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FairTax Explained

Started by Shenanigans , Apr 04 2010 12:29 AM

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#1

Shenanigans
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I want to start by nipping any political discussion in the bud. This thread is only for the FairTax discussion, and direct questions relating to it. In the explanation I will have to talk about Republicans, Independents and Democrats, but I will keep it on topic.

What is the FairTax plan?
The FairTax plan is a comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment. This non-partisan legislation (HR 25/S 25) abolishes all federal personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes and replaces them all with one simple, visible, federal retail sales tax – collected by existing state sales tax authorities. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. So it is also cost neutral – the final cost for goods and services changes little under the FairTax. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

How does it work?
Simple.

  • Fire the IRS (Don't worry government jobs are never really "lost")
  • Repeal the 16th Amendment
  • Remove & abolish every mention of income taxation, which includes striking and abolishing over 15,000 lines to our current laws on taxation
  • Implement a 23% inclusive tax on all new retail items
  • You decide when you will pay taxes, by purchasing new retail items
  • Make April 15th just another beautiful spring day!
FairTax rate is 23 percent when compared to current income and Social Security rate quotes. What is the rate of the sales tax at the retail counter?

30 percent. This issue is often confusing, so we explain more here.

When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” For every $100 earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.

We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.

Sales taxes, on the other hand, are generally quoted tax exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax." This is a 30-percent sales tax. Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.

Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.

Spend that same $100 under a sales tax, you pay that same tax of $30, and the rate is quoted as 30 percent.

Perhaps the biggest difference between the two is that under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.

(Stolen from FairTax.org)
Figure 5: 23 percent tax-inclusive vs. 30 percent tax-exclusive rate
Posted Image

How does the income tax affect our economy?

How does dragging an anchor affect the speed of a ship? Our entire economy is not dependent on the income tax. Instead, our economy is held back by the income tax. There was no income tax for the first 124 years of our history -- that’s more than half the time we have existed as a nation. A study by the Government Accountability Office estimated that the federal tax system imposed efficiency costs on the U.S. economy of two to five percent of GDP. Under the FairTax, within ten years average Americans will be at least 10 percent and probably 15 percent better off than they would be under the current system. That translates to an increase of $3,000 to $4,500 per household, per year.

What do we experience in the transition from the income tax to the FairTax?

Everyone will have to think about taxes in a different way. Income -- what we earn -- no longer has to be documented, measured, and tracked for tax purposes. The only relevant measure of our tax liability is the amount we choose to spend on final, discretionary consumption. Tax-related issues are suddenly a lot simpler and more straightforward than they used to be. The aggravation and anxiety associated with “April 15th ” disappears forever after passage of the FairTax. The FairTax is not new -- most Americans come into contact with sales taxes daily, since 45 states currently use them to collect state revenues. It is easier to switch from an income tax to the FairTax system than it is to switch from gallons to liters, or from feet to meters! Of course, those who depend on the structure and complexity of our current system (e.g., tax lobbyists, tax preparers, and tax shelter promoters) will have to find more productive economic pursuits. However, everyone will have enough advance notice to adjust to the new system.

Job creation booms. Residential real estate booms. Financial services boom. Exports boom. Retail prospers. Farming and ranching prosper. Churches and charities prosper. Civil liberties are enhanced. In short, it is difficult to imagine the far-reaching, positive effects of this change. Though this tax policy is exactly what our Founding Fathers counseled us to do with the Federalist Papers and the Constitution.

Why repeal the 16th Amendment?
The 16th Amendment is the change that allowed the Federal Government to take taxes from your paycheck, before you see your money. At the time, there was need for this to fund the Civil War (where the income tax originated. Later it was transformed into the 16th Amendment in 1913).

It is not the intention of this plan, or the desire of the American people, to end up with both a federal income tax and a federal sales tax. The objective is to ensure that one is replaced by the other, not added on top of the other. By repealing the 16th Amendment, we close the door on an income tax for generations to come.

This is also why the FairTax is comprehensive in abolishing every law, item, and piece of text on the books regarding the income tax and it's seeds. As mentioned above, that is over 15,000 pieces of legislation that will be forever removed.

Along with the 16th Amendment, so will the IRS. Thus making future politicians' plans to go back to an income tax based system, nearly impossible.

Who will collect the taxes without the IRS?
45 states already have agencies that collect these taxes, and they will remain in place. All retail outlets already collect sales taxes in those states, so not much will change there.

What is an embedded tax?
Embedded taxes include the taxes paid each step of the way before a product is purchased at the retail level. This include import tariffs, corporate taxes, fuel taxes, etc. The FairTax will replace all of these taxes which are already included in the cost of all retail goods.

What is an inclusive tax?
An inclusive tax simple means the tax is included in the price of the item you are purchasing. Gasoline is an example of an "inclusive" tax.

You mean under the FairTax, my $100.00 pair of shoes will cost $130.00?
No. Your "Air-Jordans" already have 30% of embedded taxes put into the retail price. The FairTax is removing the hundreds of thousands of different taxes that go into the item before it gets to the retail level, and replacing it with 1 simple tax.

Since the FairTax is an inclusive tax, when you go to your shoe store and see the price tag of $100.00, that is what you will pay at the register.

Will the price of goods raise 23%/30% under the FairTax?
Negative. If you remember airline prices dropping after deregulation, there are studies (spanning 2 decades) which indicate the cost of business will go down with the FairTax. Thus, the price of goods and services will likely go down after the FairTax is implemented.

How does the FairTax affect government spending?
The public must remain vigilant to ensure that the economic gains caused by the FairTax benefit the people and the causes they deem worthy. However, it is easier to determine if your elected representatives are acting in your best interest. Legislators can more easily be held accountable for their decisions. For the first time in decades, it is simple to see whether a politician is advocating an increase in taxes or a restraint on government spending as the economic pie gets bigger. This is not the case today.

Is The FairTax a new idea?
The FairTax is not a new idea. It's been proven again and again by economists for over 20 years. All of the independent studies have concluded the same. The FairTax works.

What is different now that we are in this new economic climate?
First, the FairTax would make America a tax heaven. As there would no longer be corporate taxes, companies from around the world would want to base their operations here.

Need proof? I think everyone remembers when Daimler/Chrysler merged. The decision to base this new German-American company in Germany, can after economists saw that the tax burden in Germany was almost 20% lower than current American tax burdens.

Adding companies to this country would mean an increase demand for workers. Something that we've been watching drop for the past few years.

Will the FairTax benefit the wealthy more than the poor?
No. The FairTax is truly the first (but not perfect) fair tax system. Families at the poverty level will have the largest boost, as their tax burden will go from 10-15% down to zero. This will give those families the biggest boost to hit the next rung of the ladder, and climb out of poverty.

Why do we need to change? What's wrong with our current system?
Currently the income tax is a graduated tax system, that levies heavier taxes on those who earn more money. Regardless with your political views on this topic, we are missing nearly 50 million people who do NOT pay taxes. These are the illegal workers, drug dealers, and other criminals that often abuse our social systems but never pay into them.

With the FairTax every single drug dealer that buys a new SUV (in his grandmother's name) will pay taxes. Those illegal aliens will be paying taxes every time they buy gifts at Wal Mart to send to their children in Mexico, or when they buy their tools of their trade.

Going back to the graduated tax system, it will somewhat still apply. As lower income families will buy used homes and cars, thus paying NO taxes on those items. Where as the wealthier families will buy new cars, homes and luxury items and pay taxes on those items.

Why has no one else done this?
Power. Taxes are the tool politicians use to pander to lobbyist and special interest groups. Each year the IRS publishes books, each one larger than a metro-city phone book, of tax law changes. The politicians have abandoned their role as "public servants" and instead get voted into office to further their own agendas, and personal goals.

When we force law makers to enact the FairTax, we will be asking them to relinquish their unconstitutional powers, and give the American people the "power of the pocket book". Then, elected officials will no longer be able to pander to special interest groups who want tax law changes to get an upper hand with their business. All businesses and citizens alike will prosper under this tax reform. The problem is getting law makers to give up that power, and it will take a fight.

What are the down sides?
Almost none. Sadly nothing can be perfect, so if your profession is a tax preparer, you will lose a lot of business. Other than CPAs and tax attorneys, few others are harmed by this reform. Senior citizens will be able to live off their retirement plans without the normal tax penalties they have to contend with now. Your gross income and net income will be the same, leaving you with more money to use in the way you feel is best for you and your family.

Does the FairTax address the Social Security problem?
No. The FairTax is a revenue neutral tax reform plan, that does not change any government social programs, it just simplifies the way in which we pay taxes, and the government collects them.

If you have read everything then I want you to buy these books. They are called:

The FairTax Book (Amazon $10.76)
The FairTax: Answering the Critics (Amazon $4.67)

By Neil Boortz, and Congressman John Linder.

If you cannot afford this, I will buy you both books, you just need to send it to someone else who cannot afford it when you are done. This is for anyone.

Please post any questions. I am far from an expert, more of an enthusiastic supporter. :lurk5:
DO WHAT'S RIGHT, NOT WHAT'S EASY

#2

Shenanigans
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I seriously did not post this for my health =)

Does anyone agree, disagree, or have questions???
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#3

KSteven7
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Alot of what is proposed here does make absolute sense. Will this address import taxes? How would it affect our trade agreements with other nations? My state collects property taxes on my home that provide for streets, community college public safety and the library. Where would state funding come from or would we still be paying those taxes. Local Sales taxes? would they go away? I think it is senseless that I pay taxes on my earning, When I pay my daycare provider she then pays taxes on that again and Then when she pays her lawncare guy (gotta keep those fleas and chggers off the lawn) that money is taxed again. We actually tax most income multiple times as it goes down the food chain.

#4

nicetry
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Where I live we already have the highest sales tax in the nation, so I often travel to neighboring counties or states to save on taxes, so this means no longer will I have to travel to save a few extra bucks on taxes? Also, the corruption here is sooo out of control and embarrassing, meaning the local government, as was noted earlier, takes in taxes to help the local school, parks, garbage removal, etc., but somewhere down the line the money doesn't reach those agencies that are suppose to get it, so who is gonna do the monitoring to assure this? I did read mention of 48 states in place now for this, what type of tracking system? Maybe I should just buy the book...:S:S

#5

Shenanigans
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Where I live we already have the highest sales tax in the nation, so I often travel to neighboring counties or states to save on taxes, so this means no longer will I have to travel to save a few extra bucks on taxes?



Correct. Unless, in the unlikely event, that your city/state chooses to implement taxes which piggy back on the FairTax (which each city and state already does, and needs to if they need to raise revenue for local projects).

Also, the corruption here is sooo out of control and embarrassing, meaning the local government, as was noted earlier, takes in taxes to help the local school, parks, garbage removal, etc., but somewhere down the line the money doesn't reach those agencies that are suppose to get it, so who is gonna do the monitoring to assure this?


(This is answered below. Second to last question)

I did read mention of 48 states in place now for this, what type of tracking system?


There are 45 states that already have agencies that collect the taxes. The tracking system is the same one we use on the county, district, and state levels. The people we vote in as tax collectors, secretaries, governors, congress people, and senators.

Maybe I should just buy the book...:S:S


Yes. Both books are quick reads! How many other pieces of legislation, LET ALONE TAX LEGISLATION, have entire books dedicated to them, written in laymans terms?

Alot of what is proposed here does make absolute sense. Will this address import taxes? How would it affect our trade agreements with other nations?


Import taxes are Federal, and as such will be removed by the FairTax. The tax change will not affect trade, just make it cheaper for the companies based in the US to do business.

My state collects property taxes on my home that provide for streets,
community college public safety and the library. Where would state funding come from or would we still be paying those taxes. Local Sales taxes? would they go away?


(This is also a response to NiceTry's question above)

No state is required to repeal its income tax or piggyback its sales tax on the federal tax. All states have the opportunity to collect the FairTax; states will find it beneficial to conform their sales tax to the federal tax. Most states will probably choose to conform. It makes the administrative costs of businesses in that state much lower. The state is paid a one-quarter of one percent fee by the federal government to collect the tax. For states that already collect a sales tax, this fee proves generous. A state can choose not to collect the federal sales tax, and either outsource the collection to another state, or opt to have the federal government collect it directly. If a state chooses to conform to the federal tax base, they will raise the same amount of state sales tax with a lower tax rate -- in some cases more than 50 percent lower -- since the FairTax base is broader than their current tax base. States may also consider the reduction or elimination of property taxes by keeping their sales tax rate at or near where it is currently. Finally, conforming states that are part of the FairTax system will find collection of sales tax on Internet and mail-order retail sales greatly simplified.

I think it is senseless that I pay taxes on my earning, When I pay my daycare provider she then pays taxes on that again and Then when she pays her lawncare guy (gotta keep those fleas and chggers off the lawn) that money is taxed again. We actually tax most income multiple times as it goes down the food chain.


Exactly why we need this reform.

Put simply, the FairTax has these pros:

  • Keep all the money you earn
  • Decide how, when and where you pay taxes
  • Lower cost on mostly all goods and services
  • Easier business operation
  • Lower administrative costs with businesses
  • Take major power away from sleazy politicians
  • Add jobs and growth into the economy
  • Increase current job security and value
  • Establish the first real tax legislation that helps the lower income families
  • Enjoy April 15th, as "just another" beautiful spring day!
The FairTax has these cons:

  • H&R Block and similar businesses will be drastically reduced, along with CPAs and tax preparers
  • ...?
Thanks for the questions! Keep them coming!

Edited by Shenanigans, 04 April 2010 - 09:46 PM.

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#6

nicetry
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The agencies that will do the tracking, I see as being the problem here in Illinois, we tend to vote the most corrupt people ever into office...overall, the Fair Tax sounds, but I think I will put those Amazon cards to good use and get these books. Thanks for this info!!!

#7

realbidtowin
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I am a card carrying member of the Fair Tax Organization and have donated to them a few times however as much as I would like to see it impemented sadly it is all a pipe dream as very few poloticians will attached their name in support especially Dems. Obama will not even acknowledge it, in the last elcection Hukabee was the only one that ran with it as part of their platform.

I see the biggest advantage is the influx of forign investmemt money in business we would become essentially a Corporate tax haven as Corp Taxes will be eliminated. Manufacturing would skyrocket thus unemployment would radically fall and the US should thrive.

This all sounds good on paper and economist line up on both sides of this, the real issue is the benefits are only speculation as to what it will do for the Feds revenue and what if it fails once implemented? Unfortunatly this decisioin is right up there with pushing the button to launch the NUKES

#8

Shenanigans
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Illinois, huh? Blagojevich isn't innocent?! LOL

Unfortunately, the majority of people who vote, do NOT vote based on politics. It always boils down to who looks better, sounds better, and who is more believable. Which ever candidate has all three, or a higher percentage normally wins, politics aside.

The FairTax would not solve any other political issues, other than tax reform, and power transfer from the elected officials, back to the citizens who elected them.

Let me know when you get the books, and finish reading them, I think I will re-read them, so I will be ready if someone asks a hard question. =)

Here is a scorecard of all Congress people and Senators on where they stand with the FairTax. Note the majority (90%+) in the "against" column are Democrates.

http://www.fairtax.o...n/scorecard.cgi

Obizzle doesn't have an answer on The FairTax. Here is an image from FairTax.org that shows his tax "plan" against the FairTax.

BTW, Obizzle's "tax plan" was 6 pages, and only talked, arbitrarily, who would get tax increases, nothing specific.

Posted Image

Edited by Shenanigans, 05 April 2010 - 02:56 AM.

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#9

Shenanigans
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B2W, I have donated and participated on many levels but never got a card :smilielol5:

Everything you said was spot on, but this...

the real issue is the benefits are only speculation as to what it will do for the Feds revenue and what if it fails once implemented? Unfortunatly this decisioin is right up there with pushing the button to launch the NUKES


The benefits are only speculation? Over 28 years, everyone that has looked at this (we are talking 2-3 year studies) agrees it would (as B2W says) skyrocket manufacturing, employment, and opportunities.

The revenue is not a variable. We know what the Government spends. The 23% inclusive sales tax, will most likely be more than the government needs, as we do NOT know the true number of illegals in this country that will become tax payers overnight.

Besides, if it's not enough (bare in mind this is NOT something Congress/Senate put together at 1a.m. with 13,000 pages and needs a vote in 4 hours. This has been tested, proven, re-tested and proven over the span of 4 Presidents. But I will answer the question), I think the answer is simple... Cut spending to match the budget. Something that has not happened in 4 decades. Right now, "keeping status quo" means Washington has guaranteed raises and job security, when the American tax payers suffer from unemployment, tough decisions on what bills or groceries to pay, and no job security.

I will put my family, and any American family's welfare before the welfare of ANY politician.

(The nuke comment would derail the thread, so I will just figure out a topic to start about nukes and how it relates to PA-LOL)

Edited by Shenanigans, 04 April 2010 - 11:33 PM.

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