Fair Tax

[Deke]

So I know that quite a few people on here are supporters of fair tax, and I just wanted to start a conversation on it.

I'm relatively new to the concept but, this is the basic gist of it that I understand. In the place of income tax, there would be a national consumption or sales tax (estimated around 23%). My original reaction to this was that it seems like a great idea. It takes care of any problem with tax evasion by US citizens or illegals. If they're living in this country, and buying anything, they are paying.

However, the more I thought about it, the more I saw a problem. In general, the wealthier you are, the less you live up to your means. For example, a blue collar worker supporting a family may very well might be squeezing by to make ends meet. Every week he or she buys $100 of groceries to which an extra $23 dollars are added for tax. Now lets say that after paying bills and such, at most they can spend per week for groceries is $150 dollars. That's almost their entire surplus of money. Now lets say a well-off white collar worker pays $200 dollars on groceries a week to which $46 dollars is added for tax. After paying bills and such, he or she has an available $500 dollars to put towards groceries. That means that only roughly half of what they make is going towards food.

I guess basically what I'm getting at is that consumption and income do not always have a linear correlation. It starts to plateau at a certain point. Which, from what I can tell, effectively provides the wealthy with a tax break.

Now like I said, I'm pretty new to the whole Fair Tax idea, and I'm not pretending to know everything about it. I may be totally wrong in my logic or there may be some important aspect (or many) of the system that I'm not aware of. This post is not meant to be a call out to Fair Tax supporters but instead just start conversation and the sharing of information.

I'm very interested in learning about it and seeing what other people's opinions are.

Sorry for the wall of text

[alpine_aw11]

For the family you were using as an example, they wouldn't have to pay $123 for a bag of groceries. With the fair tax they calculated the price of goods would go down 22%, so they would pay $101(if the figures are correct). I think you get some kind of check each year for the government too. Basically, you get more extra money from the Fair Tax than you would lose by paying 1% more for everything, excluding used stuff.

[BanginJimmy]

Every month you would get a prebate that covered the tax for the minimum basic necessities that a faily of your particular size should be spending. I dont have my book in front of em but we will say that comes out to 150 a month for a family of 4.

Alpine was correct. The fairtax would also remove taxes in business to business transactions so the average price of items will go down by an average of 22%.


If you havent read them yet, Neal Boortz and John Linder have 2 books out right now. The Fairtax Book, and Fairtax: The Truth: Answering the Critics. They answer 99% of the questions you would have on this.

I'll be the first to say that I dont think the Fairtx is perfect in every way, but I cannot find a single portion of it that is not superior to the current tax system we have now.

[joecoolfreak]

Although I do like some of the concepts and ideas behind the Fair Tax Proposals, I have a large amount of skepticism behind some of the specifics that it is based upon.

We shall start with an article from my favorite website: FactCheck.org

Unspinning the FairTax
May 31, 2007
We look at the numbers behind the numbers.
Summary
In our recent article on the second GOP debate, we called out Gov. Mike Huckabee as well as Reps. Tom Tancredo and Duncan Hunter for their support of the FairTax. We wrote that the bipartisan Advisory Panel on Tax Reform had “calculated that a sales tax would have to be set at 34 percent of retail sales prices to bring in the same revenue as the taxes it would replace, meaning that an automobile with a retail price of $10,000 would cost $13,400 including the new sales tax.” A number of readers pointed out that H.R. 25, the specific bill mentioned by Gov. Huckabee, calls for a 23 percent retail sales tax and not the 34 percent used by the Advisory Panel on Tax Reform. That 23 percent number, however, is misleading and based on some extremely optimistic assumptions. We found that while there are several good economic arguments for the FairTax, unless you earn more than $200,000 per year, fairness is not one of them.

Update June 14: In a letter, Americans for Fair Taxation wrote to say that it disagrees “very strongly” with FactCheck’s analysis of the FairTax. For their objections and our response, see the end of the “Analysis” section.
Analysis

How to Make 30 Look Like 23

Americans for Fair Taxation offers the following plain-language interpretation of H.R. 25:

Americans for Fair Taxation: A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal consumption of new goods and services.

It is the parenthetical that is important, for it hides the real truth of the tax rate.

First consider the way in which sales tax is normally figured. A consumer good that carries a $100 price tag might be subject to a 5 percent sales tax. That means that the final bill for the item is $105. The 5 percent figure is the amount of tax that is charged on the original purchase price. But now suppose that instead of pricing the item at $100, the shop owner simply priced the item at $105, then sent $5 directly to the state. The $105 price would be a tax-inclusive sales price. But $5 is just 4.8 percent of $105. That 4.8 percent number, however, is relatively meaningless. You are still paying exactly the same 5 percent tax on the item.

The 23 percent number in H.R. 25 is the equivalent of the 4.8 percent in the previous example. To calculate the real rate of the sales tax, we have to determine the original purchase price of an item. We can begin with the same $100 item, keeping in mind that a price tag that reads $100 has sales tax already built in. If our tax rate is 23 percent of the tax-inclusive sales price, then of the $100 final price, $23 of those dollars will be for taxes, meaning that the original pre-tax price of the item is $77. To get $23 in taxes on a $77 item, one must impose a 30 percent tax. In other words, a 23 percent sales tax on the tax-inclusive sales price is equivalent to a 30 percent tax on the actual price of the item.

FairTax proponents object to the 30 percent number, claiming that critics use the larger number to frighten people. Americans for Fair Taxation claims that it uses the tax-inclusive number to make it easier to compare the FairTax to the income tax that it will replace (since most of us think of income tax rates on an inclusive basis). But we are not accustomed to thinking of sales taxes inclusively. The result is that many FairTax supporters (about 15 percent of those who wrote to us, for example) do not understand that the 23 percent figure is tax inclusive.

Our analysis of the FairTax used a figure of 34 percent as the basic exclusive tax rate. One e-mailer complained that our number was at least 10 percentage points “higher than [the FairTax] is” because we calculated it as an addition to retail prices. But our 34 percent number is not 10 percentage points higher than the legislation. A 34 percent exclusive number is equivalent to a 25 percent tax inclusive rate – only 2 percentage points higher than the FairTax bill. We think that, intentional or not, the use of the tax-inclusive 23 percent rate has misled a lot of FairTax proponents.

But 30 Is Not 34 Either

Americans for Fair Taxation, however, has complained that H.R. 25 calls for a 23 percent inclusive (or 30 percent exclusive) rate, not a 34 percent rate. Our number came from the President's Advisory Panel on Tax Reform, which calculated that a 34 percent rate on the actual price of consumer goods would be necessary to make the program revenue-neutral. Americans for Fair Taxation has said that the Advisory Panel did not use the FairTax as detailed in the legislation but instead made up its own plan. This complaint is disingenuous. The Advisory Panel did in fact begin with the 30 percent figure that proponents of the FairTax submitted. But the panel rejected those figures, claiming that they were based, at least in part, on the unrealistic assumption that there would be full compliance with the FairTax. In other words, proponents assume that no one will cheat on taxes. However, the Treasury Department estimates that the evasion rate for the entire U.S. tax system under current law is approximately 15 percent. The Advisory Panel accordingly assumed a 15 percent evasion rate for the FairTax.

More significantly, however, the panel found that FairTax supporters were employing questionable accounting. In calculating federal revenue, proponents assumed that purchases made by the federal government would be taxed at the full 30 percent rate. But when calculating federal expenditures, FairTax proponents did not factor in the additional costs of the 30 percent sales tax. The Advisory Panel thus threw out the revenue from federal purchases, noting (correctly) that increased revenue from taxing federal purchases is exactly canceled by increased costs in the federal budget. Unfortunately, the Advisory Panel has thus far refused to release its methodology, making it difficult to reconcile its projections with those of Americans for Fair Taxation.

Using a formula that corrects for the faulty assumption about government spending, William Gale, director of the economic studies program at the Brookings Institute, calculates that a 39.3 percent exclusive rate would be necessary for revenue neutrality. (We used the lower Advisory Panel number). A more recent study by FairTax supporter and Boston University economist Laurence Kotlikoff – working from Gale’s formula and adopting the same basic assumptions – determines that a 31.2 percent exclusive (or 23.8 percent tax-inclusive) rate would be sufficient.

Even if Kotlikoff is correct that a 31.2 percent rate is revenue-neutral, there remains some reason to doubt that the rate actually would be that low. The FairTax proposal assumes a 100 percent tax base on consumption. By way of contrast, most states that have sales taxes have roughly a 50 percent tax base. With the FairTax’s 100 percent base, consumers would pay taxes on a great many things that may not intuitively seem like consumption. The list would include:

• Purchases of new homes
• Rent
• Interest on credit cards, mortgages and car loans
• Doctor bills
• Utilities
• Gasoline (30 percent in addition to current taxes, which would not be repealed)
• Legal fees

At today’s prices, gasoline would cost almost $1 per gallon more. A $150,000 new home would run $195,000 – plus the 30 percent tax that the buyer would pay on the interest on the mortgage. In short, the FairTax taxes everything that one buys, with the one notable exception of education. Any exceptions to the tax base (for instance, eliminating rent or credit card interest from the tax base) would require an offsetting increase in the rate.

But the FairTax Will Lower Prices

Proponents of the FairTax point out that prices on consumer goods contain what are called “hidden taxes.” Under current law, corporations have to pay taxes on their earnings. Moreover, businesses have to pay social security taxes for each employee. The money to pay these taxes has to come from somewhere, and FairTax supporters argue that the cost is passed on to the consumer. In fact, the best-known proponent of the FairTax, talk-show host Neal Boortz, argues that 22 percent of the price of a consumer good is really a “hidden tax.” Get rid of corporate and social security taxes, Boortz argues, and consumer good prices would drop by 22 percent. Even with the 23 percent FairTax, prices stay the same, and with the elimination of income taxes, paychecks will get bigger. Everyone gets a raise and the federal government still gets its revenue. About 10 percent of the e-mail messages we received from FairTax proponents trumpeted this kind of magic act. It is easy to understand the confusion on the issue, as Boortz himself made similar assertions in the hardcover edition of his book. (He later issued a corrected version in paperback.)

A bit of critical analysis shows that this cannot be right. The FairTax is revenue-neutral. That means that for every tax dollar collected under the current system, the FairTax has to collect a dollar. If the FairTax exactly equaled embedded taxes, then it could not possibly be revenue-neutral, since embedded taxes do not take into account personal income or estate taxes. The FairTax rate would have to be high enough to replace embedded taxes plus income and estate taxes.

Chris Edwards, the Cato Institute's director of tax policy studies, points out that prices do not really matter; corporate, payroll, income and estate taxes currently generate approximately $2.4 trillion, and a revenue-neutral FairTax would still require that taxpayers pony up $2.4 trillion. Nor is it clear that the 22 percent embedded tax figure is particularly meaningful. David Burton, chief economist of the Americans for Fair Taxation, calls it "simplistic" to think that the entire cost of corporate taxes is borne by consumers. Cato's Edwards suggests that while consumers do pay at least part of the costs, producers also bear some of the burden. That is, employees pay part of the costs of hidden taxes (in the form of lower wages), and corporate shareholders pay another portion (in the form of lower returns on their investments).

The FairTax: Is It Regressive?

Sometimes sales taxes are called regressive, meaning that the poorest pay higher rates than the wealthy. Strictly speaking, sales taxes are flat, since everyone pays the same rate. But because the poor tend to spend a high percentage of their income on basic consumer goods such as food and clothing, sales taxes do require the poor to pay a higher percentage of their income in taxes.

The FairTax plan, however, helps to alleviate this difficulty by exempting sales taxes on all income up to the poverty level. Taxpayers would receive a "prebate," which Edwards calculates to be about $5,600 annually. The Treasury Department estimates that the prebate program would cost between $600 billion and $700 billion annually, making it the largest category of federal spending. Americans for Fair Taxation disputes the Treasury Department numbers, claiming that the actual cost would be closer to $485 billion per year. The Treasury Department has so far refused to release its methodology, making it difficult to determine whose estimate is correct.

Who Really Pays?

With the prebate program in effect, those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the FairTax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year. The chart below compares the share of the federal tax burden for different income groups under the current system and under the FairTax. Those in the highest and the lowest brackets will see their share decrease, while everyone else will see their share of taxes increase.

Americans for Fair Taxation rejects the Treasury Department analysis, objecting that Treasury considers only the income tax. By leaving out payroll taxes (which are actually regressive) Treasury’s chart makes the FairTax look worse by comparison. We found that including all the taxes that the FairTax would replace (income, payroll, corporate and estate taxes), those earning less than $24,156 per year would benefit. AFT’s Burton agreed that those earning more than $200,000 would see their share of the overall tax burden decrease, admitting that “probably those earning between $40[thousand] and $100,000” would see their percentage of the tax burden rise.

Why Be Progressive?

It is easy to look at charts like the one above and dismiss the FairTax as simply another way to help the rich get richer. But there is an economic argument for a less progressive tax system, though that argument is extremely technical. Kotlikoff has asserted that the FairTax will lower the marginal tax rate for all earners. (The marginal rate is the tax rate paid on the last dollar earned.) Because marginal rates are lower, each extra dollar of income will result in greater purchasing power. The decrease in marginal rates is progressive – that is, marginal rate reductions are greater for the working- and middle-classes than for the wealthy.

Moreover, even FairTax critics like Gale agree that consumption taxes increase the size of the economy. Many studies show that long-term incomes would rise under a consumption-based tax system. Optimistic accounts show a 10 percent rise in income over time, but even the more cautious studies show gains of 5 percent to 7 percent. Because the FairTax will grow the economy, workers will eventually see increases in their income. FairTax proponents claim that the growing economy, coupled with the reduction in marginal tax rates, will offset the increased tax burden. Burton argues that "the FairTax is a positive-sum game," one in which purchasing power will grow faster than the tax burden. The size of any such gains is disputed, however; Americans for Fair Taxation consistently chooses from among the most optimistic growth projections.

Upon Further Review

We stand behind our earlier analysis of the FairTax. The proposal to which Gov. Huckabee referred is not a 23 percent tax, but rather a 30 percent tax. And it is revenue-neutral only through an accounting trick. It will collect more money from those earning between $15,000 and $200,000 per year and less from those earning more than $200,000 per year. It is possible that the FairTax would make most people better off, but much of that gain would be a direct result of making the tax code less fair.

- by Joe Miller
Update June 14: Americans for Fair Taxation wrote us to say that the organization disagrees “very strongly” with FactCheck’s analysis and that we have “uncritically accepted many misleading arguments” made by FairTax critics. As a courtesy to AFT, and as a service to our readers, we are posting the letter in our “Supporting Documents” section. We stand by our article, and our comments on AFT’s letter are below.

Our mission at FactCheck.org is not to rule on issues of public policy but rather to reduce the level of deception and confusion in U.S. politics. We found that, whatever Americans for Fair Taxation’s intentions, there remains much confusion about the FairTax.

We don’t actually call the FairTax “regressive,” as AFT implies that we do. We reiterate, however, that those earning between $15,000 (or perhaps as much as about $24,000 – see our addition to the “Who Really Pays” portion of our article above) and $200,000 per year – virtually all middle-class Americans – would pay a higher share of the tax burden under this proposal. Those earning more would see their share drop, as even AFT economists admit.

We did not ignore Americans for Fair Taxation’s research. Much of that research is publicly available and is listed among our sources. We do, however, approach all evidence with a healthy skepticism – including research that is funded by the very group whose claims we are investigating. Where possible we rely upon neutral sources, such as the bipartisan President’s Advisory Panel on Federal Tax Reform, and on opinions from third-party scholars from think tanks like the Brookings Institution and the Cato Institute.

[joecoolfreak]

The first major issue I have is that I really don't think that prices will go down by "22%". I am a bit of a cynic, but if a company is passing on their costs in taxes right now, then I see no reason for them to drop the charges when something like this goes into effect. If anything, the current prices will stay the same and the company would profit more.

Next major issue, the sales tax that would go into effect here is really 30%. I understand completely where the 23% number comes from and why it is used, but the simple fact is shown easily here in this thread by the misunderstanding of the real numbers. Post-Fair Tax, a hundred dollars of groceries becomes a 130 dollar bill, not 123 even though technically, it can still be referred to as a 23% inclusive tax. We just don't normally think about sales tax inclusively.

My next concern is what will happen with State Sales Tax. I currently pay 8% sales tax locally. Post-Fair Tax, that means that the total percentage added on to my bill is 38%. That means that the 100 dollar grocery bill is now 138, which is starting to scare me a bit.

My final concern is the number of people that will be paying interest on the new taxes. Let's say that you are going to buy a 100k house. Here where I live, that means that I will be financing 138k over 30 years. Pre-Fair Tax, I wouldn't be paying interest and financing charges on my taxes, but under the new plan, I would be forced to.

Now, that being said, I do think there are a lot of benefits to the Fair Tax Plan and I would love for there to be more independent research and other alternatives used to modify the basic idea so that it didn't have so many possible negative consequences.

[VIP Style]

my thing is this, people earning $250,000 or more a year, why are they crying about the fact that their taxes could go up? they doing good to be making that much so what gives.

[BanginJimmy]

The first major issue I have is that I really don't think that prices will go down by "22%". I am a bit of a cynic, but if a company is passing on their costs in taxes right now, then I see no reason for them to drop the charges when something like this goes into effect. If anything, the current prices will stay the same and the company would profit more.

Next major issue, the sales tax that would go into effect here is really 30%. I understand completely where the 23% number comes from and why it is used, but the simple fact is shown easily here in this thread by the misunderstanding of the real numbers. Post-Fair Tax, a hundred dollars of groceries becomes a 130 dollar bill, not 123 even though technically, it can still be referred to as a 23% inclusive tax. We just don't normally think about sales tax inclusively.

My next concern is what will happen with State Sales Tax. I currently pay 8% sales tax locally. Post-Fair Tax, that means that the total percentage added on to my bill is 38%. That means that the 100 dollar grocery bill is now 138, which is starting to scare me a bit.

My final concern is the number of people that will be paying interest on the new taxes. Let's say that you are going to buy a 100k house. Here where I live, that means that I will be financing 138k over 30 years. Pre-Fair Tax, I wouldn't be paying interest and financing charges on my taxes, but under the new plan, I would be forced to.

Now, that being said, I do think there are a lot of benefits to the Fair Tax Plan and I would love for there to be more independent research and other alternatives used to modify the basic idea so that it didn't have so many possible negative consequences.

You are doing your math wrong. You are using an exclusive tax rate, not an inclusive tax take. That 100K house will go down 22% to account for the lesser taxes paid by the builder. That makes the house coast 78k before the fairtax is applies. After it is applied it goes up to 101k. This is also where the 30% rate comes from. If you calculate a 30% tax on that 78K you end up with that same 101k. Dont forget that the fairtax wouldnt be added at all unless the house is new.


As far as businesses not lowering prices, I think they will. This is especially true now that businesses are struggling. Competition will lower the pretax prices in most markets very quickly to stimulate business. You wont see many people buying at Best Buy when they charge $122 + state sales tax for the same radio you can get from Circuit City for $101 + state sales tax. This would quickly force Best Buy to also lower their prices.

[joecoolfreak]

You are doing your math wrong. You are using an exclusive tax rate, not an inclusive tax take. That 100K house will go down 22% to account for the lesser taxes paid by the builder. That makes the house coast 78k before the fairtax is applies. After it is applied it goes up to 101k. This is also where the 30% rate comes from. If you calculate a 30% tax on that 78K you end up with that same 101k. Dont forget that the fairtax wouldnt be added at all unless the house is new.

No I am not. I have already addressed that it is unlikely that the 22% deduction will ever happen. To quote the same article with the information:

But the FairTax Will Lower Prices

Proponents of the FairTax point out that prices on consumer goods contain what are called “hidden taxes.” Under current law, corporations have to pay taxes on their earnings. Moreover, businesses have to pay social security taxes for each employee. The money to pay these taxes has to come from somewhere, and FairTax supporters argue that the cost is passed on to the consumer. In fact, the best-known proponent of the FairTax, talk-show host Neal Boortz, argues that 22 percent of the price of a consumer good is really a “hidden tax.” Get rid of corporate and social security taxes, Boortz argues, and consumer good prices would drop by 22 percent. Even with the 23 percent FairTax, prices stay the same, and with the elimination of income taxes, paychecks will get bigger. Everyone gets a raise and the federal government still gets its revenue. About 10 percent of the e-mail messages we received from FairTax proponents trumpeted this kind of magic act. It is easy to understand the confusion on the issue, as Boortz himself made similar assertions in the hardcover edition of his book. (He later issued a corrected version in paperback.)

A bit of critical analysis shows that this cannot be right. The FairTax is revenue-neutral. That means that for every tax dollar collected under the current system, the FairTax has to collect a dollar. If the FairTax exactly equaled embedded taxes, then it could not possibly be revenue-neutral, since embedded taxes do not take into account personal income or estate taxes. The FairTax rate would have to be high enough to replace embedded taxes plus income and estate taxes.

Chris Edwards, the Cato Institute's director of tax policy studies, points out that prices do not really matter; corporate, payroll, income and estate taxes currently generate approximately $2.4 trillion, and a revenue-neutral FairTax would still require that taxpayers pony up $2.4 trillion. Nor is it clear that the 22 percent embedded tax figure is particularly meaningful. David Burton, chief economist of the Americans for Fair Taxation, calls it "simplistic" to think that the entire cost of corporate taxes is borne by consumers. Cato's Edwards suggests that while consumers do pay at least part of the costs, producers also bear some of the burden. That is, employees pay part of the costs of hidden taxes (in the form of lower wages), and corporate shareholders pay another portion (in the form of lower returns on their investments).

I do not believe that the prices dropping holds weight...if it does, then the numbers that are used to make the %'s aren't correct. You can't have it both ways. Let me rephrase in my own words:

Currently person A makes pays ten dollars in taxes a year. They also pay 10 dollars worth of taxes when they buy something ("hidden taxes")
That means that the federal government receives 20 dollars in revenue.
Now, take a Post-Fair Tax situation.
According to your math, they don't pay any income tax and the 10 dollars of hidden taxes is replaces with a sales tax of approx 1% more.
This means the government now receives 11 dollars in revenue.
Fair-Tax is supposed to be revenue neutral, so it isn't my math that is wrong here, it's the Fair Tax as it stands.

As far as businesses not lowering prices, I think they will. This is especially true now that businesses are struggling. Competition will lower the pretax prices in most markets very quickly to stimulate business. You wont see many people buying at Best Buy when they charge $122 + state sales tax for the same radio you can get from Circuit City for $101 + state sales tax. This would quickly force Best Buy to also lower their prices.

I agree that there will be some competition to reduce prices lower, but not 22%. See my math above.

[BanginJimmy]

It becomes revenue neutral because it encompasses all sales of new goods. Look at places like FL. They have dumped their income tax in favor of a sales tax and it is working very well.

After I read the books though I did look up alot of the arguements against it and in all honetly, they are as much speculation as the idea that business will not lower their prices.

I dont know exactly where my book are right now because my office is torn apart, but I should ahve it back together this weekend and I will have the charts for you. Basicly it comes down to amount of taxable income though. What most of the oposing charts dont mention is the dark economy or whatever Boortx called it. It is basicly all the illegal, untaxed funds that are spent in the US. There is also all of the tourist dollars that are spent in the US.

Think of your friendly neighborhood crack dealer. He makes 50K profit every year in illegal funds. We know he isnt paying taxes on income, but under the fairtax is he paying the 23% or 11500 a year on it.

[joecoolfreak]

Don't get me wrong, I do agree that it can be a better system. I do agree that there will be income from people currently not paying taxes (illegals and others like the crack dealer and the tourists), There will also be less spent on maintaining the the IRS system as it stands. That does not however (imho) make up nearly enough lost through the math that I just showed. I do know that a sales tax can be done, but from living in a state much like Florida, the income isn't just from a sales tax. We have an 8% sales tax here, but much of the money that is lost from an income revenue system is made up in property taxes to supplement the sales tax.

We have no state income tax here, but I pay over 6500/year in property taxes on a 200k house sitting on a .16 acre lot. My cousins in Arlington (A suburb of DC about 15 blocks from the pentagon) have a similar sized lot with an 800k house and pay less in property taxes.

Now if you can show me number wise that the people not currently paying taxes will result in another 2.4 trillion in sales tax revenue( meaning that it is estimated that they spend 72 trillion in new items a year), then I shall eat my words. Otherwise, I just can't see the math working out as it is.

[BanginJimmy]

Like I said, give me a couple days to find my fairtax books. There was a couple of very nice charts in there to show where alot of that added tax comes from.

[BanginJimmy]

I know you do your research, so here are a couple of pages from fairtax.org.

http://www.fairtax.org/site/PageServ...ut_basics_main
http://www.fairtax.org/site/PageServ...e=about_beyond


They do a MUCH better job of explaining than I do. I warn you though, it is alot of reading, much of it fairly dry.

[joecoolfreak]

I am reading through it, and there is a lot of good data there, however, there are some SERIOUS math errors too. It is so difficult to have these kind of discussions over text. I have to leave pretty soon, but I am going to crunch these numbers again this weekend and I think I have found a decent hole that I will try and document when I get the time.

In simple terms: check out table 5 here: http://www.fairtax.org/PDF/Tax%20Not...0FT%20rate.pdf and please tell me why the prebate is being deducted at this point instead of a deduction of the actual revenue from the tax.

I do appreciate the links and I do like to do my research. I have read over a good bit of the fairtax.org site but have just started to analyze the actual numbers myself.

[joecoolfreak]

The more I am reading this, the worse it gets. I decided to play around with the numbers that I found in that article and apply simple math. There are some serious holes here. Keep in mind I simplified some of the numbers and rounded a bit, but no where enough to mess up the numbers significantly.

Gross FairTax Base:
11244 billion
Which means that we spend this much in this country on taxable items:

11244

By the FairTax ideas, prices will drop 22% because of the drop in taxes which means the post-FairTaxable base becomesthis idea is never addressed but quite simple. If the prices are reduced, then we end up spending less overall in taxable items. Ie...item costs 100. After fair tax reduction, then the price is 78. We get taxed at 30% on 78 dollars which would reduce the consumable tax base by a lot):

9895

Current tax revenue:

2288

Total cost of Prebate:

485

IRS savings:

8

Apply 30% to taxable base:

9895x.3

Means revenue of taxes =

2969

Administrative Fees are .25% of revenue collected:

2969x.0025

Means we pay collecters a fee of:

7

So, lets take revenue of taxes, minues the two costs

2969-7-486

Total Revenue of New tax:

2476

Let's add the savings of no IRS:

2476+8

Net income from new taxes:

2484 billion

Keep in mind we needed to get this number up to 2288 billion to replace current system.

As I said, I am going to research further and see if I can explain the discrepancy better, but I am just as cynical as when I first started. Unfortunately, my obligations prevent me from looking into it more right now, but hopefully, I will get more time this weekend.

Edit....went back and found my mistake. I really don't want anyone to get the idea that I am trying to bash FairTax...I just really want to understand it better.

[JConner]

If you want to read the Fair Tax book by Boortz and Linder, PM me and ill mail you my copy. I'm all about getting the word out. I also have the 2nd book that answers some of the critics.

[joecoolfreak]

I don't need to read the book. The math is plain and simple. You don't have to be a critic to see there is something inherently wrong with the idea.

You can't make money from nothing. Currently, we take in x number of tax dollars. With any revenue neutral plan, you have to take in the same amount. That means, either everyone is paying the same amount that they currently are, or someone is paying more and someone else is paying less. It's just that simple. In this case, we are all paying income taxes of x%. Corporations are paying x%. Add those two and some misc taxes and you have your revenue. One of the basic premises of the FairTax plan is that coporations just "pass on" all of their taxes to the consumers. That means that consumers are paying x% income and x% of the corporate taxes. The fair tax plan doesn't change anything other than extend the amount payed equally to those who are currently playing federal income taxes and those who aren't. It also deletes the expense of running the IRS, which costs 8 billion a year, but instead pays corporations 7 billion and change to collect the sales tax. I really don't see the major appeal to the entire process, other than reducing all taxes on corporations and increasing it on the consumers. That being said, everything I need to know and learn about the FairTax plan is online and the more I look at the numbers, the more it seems to be a pipe dream, rather than a valid idea. I already found serious discrepancies in the math. If either of you have read the book, or can show me where I am going wrong in my math, I would be more than happy to admit that I am wrong and I truly want to believe that it is my mistake, but at this point, the math doesn't lie or add up at all. As I said previously, if I get time this weekend, I will get more in depth with the specific numbers, but I am not very optimistic at this point that it's going to pan out at all.

[Kevykev]

I support it, I'm self employee so it won't help me much but I see it benefiting the country as a whole.

[joecoolfreak]

I have edited my math posting to reflect the research I did. Going through all of the tables in the pdf docs, I didn't realize that the prebate tables were allowances, not the actual costs. After going through the numbers again with the correct math, it does seem to add up correctly.

[man]

my thing is this, people earning $250,000 or more a year, why are they crying about the fact that their taxes could go up? they doing good to be making that much so what gives.

Because their taxes could go up by more than $25k a year... My question is why do you think these people just have money to throw around?