of H.R. 25 are unable to defend their socialist friendly proposal against the wisdom of our Founder’s original tax plan.

The only tax reform we need is to have the following words added to our Constitution:

The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay ``any`` tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money

Here is an HONEST COMPARISON between H.R. 25 and our Constitution's original tax plan.



Andy D said...

I have never before heard of your tax plan. I have looked at your blog and started researching some of the information you put up. As of right now, I have a couple of concerns.

First, your poll is slightly misleading. A poll of 46 people isn't a very good sampling of any group of individuals. Also, I am a bit concerned that you can't debate the merits of the Fair Tax plan without insulting it. However, I have my copy of the Constitution out, and I have been looking at your website. I hope to make a full post in the next couple of days with my thoughts on the "original tax plan" vs the Fair Tax.

Mark said...

Fairtax would only last 2-3 months, if it passed (and it can not pass, for the same reasons it would be rescinded, but lets pretend it passes).

Fairtax is a great theory -- if you dont pay too close attention. If you accept its premises. If you believe it would work as it says -- sure -- it would be fantastic.

But thats like saying if those little pills could make you get 100 miles on a gallon of water were real -- it would be fantastic.

Of course Fairtax would be fantastic if it worked. Who in their right mind would be against it?

But the fairtax is is based on monumental asurdities -- in fact, they are SO large, I think the sheer size of the asurdity has made people miss them.

First -- the fair tax has the remarkable farce of taxing the government - to PAY for the government. The Fairtax crowd wants to believe that the government could PAY about 500 billion in taxes -- TO ITSELF.

Heck, why don't I just pay myself 500 billion?

And if the government can pay itself 500 billion -- why not a trillion? Why not 2 trillion -- and NO one has to pay taxes?

You think fairtax doesn't try to tax government?

Oh, yes it does. In fact, fairtax PRETENDs that the government is a "MAJOR" taxpayer.

Get your little fairtax book out, turn to page 148. Toward the bottom of the page, lets read together. "The federal government ITSELF would become A MAJOR TAXPAYER"

Right THEN the bells and whistles should have gone off.BS ALERT BS ALERT BS ALERT.

Im convinced if Boortz put this sentence in the first page, he would have been laughed out of town. He snuck it way in the back, were he assumed, correctly, most fans would be mind numbed by now.

Anyway, that 500 billion FROM the government TO the government is not the ONLY fallacy, its just the lynch pin, the central fallacy.

WIthout pretending the government can PAY the governmetn, Fairtax has a real problem. It can't collect 2.3 trillion. It would have to raise the tax rate to 35, maybe 40%.

But Boortz and others know thats just too high. Its silly high -- and it is silly high. So they say 23%, and HOPE you believe the government can pay itself.

Fairtax has to pretend to get several huge "revenue streams" -- which it can not get.

Fairtax pretends it can get a revenue stream from the government -- 500 billion we already explained that farce.

Fairtax pretends it can get a revenue stream from health care patients -- 460 billion.

This is a farce too. For one thing, the federal government pays about 500 billion of these health care cost anyway, in medicare. So it would have to tax itself another 300 billion-- or let the tax go. Either way, it won't collect the tax, cause it can't tax itself anyway.

And you just can't get blood out of a turnip. YOu can't tax an 80 year old woman with cancer and a broken hip, 60,000 dollars. She probably makes 800 a month. She can't pay 60,000 dollars.

And you can't tax the parents of a child with leukemia either. You can send them a bill - you just won't get 80,000 in tax most of the time.

In fact, there would be a huge outcry - and rightly so - about this idiot tax on health care cost. And Congress would exempt health care.

SO the tax rate would have to go up to about 50-60 % to make up for the first to major flaws.

So who would get the 60% sales taxes? New homes?

You think new home buyers will pay 300 billion in taxes, by paying 60% of the cost of a new home? Heck no -- they just will avoid new homes. You would be lucky to collect 100 300 dollars, much less 300 billion, from this crowd. You would decimate new home sales.

SO that means new CARS would have to shoulder a 75% tax. You think a lot of people will pay 43,000 dollars for a 27,000 car? Pay 43,000 for a car thats worth 22K the moment they drive it off the lot? I got a bridge to sell ya.

If you don't get this by now, then you don't get it.

If you are for the fairtax, I got a suggestion for you. Start to back away from it. If it passes, it will be a laughingstock for 100 years. It won't last a month, and anyone that supported it will be emarrassed/

Mark said...

The fair tax is a consumption tax, and that makes it insane. NO country on earth taxes cancer surger -- fairtax would.

No country on earth taxes their government to pay itself a huge sales tax. Gee,I wonder why.

IF you can tax the government -- why bother taxing anyone else?

And no country taxes the parents of leukemia patients on their efforts to keep their child alive.

I hope you guys pass this.

Ever wonder why this doesn't even come to a vote in the house?

Because Fairtax leaders know its a pile of crap, the LAST thing they want to do is pass it. They would be exposed.

Mark said...

No one can debate the merits of the Fairtax - cause they are a farce. If you know that the fairtax pretends to get 500 billion for the government by TAXING the government, its really hard to take it seriously.

I hope you folks pass it. I can guarantee you -- it wont. Its leaders arent that stupid to actually push for it. They want to keep fooling gullible people

YOu are being conned, bro. Sure, some people really believe this nonsense. But its nonsense. Some people believed the mooon was made out of green cheese, but it wasnt.