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Basics of the Fair Tax

This article was written by in Taxes. 31 comments.


Now that Tax Day has come and gone again, and anger is subsiding, let’s spend some time thinking about what a better system might look like.

Have you heard of the “Fair Tax” proposal? I may be late to the knowledge party (Flexo mentioned it briefly in December 2007 when comparing presiential candidates’ ideas), and it’s likely I had disregarded it because I was confusing it with various Flat Tax ideas, which failed miserably in the 1990s. But it’s different; here are the basics:

It’s a Tax on Spending and Nothing Else

Let’s start with the greatest part first: Federal income taxes get repealed. This includes personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. That’s just about all the big boxes on your 1040. Instead, the Federal government collect revenue from sales of new goods and services (unlike Europe’s VAT idea, used goods are not taxed again).

According to the people who’ve calculated what would be a “fair” tax, a national sales tax of 23% would completely replace the need for all those kinds of income taxes. We’d be collecting the same amount of revenue. In short: because you take home your whole paycheck, the amount you spend or save is entirely up to you. Things in the store would appear to cost more than you’re currently used to, but a $77 item would still cost you $77 (read the complex bit contrasting tax-inclusive and tax-exclusive).

Wealth isn’t Penalized

Under our current progressive income tax system, you’re taxed more when you earn more. Subsequently, wealthy people (for whom I admit I do not yet feel sorry) are likely to complain that they are being “taxed to death”. The most common understandable complaint sounds like this: I don’t benefit x% more from common Government services more than anybody else, why should I pay x% more? And the unsatisfactory answer is always: because nobody else can afford it. (Then the argument goes off onto various tangents, some of which make sense.)

In the Fair Tax proposal, you choose how much you get taxed by choosing how much to spend. One of the assumptions behind the proposal is that if a) you already have plenty of extra money after your budgetary needs are met and b) you’re taking home your whole paycheck, that you’ll buy things that you want. I know I would, and I’m not exactly wealthy.

It’s Meant to be Revenue-Neutral

Replacing Federal income taxes with a 23% Fair Tax is supposed to mean that almost* all common services being paid for will continue as usual.

I ran our household finances through the Fair Tax Calculator and came up with these results:

  • 2.40% more spendable income
  • $1,984 more purchasing power
  • $3,114 less federal taxes

These are fairly modest differences, which makes me feel better, and helps convince me that the idea really is “revenue neutral” and not a scheme to shut down Government services without considering the consequences.

* Taxes would be much, much simpler, and so the IRS would probably have to lay off some people. CPAs, likewise, would probably need to find other work.

Essential Goods and Services are Not Taxed

Well, sort of. Just like many groceries don’t have sales tax applied now, there are essential staples that none of us can live without that under the Fair Tax plan, you would get reimbursed for. The novel thing is that you’d get a “prebate”: a rebate before it happens. This is different depending on the size of your household, see the full table.

Conclusion

I’m not ready yet to conclude whether this is a better idea. It’s certainly simpler, and on its face it’s very tempting and does indeed seem more fair. I’m going to keep reading all the Pros and Cons I can find (from only reputable news sources, naturally). In the meantime, I’d love to get your opinion.

Start by comparing Fair Tax to Barack Obama’s tax plan and browse the FAQ, where proponents have answered nearly every question I had.

Finally, this isn’t just an idea floating around in the ether. There is a bill proposed in the U.S. House that is up for consideration. If you like the idea, I encourage you to call your congresspeople.

Updated June 18, 2014 and originally published April 17, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 31 comments… read them below or add one }

avatar Erica Douglass

I’ve read up on the fair tax previously, and while it sounds good, it would take a lot of adjustment. Like it or not, our current economy is driven by consumer spending. Having the tax taken out when you buy products instead of when you get paid is a major mental shift for many, and may cause a stark drop in spending.

NOW, the good news is that if you are a fan of Austrian economics, as I am, you know that eventually, a dollar saved and either invested in a stock or put in the bank helps the economy out in the long run as much as a dollar spent. So long term, this could be hugely beneficial.

The other problem I have is that it taxes services, putting a huge burden on small businesses to collect these taxes. I ran a small service business and the small business advocacy groups always fight hugely whenever a state tries to tax services. It may also eliminate the “bonus” of buying online from a retailer; I couldn’t find that addressed in the FAQ. On the one hand, closing that loophole would be great for government revenue; on the other, it’s bad for us.

California already has a 9.3% income tax AND a 9.0-9.75% sales tax (depending on county) and it still doesn’t seem to be enough; this also isn’t really well-addressed. Some states, such as California, have spent so far beyond their needs and have so many pension obligations that the only true long-term solution is state bankruptcy. This doesn’t really address what states like California would do under this new system, though that may be asking too much.

-Erica

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avatar CitizenKnow

Erica,

Business already has the burden of payroll tax. Are you suggesting collecting a sales tax instead would be harder yet?

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avatar SJ

Uh what happens to state income taxes?

It could be phased in federally. lower income tax but higher sales tax and what not i imagine?

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avatar Yana

Absolutely NO. I prefer a flat rate income tax with no deductions. That is what is fair. The problems now are not because there isn’t enough tax collected, but mismanagement and seriously wrong values and priorities.

If there were a 23% tax on purchases, I would be purchasing even less at any income level I might have.

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avatar SJ

Depends on how you define fair =) That we pay the same amount of $? That we pay the same %? That we pay the same $/services?

You’d be being irrational if you were changing your lifestyle significantly due to sales tax =)

That said, it depends on what you see the govt’s role is right? Something like that encourages people to save save save…
Pure income tax encourages spending (kinda).

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avatar Yana

Same percentage for everyone, regardless of income level. No deductions. Not sure what you mean about $/services.

I do alter my spending based on what is imposed on me, and vote with my wallet. When I have a choice, I like to exercise it. My only complaint about taxation now is the mismanagement of the funds. I don’t generally complain about having to pay. I accept it and live accordingly, but the more taxed I am along with not being provided value for the dollar, the grumpier I get and the less I want to contribute to the economy.

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avatar SJ

Haha… Paying more and getting less! That’s how all compaines operate right =)?

Assuming the goal is the same revenue…

In terms of your version of a “fair” tax — Let’s implement a basic cost of living deduction that is equal to the minimum you need to live off of. Sounds reasonable?
By taxing extra money on top of that equallly the rich will end up with more money than they would have (compraed to right now). Since they have more they can invest more make more blah.But by doing that you encourage wealth imbalance that results not b/c of merit but b/c of just having more resources. Kind of lame… (I’m all for people making/having more for skill based reasons by leverage based is kinda less exciting)

My point of $/services is basically a question of is government ala-carte or buffet style? The rich and the poor “benefit” from the government but in different ways. There’s pure practical that the poor require more welfare than they put into society. However, doesn’t the govt provide lots of benefits to the rich? There’s the marxist arguments =)

The present system isn’t optimal. Pure fair %’s isn’t really “fair”.

I think a better question is what is the purpose of the govt? Is it to please lots of people? Please those that contribute more (as a corporation would lol)? What should they be responsible for spending money on? Is it their job to provide opportunities for the “American Dream”? Just random thoughts =)

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avatar Yana

Why is a deduction reasonable? What anyone needs to live off of, basically, is a matter of opinion. Whether a percentage tax or a (shudder) sales tax only, there should be no deductions or exclusions, if fairness is the goal. For instance, some have said that certain items under a sales tax system would not be taxed. Maybe like food. Right now, food is not taxed, but certain consumable items are taxed. I think soft drinks are taxed, but I don’t buy them at all. Other items, like cigarettes, have huge taxes included in the price before sales tax is applied. I don’t know if alcoholic beverages are pre-taxed like this, but think they are mighty sacred as compared to evil tobacco. There are fair ways to implement even bad systems. An income tax could be 8% with no games/deductions for everyone. A sales tax could be on every dollar that goes out, whether for housing, food or anything else. I don’t want to be told what is necessary or basic, and I don’t want any sort of value judgement on where I choose to spend my money. If every outgoing dollar is taxed at 3%, that could be fair.

A role of the government is to protect its people by acting for the good of the whole. And each of us represents the whole. A government that does not provide health care to every citizen is not protecting me, and that is a top issue with me. I don’t want to live among others that can spread their diseases to me due to being unable to access their choice in health care. I don’t want to use medical care myself due to the government putting me at risk, especially since I’ve already paid taxes, but they are deemed better spent at killing in wars than in healing and fortifying our own people.

avatar David

Not quite because money is just paper and as such if it is not spent (at which time it is taxed) than it is useless. So therefore he is taxed based on his standard of living not on his pile of money. Yes, it will be easier to mass a fortune but if he doesn’t spend that fortune what good is it?

avatar ess

The thing about this tax is that it would still be highly regressive. As earnings increase, the amount spent annually by an individual as a percentage of annual earnings decreases. Above a certain level (probably about $200K) the cost of maintaining a life remains largely the same from one person to the next, and the rest is gravy. That means that this tax will end up increasing the tax burden of people further down the earnings scale – i.e. How can I get a deduction if I’m poor if you pay the tax up front on every purchase? If I make $12,000 a year and get taxed on everything I buy at the same rate as somebody who makes a hundred times that, then I’m carrying a lot more of a tax burden than before, especially since I need more of my income as a percentage to be spent in order to just survive. These proposals seem a lot more attractive when your earnings are in the 70th percentile or higher, but they would further impoverish the people who haven’t been as lucky at the cost of the 5% that are making the vast majority of the country’s money.

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avatar Apex

I am sorry to have to break the news, but the “Fair Tax as it is now called has zero chance of ever being adopted as the primary tax system of the U.S.A.

There are many reasons why but the important ones are:

1. Huge legacy and investment in the current system. Changing what we have and going away from the ability of government to tinker with and control deductions and incentives via the tax system takes a huge amount of control away from them with respect to what they can encourage, discourage and who they can partially force to pay the majority of the taxes.
2. Perception by many that it is not only not progressive but that it is regressive. The argument has and will be made often that many at the top will pay a much lower percent of their income because they don’t need to and they don’t spend even a fraction of what they make where as the poor and most middle class spend almost all of it.
3. Many people in the retired generation (the highest voting percentage of any demographic) who have made their money, paid their income tax and are living off those funds now will definately do not want to take money they already paid income tax on and now pay sales tax on it and effectively get double taxed.

I heard all the same arguments in the 90s about the flat tax and since the early to mid 2000s they started talking about the sales tax which they have now called the fair tax and to me its all the same stuff. Both are an attempt to make the tax code less progressive. I prefer not to get wrapped up in the latest hype fad (like tea parties) and instead focus on what I think is based in reality given the current landscape and what I think is a reasonable thing to expect will happen.

We have huge debt and are running deficits higher than ever right at the very moment our whole entitlement system is ready to start vastly exceeding its funding and the proposals people are seeking after involve lower taxes and less progressive taxes? But it’s revenue neutral supposedly is the argument. Really? How is it that everyone who uses the calculator and every example the promoters give has people with more spendable income and less federal income taxes? The fair tax doesn’t create magical money, so if everyone pays less and the rich spend a smaller percent of their income so they surely pay less, who is paying more to get us to revenue neutral?

Sorry, this just aint gonna happen. Not in my lifetime. No way, no how. I will bet my entire net worth on it. And I have, which is why I am preparing for ways to minimize my taxes under a system that looks similiar to today only with higher rates and more progressivity. Unfortunately, that’s what the tax system will look like in the coming decades. Regardless of how well the fair tax crowd evangelizes their tax system it is never going to be adopted. I wish it were, but it’s not, so I focus on what is the most likely set of possible future tax systems and prepare for those.

I say this because I have had this discussion with many people who get excited when they hear about the sales tax replacing the income tax. I tell them that I agree its a better system. And I agree I would vastly prefer it. But I try to help them see that this is a lot of wishful thinking that isn’t even remotely close to having a good chance of occuring. Most won’t listen at first. But eventually they lose their excitement. I am not sure if they change their mind or not but they definately stop talking about it because it never goes anywhere. It’s fine to think about it in theory. However it should probably stay theory (like cold fusion) until such time as there is a good reason to believe it could actually happen.

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avatar Smithee ♦1,358 (Quarter)
avatar Apex

This is a neat little trick the promoters use but the issue isn’t whether the rich pay a higher percentage of their spending, based upon the prebate thats a mathematical certainty. But that has no bearing for comparing to the current tax system. Currently the rich (and everyone else) gets taxed on their income (less deductions) not their spending. So the real question is do the rich pay a higher percentage of their income under the fair tax system than the poor. The only way that happens is if they spend all their income. Do you think most people (other that stupid athletes and hollywood types) who make 10 million a year spend 10 million a year?

I suspect good business people who know the value of future money don’t spend anywhere near what their taxable income was. It is true that people who have access to means can find ways to keep their taxable incomes low but this all involves doing various business or investment expenditures to make the money deductible which also makes the money not available for spending. The money that is available for spending is income that you didn’t put into some tax deductible vehicle. And unless the rich spend every dollar of that, they are going to be paying less tax than the poor as a percent of their income. If they spend way less than their income like half or 1/4, they would pay a minimal percent of their income in tax as compared to the poor.

I am not even making an argument as to whether thats good or bad. But it is not fair to argue that the system is progressive by comparing taxes on spending instead of taxes on income.

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avatar Rassah

The first thing that popped into my head was that a huge increase on a sales tax in our GLOBAL economy is an automatic HUGE tax increase on ALL exports of our produced goods. “Fair Tax,” like many of the people who promote it, only thinks/works in nationalistic, enclosed country scenario. It just won’t work when our tax systems, along with out currency and product quality, has to compete on a global scale.
Also, France has a very high sales tax. From what I’ve read up on it, it’s REALLY not helping, mostly for the reasons sited by the opposing views (lower income people get clobbered).

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avatar Smithee ♦1,358 (Quarter)
avatar SC CPA

The fair tax is an extremely bad idea. As part of my grad school tax class we studied the different tax systems that were available and in practice around the world. By the end of the class the consensus was that while our tax system is extremely convoluted, it was better than most out there.

The problem with the fair tax and other spending based taxes is that it is a regressive tax-. ie it shifts the tax burden to the poorer members of our society. (And the links that Smithee posted about it being progressive are highly misleading.) As others have pointed out the wealthy do not have to spend substantially all of their income while the working poor do. To put it in perspective think of how much less taxes someone like Bill Gates would pay. I can’t even think of how to begin to spend that much money. While I can certainly imagine how easy it is to blow through the average person’s salary.

Yes filling out tax returns are a pain but to the IRS’ credit, they actually have programs in place with local nonprofits to help the low income members of our society get their tax returns filed for free. So even that is not a regressive cost :)

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avatar Jim

Its a VERY regressive proposal. It would hurt the poor and elderly and greatly help the rich. Their FAQs don’t come close to refuting that.

Apex is right that it doesn’t have a chance of ever becoming real.

Naming it “fair” is pretty crafty marketing.

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avatar Julie

This tax would seem to be hard on the poor who currently pay little or no taxes and even qualify for earned income credit. For those people, a 23% increase in goods and services with no increase in income (because they weren’t paying much or any tax) would seem to be a large burden. I am not sure how the fair tax would work in this situation, but will be doing some research to find out…

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avatar AJ

http://mises.org/story/3389

“So why is the FairTax not fair? Well, first of all, what’s fair about a consumption tax? Why is it that people who rightly criticize the income tax are so quick to accept a national sales tax on consumption? The FairTax perpetuates the fallacy that the government has a right to confiscate a percentage of the value of each new good sold and every service rendered. This is no different than claiming that the government has a right to the portion of each American’s income.”

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avatar Apex

As much as the fair tax being instituted is a pipe dream, the idea of the Libertairans of drastically reducing overall taxes with the goal of eventually abolishing them is much worse. While I would gladly support doing so, it’s irrational to hold out any belief for such a thing. This means no money for defense, no money for SS & Medicare, no government money for schools, no govt money for funding medical or other kinds of research, no govt money for police, and emergency rescue services, no government money for helping out the poor and underpriveledged, etc.

I understand that many Libertarians desire exactly that kind of government. But there is a reason why the Libertarian party gets less than 1% of the vote in almost any national or even statewide election (with a few rare exceptions). So out of the list of services the government can’t do without taxes you can guarantee you will find people of nearly every political stripe that cannot support eliminating that spending. You propose something that eliminates or even reduces spending in all of those categories and show me a congress in which you can even get 5% of the vote?

The reason to discuss other tax systems is to reach for what is possible, not for a fantasy. Unfortunately both no taxes and “fair taxes” are both fantasy. It’s just that no taxes is fantasy on a whole different level. I wish it were the case that we could discuss systems that might be better and possible. Unfortunately we only propose radical ideas that will never become law. This is why we continue to increase the monstrosity of a system we call the current Income Tax.

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avatar AnnJo

The Fair Tax has the advantage for the economy (and the disadvantage for politicians) that it would be less distorting of economic decisions and less misleading about the true impact of taxation on everyone.

For that reason, I agree with Apex that it is never going to happen. As Chief Justice John Marshall said almost 200 years ago, the power to tax is the power to destroy, and that is not a power today’s politicians will ever give up.

Anyway, the method of collecting the tax is only part of the problem, the other is its total burden, and that’s where it gets even uglier.

1. Between direct municipal, state and federal spending (as opposed to indirect taxes through regulation) , we’ve been at about 37% of GDP for the last few years, and the prospect for the next few years is a rapid climb to 50%, as government takes over health care, expands its control over energy, banking and housing and lowers GDP through cap-and-trade regulations.. I seriously doubt that a 23% federal Fair Tax on spending would be “revenue neutral” for long, if at all.

2. The illusion has been created that not only the poor but also the middle class can be exempted from the effects of taxation, so they are easily convinced that there is no reason to limit government benefits – that there IS a free lunch, or at least one where the tab can be passed on to “the rich.” The demand for more and better government services will be even harder to contain than it is now. A Fair Tax would change this dynamic, but, again, won’t happen.

3. We have made our funding structures so complex and obscure that growth in spending is virtually on automatic pilot, with the controls out of reach of the citizenry.

4. Every program, no matter how duplicative, useless or even counterproductive, has a highly vocal lobby and dependent class advocating in its favor, but hardly anyone in politics brave enough to incur their wrath to urge that it be reined in or, heaven forbid, discontinued.

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avatar Mike

The Hong Kong tax system is way better than the USA’s– only about 40% (the higher earners) have to pay at all, and there is no sales tax, no tax on interest, no dividend tax, and no capital gains tax. There also aren’t a plethora of credits and deductions, and the highest marginal tax rate is 16%. Oh, and it turns out this is enough of a tax rate for a territory of 7 million people to accumulate more than double the cash reserve that the USA holds, and with negligible debt.

On the other hand, there is a downside: there really aren’t very many accountant jobs in HK; that will tend to happen when the tax return is so simple that it takes literally 5-10 minutes for even the stupidest person to navigate. But forgive me if I imagine that our tax code should have a better rationale than to be a jobs-creation program for accountants.

Anyway, as an American living in HK, I’m grateful that the HK return takes only a few minutes to process; that frees up the 8-9 hours I need to complete my US tax return, what with all the credits and deductions and having to track down interest on my HK bank accounts for which I have no 1099 (and having to look up the exchange rate for each and every date that I have any kind of income or any kind of deduction). Only Americans, out of the whole world, would be sheep enough to think it’s acceptable to have a several-hours-long task imposed upon them annually by its government; and only the USA and its peer countries of Libya and North Korea would be tyrannical enough to impose income taxes on its citizens who live overseas. (Seriously, look it up: other than North Korea, Libya, and the USA, the rest of the world lacks the audacity to be THAT tyrannical– and that includes the democracies and the countries we generally call “tyrannical”).

So YEAH, I’ll vote for any politician who will replace the federal income tax with a “fair tax.” But as some of you have said, it’s not likely to happen any time soon.

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avatar Andy

Sorry I’m late to the convo…. Smithee, you seem to confuse wealthy people with high income earners. There is a distinct difference.

Being wealthy is not about how much you earn, it’s about how much you keep.

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avatar Smithee ♦1,358 (Quarter)

That’s a fair point. It’s probably because I know if I was earning more, I’d do my best to hold onto it.

Regardless, I’ll be more careful in the future.

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avatar Yana

We don’t have a high income at all, and at least for us, I don’t think we’d try harder to hold on to what we have if more were coming in.

I love this example of someone who understands what money is about, at least as far as making the most of what comes in – http://tr.im/i0C9 . It is really quite sad that he was punished for this understanding, for working and valuing himself and his earnings.

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avatar Michael Harr

The three primary criticisms I have of these types of wholesale changes in our tax code are thus:

1. Repeal of the estate tax is catastrophic
2. Eliminating deductions for charitable contributions is lethal
3. Increasing taxes on the poor is asinine

First, if we repeal the estate tax, then once an individual taxpayer reaches critical mass in assets, there is no sales tax high enough to prevent them from expanding their asset base. This means that if there is no tax, conceivably Bill Gate, Warren Buffett, et al could end up owning the entire country at some point in the future. If you don’t believe this, a study concluded that had estate taxes not been around in Italy, the Medici family would now own the entire world. Anything eliminating the transfer of wealth on a progressive scale is catastrophic in the long-term.

Next, if deductions for charitable contributions are taken away, it will be left to the good nature of our citizens to determine if they want to give. Unfortunately, we are not as giving without tax incentives as we are with incentives. As a result, many charities would simply fold leaving these constituencies in peril. Killing charities…bad idea.

Third, the poor pay no federal income tax currently, but under the ‘fair tax’, they would effectively pay more in taxes than today. Even if you exclude basic goods and services, they would still find something to purchase outside of the defined ‘basic goods and services’. The result is the poor become poorer and I’m betting they wouldn’t be happy about paying more taxes either.

There are many other issues to consider and our current system isn’t perfect either, but what we have now is still far, far better than what I’ve seen in these new proposals.

Something I don’t have the time to elaborate on, but will sometime down the road is that what has made our country so strong economically is that we have a legal system, tax code, social programs, etc. that support mobility between socioeconomic classes. With respect to graduated taxes coupled with incentives and penalties, we provide a robust platform that supports this mobility. The discussion is much more complex than simply ‘I think everyone should pay an equal percentage’.

The role of taxation is an incredibly important part of preserving, as our founders put it, the Pursuit of Happiness. We have to consider all of our citizens, not just the simple majority. The reason our tax code is so large is that we have sought for over a century to get this right. While it’s not perfect, it’s certainly better than an undiscerning flat or ‘fair’ tax that fails to fully account for all of the issues involved with preserving socioeconomic mobility.

At any rate, great topic and very entertaining comments!

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avatar Yana

“Undiscerning” means fair to me, in this context. I don’t see a reason to hate and punish the rich or the poor.

I believe: There should be no estate taxes. If charitable giving isn’t from one’s good nature, and only for tax write-offs, that isn’t charity. It’s another game. True charity doesn’t seek a tax write-off, and while we’re on the subject of charities, “non-profit” is anything but if there are paid employees. It amazes me that many people think a non-profit organization is clean and apart from capitalism. But that’s marketing for you. It’s a designation some seek for certain benefits. I personally think it is more beneficial (and honest) to admit motivations and keep the “for profit” designation.

I don’t see a reason why taxation should not be simple. Increasing the rate of taxation based on income is of the “keep ‘em poor” mentality, the same one that orders poor people to dispose of income in order to qualify for poverty benefits. This is also a way of teaching (or reinforcing) the poor not to value and save their money.

I dunno. It sure seems that some people are allergic to money, and to the idea that someone else might have more than they do. Even organized charities aim to ensure that the recipients don’t thrive, but merely survive – and not very well, at that. A houseful of toys at Christmas does not fill anyone’s stomach.

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avatar Michael Harr

Yana:

The argument you make is not dissimilar to that of the argument for additional taxes or cap and trade with respect to environmental costs not considered in business. By eliminating favorable deductions for charities, it would immediately shut down a large number of charities that are funded by very complicated, large dollar charitable trusts, not to mention the average person’s reduction in contributions. A shift of this nature would be catastrophic for charitable interests in the short run. This is the same type of catastrophe that could be created if we added a tax to corporations for the full extent of the cost of cleanup of their pollution.

While it would be nice to live in a world where charity was strictly from the heart, everyone maximized their potential, and government assistance wasn’t needed, we’re simply not there yet.

With respect, if you don’t want estate taxes, you are out of your mind. If any one person possesses $43 billion, he/she couldn’t spend the money from investment returns meaning that the amount would grow at an increasing rate. If you were born into a family that wasn’t poor, but didn’t possess this kind of wealth, you would never be able to catch up in your lifetime. What’s worse is that none of your children or other descendants would be able to reach that level either. The $43 billionaire would be worth a trillion dollars by the time your grandkids were in the grave which serves only to increase the wealth gap. There is a point of critical mass that is reached where without an estate tax, the ultra-wealthy simply go on to own the rest of the world.

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avatar Charley Whited

I’ve been reading through a long list of reasons why and why not to support the fair tax. I don’t claim to be an economist or tax expert so if I seem uninformed then cut me some slack and just encourage where I may be right or correct me where I may be wrong. I seems to me according to what I’ve read about this thing, is that it would basically be a tax only on the new items I might or would buy as opposed to the unbearable weight of the current tax system. It seems that a lot of the criticism is that this would be unfair and an extra burden on the poor and less fortunate in the country. Now, I don’t think I would even be considered middle class in America considering that my average household income rarely exceeds $35-$40,000 annually. Nevertheless, when I go to the checkout line at Wal-Mart or Lowe’s or anywhere else I’m paying sales tax already. So does everyone else in the country as far as I know. Now if the built in taxes that are in each and every item I buy are removed and this 23% fair tax is added in place of that how am I any worse off than I am right now? If you throw in the prebate that is proposed I see that as a plus but whether I were to get that or not I don’t see myself as struggling any more than I already am. However, I do see that I’m not sending a chunk of what little I earn to Washington every year. For someone who makes no more than I do that’s a lot extra money for my family. Where am I wrong?

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avatar melogos

Our tax system is broken. The Fair Tax would produce more revenue than the convoluted system we now have in place. With the number of non federal income taxpayers approaching the critical mass of 50%, never before in our nation’s history have we needed to enact a fair taxation system more than now. America is experiencing problems in many areas. Sometimes, difficult issues must be addressed head on. The Fair Tax would insure that everyone would have the opportunity to step up and pay for the freedoms they so readily and freely enjoy.

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avatar Charles Pearson

The number of illegal aliens in the US is between eleven million to twenty million. None of these people would be eligible for the prebate, which means they’ll have to spend more money. The same thing would happen with international travelers and people who are living under the radar, such as criminals. I believe that when the FairTax was put together, no one thought to factor the people I mentioned above, which in turn means that the people who are behind the FairTax DID NOT factor in the extra income going into national coffers.

Another thing to consider is that there are trillions of dollars in offshore accounts. The Fed helps the huge companies to shelter their income. Many pay little or no taxes. GE is one example in the news. With the FairTax, this money would immediately return to the US, or to whatever other country is sheltering their huge conglomerates. Why? Because there would be no reason to put their money in offshore accounts, because companies would no longer have to pay taxes — not that they pay any income taxes in the first place. Keep in mind that most corporate taxes are currently passed on to regular people like us. Those taxes mean that we have to pay more for whatever it is we buy. But, with the FairTax, things will be less expensive because those taxes are no longer passed on to us.

And yes, we are already taxed at the counter with your purchase, but this is for the state. Some seem overly concerned about a tax at the federal level as well. A state like California is being mismanaged. Higher taxes are forcing companies to flee to other states. People “manageing” the state figure they have to raise taxes even more, thereby causing even more people to move out of state.

There is no burden in reporting a tax, anymore than it would reporting a state tax.

-Internet purchase taxes would be captured by US Customs and Border Control if from outside the US.
-The FairTax legislation allows states that conform their sales tax base to the FairTax
base to tax Internet and mail order sales to purchasers resident in their states.

NSBA (National Small Business Association) continues to advocate that the Fair Tax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of the United States’ current tax system. NSBA supports fundamental reform and looks forward to working with supporters of the Fair Tax to educate taxpayers about the proposal.

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