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Old 04-14-2004, 03:03 PM   #26
crimsonedge
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This actually makes sense to me. I question some of their numbers because I doubt businesses will immediately give up their current price levels just because it is costing them less in payroll taxes to produce their items. But its something to look at.

Thumbnail Sketch of the FairTax


The FairTax is a consumption tax designed to replace the entire federal income tax system, including personal, payroll, corporate, self-employment, capital gains, gift, and inheritance taxes. The FairTax will allow Americans to keep 100% of their paychecks, it will dramatically reduce pre-tax prices, and it will fully fund the Federal government, including Social Security and Medicare.

With the FairTax, you will get to take home 100% of your paycheck. No income taxes or payroll taxes will be withheld from your paycheck, pension, or Social Security check.

Did you know that hidden income taxes currently make up 20% to 30% of all retail prices? It's true. According to Dr. Dale Jorgenson of Harvard, hidden income taxes are passed on to the consumer in the form of higher prices, from 20% to 30% higher than they would otherwise be for everything you buy.

Therefore, when the FairTax Act of 2001 abolishes the federal income tax system, prices will drop 20% to 30%. The proposed FairTax rate is 23%. So, instead of paying 15.3% of your paycheck in payroll taxes, plus an average of 28% of your paycheck in federal income tax, for a total of about 43% of your paycheck going to the federal government in Washington, you pay only a 23% consumption tax each time you purchase a new good or service for your own personal consumption above the federal poverty level.

At this 23% rate, the FairTax will pay for all current government operations, including Social Security and Medicare. With a consumption tax like the FairTax, government revenues will be even more stable than they are now because consumption tends to be more constant than income.

With the FairTax, if you choose to buy any new good or service for yourself, a consumption tax of 23%, will be added into the price. If you choose to buy used goods -- used car, used home, used clothing -- you do not pay the FairTax. If, as a business owner, you buy something for strictly business purposes (not for personal consumption), you pay no consumption tax. So, in deciding what to buy, you get to choose whether or not you will pay the federal consumption tax.

Perhaps most importantly, to ensure that no American will pay tax on necessities, the FairTax plan provides a prepaid, monthly rebate for every registered household to cover the 23% consumption tax spent on necessities up to the federal poverty level. This is how the FairTax completely untaxes the poor, and lowers the tax burden on everyone else. Can you see how much freer life will be with the FairTax instead of the income tax?

http://www.fairtaxvolunteer.org/main.html
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Old 04-14-2004, 03:54 PM   #27
Valleycrest
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Crimson, can you imagine the possible effects this would have on the economy? I speculate that implementation of this tax system would greatly reduce the GDP and consequently unemployment would rise by a substantial amount.
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Old 04-14-2004, 06:21 PM   #28
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How so, Valleycrest? Lately I've been thinking about this, and wondering how things would go if we lowered federal income tax by a small percentage, no more than 1-2%, and implemented an equal amount federal sales/luxury tax. Things would have the effect of putting money back into the pockets of everyone, and would at the same time tax everyone fairly for purchasing within their means. No-one *needs* an $80k H2, so charging an extra 1.5% federal sales tax on that H2 would put money back into the goverment pocket. Obviously, we'd have to set definitions as to what is needed and what is a luxury.

Serious speculations only. I'm looking for honest input.
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Old 04-14-2004, 07:40 PM   #29
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Lower income people do NOT pay more taxes because they have "less disposable income". They pay the same percentage, and they have the same percentage of thier income left afterwards as the rich person does, but since they make less it it rightfully smaller.

It's like if I had two pies, one of which was 9" across and the other was only 3" across, cut them both into exactly 8 pieces, and then took out one piece from each pie. Each pie would STILL have 7 pieces, but the bigger pie would have bigger pieces. Logical.
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Old 04-15-2004, 10:59 AM   #30
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Veo,

This is the way I'm thinking things will happen. A tax like this will not be be viewed as a tax by most people but rather as a penalty for purchasing goods. The automobile industry is a huge industry, especially where I live in California. I remember the severe effects that a Statewide increase in car tax had on the overall economy of our state. It discouraged people from buying cars, which is a very bad thing. Now imagine an increased sales tax which this ultimately boils down to. Do you think that will encourage or discourage people to buy more retail goods? My guess is that even though they have more disposable income, they will be reluctant to purchase goods because of the high taxes they now will have to pay. Many will opt to save it until the government realizes what a huge mistake it was and reinstates the current tax system (At least, that's what I would do).

So, consumption on a national level will decrease. Consumer purchases make up a large portion of the GDP (Gross Domestic Product). If this figure declined severly, the result would be a very high unemployment rate.

Now I could be wrong, since economics is not really an exact science, but this is the way I interpret the Fair Tax proposal.

Last edited by Valleycrest; 04-15-2004 at 11:12 AM.
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Old 04-15-2004, 01:53 PM   #31
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On the flip side of that thinking is that people would look at their paycheck, see that they had more money to spend, and be more likely to spend it. I know that I've looked at mine and dreamed of what I'd do with that extra money if I didn't have 30% of it taken away in taxes.Canada has a federal income tax, and they seem to be doing okay for themselves, relatively speaking.
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Old 04-15-2004, 02:34 PM   #32
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I'm all for a flat consumption tax if the government can keep it flat.

It'll be far too tempting for them to fiddle with the rate or make adjustments to certain "luxury" items for example; say the flat sales tax rate is 20% but if you buy a pack of smokes or a bottle of liquor, the tax becomes 25%. Before long you have special tax rates on clothing, real estate, fuel, etc. and the flat tax isn't so flat anymore.
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Old 04-15-2004, 05:10 PM   #33
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Kulani- Ther reason a flat tax is said to cost lower incomes more because of "disposable income" is this:

Disposable income is what is left over after needs are taken care of, so lower income people have less, if any disposable income. Taxes are figured based on the amount people make, not what they have left over after needs are met. ( in the case of a flat tax, we can ignore standard deductions and personal exemptions, and other conventions of a graduated system)

Now, let's say it cost $20,000 a year to survive, counting food, clothing,shelter, etc. One person makes $30,000 and another person makes $100,000. Now a flat tax of let's say %20 is in place:

Lower income

Income : $30,000
Living :<$20,000> (expense)
DI :$10,000 (Left to save/pay taxes)
Taxes <$6,000>
Leftover $4,000 <---- This is all that's left to save, or possibly spend on school, or any other investment. (Including educational savings, savings to buy a nicer house, money in savings account, anything)

Higher income:

Income $100,000
Living <$20,000>
DI $80,000
Taxes <$20,000>
Leftover $60,000

Now, what this means is that, all things equal, a person making 3/10 of someone else's salary ends up with only 1/10 of the higher salaries' disposable income. (Another way to see this is that at $30,000, you have a %13.3 rate of Disposable Income, while at $100,000 you have a %60 rate of Disposable Income.) That is not exactly proportional. Additionally, the higher income has such a greater percentage of earnings free, that investment opportunity will only quickly widen the gap between the two individuals. This is why flat taxes hurt lower incomes, and help higher incomes. The higher incomes keep an IMproportional amount of thier money, and at the same time are given IMproportional opportunity to increase their wealth, only widening the gap.
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Old 04-15-2004, 05:48 PM   #34
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Apparently, Flub and Chuk still can't wrap their brains around my point.

Nowhere do I state that only rich people drive cars. And yes, in some rural areas it is a necessity to own a car. However, anyone who does not own a car in those areas must not be able to afford one, and therefore is not using roads.

Public transit puts less wear on the road per capita than driving your own car. The road usage is split among multiple riders, whereas many people who drive to work do so without any passengers. Surely 40 people in 20 cars put more wear on a road than 40 people in 2 buses? And generally, people riding public transit are earning less money.

Again, public education figures into it because people who do not complete it are less likely to be earning more money. Yes, private education is an alternative, but arguably this is because the system itself is underfunded. The last thing you then need is to further underfund it.

This is the fourth time I've repeated myself, and I suspect there is going to be a fourth time you misunderstand me. I'm not repeating myself because I like to type, I'm doing it because you aren't paying attention.

t's like if I had two pies, one of which was 9" across and the other was only 3" across, cut them both into exactly 8 pieces, and then took out one piece from each pie. Each pie would STILL have 7 pieces, but the bigger pie would have bigger pieces. Logical.
Ah, but what if a single slice from the 9" pie will feed the same amount of people that the entire remnant of the 3" pie will? Would it be fair to take any more from the smaller pie, while the larger pie has all that extra?
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Old 04-15-2004, 06:51 PM   #35
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I'm not saying it's fair to take more from the poor than from the rich.

I'm saying it's not fair to take more from the rich than from the poor.
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Old 04-15-2004, 07:00 PM   #36
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Assuming you can collect the same % of taxes from everyone and cover costs, that works.

But it doesn't. You can't raise taxes for the poor without cutting into their living expenses, while you can raise taxes for the rich without affecting their living expenses.

It's not perfect, but neither is the world.
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Old 04-15-2004, 07:05 PM   #37
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So Ares, if your brother is a doctor, spent many years going through college, med school, the residency, the exams and he makes $200,000 and you only make $13,000 flipping burgers, you say it is fair to take his hard earned money to cover your living expenses?
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Old 04-15-2004, 10:16 PM   #38
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No. How you got that from my posts is beyond me. My mention of "living expenses" was in passing, as a yardstick to measure disposable income by. I think it's proof that you merely skim my posts rather than read them.

The government has to collect a certain amount of money, or a certain amount of pie, whatever, in order to run. If you set your collection limit as a flat rate dependent on the highest % you can collect from the lowest-income taxpayers, it's equivalent to government suicide. If the most a person at the poverty level can afford to pay is, say, 20%, and 20% of the entire income of the country does not reach the quota the government must meet, what do you do? Do you raise taxes across the board? This is highly unfair to people at the lowest income levels, because now you're cutting into their living expenses. But, if you raise taxes gradually as income increases, you can collect your money without harming anyone. The more income you earn, the greater proportion of it is disposable. Everclear demonstrated this.

Therefore, while it may be unfair to tax any single person more than another person, it would be more unfair to tax people more than they can afford to be taxed. I haven't heard any argument against this that doesn't resort to elitism from people earning a lot of money, but I'll assume there is one out there, so feel free to debate me on this point. I just prefer not to screw anyone over in the interest of preserving some arbitrary sense of "fairness".

In a perfect world a flat tax would be possible; it isn't in our world, so we have to deal with it. I still think the current bracket system is horribly flawed, compared to an exponential tax rate.
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Old 04-16-2004, 04:21 AM   #39
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I'm happy. We're getting a refund. Being able to claim interest you pay on your house, closing cost you paid to refinance and tax credits for kids in college we did ok.

The only real complaint I have is you have to take less during the year in order to come out ahead at the end of the year. If we claimed Married 3 all year like we file at the end of the year, we would probably owe out the wazoo. Instead we claim Married 0 during the year and file correctly at the end with Married 3.
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Old 04-16-2004, 05:01 AM   #40
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Originally Posted by Valleycrest
So, consumption on a national level will decrease. Consumer purchases make up a large portion of the GDP (Gross Domestic Product). If this figure declined severly, the result would be a very high unemployment rate.

Now I could be wrong, since economics is not really an exact science, but this is the way I interpret the Fair Tax proposal.
Australia instigated a GST (Goods and Services Tax) which is basically a flat rate 10% tax on all consumption be it service or physical goods. On the flip side personal income tax rates were quite significantly reduced at all tiers of income. The only exemptions are some basic services such as medical, some foodstuffs and financial services. The government of the day wanted to make the flat rate much higher and smash income tax into the ground but the volatile political climate at the time prevented it.

Whilst you might think that it may reduce consumption it does not in practice. Without going into all the theory our economy powered along and apart from a single blip in the first year hasn't even noticed it. People don't stop buying bread because of a 10% consumption tax.

Our single problem we are dealing with in regards to the system is the red tape and paperwork that follows it. Our system however is somewhat overcomplex just for the sake of keeping the Australian Tax Office employees busy, it doesn't really have to be as complex as it currently stands.

The secret to a good GST is a broad non-distortionary application combined with low administration overhead and a high rate to offset massive income tax cuts.

PS: We use a tiered system in Australia and I pay 48.5% of every dollar I earn over $60k to the government, 24.25% of any capital gain I make on any investment will go to the government. I still manage to struggle out of bed every morning and head to work to better myself so quit complaining about your paltry 2x%'s

Inherently most Australians don't begrudge the tax rate however we do tend to have very strong views on how the government spends it. My taxes go towards building all the infrastructure and improving the social harmony that supports our entire western way of life. Yes we begrudge unemployment benefit thieves but we also enjoy knowing we have free health care and hospitals and universities etc for our entire lives.

Is our economy as dynamic and powerful as the US? No ... but we do pretty darn well considering our population size. People who want to work are going to work regardless of the minutae of the tax rate unless you start approaching abnormal social distortions such as the 20th century collectivist/communist economies. Some heavily socialist societies drift dangerously close to that mark but there is a sensible mix somewhere between the US's extreme capitalism and Sweden's ultra-socialism.

My problem with the US approach is the "all or nothing attitude". There is an underlying assumption that unless every last man woman and child is left to stand or fall on their own that somehow your nation will be "weakened" in some twisted economic-Darwinism scenario.

I tend to be considered pretty right-wing by my friends and even I can appreciate that there's space to live somewhere left of far right, be it social policy or taxation.
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Old 04-16-2004, 05:49 AM   #41
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it would be more unfair to tax people more than they can afford to be taxed
I was taxed less this year then in 1999..(thanks Bush tax plan)..BUT..still way too much. I had to refinance my home just to pay my taxes this year. This is obviously more than I can afford.

How is this at all fair?
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Old 04-16-2004, 08:20 AM   #42
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Originally Posted by Veo
On the flip side of that thinking is that people would look at their paycheck, see that they had more money to spend, and be more likely to spend it. I know that I've looked at mine and dreamed of what I'd do with that extra money if I didn't have 30% of it taken away in taxes.Canada has a federal income tax, and they seem to be doing okay for themselves, relatively speaking.
Well yeah it's possible, but I don't think that will happen. Canada and Australia already have it in place, they faced their economic troubles already. I agree that eventually the ripples in the economy would be ironed out. But in the interim, we would suffer; there's no getting around this.

Originally Posted by Zaniel
Australia instigated a GST (Goods and Services Tax) which is basically a flat rate 10% tax on all consumption be it service or physical goods.
First off, 10% is a lot different than 23%. That being said, the way you describe your economy, it sounds significantly different than the US economy. We don't pay 48.5% to the government. We don't have health care or college education free. And you even indicated an abnormailty in your economy when you instituted this tax. Your economic structure can support this type of taxation. I don't think ours can, simple as that. Many Americans don't want free health care or free education if it means that taxes would be raised to the levels of some socialist economies.
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Old 04-16-2004, 08:24 AM   #43
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We don't pay 48.5%
If we did I would get to declare bankruptcy once a year...
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Old 04-16-2004, 09:13 PM   #44
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If you need to refinance your house to pay your taxes, something is wrong. I don't know if it's how you file, or if you're spending more of your income than you know you're going to keep; that's just sheer idiocy if you spend 90% of your income knowing you're going to keep less than 80%.

And don't give me any BS about needing to spend that much of your income. If a person earning $20k a year can survive in this country, so can you.
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