Fair Tax and the abolishment of the IRS

[johnnyapollo]

A couple of thoughts I wanted to share with the pending tax date. I was introduced to the idea of "flat tax" many years ago and thought that in general it was a good idea (in principle at least), however I had the same misgivings about it (impact on the poor, etc) as opponents. I was familiar with the FairTax idea but didn't really know the particulars - I just thought it was a rehash of the flat tax idea that had been floating around for a while. I'm currently reading "The FlatTax Book" and it's completely eliminated my misgivings as it's very different from my assumptions. I think everyone should read this book or at least research it, as there are many important ideas presented by the proposal.

Before going on, let me say that the largest arguement I've heard against FairTax has been the burden on the poor - there is an estimated 22% consumption tax on all goods and services that at the face of things seems to kill the deal (it's often used as the arguement against it). What isn't provided is the opposite arguement - Woud you pay 22% on the cost of goods you buy, if you didn't have about 30% of your salary withheld? With the elimination of the Federal Income tax, you get all your money - withholding goes away. So at the very least, there's a savings from what you make compared to what you buy. Also, the plan eliminates the following: Individual Income Tax, Alternative Minimum Tax, Corporate and Business Income Tax, Capital Gains Tax, Social Security Taxes, Medicare Taxes, Self Employment Tax, Estate Tax, and Gift Tax, all without lessoning the income the government currently attains via taxation (in other words, no change in the actual amount the US government collects so it's current budgetary programs would not be affected).

Besides which, everything is simplified and the costs of goods should decrease as all the embedded taxes are removed. I know I'm probably going to get a lot of responses as my statements so far are simplified, so bring them on!

-- John

[etlsport]

i dunno, i dont know much about the subject since all i know is what i read in your post.. but raising the price of items with higher tax but offsetting it with putting more money in the pocket of everyone sounds like inflation on fast forward to me, but I might not be understanding completely

[johnnyapollo]

I don't understand that comment - inflation is caused by there being more money in circulation that there are funds behind it - basically the dollar is worth less. How can having your money up front instead of having it withdrawn from your check cause there to be more inflation?

-- John

[etlsport]

oh, no I dont mean that it actually causes inflation, just a similar effect when it comes to buying and spending. The effect of inflation the consumer sees is increased prices, which doesn't much matter because he/she has more money in their pocket. 10 years ago, say a can of soup cost $0.50 and today it costs $1.00, but that doesnt matter much because the average salary in the country has gone up so people have more money in their pocket to spend on it. to me it seems that raising the price of goods to the consumer by adding an additional 18-20% in taxes but offsetting that by giving the consumer 30% more money in their pocket is similar

i dunno if im making sense, like i said I'm not familiar with the idea (and also dont have more than a basic understanding of the economy) that was just the first thing that came to mind. If im way off base i apologize and would love clarification

[johnnyapollo]

The FairTax accessed on goods is built into the price, sort of like VAT in Europe. So when you buy something that has a $1 price sticker, you'd be paying that $1 (plus any local taxes if there are any - the good news is that much of that local tax will probably go away as the built in tax for a manufactured good will no longer exist - local taxes should go down). Only the cost of new goods and services is taxed - used goods (including older houses) aren't taxed. Since you're only taxed on what you spend, it's up to you to decide how much you pay - higher consumption = higher taxes spent. Also, the plan provides a federal monthly prebate - basically a check from the government, to off-set basics like food (the more dependents you have the the less you make, the larger the prebate - it ensures that the poor aren't badly hit by the system). The prebate is only given to those that are registered with real jobs (people with social security numbers) so illegals and those working in the "shadow economy" (like criminals) would be paying taxes every time they purchase something - as would visitors to our country.

-- John

[tom4bren]

"Since you're only taxed on what you spend, it's up to you to decide how much you pay - higher consumption = higher taxes"

Doesn't this mean that the poor will be paying a proportionally larger burden of taxation since they spend more of their income than the rich?