A robust economy in America is virtually impossible under the current tax code. If the congress really want to stimulate the economy and create jobs,they need to adopt the Fair Tax. by 1deciple
(libertarian)
Wednesday, March 3, 2010
Much is being said in Washington about the economy and unemployment, yet the most obvious solution to both issues somehow manages to escape even a glance by many legislatiors. The worst enemy of our economy, and by extension, of joblessness, is our badly outdated tax code. It can't be fixed, it needs to be replaced with an entirely new approach to funding government.
The Fair Tax plan, H.R. 25 introduced by Congressman John Linder, is a federal tax plan thatwould eliminate all federal income, payroll, personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. All of these taxes would be replaced with a simple progressive national retail sales tax. The plan includes tax rebates to ensure that no American pays federal taxes while living at or below the poverty level.
By taxing only what we choose to spend and not what we earn, the Fair Tax creates a system that is totally transparent and simple to comply with. Additionally, it restores to the economy those who have managed to avoid paying their share like the rest of us for so long, either through cleverly designed loopholes or by outright cheating the system to keep from paying taxes.
The instant effects on the economy simply stagger the imagination. Imagine adding as income, at every level, all the taxes now being confiscated from wage earners, business owners, and corporations, those inheriting estates, winning lotteries, receiving gifts and all other forms of income. More "discretionary" income to use for whatever they might choose, with no claims on it from the Government would create more investing, and more saving. Increased plant expansions and new construction would require more hiring. More home building would see a boom in home buying, generating a need for new furniture, new carpet and other home furnishings. New car sales would once again begin to take off and it's easy to see the economy would explode, as prosperity returned to America! So, why doesn't it happen?
Opponents of this plan claim it is regressive, hitting the poorest Americans the hardest. However, this problem is avoided by providing a prepaid monthly rebate for every household to pay for the taxes on all necessities up to the poverty level. This important feature ensures that low income Americans are not taxed and keeps the system progressive. So, this argument is not valid. Or, they will argue that the Fair Tax would require setting up a huge new federal bureaucracy for collection. Not so. It would be collected by the states, which are already set up to collect sales taxes. They would simply retain a portion for their trouble of passing it on to the U.S Treasury.
Opponents also object that under the Fair Tax the prices for goods and services would rise the full amount of the national retail sales tax, but competition would prevent that. Under our current tax scheme, hidden taxes make up to twenty percent of the cost of all retail prices. Income and corporate taxes are passed on to the consumer in everything we buy. By repealing the hidden taxes that are built into the retail price of an item and replacing them with a transparent national sales tax, merchants will have a greater margin to work with in setting prices. Competition would then drive prices down, offsetting considerably the increase caused by a national retail sales tax. You can learn more at http://www.fairtax.org
Except for Representative John Linder of Georgia who introduced H.R. 25 and the sixty patriotic Co-sponsors who've actively supported it, there is actually only one reason Congress refuses to consider The Fair Tax. They can't stand the thought of giving up the free money and perks' they get from lobbyists who would suddenly become unnecessary on Capitol Hill if it were to pass. They love them, more than they love a healthy, thriving economy. And that's the truth.
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Posted By: Hank Van Gieson
Date: 2010-03-04 09:02:20
Just what money and perks from lobbyists are you referring to? Times have changed, and it is against the law for lobbyists to give gifts or money to elected officials. Just ask Charlie Rangel about it!
You need to do a little independent Fairtax research, rather than just playing back the disingenuous propaganda put out by AFFT. For instance, did you know that federal taxation of State and Local government consumption is unconstitutional?
Do you think that double taxing everyone's after tax savings is fair?
Do you believe that forcing retirees, who have paid in to the SS Trust Funds for 45 years or so, to resume paying for their pension and health care benefits with their sales tax dollars is fair?
Do you understand that all that added income will be needed to offset much higher retail prices?
Do you really believe that Congress would ever approve a $600 billion annual cash grant entitlement you call the "prebate"?
Have you read Section 801 of HR25 which lays on a significant implicit tax on interest bearing investment and debt instruments?
Are you aware that all fifty governors are opposed to any kind of national sales tax?
Do you think it is a good idea to have 30 million workers disconnected from the cost of the federal government due to the prebate?
HR25 mandates that the Fairtax be implemented overnight, yet, are you aware that no other nation has ever funded their national government with a sales tax?
There is much else wrong with the Fairtax scheme. Calling it a fair tax doesn't make it so!
Just what money and perks from lobbyists are you referring to? Times have changed, and it is against the law for lobbyists to give gifts or money to elected officials. Just ask Charlie Rangel about it!
I agree with you on this. But what it will do is reduce the gov't's ability to pick winners and losers. The will allow the free market to truly be free.
You need to do a little independent Fairtax research, rather than just playing back the disingenuous propaganda put out by AFFT. For instance, did you know that federal taxation of State and Local government consumption is unconstitutional?
The inbedded taxes and compliance costs included in the cost of most everything the government buys right now are unconstitutional?Â
Do you think that double taxing everyone's after tax savings is fair?
Again, you are being double taxed right now with the imbedded and compliance costs that a an average of 22% to the price of practically everything.
Do you believe that forcing retirees, who have paid in to the SS Trust Funds for 45 years or so, to resume paying for their pension and health care benefits with their sales tax dollars is fair?
Again, the imbedded taxes and compliance costs are there now.
Do you understand that all that added income will be needed to offset much higher retail prices?
On average, if the retail price of a $100 product drops $22 because the imbedded taxes and compliance costs have been eliminated, then you add $23 in FairTax the product would be $1 more. This is excessive??? Plus you will have a bigger payday because no tax is withheld.Â
Do you really believe that Congress would ever approve a $600 billion annual cash grant entitlement you call the "prebate"?
The cash flow has been worked out with $22 million in research by real economists. You are not an economist are you?
Have you read Section 801 of HR25 which lays on a significant implicit tax on interest bearing investment and debt instruments? Â
If your total tax outlay at the end of each year is nearly the same as it is now, what is the problem? The FairTax is designed to be revenue neutral. You make it sound like everyones taxes will go sky high. And that is just not true.
Are you aware that all fifty governors are opposed to any kind of national sales tax?
We the people will change their minds!
Do you think it is a good idea to have 30 million workers disconnected from the cost of the federal government due to the prebate?
LIke there is not 30 million people disconnected right now?
HR25 mandates that the Fairtax be implemented overnight, yet, are you aware that no other nation has ever funded their national government with a sales tax?
This system was not just made up. Real economists spent a great deal of time working this out and strongly believe it not only can work but will work.
Posted By: Hank Van Gieson
Date: 2010-03-06 11:17:20
John,
Maybe we can clear up most of your Fairtax misconceptions with a simple discussion of embedded costs of the income tax system and their impact on retail prices.
First, there is no such thing as an embedded tax! There are embedded costs of taxes which impact only retail prices, not my individual tax burden. Not one dime in tax revenue goes to the Federal government upon the retail sale of goods and services. So. we can talk about prices, but it isn't correct to try to claim that embedded taxes somehow add to my tax burden.
The original embedded cost study was done by Harvard Professor Dale Jorgenson back in 1997 under contract to AFFT. Jorgenson concluded that there was an average tax cost of 22% of sales across 35 industry segments. His study assumed that businesses would be able to use employee income tax withholding amounts and employee payroll contributions to reduce business costs. In other words, he assumed that your current net after withholding would become your future gross pay. This isn't going to happen for legal, contractual, and fairness reasons which I'd be happy to discuss. Jorgenson also didn't include compliance costs in his study.
If we assume we are going to keep 100% of our gross pay, how much can businesses reduce their costs under the Fairtax? Using 2007 tax data and retail sales of $9.5 trillion, business income taxes were $291 billion or 3% of sales, business share of payroll contributions was $435 billion or 4.5% of sales, and compliance costs were $265 billion or 2.5% of sales. Average tax related costs for all businesses was 10%. Remove 10% from business costs and add the 30% sales tax and retail prices will rise by 17% on average. (1.00 x .9 x 1.30 = 1.17) Prices aren't going to remain about the same!
One other point that you raised. It is true that almost half of Americans pay no income tax, but all workers pay FICA. Under the Fairtax, due to the prebate, 30 million workers would pay no net federal tax annually, yet would qualify for full SS pensions and benefits. Compare that to the less than 1 million workers under current tax law that can use refundable credits such as the EITC to totally offset their 7.65% payroll contributions. Having 30 million workers disconnected from the cost of the federal government can't be a good thing. What kind of welfare state would that be?
Maybe I can clear up your misconceptions of embedded taxes with a simple example.
Hank Said
First, there is no such thing as an embedded tax! There are embedded costs of taxes which impact only retail prices, not my individual tax burden. Not one dime in tax revenue goes to the Federal government upon the retail sale of goods and services. So. we can talk about prices, but it isn't correct to try to claim that embedded taxes somehow add to my tax burden.
Yes and this cost of taxes have a real effect on the retail price you and I pay. You and I effectively pay the business taxes of all producers of goods. The business may write the check for taxes to the gov't but we pay them through higher costs for the goods we buy. As an example lets look at the federal and state taxes applied to cigarettes. I like to use this example because most people are aware of it. When the federal or state gov't announces a tax hike on cigarettes, the retail price immediately jumps exactly the amount of the tax increase. So how can you say there is no such thing as an embedded tax? Your burden may not be a tax burden but it is a real monetary burden from tax and the compliance costs, which by your data stated, the cost of compliance is nearly as large as the income tax. But do not forget all of the other taxes paid ( by businesses) above and beyond income taxes are also born by the end consumer. They may not be technically embedded taxes but effectively they are.
The original embedded cost study was done by Harvard Professor Dale Jorgenson back in 1997 under contract to AFFT. Jorgenson concluded that there was an average tax cost of 22% of sales across 35 industry segments. His study assumed that businesses would be able to use employee income tax withholding amounts and employee payroll contributions to reduce business costs. In other words, he assumed that your current net after withholding would become your future gross pay. This isn't going to happen for legal, contractual, and fairness reasons which I'd be happy to discuss. Jorgenson also didn't include compliance costs in his study.
I've seen your argument on this topic and for the life of me don't understand how you can tell me that my employer is not going to pay me the wage I am making (per hour) after the FairTax than it was before. Do you really think the average American will for one second let their employers get away with that? There would be riots! You might be able to intellectually rationalize that your scenario might happen but in reality it will not.
If we assume we are going to keep 100% of our gross pay, how much can businesses reduce their costs under the Fairtax? Using 2007 tax data and retail sales of $9.5 trillion, business income taxes were $291 billion or 3% of sales, business share of payroll contributions was $435 billion or 4.5% of sales, and compliance costs were $265 billion or 2.5% of sales. Average tax related costs for all businesses was 10%. Remove 10% from business costs and add the 30% sales tax and retail prices will rise by 17% on average. (1.00 x .9 x 1.30 = 1.17) Prices aren't going to remain about the same!
For the sake of argument lets pretend you are correct and our retail costs increase 17% from the FairTax. I just completed my 2009 Federal taxes and including FICA and Medicare my total Federal tax burden is 19.65% of my income. I'll take your 17% rate and be happy! According to the Tax Foundation the top 50% households have an average Federal tax burden of 14.03%. Add to that 7.65% FICA and Medicare tax and that totals a 21.68% tax burden for the average household. I think they will also be happy with your 17%.Â
One other point that you raised. It is true that almost half of Americans pay no income tax, but all workers pay FICA. Under the Fairtax, due to the prebate, 30 million workers would pay no net federal tax annually, yet would qualify for full SS pensions and benefits. Compare that to the less than 1 million workers under current tax law that can use refundable credits such as the EITC to totally offset their 7.65% payroll contributions. Having 30 million workers disconnected from the cost of the federal government can't be a good thing. What kind of welfare state would that be?
The bottom 50% of households represent a little over 12% of the total wages earned in the US. Of that 12% of income 7.65% of their wages are lost FICA and Medicare income. This represents about $1900 for the average bottom 50% household or $130 Billion. To recover this lost income the FairTax will recover income from the shadow economy that estimates put it at 8% of GDP or $760 billion X your 30% FairTax = $228 billion. This will more than replace the income lost in collected Medicare and FICA taxes and lift the the standard of living of the working poor. Now how could that be a bad thing?
Posted By: Hank Van Gieson
Date: 2010-03-08 09:44:44
John, we seem to be talking past each other. I say something is blue and you claim it's a horse? We need to stay focussed on the real issue.
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As for embedded costs, you replied to my claim that after tax savings would be double taxed by quoting the old AFFT stuff about we are already double taxed due to the embedded taxes. You and I both agree that all business costs show up in retail prices. But, I don't think you would say that the cosd of a businesses rent somehow impacts my rent. Nor does the monthly business cost for electricity add to my electric bill. So, why wouod you claim that business taxes add to my individual tax burden. That is simply nonsense, and it was invented by AFFT because they can't refute the fact that after tax savings would be unfairly double taxed. Get over it and move on, because there is no easy fix.
I don't understand why you wrote that I believe that everyones gross pay will be cut. I agree with you that it won't ever happen for legal, contractual, and fairness reasons. It was Dale Jorgenson who made the pay cut assumption when he did the embedded cost of the tax system study back in 1997. And, if we keep all our pay, business cost reductions from eliminating business taxes amount to 10%, not 22%. And retail prices must rise by an average of 17%. Simple math.
I'm glad you think a 17% price increase would be better for you. It won't be for many retirees such as my self. Turns out that a retired couple with income or $30,000 from SS pensions plus $18,000 from savings pays no federal tax under current law. Under the Fairtax, they would pay $11,000 in sales taxes. Is that fair?
I think you missed the point about 30 million workers paying no federal tax. This issue isn't about balancing the budget, but is simply a question about whether or not it's a good thing to have 30 million working families totally disconnected from the cost of the federal government each year. What kind of a nanny state do you favor?
John, we seem to be talking past each other. I say something is blue and you claim it's a horse?  We need to stay focussed on the real issue.
I am just following your logic Hank. You like to put out a worse case scenario so I am using it to demonstrate that the FairTax is not as bad as you make it out to be. If disagreeing with you makes it "horse" so be it.
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As for embedded costs, you replied to my claim that after tax savings would be double taxed by quoting the old AFFT stuff about we are already double taxed due to the embedded taxes. You and I both agree that all business costs show up in retail prices. But, I don't think you would say that the cosd of a businesses rent somehow impacts my rent. Nor does the monthly business cost for electricity add to my electric bill. So, why wouod you claim that business taxes add to my individual tax burden. That is simply nonsense, and it was invented by AFFT because they cant refute the fact that after tax savings would be unfairly double taxed. Get over it and move on, because there is no easy fix.
So you deny that corporate taxes and compliance costs have no effect on the end cost of the retail prices? And you deny that the end consumer in effect pays all of these costs? I did not need the AAFT to tell me this fact. I have run a small business and in the world I live in these costs are passed on just like any other costs to do business. It is reality and you need to grasp this fact.
I don't understand why you wrote that I believe that everyones gross pay will be cut. I agree with you that it won't ever happen for legal, contractual, and fairness reasons. It was Dale Jorgenson who made the pay cut assumption when he did the embedded cost of the tax system study back in 1997. And, if we keep all our pay, business cost reductions from eliminating business taxes amount to 10%, not 22%. And retail prices must rise by an average of 17%. Simple math.
And I used your simple math in all of my calculations for the sake of argument. It would be the worse case scenario and it still works out to be better than what most people would be taxed right now!
I'm glad you think a 17% price increase would be better for you. It won't be for many retirees such as my self. Turns out that a retired couple with income or $30,000 from SS pensions plus $18,000 from savings pays no federal tax under current law. Under the Fairtax, they would pay $11,000 in sales taxes. Is that fair?
Where in the world did you come up with this $11,000 number??? Again using YOUR math the tax on a $48000 income would be $8160. $48000 x 17%. Your Fairtax prebate paid to you would be $399 a month for a total of $4788 with a net tax bill of $3372. That is a long way from the $11,000 you claim. And this is YOUR math. And again you are attempting to distort reality by claiming retired people will draw additional income from savings! REALLY!!! Who will really do this? Most people will be getting some sort of IRA distribution which is taxable and based on the tax rate calculators with a $30,000 SS income plus a $18000 IRA distribution  will end up with a $1000 tax bill. So in reality most retired couples will end up with $2372 in taxes paid under the FairTax using YOUR fuzzy math. That is a 4.9% tax rate in YOUR FairTax world. The rest of us living in the REAL FairTax world will pay much less.
I think you missed the point about 30 million workers paying no federal tax. This issue isn't about balancing the budget, but is simply a question about whether or not it's a good thing to have 30 million working families totally disconnected from the cost of the federal government each year. What kind of a nanny state do you favor?
I find it funny that YOU want to be disconnected by paying no tax, but no one else should be.
