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View Full Version : How much do you know about FairTax?



cbscreative
08-13-2008, 07:48 PM
Usually a discussion about anything related to taxes might be interesting to some, but either boring or something you'd rather not think about for others. When I first heard about FairTax, I felt the same way because I am in the group that would rather have toothpicks shoved under my fingernails than deal with anything related to taxes. I hate the forms, I hate the complexity, I hate everything about it.

However, after learning what FairTax really is, count me on board with it. One primary goal of FairTax is to get rid of the IRS and make April 15 a normal spring day. Many people think that's an impossible goal. I don't believe in impossible.

Another reaction is that it's so simple that our leaders would never agree to it. Well yes, there are powerful people who don't want to lose their power, and FairTax is a serious threat to them. When people understand FairTax, they like it. And the beauty of it is that it's easy to understand. Our current tax system is anything but easy.

So how much do you know about FairTax?

If the answer is little or nothing, start by visiting the Americans for Fair Taxation (http://www.fairtax.org) web site and I think you will like it. You may be as skeptical as I was at first, but that's OK. Just know that there are some lobbyists in Washington who would prefer you not to get educated.

orion_joel
08-14-2008, 12:13 AM
I didn't take a look because not being in the US this wont affect me really.

However in Australia, they keep trying to makes things simpler, however they have yet to really truly do that. For me, purely because i operate a business, i have to lodge additional forms, which ask questions that can have a different answer just because of an ever so slight difference in earnings.

However one thing that really disillusions me with the whole tax system in Australia is that the tax office provide a electronic lodgement system for taxes which can be used online for free. Bar one or two very small things this is the exact same system that accountants use and charge anything from $80 up to process your tax though. The first time i went to an accountant, they had the assistant go through this system and fill in the details for me, in under half an hour then billed me $180 which was most of my return. The lady spent half the time reading the on screen que's about what each screen meant. Very disappointed, cannot wait until they make it simple enough i can lodge it myself.

Evan
08-15-2008, 10:26 PM
I don't like it because I'm a tax preparer. :p

The FairTax is actually a very interesting system. It's evident why Congress doesn't act -- they are about 20 years behind everything. But with such a system, it'd really require educating people about how the system works. If there was more attention on it, then I think some people may start pushing for it.

cbscreative
08-16-2008, 11:06 AM
Evan, I've met people in your profession who very much support FairTax. Yes, it will change your job description, but those who I've spoken with say that it will actually give them more time to do their job better. Think about the possibiliities if you could make business decisions based on how to generate the most profit and didn't have to spend most of your time research tax implications.

Joel, I suspect that if the US does adopt the FairTax, other countries will be very quick to evaluate their tax laws because the US will have a competitive advantage that no one else has. Companies will want to locate here or at least set up a presence here. That will force other governments to respond or lose. It could be quite interesting.

Evan
08-16-2008, 02:23 PM
Evan, I've met people in your profession who very much support FairTax. Yes, it will change your job description, but those who I've spoken with say that it will actually give them more time to do their job better. Think about the possibiliities if you could make business decisions based on how to generate the most profit and didn't have to spend most of your time research tax implications.

I meant that humorously actually.

Like most changes, I'm all ears. :D

cbscreative
08-16-2008, 03:32 PM
It seems that a likely reason for limited discussion on this topic is the lack of knowledge on what FairTax is. One thing it is often confused with is flat tax. It is not a flat tax. It's called fair because that's exactly what it is.

It eliminates loopholes by not having any. Sounds pretty simple, I know, and it really is. Some of the objections are what about this, or what about that? Why not exempt certain things? Well, simple, if you exempt certain things, you end up with a convoluted mess. We already have that. The current tax system picks winners and losers based on who gets breaks and who doesn't.

In a nutshell, FairTax places a 23% federal sales tax on every retail purchase. Wait a minute! You mean more taxes?! No. That's how it gets painted though. If that were true, us FT supporters would be nuts. Under FT, there would be no business to business tax, no income tax, no death tax, no gift tax, no capital gains tax, and many other taxes get eliminated. There were studies done that reveal that an average of 22% of EVERYTHING we buy is embedded taxes. A 23% FairTax means prices would change very little when those go away. Plus, you get to keep 100% of your income!

Obviously, the government has an advantage when they can hide taxes in prices so people don't realize just how much tax they're really paying. It's no wonder they don't like FT, because it brings the tax right out into the open.

Evan, I know you will get this one very easily. Look at how much business income gets wasted on compliance alone. Under FT, that goes away. Compliance is easy. Retail purchases are the only thing taxed, so the hidden cost of doing business is reduced to almost nothing.

I'm talking to business people here, so imagine the competitive advantage we would have in the world market when one of the most oppressive tax codes on the planet suddenly changes to the most business friendly tax code. Everyone here will also understand competition. Some might say that if 22% of the hidden taxes go away, we'd just keep the 22% and make more money by not lowering prices. I'm sure no one here believes that. Free enterprise will quickly lower market prices because our expenses will be lower.

Much of the money that leaves our country does so to avoid taxes. If we eleiminate the taxes that cause our money to go offshore, that money will come back into our economy too.

This one is a key element of FT, so I would do a serious injustice not to mention it. Every taxpayer regardless of income gets money back from the gov't up to the poverty level based on family size. You get 23% of whatever poverty level is for your household. This untaxes the necessities and protects the poor. So you essentially pay no taxes up to poverty level. Remember, there is no payroll deduction. As a business, this relieves the burden of withholding taxes. As an employee, you get to keep every dollar you earn and only get taxed when you spend it.

I could say a lot more, but this plan has been scrutinized heavily. Those who understand economics know it will work. It WILL grow our economy, The only thing in question is how much and how fast, but it will cause growth. I can't imagine a business owner not liking FT. I can't imagine any honest taxpayer not liking it. I can easily imagine K Street lobbyists and some politicians in Washington not liking it. They hate it so much, they're willing to spread lies and deliberately misrepresent the facts.

Baseline
08-18-2008, 09:34 PM
What is the defination of "retail"? I bill for my service- and pay my employee's from that. Do my clients have to pay 23% more? Are service businesses exempt, leaving only retail and resturants? With a large part of the economy being a service industry- this could be huge. And I didn't read all the papers, just glanced over the first page; but retail jumped out at me. I sell my service- that could be retail.

cbscreative
08-19-2008, 12:35 AM
What is the defination of "retail"? I bill for my service- and pay my employee's from that. Do my clients have to pay 23% more? Are service businesses exempt, leaving only retail and resturants? With a large part of the economy being a service industry- this could be huge. And I didn't read all the papers, just glanced over the first page; but retail jumped out at me. I sell my service- that could be retail.
This is business to consumer purchases. It does exclude B2B, but some services could be considered retail so that is a good question. Even if there is a sales tax on some services, the elimination of business taxes (and compliance costs) that drive up the price will allow for lower prices. Lower operating costs result in lower prices without loss of profit.

The key is that prices do not go up 23% because elimination of the complex tax code lowers the cost of doing business so purchase prices will remain approx the same. With the elimination of income tax, consumers have all of their money to spend as they wish because taxes are not collected from income. Think about this, taxing income is really penalizing productivity. That may be the system we're used to, but it's crazy and needs to change.

To put this in perspective, even if the worst happened and you had to charge a sales tax, you wouldn't have IRS forms to fill out (the IRS gets eliminated), you don't have to deal with payroll deduction, and the taxes you pay, whether directly or embedded in the cost of materials you use, are gone. The final cost to your customer will be the same or lower.

Another very important point on FT is that is is an "inclusive" tax. The reason is because we are already used to that structure. Here is what I am getting at (and also where FT opponents sometimes distort the facts). This "inclusive" simply means that if an item costs $100, the tax is included in the price. The consumer pays $100, but $23 (or 23%) is tax. The $23 is NOT added to the $100 price.

Why is this important? You may have heard some people say that FT is really 30% rather than 23%. This is accurate the way they report it, but deliberately uses a "exclusive" higher number to scare people. Using the same $100 price, $23 is tax, meaning the item really costs $77. If you take the $77 price and figure the exclusive percentage that $23 represents, it comes out to be almost 30%. Same final price, it just sounds worse.

The reason FT uses inclusive is because our current income tax system uses the same method. If you earn $50k, you pay inclusive taxes on that $50k. If you were to reverse the numbers and figure the percentage of tax on what you have left, the percentage would be higher (you won't hear any gov't officials quoting taxation numbers this way). I hope this makes sense, because numbers are easily manipulated.

Spider
08-19-2008, 08:58 AM
Isn't this "inclusive/exclusive" argument going to depend on the retailer? I mean, would I not, as a retailer, be able to quote my price as

.... $77 (goods) + $23 (tax) = $100

or

.... $100 (including tax) = $100

It amounts to the same thing, as you say, so the inclusive/exclusive nature is neither here nor there, but the reporting of it, the invoicing and the pricing or quoting that one does will be up to the seller, no?

cbscreative
08-19-2008, 10:38 AM
The way FT is structured the price of the item includes the tax. Yes, the seller submits 23% for tax, and the receipt will reflect the tax. The numbers are the same either way as you indicated. But if you want to make a case against FT, you would naturally want to use the 30% number to say how high the tax will be. If we used the same formula to calculate our current income tax, it could be shown to be much higher if you figure the exclusive percentage.

BTW, the embedded 22% tax is already in everything we buy, so that is inclusive too, it just doesn't show as a line itme on the receipt.

Evan
08-19-2008, 09:00 PM
you wouldn't have IRS forms to fill out (the IRS gets eliminated)

While I see that idealistic under such a plan, it probably will still exist with the goal of collecting the revenue and making sure businesses are in compliance.

cbscreative
08-19-2008, 10:16 PM
While a gov't agency to oversee this will be required, the infrastructure for FT is already in place. Retail sales are easy to keep track of and most states already have a sales tax in place. Although there will be some cheating because people will often cheat no matter what, the data trail will likely be easier to spot than our current system.

Even many politicians actually like FT because they will end up with more money, and there are two primary reasons. One, the IRS estimates that in 2005, they lost $311 billion in uncollected taxes (lost is a relative term, honest taxpayers picked up the tab, and, when the new numbers come in, it's expected to top $400 billion). FT is much more difficult to cheat on. Two, the IRS spends 1/3 of every dollar they collect just to collect. That is incredible inefficiency. Get rid of this wasteful entity and more of the money collected will actually get used more productively.

I know they'll find another way to waste money, but one battle at a time please. Besides, with a more visible tax rate, it will be harder for them to request more money. When they can hide taxes, they're less accountable.

Baseline
08-22-2008, 10:55 AM
While I don't mind the principle, I still see questions to resolve. (Fan of Forbe's Flat tax an election or two ago.....) The B2B question is a huge one- because I can already see "loopholes"..... which then mean an agency to monitor...... and enforce.... and then a Code to clarify.... meaning we didn't really change things. This seems a lot like the VAT in the EU, which isn't well liked by some. Has the FT folks set up a better codified sysyem elsewhere? Just asking because I didn't do a lot of research on the mechanics; and the devil is always in the details.....

cbscreative
08-22-2008, 11:13 AM
For the short answer to your VAT question, I pulled this from the FAQs on the FT site:


While VATs are also consumption taxes, and better than income taxes, the FairTax is not a VAT. A VAT works very differently. It taxes every stage of production. It is much more complex and is typically hidden from the retail consumer. Second, in industrialized countries that have a VAT, it coexists with high-rate income tax, payroll, and many other taxes that, in some instances, have led to marginal tax rates as high as 70 percent. Third, all other industrialized countries, except Australia and Japan, have a much larger tax burden than the U.S., which requires higher rates and makes tax administration much more difficult. Lastly, a VAT is a lobbyist’s dream, allowing them to install their loopholes unbeknownst to the purchaser. A retail sales tax, in contrast, is a lobbyist’s nightmare, applied as it is under the bright lights of the retail counter.
I've also read some much better info on the comparison, so I can post more later on hte subject.