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I’m retiring in January, 2010. I have some comfort savings. This is money out of my income on which I have paid taxes.
Now you want me to pay taxes again on my savings as I spend that money to fund my retirement? I’ll be taxed twice on the same income?
This is a screw the Boomers tax.
The part I like best is that the Fair Tax would “close all loopholes.” Governments, charities, religious organizations, and educational institutions would pay the “Fair Tax.”
I worry about the tax system restructuring that would need to be done in order to move from an income to a sales tax. I don’t trust politicians to “close all the loopholes.” Certainly, I don’t want a federal sales and income tax. The fair tax is a no go for me unless the sixteenth amendment can be successfully repealed.
Fred, Think of this, with the embedded taxes of approx. 22% you already are paying this tax. The Fair Tax will only replace the embedded taxes you are paying now. Plus you will be able to look your children and grandchildren in the eye and tell them you helped pass the most important tax legislation in our country’s history. As well as transfering power back to the people.
The effect on your savings will be the same either way. You will pay taxes either because the cost of goods and services already include income taxes, OR if we switch to the Fair Tax, the cost of goods and services will include the Fair Tax but NOT income taxes. Either way, it’s the same net result.
Cannon – of course the income will need to be repealed. That’s the whole idea.
Sorry, I meant the income TAX will need to be repealed. Early morning typing here.
Cannon, The Fair Tax requires that the 16th amendment be repealed. What you shpould fear is a VAT tax along with the current income tax. DC is already floating that balloon.
Fairtax really could help out the working poor. The problem is that it is also a huge tax break for the most very wealthy tax payers. One way around that is to pair Fairtax with a tax on assets over say $5 Million per family. You could even adjust that asset tax so it would only come out of the _increases_ in family wealth at the high end that accompany introduction of fairtax. Without those kinds of protections in place, fairtax ultimately becomes a tax weighted towards middle income/middle asset holding families.
I have followed the Fair Tax issue for years. I have read both books written in part by Neal Boortz. I think the Fair Tax would be the best thing this Country could do for itself.
When an honest person buys something the tax is on that something. When a drug dealer or tax dodger buys something, he also will pay taxes on what he/she buys.
The embedded tax that we pay now on all items would be eliminated. We cannot, however, let it up to our Congress to make the changes. It must be done by we the people. It is a simple as that.
Randall … you state “The problem is that it [Fair Tax] is also a huge tax break for the most very wealthy tax payers.”
Assuming that it is true (it depends on how much they spend), why is this a problem? How is this a bad thing if the same federal revenues can be raised and result in a tax savings across the board? Remember, the Fed Govt under Fair Tax is getting revenues from tourists and from those paid “under the table” thus expanding the base of tax payers and thereby spreading the burden.
Isn’t it a good thing … one might say, a fair thing … that these groups pay to support the US govt? Tourists have a stake in having a stable US govt … so that they are safe to visit here. Those paid under the table … well these are currently avoiding the current income tax system (illegally?) and should be paying their share anyway.
So help me understand why a tax break to the wealthy is a problem. Don’t we need jobs right now? Doesn’t job creation require investment in business? If the wealthy have more money, don’t they have more to invest? The more they invest … isn’t there more money for expanding business?
The Fair Tax will finally get us out from under the thumb of special interests’ representatives aka, Congress and the White House. It will give the power back to the people and eliminate “incentives” designed to control behavior.
Fred – in addition to Mike’s reponse
In addition to the small net difference when the embedded income taxes are removed from the cost of goods and replaced with a transparent FairTax, you would also be receiving a monthly prebate to pay the taxes on goods up to the poverty level, all the “Boomers” on a fixed income will benefit greatly from that. FairTax also replaces the regressive Social Security tax with a portion of the progressive FairTax, which will save Social Security from bankruptcy. These are both benefits of the FairTax that the retiring “Boomers”, and everyone else on a fixed income, can really appreciate.
While the FairTax has its problems, when you research them they are nothing compared to what we deal with now…and everyone comes out ahead.
Yes retirees will be ‘double taxed’ so to speak…but you either pay the 19-25% embedded taxes now along with all the others or you just pay the 23% and thats it.
I’ll be happy to answer any questions anyone has on the FairTax. Just go to http://www.OKFairTax.org and contact through the ‘Research & Education’ link.
No BS, no political work around answers….just clear and to the point!!
Keep the discussion going!!
FYI there is a sunset clause in HR.25/S.296 (The FairTax) that requires the 16th amendment to be repealed by the end of the 7th year.
If it’s not done then the system will revert back.
Try telling America they’ll have to go back to the old ways unless this is done….it WILL get done.
How about this on your hat…
“Support the Candidate
I’d like to clarify a couple points to your argument that will hopefully make you see that your proposal is unnecessary and at its core defeats the purpose of the FairTax. First, the wealthy will still pay the majority of the taxes under the FairTax and they won’t see that great of a windfall. The wealthiest individuals make the majority of their money through investing, not working. Capital Gains taxes are only 15% (at least through 2010, after which they are set to go back up to 20%). Second, there is all the non-working wealthy. They earn little, except off investments which are again taxed at a lower rate that most people’s income, yet they spend a lot. Think trust fund babies.
Also, having to track incomes eliminates the hundreds of billions of dollars saved by not having an IRS not having to confirm that hundreds of millions of people are in compliance. That’s all money that could be better spent on goods and services.
I am not sold on this Fair Tax. I am retired and comfortably in the 25% bracket. 2 years ago with medical deductions my actual tax was 7.9% Last year it was approximately 10%. I have asked some experts on line how the fair tax would benefit me and I get only vague assurances that it will.
I would prefer to see an income tax with NO deductions both for personal and business use. Of course the tax rate would be much lower so that for my income the rate might only be 10%. I favor a graduated tax rate based on the philosophy that we are a nation of laws and those with the most money are best able to deal with the laws. eg Think OJ. For business it would just become another expense like utilities but possible because the tax rate would be low.
A big problem for me is that the Fair tax calculator at the Fair Tax site simply cannot handle folks collecting social security and other income. It provides a rsult which is completely wrong. If folks want to sell the Fair tax to Seniors they need to fix the calculator NOW
Be sure to compare apples to apples. You mention a 7.9% and 10% tax for years 2007 and 2008, respectively.
If you are comparing these values to the 22-23% of the fair tax, then don’t forget that this percentage is only applied against NEW retail purchases. Buy used items and you don’t pay the tax and your income is not taxed. PLUS … you get a prebate each month from the government.
Since you already know your 2007/8 tax rate, you can compare FairTax by multiplying your retail products+services by 17% (not the embedded 22 or 23% … see PS below for why) to see how this number compares to the 7.9 / 10% in taxes you paid the last couple of years.
THEN consider that you will be getting money back each month. (Unfortunately, I do not know off the top of my head what this is – and it does change based on size of household.)
If you don’t mind … can you do these calcs and let us know? I would like to see the ratio of FairTax-to-Income for 2007/8. This would place the percentages on an even comparison.
Final note: You have no choice in the 7.9-10%. With FairTax, you would have control over your taxes simply by controlling your spending.
PS: Calculation of 17% is based on:
– Assumption that Corporate income taxes account for 10% of current retail product pricing
– Use of 23% embedded income tax
– Consider the impact on a $1 purchase from 2007/8
$1 would reduce to $0.90 due to no more corp income taxes. Now … what sales price reflects a 23% embedded tax? = ($0.9)/(1-23%) = $1.169 => approximately 17% price increase (~ 26.9 cents of FairTax on a 90-cent item).
I would like to do that if I can find my Mastercard statements. I will look. However, I do not know what is fair taxed. Is it all goods and service? Doctors visits, lawn service, food, restaurants, legal fees etc? Since I am retired all of my income is disposable and I spend more than I might otherwise spend if I were still working.
I did notice that my IRA withdrawals which must start next year would not be taxed and that is a big plus.
May I suggest that all those folks who question the Fair Tax read the books on it. Amen
Hi everyone. Wow I can’t believe the comments that really are incomplete. The one that stands out to me is the one about “a retiring person and retaxing previously taxed income. I myself will hopefully be retiring soon and I have thought about how the FairTax will retax my saved money. But wait! Will it really? If you really read the bill closely and study it as long as I have you will find that you will actually pay taxes on what you spend anyway and almost double at that under the income tax. With the income tax eliminated, and the FairTax replacing the embedded taxes you keep all your earned money and prices will basically stay the same. You will be paying the hidden taxes but not income taxes. Then I also realized that if I went and got a part time job or started a small business, the benefits far out weigh what I would have been taxed under the current system. No matter what I do to keep myself from going stir crazy, to make money, I will keep it all! Only to spend it as I wish and pay the FairTax as I go. I see the FairTax as an opportunity to make a pile of money at retirement instead of a barrier. The FairTax will creat a business boom that will be unbelievable. Make it all… Keep it all! Pay taxes as you spend… Like this… Say you make $75K one year and you only have to spend $50K to provide for your family… You are taxed on the $50K as you spend it, not the Total $75K. Oh and if out of the $50K you purchased used products there will be no tax on it. PLUS at a lower rate! I could go on and on… but… I’ll sign off for now. John Maddalla DD NY-21 FairTax13@aol.com
I went back to 2006. My income was higher then due to much higher interest rates. I paid 8.7% of my adjusted gross in tax. Ignoring medical expense I would have paid about 6% more in a 23% Fair Tax which I might be willing to do to get rid of all the paper work needed for the IRS. If medical services are taxed than the numbers are absurd even if the tax is only on the dollars I pay out of my pocket. Now this also does not take into account the prebate. If the prebate is 23% of the poverty level then things are more even
Still I prefer my no deduction income tax. Since the IRS would need far fewer people to process these returns they could use the excess people to investigate unreported income and as a result tax collections should rise a great deal. That way there is much less chance of unintended consequences popping up. What happens to the demand for new cars and the price of used cars for instance. Although it does not affect me what happens to casinos which must reduce the odds of winning in order to pay the tax. What happens if sellers go to an all cash basis, fudge records and under report there dollar sales volume?
Some of the major points for seniors I address to audiences with respect to the FairTax include:
1. Any income you receive from any source will not be taxed by the Federal Government in the form of an income tax as it is under the current Internal Revenue Code of 1986.
2. Social Security will be indexed using the “national sales tax factor” in conjunction with the “Consumer Price Index” to compensate for changes to the CPI resulting from the transition to the FairTax. This will be used to increase or decrease the annual cost of living (COLA) adjustment to Social Security payments as may be affected by the FairTax after implementation.
3. The typical 2-person senior family on Social Security will receive, in the first 3 days of each month, a prebate/rebate of $415 ($4,982 annually) using the 2009 prebate figures, and this is in addition to their full Social Security payment.
4. Only new items will be taxed at the 23% inclusive / 30% exclusive sales tax rate, used items will not be taxed if the subject item has been previously taxed under either the current tax code or the code as amended by the FairTax Act of 2009.
5. Any money that seniors may wish to give to anyone and with special consideration to family members, there will be no tax on that gift regardless of the amount as gift taxes are repealed by the FairTax Act.
6. Seniors will not have to do costly time and money financial planning for bequeathing money to their heirs upon their death as there will be no more estate (death) taxes.
7. The embedded taxes in products and services today are made up of hidden costs that include employer-share payroll taxes, corporate taxes, and tax code compliance costs that will be eliminated or significantly reduced under the FairTax to provide a wider margin for competitive price decreases among goods and services sold in America.
8. There will be no need for IRAs and other similar tax exempt/deferred programs since there are no taxes on investments and savings and their benefits in the form of dividends or gains.
9. As individual taxpayers, there will be no federal tax filing and if still running a business as a senior, the filing is significantly reduced plus there are incentives paid to those businesses filing their monthly report and remitting taxes on time.
I can go on and on, but, hopefully, that paints a good picture of the FairTax benefits vs the current tax code which, in addtion to the marginal individual income taxes, loads the sale of every good and service in America today with multiple, cascading taxes.
For an outstanding compilation of the Americans For Fair Taxation research on the benefits of the FairTax, please go to the Florida FairTax Educational Association, Panhandle District website at http://www.fairtax.org/florida-panhandle. You will also find here a unique 63-slide presentation in both Power Point and pdf format and an accompanying script in pdf format that provides a 3-part program … An Abbreviated History of Taxation in America, The Impact of the 16th Amendment, and The Better Way –The FairTax. Read this and H.R. 25, also available on the site under the heading “Undergraduate Level Training” in the OnLine FairTax Training section, and you will be more knowledgeable than most Americans with regard to Federal taxes and the Fairtax.
Florida FairTax Educational Association
I find that the people who object to this tax the most have never read the two Fair Tax books that Neal Boortz and John Linder authored together. I believe that this is probably true with most of the vocal objecters. Why bother to educate yourself when you can outshout the others. The most amazing comment that I hear when I talk to people about the Fair Tax is that they did not pay any taxes because they got a refund. You have just got to wonder about the level of tax comprehension people are aware of.
Tax reform is the first step to all other reforms. Imagine a future America with the Fair Tax instead of income taxes; a higher rate of self employment; a strong cottage industry; and an old fashioned independent banking system with privately issued currencies that are interest free and 100% backed by verified gold reserves. I support the Fair Tax because it breaks the barriers that stand in the way of that future.
The points you pose, unfortunately, reveal what is true of most Americans today and that is the failure to understand just how much federal tax we ALL pay and particularly on EVERY product or service that we buy, and especially through your doctor. In the case of a doctor, and lets say a self-employed one, in that bill you or your insurance company pays (and you pay for the insurance) is 15.3% of the doctor or doctors’ salary that he has to pay for both the employee and employer’s share of his or her payroll taxes. Then add in all the income taxes he pays as self-employment taxes or corporate taxes. Now, add in the employer’s share, 7.65%, for payroll taxes for every employee he employs. Next add in the payroll taxes, corporate taxes and huge tax compliance costs of every company that made every single nut and bolt of every piece of equipment and supplies the doctor uses, plus the lease, rent or mortgage on his building, all with embedded taxes that have been “cascading “ to you since they were raw materials. Also add in all the insurance that doctor pays for general and malpractice liability insurance each of which has one or both explicit and implicit taxes in the premium the doctor pays and passes that right to you, the customer-patient. Oh, you also pay embedded taxes too in all the health insurance as well as other insurances you purchase, you just never see a receipt for it.
Al, if you have not heard this before, this is one thing you must understand, only one entity pays taxes in this country and that is a wage–earner, YOU, the final consumer. Just like your doctor, I, as a small business owner, dump every bit of the tax I am expected to pay in the price I charge for my services. I do not provide products, I provide services much like your doctor. In my case, I pay 15.3 % inclusive (18% exclusive) payroll taxes, plus another 20% inclusive (25% exclusive) income taxes on my services. (Did you stop to think that when you pay income taxes you also pay (or paid) income taxes on the payroll tax you paid, because it is not deductable … that is double taxation !!!) I am retired and the additional income places me in the 20% marginal tax bracket. So, I have to collect from my customers 35% inclusive (54% exclusive) additional fees to cover my taxes, plus the additional consideration I give to what I pay in the average 22% of goods and services I purchase. Bottom line, I charge my customers a minimum of 40% to 45% inclusive (67% to 82% exclusive) more above the basic service charges just cover my taxes!!! If I had the FairTax, I would not be paying the 15.3 % payroll taxes, the 20% income taxes and the other embedded taxes, especially on my business-to-business services. So on every $100 I want to make today, I charge a minimum of $167 which under the FairTax I can reduce that amount to $130. Your doctor is doing the same thing, as well as everyone else that provides him goods and services, some more, some less and he may have the same advantage as I to drop his costs too. But, only 2 things determine prices, the amount of money the government prints (its valuation) and the market price … period!
So, you are paying, if I interpreted your figures correctly, 8.7% “average” income tax which I again assume you mean the “inclusive” rate (9.5% exclusive) and at least 22% inclusive (28% exclusive) embedded taxes on every good and service you buy. Under the FairTax, and I will assume you are a 2-person household, you will pay NO Federal taxes (except excise taxes that will continue as they do today) until you have exceeded purchases amounting to a total of more than $21,660 (prebate allowance) and then you will pay 23% on the new products and most all services that you buy … you will come out ahead with the FairTax over what you would pay through the current system of federal revenue collections.
As to your mention about the IRS employees, of which there are over 90,000 employed solely by the IRS within the Dept of the Treasury, which costs the American people annually over $10 billion to operate, nearly $5 billion of that for enforcement operations alone, being able to collect more of the outstanding taxes due is another misunderstanding of the American public. It is not always those that cheat the system that place a greater burden on the honest taxpayer, but the system that cheats the average-wage earning American taxpayer that is the problem too. In 2007, the IRS reported 7,389 tax returns with an income in excess of $200,000 in which the filer had no taxes due … legally!!! That does not include the tens of thousands more that made considerably more income than you and yet paid many times less than you and again, all legally. Why … because of special credits, exemptions, deductions etc that the system provides the means to do if you have a good accountant to figure it our for you, but even then, he is most likely wrong as you have been too over the years and never knew it, but that is another novel on another day!
The used car issue is one that comes up often and is easily explained. If you buy a used car from a business or private party and the taxes were paid either under the current system or paid under the FairTax on a previous sale, then no new taxes are due. However, if that party say is Hertz that bought that car as a business-to-business purchase for their rental business and never paid tax on it as is not required under the FairTax, then Hertz will be required to collect taxes from you equal to 30% of the Fair Market Value of that car at the time of purchase by you. Now, if you go buy a used car on which the taxes have been previously paid and buy it from a bona fide, registered dealer you also will not pay another Federal sales tax on that car, but (always a but) you will pay a 23% inclusive (30% exclusive) tax on the servicing and all new parts added to that car. So, if the dealer got the car for $1,000 and sold it to you for $1,500 then he owes tax on the amount over $1,000 which is $500 x .23 = $115 leaving him with $385 for the sale of the vehicle. As to people rushing out to buy only used products is a hypothetical situation that has not and will not occur in America because we are a culture that prefers new things over old things.
As to cheating the system under the FairTax, it will be more difficult and there are, for once, incentives not to do so. Under the FairTax, we go from the 178 million tax filers today to about 30 million since only businesses and taxable employers file tax reports and remit taxes. Also, the states will be responsible for collecting the FairTax unless they defer to the new “Sales Tax Bureau” within the Dept of the Treasury to collect the tax. Every bona fide seller of both taxable and nontaxable goods will be required to be registered with their state’s “Administering Authority” or the Sales Tax Bureau and this creates a “chain” on the flow of goods that leads from the seller back to the producer or importer. So every stage would require a cheater to defeat the process and that is difficult to accomplish. Next there is the incentive to be honest about the taxes due because each seller of taxable goods and services is entitled to a minimum of $200 or .25 of 1% of all taxes due each month assuming that both amounts exceed 20% of the taxes due, then the less amount under $200 is paid. Also, there is a hotline to be set up to anonymously report abusers of the system to which the caller may receive a reward. So, all in all, orders of magnitude easier to enforce and greater expectation for more compliance than with the current system.
This got too long, but hopefully, you will see that your contemplation of how much tax you actually pay is far beyond what you think and the ability to cheat the system is far more difficult too.
Florida FairTax Educational Association
The real problem today is the current administration and the general population that truly believe the rich people got away with something over the last 200 years and need to pay. A fairtax is just that fair. If you think that this President is going to make make everyone pay something you are crazy. He means to make rich people pay until everyone is at the same level in society. Rich people are bad and always have been bad according to Mr. O. When you have the communications Czar praising a tyrant that killed 60 million “rich” people you know you have a real difference of opinion here. Obama and his buddies are in this for revenge and retribution plain and simple.
Lets hear it for hope and change,
Thanks for posting your findings on your situation. As you can tell, they serve as an excellent talking point for this forum. I can certainly understand your position prefering a no-loop hole income tax system (you used the term no-deduction).
The last item I would like you to consider is the impact on your estate given the existing system. That is, the estate tax (or death tax). This too goes away under Fair Tax.
As such, not only does life for everyone become simpler while they are alive but it becomes simpler for their kids when the time comes to pass the family fortune on to the next generation.
You mentioned a scenario wherein a cash-only company could “cheat the system.” This is actually nothing new. Such businesses are already incented to do so under the income tax system. If we would agree that no man-made system can be perfect, perhaps we could also agree that this scenario is not something that any system could eradicate. State and local tax authorities have, do, and would continue to have jurisdiction and incentives to find and punish such viloations as part of their on-going sales tax collection efforts.
Thanks again for giving us your case as a talking point!
You are entitled to your opinions. But I hope the FairTax movement won’t devolve into name-calling. One of the appeals to me has been the positive nature of the concept and the people who are promoting it. The bill has bi-partisan support….you will only keep it that way if you steer clear of the political noise & rhetoric that prevents real and meaningful change from occurring in this country.
It seems like business is still getting hit hard. Is anybody seeing an upswing in their respective niches? Health reform seems like a mess. I generate long term care insurance leads and annuity leads for the insurance industry, but volume has been terrible in the last two months. I am afraid the worst is yet to come, but maybe it is just my attitude.
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