The Fair Tax?

Question

Can someone describe to me in depth how it works? It seems wonderful from what I've heard.

If you oppose it and just want to say that you hate it, PLEASE don't answer.

Answer 1

It is amazing how people keep opposing the Fair Tax with the same misconceptions.

The examples shown here have been used many times.  The problem with them is they do not consider what they are paying under the current income tax system.  

When you must buy a new transmission for a car, have high medical bills, have a roof replaced and any of the other items mentioned, there are embedded federal tax costs which must be paid.  The medical services and the construction industry income tax costs are all inflated into the price of their service costs.  The consumer pays all the "cost of doing business" for these service industries.  This includes the personal income tax for the contractor, the self employment taxes, the business taxes they must pay and all the other taxes at the federal, state  and local levels!

The Fair Tax only addresses the federal taxes, but once enacted, many States will follow suit.  (36 states have a state income tax that are based on the federal income tax which will be eliminated.)

Most people are only considering their personal income tax filing amount when they look at how the Fair Tax will effect them and the taxes they are directly paying.  (Some do not even include the Social Security tax that is taken out of their check because they never receive it.)

What is the Fair Tax?  It is a change in the method of funding the federal government.  It is a bill before Congress that will eliminate all forms of Income Tax.  This includes personal, business and corporate income taxes, Social Security and Medicare Taxes, capital gains, gift, and Alternative minimum taxes, tax on savings and investments and many others.  It provides the same level of revenue to the federal government when it is implemented through a consumption tax on NEW goods and services at the retail level.  There is NO taxes on businesses to business transactions.  (They do not pay taxes now, it is just another cost of doing business.)  

Note; the Fair Tax does not effect any spending programs of the federal government.  It fully funds the Social Security and Medicare programs.

The Prebate (disbursed in advance) is given to every qualifing household the amount of consumption tax the household would pay up to the poverty level for the size of the household.  The poverty level is determined by the Department of Health and Human Services each year.  To qualify, the household must submit a form each year that lists the members in the household, their Social Security numbers, the address of the residence and how they want to receive the money!  (illegals will not have SSN and will not qualify).  

Now for a few quick calculations.  The embedded federal taxes and tax costs in new items at the retail level is 22%  The federal tax costs in service trades is between 25-26%.  This is included in everything that you buy!  As an employee, the average person pays 7.65% in Social Security and Medicare Taxes.  The average tax rate for low to middle income levels is 15%.  When you add these amounts together, the average American is paying out close to 45% in federal taxes.  The Fair Tax is 23% on all NEW goods and services.  There is no tax on USED goods.  Then you will receive the Prebate (Individual with no dependents in 2008 will receive $199 each month)  Therefore, if you spend your money wisely, (buying used items) your tax rate will always be less than 23%.

The myth that the wealthy will pay less in taxes is incorrect.  If this were the case, why do they not support the Fair Tax.

Who opposes the Fair Tax?  There are two major groups that oppose the Fair Tax.  The politicians as they will loose their power and control and will not be able to buy votes!  The second group are those who have a vested financial interest in maintaining the current income tax code.  This includes lobbists that derive their major income from getting bills passed through Congress to change the income tax code to benefit their clients and the individuals that have their money in tax exempt loopholes.  They pay capital gains tax at a rate of 15% not their ordinary income rate.

There is a large number of individuals that operate on a cash economy and do not pay taxes.  Foreign visitors will be buying new goods and paying our taxes.  This gives a wider tax base rather than the current tax base.

Since there is no tax on business to business transactions, many of the business that have left the Country and operate their business overseas will return to USA where they will pay no taxes and their products will have a lower cost!  There will be more jobs and employers will pay higher wages to attract the best workers.

The US economy will grow very rapidly and be more competitive in the world markets.

People will not be penalized for doing a good job.

Answer 2

I agree with Tommy...

On the subject, there is no such thing as a fair tax, unless you agreed to it....but hey, it's A LOT better than what we've got!

Do some research, you might be enlightened!

Answer 3

fairtax.org  it will explain everything you want to know.

Answer 4

The "Fair Tax" would replace the federal income tax with a kind of sales tax that has almost no exemptions. Every sale is taxed. In other words It would tax us based on what we spend rather than what we earn.

It is an interesting concept but not fair. Consider this hypothetical case:

I pay more tax than usual in the hypothetical year because in that particular year I happened to be required to: 1) replace the transmission in my car because the old one wore out, 2) put a new roof on my house because it leaks, 3) pay additional medical bills because I got sick, and 4) buy a new furnace for my house because the old one blew up. Of course my "pre-bate" from the fair tax doesn't pay for any of these things because it pays out just enough to cover poverty level existence.

Because of my illness, I worked less during this hypothetical year, so I earned less. So I had to pay higher taxes, even though I earned less money, and even though I had to spend more money for emergency items. In fact I had to borrow money to make ends meet, and as a result of having to borrow the money, I had to pay even more taxes because the amount I pay in interest is also taxed. The "fair" tax would increase my taxes because of these calamities so I would have to borrow even more money. Now tell me how this is fair?

At least with income taxes, my taxes would have been reduced because I earned less money and because I got a deduction for medical bills.

The "fair tax" is based in part on the unrealistic notion that spending is discretionary. In many cases a person has no choice about when they must spend money; if they are going to keep their home, their transportation, their health, and other things they value they must spend it.

Answer 5

The fair tax is not fair and you can find a good argument against it on www.Mises.org .

Answer 6

the fair tax works like a retail sales tax. included in taxable items would be rent and mortgage payments, cars,professional services,gasoline, food, clothing ,utilities, credit card interest, etc.  the one notable exemption is education.  since most other federal taxes would be eliminated, including corporate and social security taxes paid by employers, the fed government will, of course, want to maintain same revenue (for wars, schools, roads, etc.) there is some dispute over the % the sales tax imposed would have to be.  range from 23% to 34% are estimates put forth by various groups.  one proposal of the fair tax plan is that all taxpayers would get a sort of pre-rebate of about $5600 annually. this proposal would, in effect keep the fair tax plan from having an overly harsh impact on the poorest american, those earning less than $15000 yearly.     also benefitting are the wealthiest americans, those earning over $200000 annually. who is likely to pay more taxes under the fair tax plan? tthose earning between $15000 and $200000 annually. so the middle class still gets dumped on. yeah us.

Answer 7

bush is the first pres in history to start a war yet not raise taxes to pay for it . in fact he lowwered the capitol gains and dividend taxes for the rich . we've gone fron a surplus to 3 to 5 TRILLION in debt .  before Reagan the top tax bracket was 70% . he lowwered it to a top rate of 34% . the milllionarres got a 50% tax cut . i didn't .