Why will the FAIR TAX work or not work?

Question

Please provide complete explanations as to why you think it will and will not work?

Is there a website that breaks down all the pro's & con's of the Fair Tax?

Answer 1

How about you do an advanced search on resolved questions.  This topic has been beaten to death.

Plus your request for "complete" explanations sounds a lot like a homework assignment.

Emotionally, the words "fair tax" sound great, but in practice they would be a disaster.

The system already has 2 flat taxes in it.  Payroll taxes and AMT.  Payroll taxes work so well, they had to invent EIC and "additional child tax credit" to help poor people.  AMT is the current "fair tax"--designed to prevent people from using too many deductions/credits to lower their taxes (AMT for example does NOT let you claim children).  AMT is taxed at 26 and 28%--lower than the "fair tax" rate of 30% and you should hear the screams when people find out they are subject to it.

EIC is similar to the "prebate" the fair tax folks want to claim will prevent their proposal from hurting poor people.  EIC is a MASSIVE fraud problem now.  The fair tax folks claim they will save the government money by getting rid of the IRS.  No, they'd reinvent that as well.  Someone has to administer the problem and try to stop the fraud.

Answer 2

Judy and Bostonian have provided completely inaccurate answers and have obviously not studied the FairTax Bill.  Your best source of information is www.fairtax.org and the two books (both inexpensive paperbacks) written by Neal Boortz and Congressman John Linder, entitled "Fair Tax" and "Fair Tax - The Truth", both of which answer the run of the mill and probably intentional misrepresentations that the bill's critics usually put forth.  If you read the books you'll see that the proposal is a very good one and that it is inevitable that the act will eventually pass, but only after a relentless education of our politicians and constant holding of their feet to the fire.  Letting them know that you will not vote for any politician at any level unless they can prove that they are vigorously supporting passage of H.R. 25.

Edit:   Those who strenuously object to the Fair Tax bill evidently are going to lose income when it is passed.  There are many people, such as tax lawyers, those who's job it is to research the tax implications of every business decision, tax return preparers, some CPAs, lobbyists and IRS employees, to name a few, who are going to be looking for work.  Many CPAs have stated that they would rather be concentrating on ways to grow their clients businesses than protecting their clients from an unfair confiscatory tax system.  The Fair Tax Act was designed by economists, not politicians or lawyers.  It is the economists who are the experts on how such legislation will effect the country as a whole and how it will benefit individuals and businesses when the government is forced to take it's foot off the necks of Americans.  Most of the false allegations about how the act will affect the poor have already been effectively refuted.  Most are nothing more than misrepresentations by those who will be put out of work once the bill is passed.  Time to start scouring the want-ads and using your imagination, folks..

Edit:  Bostonian sent me an email DARING me to answer his 10 questions listed above.  He even reports that Neal Boortz called him an idiot and hung up on him.  I won't even guess what that was about.

1.  The 23% (not 30%) tax will be collected at the cash register by the retailer.  Since the 23 cent tax on a $1.00 item is included in the $1.00 price and not added to it, it will simply be a matter of the retailer periodically sending the government 23% of their total sales.  The government won't care who paid the sales tax or how much they paid.  They'll want a total sales figure and a check for 23% of it.

2.  The federal government will not care how much a family consumes.  Every family in the country will receive a prebate check based on the size of their family, based on the official poverty level for that size family.  If Bostonian and I each have a wife and two children we are going to receive identical checks each month, no matter if I am dirt poor and he is filthy rich.

3.  Claiming that the FairTax will really be 30% instead of 23% is the most common intentional misrepresentation of the tax that opponants of the bill use.  Currently, the state sales tax you pay on an item is ADDED on to the price at the cash register.  Therefore, if we have a 23% state sales tax (none are that high, but let's keep the math simple) on a $100 item, it's going to cost the consumer $123.  That's called an EXCLUSIVE tax.  Under the FairTax the $100 item will have the 23% tax included in the $100 price tag.  That's an INCLUSIVE tax.  The retailer will be able to lower the former price of the item by 22% (which is the amount of embedded taxes that are currently built into the price of an item, but will be eliminated when that 22% income and payroll taxes are repealed).  You will in effect wind up paying 1% more at the register, but you'll be taking home all of your paycheck, giving you considerable more to spend.

3a.  There will be no more IRS to spy on people.

4&5.  He'll love this and probably won't even see it coming.  The construction and auto industry will not suffer because they will be able to lower their prices by 22% also, just like other retailers.  They will not have to embed their tax burdens in the cost of their product either.  Does Bostonian understand that the only people who pay taxes in this country are the consumer.  Just like some other odiferous stuff we who were career military people recall, all taxes roll downhill.

6.  What makes you think someone is going to force corporations to lower their prices by 22%?  No one office will have to monitor their price structure, the consumer will make sure it happens.  If "corporation A" continues charging full price and "corporation B" uses their head and lowers their prices to reflect their reduced tax burden the consumer will see it and all the business will go to "B".  It's called "The Marketplace".

8.  My fingers are getting tired too.  When we eliminate corporate taxes, which are the reason all of those US business have been moving overseas, not entirely due to cheaper labor but due to governments being more business friendly, most of those businesses will return home, in addition to many foreign businesses.  

The rest of his remarks seem to have something to do with class envy and hatred of the rich.  I don't bother with those things.

Thank you for your service, First Sgt, from a retired AF MSgt.  You've got some studying to do.  I hope I've been able to help you understand what H.R. 25 is really about.  I'd suggest you read it so that you don't embarrass yourself.

Answer 3

The proponents say that a tax of 23% would be enough to fund the government. Opponents don't agree, and feel the % would be much higher.  And even by the proponents’ calculations, the 23% is the % of the total price of something that would be paid, which calculates to an add-on of 30%.

Each family would get a "prebate" each month to cover the tax on an amount equal to the poverty level.

This is a real good deal for the rich, since as a group they'd pay a lot less tax than they do currently. For the poor, with the prebate they might come close to breaking even - unless they are currently getting EIC or other benefits that wouldn't exist any more under this plan. The middle class would pretty much get the shaft, especially those with kids who now get child tax credits and maybe EIC.

Fair? Well, that's a matter of opinion.

Websites re the fair tax are put up by people either in favor of it, or against it, so you won't find just one site with both the pro's and con's.

In my mind, the biggest pro is that it taxes the underground economy - people now working under the table would have to pay under this scheme.

And the biggest con that I see is that it hits the poor so hard, and the middle class except for upper middle, who might about break even.

The much touted "gets rid of the IRS" just isn't true - somebody still has to administer it.  And it's not nearly as straightforward as proponents claim.  Just the prebate  - who will determine how many people are living in a given household?  And that's only one example.....

Answer 4

First off, the "inclusive vs exclusive" issue is smoke and mirrors to make a 30% tax look better. Sales taxes are ALWAYS added on to the selling price so the rate is 30%. Even Neil Boortz grudgingly agrees to this fact if pressed.

It's a GREAT deal if you're wealthy. If you're poor or middle class it will clean your clock.

Answer the following questions, please. If you can, you will be the FIRST "Fair Tax" proponent to do so! I've yet to have a single one of them address them, including Neil Boortz who hung up on me on his radio show and called me an idiot. I've interspersed my own commentary on the issues but feel free to tear it up with FACTUAL information -- platitudes are worthless.

1. If you are going to do away with the IRS, who will collect the tax. (It will still be the IRS, we'll just give them a sweet sounding name. You can call a t**d a rose if you wish, but it will still smell badly.)

2. How do you intend to deal with "prebate" fraud? (The IRS can't track income in real time -- it takes about 18 MONTHS to match W-2s with tax returns in the SAME computer system -- so how will they (or whomever) track family composition in real time?)

3. With a 30% tax on ALL new goods, how do you intend to deal with the massive black marketing that will result. (Any city or state with high tobacco or alcohol taxes will tell you that black marketing is a REAL problem.)

3a. OK, Congress dealt with that with tax stamps like on liquor and tobacco. (How about "The Audit of the New Millennium" now as armies of IRS agents descend on neighborhoods on trash day looking for evidence of untaxed goods. Or worse yet, burst into your home and rummage through your dresser looking for untaxed gruns and s*x toys?)

4. How do you intend to deal with financing of the $60,000 tax on a new $200,000 home -- a modest price in much of the nation? (The home is still only worth $200,000 since pre-existing homes aren't taxed, so the lenders won't lend the extra $60,000.)

4a. How will you deal with the collapse of the construction industry that will result from #4. (The resale market will take off, but new construction will grind to a halt.)

5. Ditto for the $6,000 tax on a new $20,000 car. (Same as #4.)

5a. How will you deal with the collapse of the auto industry in the US as a result of #5. (Before long US roads will look like Cuba with ancient pollution-belching relics being pushed along far past their sell-by dates.)

4b & 5b combined. Now that the US economy itself has collapsed following the collapse of its two primary movers, what next? (I'd LOVE to hear their answers on this!)

6. While you claim that the manufacturers of goods and the providers of services will reduce their prices due to the lack of corporate taxes, how to you plan on ensuring that that actually happens? (Sounds like quasi-communism with central control on prices. Shudder!)

6a. And what about corporations that are bleeding money like Ford and GM and pay no income taxes since they're LOSING money. Where will THEIR price cuts come from?? THEIR costs will actually RISE as money spent on infrastructure investment will be taxed so their prices will RISE substantially. Uh-oh, Houston we have a problem!

7. How to you explain to the single mother with 2 kids that the EIC that she was depending upon for basic survival is being replaced by the "prebate" BUT she'll now pay about $5,400 in taxes that she didn't have to pay before? (Virtually every penny she earns pays for essential goods and services. She'll be crucified by the added tax burden as she doesn't pay any income taxes now but WILL pay heavily under the co-called "Fair Tax.")

8. How do you plan to deal with the outcry from the World Trade Organization as untaxed American goods (those that exist anyway) flood the global markets, shutting out imports in the US and local products overseas? (Hmmm... Go back to corporate income taxes? Whoops! There goes a prime argument for the "Fair Tax!")

9. How will you deal with the Paris Hiltons, Steve Forbeses, Bill Gateses (insert favorite rich person's names 1,500 times) who will simply make their major purchases overseas and bring them into the US as used and therefore tax-free. (Remember the failed Luxury Tax from the 80s that put yacht dealers out of business in droves and tossed their employees onto the unemployment and welfare lines.)

10. Finally, how to you explain to the middle class taxpayer earning $50,000 per year with a family of 4 and paying almost no income tax that he now has to pay $10,000 in taxes MORE than his "prebate" amount? (I'd love to hear that one too!)

I could go on for hours on the unintended consequences of the grossly misnamed "Fair Tax" but my fingers are getting tired. In the end it's a SWEET deal for the wealthy (who tend to amass wealth, not spend it all) but would crucify the poor and bring the middle class to their knees. The economists who dreamed this up have no focus on the social impact of this and were told to ignore any impact other than the bottom line for the US government. Hardly "Fair" IMHO.

The ONLY good tax is a graduated income tax. It's the ONLY tax that adheres to the first rule of taxation: Make sure that the taxpayer can AFFORD to pay the tax.

The wealthy support the misnamed "Fair Tax" (or the Flat Tax) since they'd pay MUCH less in taxes. If you lessen the burden on one group you either must cut services or transfer the burden to another group. That leaves the poor and middle class to shoulder the burden of a tax cut for the wealthy. Sorry, but I flatly refuse to subsidize your next BMW!

Lastly, and most importantly, you obviously don't understand why the "Fair Tax" has languished in committee for over a decade in owe form or another. It's simple, really, since its proponents have NO desire for it to be debated on the floor of the House. If it is, it will quickly die an ignominious death as even the farthest right-wing hacks won't be able to support it and keep their jobs. It's proponents have never actually requested that it be scheduled for debate! They don't WANT debate on it. It's strictly a political ploy so that they can say to their constituents, "Hey, I'm trying to make a difference, but nobody will move on it."

Edit:  Hmmm...  Two days on from your posting and you haven't addressed a SINGLE issue yet!  So typical!

Answer 5

Kramreg’s answer is a comedy of irony.

He or she claims that the prior answers have not studied the bill yet then references fairtax.org which is the most completely biased group of propaganda available on the bill which also makes no effort to answer any of the issues presented in the other answers.  Linden’s book is so thin on the topic that is almost unbelievable that there are adults naïve enough to take such a brief overview of some of the benefits as evidence that the Fairfax is without any downside.  What a sad commentary on society that people are so easily convinced that this bill is 100% perfect in every way.  

This is the classic answer of those who "think" its a good idea but cannot even begin to explain/defend the bill when confronted with basic objections.  The line is "you haven’t researched the bill" or "visit fairtax.org" as though all the objections are answered in either, but the reality is that people like this are unwilling to dig deep enough into it to discover the answers for themselves and are thus ignorant to the true effects of the bill.

What is most ironic is that it is likely someone like Kramreg that would be most harmed by this bill yet he/she is the most unaware!