FairTax: is it fair and could it work?

[mapleoak]

Exactly my point (100% and 0% of $0 is $0)

Wow! My mind must be slow on the uptake tonight.

 

[ribozyme]

Everything I said is demonstrably true. All you responded with is the usual class warfare rhetoric. You’d be surprised how many people have capital gains and qualified dividends Anybody that is invested in mutual funds. Anybody who has a 401(k) or most other types of retirement plans. Anybody in a company stock program. Any union worker who is going to have a pension is getting the benefit of these rates. Teachers retirement is heavily invested in stocks and bonds.

It is true that the poor can not structure their income to take advantage of these rates but it is also true they pay no federal income tax so the rate is irrelevant. In fact they can take advantage of the earned income tax credit, a refundable credit that is available even if they owe no taxes.

I suggest you find yourself a socially conscious CPA to prepare your tax return using the rates in effect when Jimmy Carter was president. You need to put your money where your mouth is.

What about vulnerable groups such as African Americans and Hispanics who most of them have to soley rely on Social Security for their retirement? Many of them do not have money in a pension fund.

See this for example:

cbpp.org/1-18-06socsec.htm

 

[estesbob]

What about groups such as African Americans who most of them have to soley rely on Social Security for their retirement? Many of them do not have money in a pension fund.

Thats a good case for letting people invest a portion of the money withheld from their check for Social Security isn’ it?

The point is that the advantages on income from capital gains and qualified dividends is very beneficial to millions and millions and millions of Americans-not just the rich. And again the people who can’t take advantage of it generally pay no income tax at all.

 

[ribozyme]

Thats a good case for letting people invest a portion of the money withheld from their check for Social Security isn’ it?

The point is that the advantages on income from capital gains and qualified dividends is very beneficial to millions and millions and millions of Americans-not just the rich. And again the people who can’t take advantage of it generally pay no income tax at all.

But does it benefit those who are not well off such as the aforementioned groups? And unlike you, I put heavy emphasis on the physical welfare of the unfortunate, so how do those special provisions help the least of us?

 

[Ridgerunner]

I have done thousands of tax returns the last 27 years and can assure you this simply is not true. Whenever I hear somebody talk about tax loopholes for the rich I always ask then where they are at because I have some clients who sure could use them

Again you are operating under a false premise. In fact there are more “loopholes” for the poor and middle-class then there are for the “rich”.

Based on my years of dealing with taxes I can tell you that the majority of people know two things for certain. Number one:they pay too much in taxes and number two: everybody else pays too little. Most people’s definition of “rich” is anybody that makes more money than they do.

Not trying to engage in class warfare here, Bob, and I agree that progressive income taxation as a system tends to cause people to engage in it. I was only pointing out that if one is talking about people who have a great deal of freedom in allocating their resources; a freedom one has in greater measure if one has greater resources, one can choose directions that result in lower taxation than other directions. I’m hardly “rich”, but I, myself, do that. I will add that such a system has a “warping” effect on investment decisions. If, e.g., I am free to invest in a productive asset that has a super-long depreciation period (a comercial building, for example), or one in which the deduction is immediate (breeding livestock, for example) I will tend to choose the latter, particularly if I can manage to cause the income from the latter to be in the form of capital gains, which, in the example, I can do. But society might benefit more from the real estate investment than the livestock investment.

I am not a full-bore supporter of the Fair Tax, and claim no great expertise in the subject. But I think it does have sufficient merit for serious consideration, if for no other reason, that it removes taxation as a motivation for allocation of investments; a motivation that perhaps should be based more on pretax return. Return is a pretty good indicator of the relative social utility of the enterprise.

I am sure there are much better examples than the small one given above. But when it comes to choices, it seems to me the Fair Tax gives more people control over their taxation level than is presently the case. That’s not to say the Fair Tax does not have the potential to confer greater benefit on those with greater resources. If I can afford to consume little and invest much, and have the self-discipline to do it, I’m going to gain greater wealth than one who consumes all he makes, all else being equal. Still, my further point is that I don’t think self-discipline in consumption is any stronger among those who are “rich”. It is my admittedly anecdotal observation that they throw money at consumer goods with as much gusto, or more, as do people on the lower end of the resource scale. If we had the Fair Tax, I don’t really think the government is going to find that nobody spends money.

 

[stinkcat_14]

Still, my further point is that I don’t think self-discipline in consumption is any stronger among those who are “rich”. It is my admittedly anecdotal observation that they throw money at consumer goods with as much gusto, or more, as do people on the lower end of the resource scale. If we had the Fair Tax, I don’t really think the government is going to find that nobody spends money.

I think that this depends in part on how the rich got that way. I think if you inherit money, you are probably going to be more likely to have high consumption. On the other hand, people who go from poor to rich usually do it in one of two ways:

1. They take a big risk and it pays off big time.
2. They spend very little and their assets accumulate over time. In this latter group, we tend to see that consumption tends to increase very slowly with regard to income. If you are used to eating off the day old rack, that is not likely to change significantly once you become a millionaire.

 

[rwoehmke]

I think that this depends in part on how the rich got that way. They spend very little and their assets accumulate over time. In this latter group, we tend to see that consumption tends to increase very slowly with regard to income. If you are used to eating off the day old rack, that is not likely to change significantly once you become a millionaire.

Yea, verily!

With regard to a fair tax, you are gonna put a lot of government employees out of work. Will they get a bigger pre tax boost? What about when their unemployment runs out? Maybe you prefer more welfare and fewer government employees. Jobs are already going south in this great country. Maybe they could all immigrate to Mexico. Oh, I forgot, people from the south always move north to improve their lot. Canada, brace yourself!

 

[rlg94086]

Yea, verily!

With regard to a fair tax, you are gonna put a lot of government employees out of work. Will they get a bigger pre tax boost? What about when their unemployment runs out? Maybe you prefer more welfare and fewer government employees. Jobs are already going south in this great country. Maybe they could all immigrate to Mexico. Oh, I forgot, people from the south always move north to improve their lot. Canada, brace yourself!

Okay…let me understand this. One of your objections would be that government payroll would get smaller??

 

[Caesar517]

Okay…let me understand this. One of your objections would be that government payroll would get smaller??

 

[SenorSalsa]

Okay…let me understand this. One of your objections would be that government payroll would get smaller??

I think he was more concerned about the individuals losing jobs, but yes, what a tragedy it would be if the government lost say 80% of its employees

And I would like to point out the guts of people in this thread to argue tax code with a man that has to know it to do his job

 

[estesbob]

Okay…let me understand this. One of your objections would be that government payroll would get smaller??

I doubt it’ll get much smaller. Everybody seems to just want look at the fact that individuals and corporations won’t have to file federal income taxes anymore. However because of the way our tax systems are integrated that is not exactly true. For instance a person who files a schedule C., that is, self-employed ,will still have to file a form with the IRS to calculate their self-employment tax(Social Security) They can call it what they want but is still going to be an income tax form. The same will apply to partnerships and some LLCs. Corporations likewise are still going to have to file the exact same payroll reports they do now, because even if they’re not withholding federal income tax from their employees they are still withholding Social Security. And since there is a rebate based on your level of income people are going to somehow have to let the government know what their earned total income is , not to hard for those who just have W-2s but much more complicated for those who have other sources of earned income

The other problem that is not addressed is what will the states do? The state income tax system is linked to the federal income tax system. So if the federal income tax returns or done away will the states adopt a fair tax ( which would run head-on into their sales tax collections ) or will individuals in the 47 states with a state income tax l have to prepare a separate state income tax return. a

The record-keeping for businesses that can be burdensome also. Right now if you’re in the service industry or wholesaler or an independent contractor you don’t pay any sales Under the fair tax every single business entity is going to have to file a fair tax return with the federal government every month. And if the their states goes to a fair tax they will have to file a return each and every month with the state It will be a boon for us CPA but I cannot help but think it’s going to be a record-keeping nightmare .

 

[rlg94086]

I doubt it’ll get much smaller. Everybody seems to just want look at the fact that individuals and corporations won’t have to file federal income taxes anymore. However because of the way our tax systems are integrated that is not exactly true. For instance a person who files a schedule C., that is, self-employed ,will still have to file a form with the IRS to calculate their self-employment tax(Social Security) They can call it what they want but is still going to be an income tax form. The same will apply to partnerships and some LLCs. Corporations likewise are still going to have to file the exact same payroll reports they do now, because even if they’re not withholding federal income tax from their employees they are still withholding Social Security. And since there is a rebate based on your level of income people are going to somehow have to let the government know what their earned total income is , not to hard for those who just have W-2s but much more complicated for those who have other sources of earned income

All true Bob, but I don’t think the same number of personnel will be required to do this as it takes to process the individual tax returns…in addition to all of this.

estesbob:

The other problem that is not addressed is what will the states do? The state income tax system is linked to the federal income tax system. So if the federal income tax returns or done away will the states adopt a fair tax ( which would run head-on into their sales tax collections ) or will individuals in the 47 states with a state income tax l have to prepare a separate state income tax return. a

The record-keeping for businesses that can be burdensome also. Right now if you’re in the service industry or wholesaler or an independent contractor you don’t pay any sales Under the fair tax every single business entity is going to have to file a fair tax return with the federal government every month. And if the their states goes to a fair tax they will have to file a return each and every month with the state It will be a boon for us CPA but I cannot help but think it’s going to be a record-keeping nightmare .

I never said your job is in danger Bob…CPAs will still be needed. However, I think your expectation of it being a “record-keeping nightmare” are conjecture on your part. I don’t see any reason the record-keeping will be worse than it is now.

As far as what the states do? I don’t know. It’s up to the states. My state doesn’t have an income tax, so I guess we will have a higher sales tax. Oregon doesn’t have a sales tax, so I guess they will have to institute the sales tax operations that most other states already have. States with both can leave their system the same or choose to drop one or the other. I really don’t see how a change in the federal taxes will be such a big problem for the states. If they can’t figure out how to create their own rate tables without the IRS, they shouldn’t be in the government business.

 

[estesbob]

rlg94086:
As far as what the states do? I don’t know. It’s up to the states. My state doesn’t have an income tax, so I guess we will have a higher sales tax. Oregon doesn’t have a sales tax, so I guess they will have to institute the sales tax operations that most other states already have. States with both can leave their system the same or choose to drop one or the other. I really don’t see how a change in the federal taxes will be such a big problem for the states. If they can’t figure out how to create their own rate tables without the IRS, they shouldn’t be in the government business.

I suspect we’ll see the increase in paperwork… Right now a business files 5 payroll tax reports reports and annual tax return. Under the fair tax they will still file quarterly payroll tax reports but will a file a monthly fair tax report. And if the states go with a fair tax has 12 more monthly reports. So they move from six reports a year to 30. Of course the fair tax reports will be simpler than an income tax report but it is a huge hassle for businesses to take on the filing of 30 more tax returns year.

I’m also not sure how individuals are going to prove their income for rebate purposes. It appears are still have going to have file some kind of simplified earnings report with the government. And since self-employment tax is based on on net income millions and millions of independent businessman to have to file an income tax anyway.

And knowing how the government works what is likely to happen if the fair tax is imposedis that the Federal income tax will slowly but surely return. First it’ll be a populist candidate claiming that the rich don’t pay their per-share under the fair tax and instituting an income tax fsay or those of makeover $250,000. And then as time goes by that threshold will be lower and lower and before you know it we have a federal income tax and a fair tax

 

[rlg94086]

I suspect we’ll see the increase in paperwork… Right now a business files 5 payroll tax reports reports and annual tax return. Under the fair tax they will still file quarterly payroll tax reports but will a file a monthly fair tax report. And if the states go with a fair tax has 12 more monthly reports. So they move from six reports a year to 30. Of course the fair tax reports will be simpler than an income tax report that it is a huge hassle for businesses to take on the filing of 30 more tax returns year.

Sorry, I don’t see it Bob. How burdensome can a report on a percentage of sales receipts be? There are no deductions to worry about, and it isn’t like they they are having to get out their 12-keys and go through stacks of paper receipts. Besides, who says that the reports need to be monthly? Why couldn’t they be quarterly?

estesbob:

I’m also not sure how individuals are going to prove their income for rebate purposes. It appears are still have going to have file some kind of simplified earnings report with the government. And since self-employment tax is based on on net income millions and millions of independent businessman to have to file an income tax anyway.

Now, here you have a point. However, again, you are still looking at a net decrease in reports for the independent businessman. No fooling around with expenses, deductions, etc.

estesbob:

And knowing how the government works what is likely to happen if the fair tax is imposedis that the Federal income tax will slowly but surely return. First it’ll be a populist candidate claiming that the rich don’t pay their per-share under the fair tax and instituting an income tax fsay or those of makeover $250,000. And then as time goes by that threshold will be lower and lower and before you know it we have a federal income tax and a fair tax

There are no guarantees in life. As voters, we would need to work diligently to prevent that from happening. How is that different now? I don’t see how that is an argument against implementing the Fair Tax versus the Income Tax. If anyone is saying that the Fair Tax is a magic cureall for taxation in our country, they are naive.

 

[estesbob]

Sorry, I don’t see it Bob. How burdensome can a report on a percentage of sales receipts be? There are no deductions to worry about, and it isn’t like they they are having to get out their 12-keys and go through stacks of paper receipts. Besides, who says that the reports need to be monthly? Why couldn’t they be quarterly?

.

there is no way they are going to let anyone but the smallest business go quarterly. The federal government now is getting money in on a weekly basis from payroll tax withholdings. I doubt they’re going to let people start paying in quarterly.

And I believe that you have misconceptions and how burdensome these reports would be. For instance are they to be a cash or accrual basis. That is the is the business going to have to pay the fair tax when they bill when they collect? And if it’s when they bill what happens if somebody doesn’t pay you? And how is the IRS going to determine that all income is reported all their income?. Wouldn’t there still have to be IRS auditors? And how about the guy that cuts your grass? How burdensome do you think it can be for him to suddenly have to start filing reports with the government?

Believe me Robert the more I look into this more of a nightmare I see As usual the devil is in the details.

 

[rlg94086]

Quote:
Originally Posted by estesbob
I’m also not sure how individuals are going to prove their income for rebate purposes. It appears are still have going to have file some kind of simplified earnings report with the government. And since self-employment tax is based on on net income millions and millions of independent businessman to have to file an income tax anyway.

me:

Now, here you have a point.

Darn it, Bob…the one place I think you have a good point, and I was wrong! The “prebate” doesn’t require proof of income. Everyone gets the same prebate. I guess you need to be working, but there isn’t an income requirement that I know of.

 

[rlg94086]

Believe me Robert the more I look into this more of a nightmare I see As usual the devil is in the details.

That’s why you’re an accountant Bob.

The thing is, there are plenty of accountants who worked on this and are in favor of it. I realize you are brilliant, but I’m pretty certain that many of them have thought of your concerns, as well.

The sad reality though…the details probably won’t resemble what is on the site and/or in the book. As you and I both know, whatever “reform” of our tax code occurs in Washington, we can pretty much be assured that it will be 1000+ pages long.

 

[estesbob]

That’s why you’re an accountant Bob.

The thing is, there are plenty of accountants who worked on this and are in favor of it. I realize you are brilliant, but I’m pretty certain that many of them have thought of your concerns, as well.

The sad reality though…the details probably won’t resemble what is on the site and/or in the book. As you and I both know, whatever “reform” of our tax code occurs in Washington, we can pretty much be assured that it will be 1000+ pages long.

I’ve read a lot about this in detail and I don’t think they have even even begun to address the problems is going to cause.

However we both know it’s never going to happen. How can a congressman punish his enemy and reward his friends with a fair tax?

 

[rlg94086]

I’ve read a lot about this in detail and I don’t think they have even even begun to address the problems is going to cause.

However** we both know it’s never going to happen**. How can a congressman punish his enemy and reward his friends with a fair tax?

“The question is moot!” - Jesse Jackson (game show skit on SNL)

 

[Jolly_Joe]

I’ve always assumed that we have to do a complete overhaul of Social Security with the Fair Tax. Would seem to me we’d pretty well have to do everyone gets the same. Otherwise, if you pay no tax on income, but your Social Security benefit is based on income. I guess a lot of people would report a lot of income.

The Fair Tax site used to just say employers would continue to report wages and nothing would change. A lot would change. Everyone would suddenly want cash instead of benefits. And there’s always self employment tax. Anyone can report earned income for themselves. If there is no tax on earned income, but there will be benefits paid out based on earned income, well, I honestly don’t think it would work. It would be like a survey on How much Social Security benefit do you feel you should receive?

A Fair Tax would needs to be accompanied by something by a different Social Security benefit plan.

JJ