posted
I know that there has been some talk about a national sales tax in the estate tax thread (I believe Belle and Kat both mentioned it) but I think it is important enough for a new thread.
I have long been in favor of John Linder's Fair Tax Bill. Our current system is ridiculous. I own a business and some rental property and my tax return is absurdly complicated. I will provide a link to the website but here it is in a nutshell:
1. Eliminate all Federal taxes (income, FICA, gift, estate, corporate) 2. Replace with a national sales tax estimated to be about 23% to be revenue neutral 3. Provide a rebate to everyone based on the poverty level. So everyone receives a check every month for the amount of taxes charged on purchases up to the poverty line. In other words the poor would pay NO taxes. No payroll tax, nothing. 4. It is estimated that prices would fall by about 20% because of the elimination of corporate taxes. 5. We would all know exactly how much we are paying. When the govt decides to raise taxes, there would be none of this raise taxes only on certain people garbage, everyone would be effected. 6. There would be no more(or at least significantly less) tax avoidance. Taxes would be collected at the point of purchase. Criminals (drug dealers etc.) would even have to pay.
I know it seems unlikely, but it would be my dream come true. If I was given the power to have anything I wanted, I would first enact a playoff system in college football, and immediately after that enact the Fair Tax.
posted
Actually, Belle did not mention it, but I have heard some about this before. My husband has researched it more completely than I have, and I think he is a supporter, he just doubts it will ever pass.
Posts: 14428 | Registered: Aug 2001
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posted
It sounds too naive. Rather like "trickle-down" economics. The rich get richer, and then they hoard.
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quote:2. Replace with a national sales tax estimated to be about 23% to be revenue neutral 3. Provide a rebate to everyone based on the poverty level. So everyone receives a check every month for the amount of taxes charged on purchases up to the poverty line. In other words the poor would pay NO taxes. No payroll tax, nothing.
The problem with these two is that 1) Everybody would have to keep track of everything they buy, causing unnecessary paperwork and 2) the government gets to know everything we spend money on.
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posted
I'm not sure what you mean Port. We wouldn't have to keep track of anything. Tax is paid at the point of purchase. The govt would receive the revenue directly from the companies that collect it. It wouldn't have any names on it. You don't need to be concerned about either of the things you mentioned.
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posted
You'd have to keep track of all your purchases in order to be reimbursed for the taxes you paid.
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posted
This plan would nearly eliminate charitable spending. There would be no incentive for business to donate anything.
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posted
I would prefer a yearly flat income tax that everyone pays in a lump sum, with no with-holding and that we move the due date from April 15th to the first Tuesday in November.
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posted
I've got a potential problem. It seems like being below the poverty line is likely correlated with not having a mailing address. How would these people receive their refund checks? If they can't receive their refunds, it ends up being a much higher tax burden on them.
Another problem is people without bank accounts. These people would have to go to some sort of check-cashing place, who usually take a big chunk of the value of the check in payment for the service. So that would amount to an additional burden.
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posted
No Port, as I understand it, everyone would get a check for the same amount equal to sales taxes paid up to the poverty line. So hypothetically if you didn't spend up to the poverty line you would be receiving a transfer payment but there would be no keeping track of anything.
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posted
For that matter, a 23% tax after a 20% reduction on the price of all goods would likely not be enough to cover everything the government is spending on now. Of course, this could be offset by slashing social spending, which to many may be a very good thing to some minds, but at least come out and say it.
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posted
I checked out some of the information at the link, and I think part of its incorrect. In their section on education, that website claims
quote:Tuition expense is not tax deductible. Today, to pay $10,000 in college or other school tuition, a typical middle class American must earn $15,540---and this number reflects only federal income taxes and the employee payroll tax
Tuition expense is tax deductible, and there are also Hope Credits and Lifetime learning credits available (though you can only take one, not all of them)
Moving the tax deadline to the 2nd Tuesday in November is a stroke of pure brilliance. Posts: 14428 | Registered: Aug 2001
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posted
No 6 I think you are overestimating tax incentives as a reason for charitable giving. When an individual or corporation gives to charity they receive a tax deduction. This means that less of their money will be subject to income taxes. But since income taxes are much less that 100% companies or individuals would still be better off financially to keep the money.
Example: You are in the 28% tax bracket and you give $1000 to charity. That is $1000 that you don't have to pay tax on so it saves you $280 dollars. However if you simply kept the money and paid the taxes you would still have $720.
Giving to charity does not make money for anybody. People give to charity because they WANT to, not because the government provides them with benefits for doing so. I believe if people could keep more of their money, they would give more to charity not less.
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posted
Speaking of Education credits, are they subject to the standard deductible? In other words, if the amount is lower than the standard deductible, are they not counted? Because on last year's taxes, it looked to me like they were in addition..but I was doing my taxes online (one of the links on the free file section of irs.gov), and it appeared as if they were not counting my education credits anywhere.
posted
I disagree. We haven't seen what would happen without these incentives. You underestimate the power of greed, I think. Posts: 410 | Registered: Apr 2005
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posted
The poverty level is set by the government. For example let's assume that the poverty level is $15,000 just as a round figure. As I understand it everyone would recieve a check for the sales tax on this amount so in this case $3,450. There would be no tracking. Everone gets the same check. Very simple.
I see the point about people who don't have mail boxes etc. but I don't think we can create national tax policy based on that small segment of the population. I'm sure we could find a way to get the money to them as we do with welfare payments etc.
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quote:It is estimated that prices would fall by about 20% because of the elimination of corporate taxes.
I'm guessing that this estimate is based on how much corporations could lower prices while keeping the same profit margins. A more likely scenario is that corporations will keep prices where they are, or maybe lower them slightly, and reap huge rewards, at least in the short term before things come back to equilibrium.
Posts: 1810 | Registered: Jan 1999
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posted
Lots of problems with this plan. For one thing, it won't match existing federal revenues. For another, it dodges the question of how corporations will be taxed. Do they get deductions based on "income," too? It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
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posted
So long as it enables people who are poor to have the money needed to buy what's necessary for their families, does it matter whether we call it a rebate check or a welfare check or a paycheck?
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quote: Speaking of Education credits, are they subject to the standard deductible? In other words, if the amount is lower than the standard deductible, are they not counted?
This is a great example of how ridiculous our current system is. There are many different ways that education expenses count under the current systetm. There is the Hope Credit and the Lifetime Learning Credit. If you don't qualify for either and you itemize than you can deduct qualified education expenses. Just figuring out which method applies to your situation takes a lot of time and effort.
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posted
Then people wouldn't get taxed on income, but could put all of their money into savings, mutual funds, etc.? Hoarding, I say.
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quote:It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
I'm not a supporter or opponent to this plan, I'm still trying to learn about it. One of the advantages touted is that it reduces or eliminates a lot of paperwork so I'm curious as to why you think it will do the opposite.
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Moreover, it would encourage those who could afford to do to make large purchases from other countries. And strongly discourage tourism and tourist purchasing.
quote: Lots of problems with this plan. For one thing, it won't match existing federal revenues. For another, it dodges the question of how corporations will be taxed. Do they get deductions based on "income," too? It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
Wow. I'm not sure how you can say any of that. How do you know that it won't match federal revenues?
Corporations will not be taxed. Corporate tax will be eliminated. No dodging involved.
Exactly who would it require more paperwork for? There would be some paperwork and hassle involved with implementing the system but individuals would have NO paperwork to do.
If you are going to make these kind of blanket statements please back them up with at least one fact.
posted
"One of the advantages touted is that it reduces or eliminates a lot of paperwork so I'm curious as to why you think it will do the opposite."
I misunderstood the plan as proposed. holden's clarification does indeed eliminate the paperwork complaint. If everyone gets $3K back from the government, and no one -- including, presumably, corporations -- can deduct anything, then we'll see a lot less paperwork. It also eliminates the use of taxation as behaviorial incentive.
On the other hand, this plan rewards hoarding and implicitly punishes those who need to spend a larger percentage of their income. The richer you are, the better you off with this system -- particularly if hard assets are not taxed in any way.
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Holden, what I'm asking is if corporations, when buying and selling things, will still need to pay the sales tax in the same way that individuals would.
I think I shouldn't claim the Lifetime Learning Credit--taking the Tuition and Fees deduction would be much better. I'll have to try to change that tonight and see what happens.
posted
I'm more or less of the opinion that the tax code should not be set up to optimize convenience, it should be set up to optimize fair distribution of the tax burden.
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quote:Moreover, it would encourage those who could afford to do to make large purchases from other countries.
This is assuming that price levels stay the same and we add 23% on top. It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
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quote:So long as it enables people who are poor to have the money needed to buy what's necessary for their families, does it matter whether we call it a rebate check or a welfare check or a paycheck?
To many people, yes.
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posted
If corporations are not taxed for anything, then almost everybody will be setting up corporations as bullet-proof tax shelters.
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quote: It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
See, this is why I asked whether corporations would also have to pay the sales tax.
Because this whole "price levels would be virtually unchanged" thing assumes that corporations see a massive reduction in the amount of tax they're paying. If they do, the only way you won't see a significant reduction in federal revenue would be if everyone else saw a significant increase in the amount of tax they paid. So either you get a federal revenue reduction or a substantially higher tax burden on individuals, as corporations will no longer be contributing. This will almost certainly drive the use of corporations as not only tax shelters but purchasing agents for luxury items; the rich will be buying houses and helicopters, for example, through shell companies.
posted
Tom here is the answer to your question about corporate taxes from the FAQ.
"What is taxed? The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed."
So the next question I'm sure will be "Well won't corporations receive a windfall under this kind of system?" The FAQ also has an answer for this:
"Will corporations get a windfall with the abolition of the corporate tax? Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes. Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors. The idea that taxing a corporation reduces taxes on, say the working poor, is a cruel hoax. A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement. Under the FairTax plan, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. This is the most honest, fair, productive tax system possible. Free market competition will do the rest."
The FAQ is very comprehensive and I think it addresses every concern that has been brought up so far.
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quote:Moreover, it would encourage those who could afford to do to make large purchases from other countries.
This is assuming that price levels stay the same and we add 23% on top. It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
Pfft. That's the claim, but I don't believe it for a minute.
Israel has a similar system. The only reason it does NOT scare off the tourists is because tourists can get a rebate at the airport of all VAT (Value-Added Tax) paid.
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posted
To address no.6's concern about removing tax incentives to donate to charity, I cannot speak for everyone else but I can speak for myself. I have never given to charity for the purposes of getting a tax break. I give to charities because I believe in what they are doing and I give according to what I can afford to give. In my case, if I had more money because I was paying less in taxes then I would also be giving more to charities. So in my case this kind of change would actually result in more charitable donations by me and not less. Maybe I'm atypical, but I have only my own experiences to relate to here and they are the opposite of what you are saying.
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