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Let’s start with the greatest part first: Federal income taxes get repealed.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.
Did you read my February balance sheet? This article contains my personal income statement, which goes hand-in-hand with the balance sheet. These two reports provide a relatively complete accounting of my financial standing and progress.
February was short, but good for a number of reasons. Setting personal records, my gross income and net income for the month were higher than any other month I’ve experienced. This was thanks mostly to the biggest month in terms of visitors to Consumerism Commentary since I created this website in 2003. It seems to be an anomaly; I expect traffic to return to normal, but it’s quite possible to see similar surges again this year. I don’t count on it, however.
I don’t generally like to write about blogging on Consumerism Commentary. I write about personal finance, not about blogging. On the bottom line in February, I managed to save over $22,000. Please keep in mind this is a theoretical amount; it depends on me receiving checks. There is still some income I recorded last year that I have not yet received. Keep reading this article for the numbers and explanations. [click to continue…]
This post contains my monthly income and expense report. If you haven’t viewed my January balance sheet, read that first. I review these reports on a monthly basis, though I may soon move to quarterly, to ensure my finances are staying on track and I’m making sound decisions with my money.
Many years ago, I worked for a non-profit organization and spent more money getting to work than I was earning. Eventually, spending more than I was earning presented financial problems, magnified when I lost my job, my apartment, and my girlfriend. Since then, I’ve been working to be more responsible with my personal finances. Not soon after, I started Consumerism Commentary to keep myself accountable in front of an imaginary audience. Now the audience is much less imaginary.
January was a good month in terms of income and expenses. If the rest of the year is like January, even if I experience no income growth, I will be in good shape. Of course, I would like to see growth, particularly in my business income. On the bottom line, I managed to save $10,923 this month, or 68% of my income. Keep reading to see the full report. Click on the thumbnail for a larger version of the report. [click to continue…]
On Saturday I posted my final balance sheet for 2008 and wrote about my progress this past year. Each month, I take a look at my income and expenses as well to get a fuller picture of my finances. This post contains my income and expense report.
December continues to be one of the most expensive months of the year. Continue reading for the details. For the end of the year, I included some yearly totals going back several years. To zoom in, click on the thumbnail version of the table. [click to continue…]
Along with the monthly personal balance sheet, which I use to track my net worth from month to month, I publish a report that outlines my income and expenses. The two reports together help me focus on the total picture.
My “extracurricular” income — money I’m earning outside of my day job through writing for Consumerism Commentary and a few other online endeavors — would have been lower this month if it weren’t for a surprise client at the end of the month. This push has propelled me beyond a six-figure income for blogging and writing.
Continue reading for the details, with numbers and explanations. You can zoom in by clicking on the report. [click to continue…]
Despite the 6% decrease in my net worth in October, my income and expenses were healthy. My income was at my expected level for both my salary and “extracurricular” income. October’s expenses were a little higher than expected, but still within an acceptable range.
Each month, to accompany my balance sheet, I publish my income and expense report to keep myself motivated to make decent decisions about the management of my money. I’ve done a good job of using Consumerism Commentary to hold myself accountable. As my income increased, however, I’ve allowed myself more leeway while continuing to spend less than I earn.
To see my progress, continue reading this post. Click on the thumbnail for a larger version of the income statement. [click to continue…]
While September wasn’t as bountiful as August, I’m still adding to my bottom line. Even though my balance sheet showed a decline, it was mainly due to unrealized losses in investments, not a lack of income.
Each month, to accompany my balance sheet, I publish my income and expense report to keep myself motivated to make decent decisions about the management of my money. I’ve done a good job of using Consumerism Commentary to hold myself accountable. As my income increased, however, I’ve allowed myself more leeway while continuing to spend less than I earn.
Over the last few years, a larger percentage of my income has come due to the blog itself, a situation that was not originally part of the plan. To see my progress, continue reading this post. Click on the thumbnail for a larger version of the income statement. [click to continue…]
I mentioned in my August net worth report that there were three main reasons for my 7.7% increase. One reason was the stock market, which slightly lifted some of my investments. The other two reasons should be apparent from the income and expense report that is included in this post.
My net income for the month was $11,582. That’s the highest monthly amount on the bottom line I’ve ever had when not including realized gains. In fact, my August total beats my 2004 full year total. Continue reading for the full report and details. Click on the image for a larger version of the report.
[click to continue…]
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