Hi all. I never dreamed this Fair Tax movement had so many people jumping onto it like lemmings off the cliff. What I am hearing is screaming vitriol against the income tax. O.K. fine. I get it that our income tax system is rife with problems, loopholes, and favortism. I get it that people resent that. What I don't get is why intelligent people are so desperate to grab onto another faulty, complicated scheme amounting to as many or more problems as the existing system we have now. I know you all are not stupid, so take a deep breath and step back a bit to analyze this thing with open eyes.... and try to keep history in your mind while you do.
(Caveats here: I am an artist by trade and this discussion is annoying me because I should be painting. I know I'll get some really nasty comments on that revelation. But, to raise my credentials here, my Dad owned a retail business all of his career and I owned a wholesale business for ten years. Because of those circumstances, I have had experiences in both areas. I know the impact of taxes on consumers and on businesses having been on all sides of the spectrum. That being said, I am not an economist with ideas on social engineering / central planning a tax code. For this conversation, I am relying on my own experiences and research on the web.)
Because I should be painting and have many other obligations today, I am going to refer my readers here to the websites I found to be the most credible opposition to the Fair Tax. This is assuming anyone will take the time to read some clear opposition and give it more thought.
Jews for the Preservation of Firearms Ownership Strange connection here, but their arguments against the Fair Tax make sense to me.
An answer to John who commented on my previous post from the JPFO.org site:
"We're likely to end up with both a national sales tax and an income tax. Even if legislation required abolition of the income tax (as HR 25 does), a “national crisis” would soon cause the income tax to be “temporarily re-instated” and the Internal Revenue Service would remain in our lives on an “emergency basis” that never ended.
Likelihood: High probability."
My argument regarding manipulation by the bureaucrats is supported also by JFPO.org:
"The national sales tax is subject to manipulation in even more direct ways than the income tax has been. Let's say that Congress or some powerful regulatory agency decides that fatty foods or sugar or potato chips are bad for you – wham! Suddenly there might a 200 percent tax on those items.
Government won't have to ban firearms; they'll just place a 500 percent sales tax on them. Or a 1,000 percent sales tax on ammunition. Cigarettes? Imported clothing? “Gas-guzzling” SUVs? Given the wonders of the computer age, the eternal greed of government, and the unquenchable meddling of social engineers, we'll soon have custom tax levels for them all, constantly calculated and adjusted by computer.
FairTaxers talk about the tax being self-limiting; when it gets too high, people stop buying. While they praise the limiting effect that might have on government, they ignore the damage that a too-high tax might have on the unfortunate industries or individuals that get hit with it – a problem that's built into the tax even in its initial form, and which becomes Draconian once politicians realize they can use the sales tax as a club or a threat.
Likelihood: Probable."
Another article from 2007 which Unspins the Fair Tax is here: Fact Check.org
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.
My take on the "prebate" idea. The Fair Tax folks claim that the reporting burdens on the public will be alleviated by getting rid of the income tax. However, under the Fair Tax, applications must be made to qualify and receive the prebate. This amounts to at least as much reporting or more, so filing income tax forms may turn out to be a nostalgic dream after we get through figuring out the prebate forms. The Fair Tax prebate is supposedly going to be handed out to every household in the U.S. In effect, this puts every single household into a government entitlement program. For those of you who are sick of "big government" and entitlement programs, welcome to hell. We will all instantly be stuck into a dependency entitlement program. I don't want government money. I don't apply for grants. I didn't go for the minority SBA loan when I owned my business. You say....but wait, it is your money they are giving you back. Since when does money laundering by the government work out for the taxpayers? This does not take into account the administrative costs. So if you get rid of the IRS, you immediately replace it with tax enforcers in just another bureaucracy to implement the Fair Tax. All pain, no gain.
Those two sites are only two of many I found that counter the Fair Tax suppositions. I urge you all to take the time to research this further and then decide if you still think the Fair Tax is all it is cracked up to be. I have concluded it is not even close to the propaganda.
There are many ponderables and unintended consequences in the Fair Tax. While proponents insist the Fair Tax covers all contingencies, I maintain it does not. The biggest argument I am having with proponents is this: They believe the Fair Tax cannot be manipulated or abused by consumers or by politicians. I think this is a very naive perspective. Any tax code implemented by government bureaucracies and politicians is going to be manipulated and abused. We have to have some way to fund the Federal government. The question remains, what is the most efficient way to fund our government in the most equal way for all citizens? The Fair Tax does not fit that need.
Get your noodles working and look beyond the sales pitch. Don't take Neal Boortz at face value. He has a dog in the fight. Because he is in the upper wealth tier he stands to gain from the Fair Tax. Frankly, I find him to be arrogant and condescending, but that is my personal take on him.
Dear Cheryl,
ReplyDeleteThe current Income Tax code is almost 70,000 pages long
And because this code is NOT written in understandable English, the government then has to issue thousands and thousands and thousands more pages of Revenue Rulings, Private Letter Rulings, Tax Publications and the like in order to explain exactly what the 70,000 pages actually mean.
But it doesn’t stop there.
You then have thousands and thousands and thousands more pages of Tax Court cases where citizens argue with its government employees over what the tax code, revenue rulings and tax publications actually mean.
Then Tax Court judges chime in and give their opinion on what it all means.
Sometimes citizens and/or its government employees will then appeal a Tax Court ruling and take their case to an Appeals Court and in some cases all the way up to the Supreme Court.
This is the “system” that our government uses to fund itself.
Constant arguments and disagreements over what is taxable at what rate, what is deductible at what rate, what is deductible in certain circumstances and what is not deductible in other circumstances.
Awhile back it came to light that Treasury Secretary Geithner (who is in charge of the Income Tax) did not know how to correctly fill out his Income Tax return.
And recently it came to light that Congressman Rangel (who writes Income Tax policy) also did not know how to correctly fill out his Income Tax return.
So when those who write Income Tax law and those who are in charge of administering Income Tax policy don’t know how to correctly fill out their own Income Tax return, what hope is there for the rest of us?
In 2010, that IS the condition of our Income Tax code.
Now imagine what this is all going to look like in another 10 years if something is not done.
The Income Tax system is a disaster and negatively effects every citizen of this country.
It NEVER improves.
It only get more complicated, confusing, paper intensive and mind numbing.
Cheryl, do you have a solution to this mess?
Just saying “we will find a better way” is a nice saying but does not accomplish anything
A lot of people have given this a lot of thought and have not, to my knowledge, come up with a better way. To do nothing is to choose the status quo, which clearly is a mess.
ReplyDeleteFirst of all, the Federal government needs revenue to operate. We need a huge reduction in government spending, but the tax system has nothing to do with this reduction. This is a completely different issue. To say the FairTax needs to reduce government spending is like saying a new surgical procedure needs to also reduce the surgeons’ fees.
ReplyDeleteOf all the ways to collect taxes a consumption tax is the fairest way of doing so. To say the FairTax will hurt the middle class is words not fact. I am a tax accountant and to say the FairTax will be harder on the middle class is completely wrong.
Here are facts. I compared my son’s 2009 tax return to what he would have paid under the FairTax. I assumed he would spend his entire income on new goods and services. They didn’t do this but let’s assume so because this would represent the greatest amount of tax they would pay under the FairTax. The greatest amount of tax they would have paid under the FairTax would have been $21,432. ($28,134 minus prebate of $6702)
Now let’s compare that to what they actually paid. My son is married and has two children. He filed a joint return with his wife. Their combined gross income was $122,324. Their itemized deductions were $12,285. Their income tax was $16,231. To this you must add 7.65% for S.S. and Medicare which is another $9358. This gave them a total tax liability of $25,589. This is $4157 more than they would have paid under the FairTax. To this figure you must add all the taxes and compliance costs they paid in everything they purchased. Most experts say this could be a high as 22%. Let’s be very conservative and say they would save just 10%. Since I assumed they spent their entire income on new goods and services, this would represent tax savings of another $12,232. A very conservative savings the FairTax would have created for my son and his wife would have been $16,389. As the old saying goes, liars can figure but figures can’t lie.
Since the poor will be completely untaxed under the FairTax and the middle class will pay much less, where will the additional revenue come from? From illegal aliens, all those who profit from our underground economy, tourists, all the tax cheats who currently cheat our country out of $290-billion per year and finally the wealthy; yes the wealthy. Our current system has so many loopholes, many wealthy people pay little or no taxes at all. One of my clients is a multi millionaire and he paid less than $5000 in taxes last year.
If the FairTax is so bad, what would you proffer as an alternative?
ReplyDeleteQuite frankly, I wouldn't care if I paid slightly more under a consumption-based tax like the FairTax (not that I expect I would). This isn't about who gets to pay the least. It's about replacing a broken system that's acting like a cancer on the economy. I'm absolutely sick of the rigmarole that paying income tax requires, and so is everyone else I know that works hard to make a living. It's none of the government's business how I make my money every year. Furthermore, it's a major pain to calculate taxable income to begin with unless you have strictly W2-based earnings, and it's getting easier and easier for people to hide their income by pulling shenanigans outside the US border anyway.
Look, conservative estimates are that we collectively spend at least a quarter TRILLION dollars every year complying with our ridiculous income tax code. In other words, for every few dollars of income tax the government collects, a dollar is flushed down the toilet. It's the nature of the income tax beast. What if all that money were put to constructive use every year, instead of wasted to swim through the byzantine 70,000+ page tax code, which grows by an average of 5 pages per day?
Lastly, on your weak point going against the FairTax prebate: what the heck do you think is so complicated about it? You turn 18, you file your prebate form with your social security number, mailing address and bank account# to credit, and you're done! That's pretty damn simple if you ask me. Compare that to a 1040 and the myriad of schedules and forms that go back and forth between taxpayers and the IRS today. And by the way, if you don't want that government money (which is technically your money anyway), don't file the form!
I've studied a lot of alternatives to the income tax. To me, the most straightforward, and yes, SIMPLE replacement for our current Rube Goldbergian system would be to institute an end-consumer consumption tax, period. No VAT, no income tax, no inheritance tax, no anything other than that on a federal level.
For the millionth time, I have not said I support the status quo. Apparently someone responding here cannot read.
ReplyDeleteI have also printed in this post others who dissent along with me. And I printed charts, one from the Treasury and one from the Fair Tax, and both show that the middle class will be paying more while the rich get decreases in their tax rates. Whether you call it regressive or progressive, it is not evenly divided, i.e. fair.
From Wikipedia: "With the rebate taken into consideration, the FairTax would be progressive on consumption,[4] but would also be regressive on income at higher income levels (as consumption falls as a percentage of income)." How do you suppose this prebate is computed if you are not still reporting income, i.e. consumption as a % of income?
As for simplicity, there is nothing simple about collecting a federal tax on every single purchase made in the U.S. While you object to reporting your income, how can you then say it is so simple to report every single purchase you make?
All of my objections are succinctly laid out here: NO SUCH THING AS A FAIR TAX This is written in 2005 by Laurence M. Vance. He is an accounting and economics instructor.
I think you guys are dreaming some false dream that Neal Boortz has advertised as the answer to all of our prayers. Trust me...which you don't, the Fair Tax is a nightmare, not a dream.
As for simplicity, there is nothing simple about collecting a federal tax on every single purchase made in the U.S. While you object to reporting your income, how can you then say it is so simple to report every single purchase you make?
ReplyDeleteI patently disagree with you on that, Cheryl. The government expects all of us to track every dime we make throughout the year for purposes of calculating and paying taxes on it. That is inherently UN-simple. Think about the millions of transactions taking place every day where someone is paying another person something, anything, and not also logging that so they can later send a form 1090. And the fact that there are hundreds of millions of us to police on this reporting of income makes it a bureaucratic nightmare (IRS). I'm sure I don't I need to sell you on that.
Businesses, under threat of being legally shut down if they don't, must account for all their financial transactions as part of their standard accounting practices, and already have the systems in place to do so. To institute a national retail tax at the point of sale is no big deal. I know, because I work in IT and I program the systems that do just that!
Furthermore, there is an order of magnitude fewer businesses out there for the government/IRS to track than there are individual taxpaying citizens. This reduces the tax enforcement overhead substantially. And the lions share of taxes would come from the giant companies that sell billions of dollars of goods & services every day.
Look, I stumbled upon your blog yesterday, read your rant above, and felt compelled to respond to it because you labeled me as a "lemming" for believing in the potential of the FairTax as an alternative to our current, heinous system. I'm not going to scour through your blog to find the "millions" of times you've stated that you do not support the status quo. I believe you. But how about you just provide us a link to show what you DO support, given that you clearly believe that taxing consumption in lieu of taxing earned income is a bad thing?!
By the way, I sure hope you're reporting all the money you earn from your art sales! It'd be a shame if the IRS were to come knocking!
Why would you think I am not reporting my income from art sales? Is that some underhanded attempt at discrediting me when you know nothing about me? Don't be ridiculous. What kind of creep are you anyway?
ReplyDeleteSince you don't want to read the rest of my writings on the subject, I'll enlighten you that I originally stated that I would support a Flat Income tax of 10% across the board. I believe Jack Kemp had a workable plan for that. I grant that that also could be raised and that people will try to fix loopholes into that system. There is NO simple tax collection system. Where politicians are involved there will be corruption.
Please read my last post on this subject.
Cheryl,
ReplyDeleteI hate to argue with a self professed tax accountant, but I wouldn't hire Mr Keller if he really believes his analysis for his son's situation is accurate.
After correctly calculating their income tax, he failed to deduct the $800 "Making Work Pay" reduction, failed to deduct the $1400 Child Credit, and botched the FICA amount by ignoring the $106,800 cap. Total federal tax liability adjusted to $22,204. That is an 18.2% effective tax rate.
As for the Fairtax, I differ from Keller in how it is calculated. Worst case would be if you add the prebate to gross income for a total of $129026 spendable income which taxed at 23% results in a sales tax amount of $29675, minus the prebate for a net federal tax of $22973. That is $770 more than their current income/payroll tax burden using Kellers worst case assumption.
Steve went on to claim that embedded taxes add to individual tax burdens, a claim that is total nonsense. As I have explained to him, the embedded costs of the income tax system impact only retail prices, nothing else. The fact that a business may pay an income tax on profits does not change my tax burden one thin dime, and to claim otherwise is just smoke and mirrors. Anyone wishing to compare retail prices under the Fairtax should understand that embedded business tax costs of 9% might be removed and applied to lower costs, and after adding the 30% sales tax, retail prices have to rise by 18% on average.
Mr Keller wrote about how the prebate untaxes the poor, but failed to mention that the prebate results in an estimated 30 million workers that will pay no net federal tax annually. That is 30 times more than under current law where less than 1 million workers use the refundable tax credits to totally offset their FICA payments. Is having 30 million working families disconnected from the cost of the federal government a good idea? I don't think so!
Finally, the real reason that Fairtaxers claim that the books will balance has little to do with black market, tourists, etc. etc. The Fairtax plan simply proposes to tax government consumption at all levels, thus adding over $2 trillion to the taxable base and lowering the inclusive rate to 23%. A totally idiotic plan, imho, which is certainly unconstitutional, and if allowed by the Supreme Court, would hide over 12% of federal revenue in higher State/Local taxes. That doesn't seem to be very transparent, does it?
The Fairtax as outlined in HR25 is a very bad plan, and is unfair in many respects. We can do better, but the Fairtaxers have to put down the Kool-Aide and work to simplify any tax reform plan. After 12 years, HR25 has gone nowhere, and it will continue to attract dust unless some changes are made.
Dutchman3,
ReplyDeleteThank you SO much for your math and explanations. At last some sanity.
Only this morning did I discover the tax being applied to government consumption, which sent my head spinning off my neck! That would mean we would be paying taxes upon taxes. That idea compounded, by the state and local government taxes on purchases, is off the charts with a tax burden I can't even fathom. You are right, that would be a hidden tax and we would never get a handle on it.
Because I am not an accountant or an economist, I am relying on web articles from those who are. When I got past the fevered promos for the Fair Tax and found some articles with serious and astute studies on it, I was amazed that people are still on this bandwagon. To me, there seemed to be so much wrong with it, the reaction I have gotten here has surprised me.
I hope you are right and the dust keeps gathering. I do hope someday a reasonable replacement for our income tax system appears...even if it is another, yet different, tax based on income. As for now, I'm not one of those people complaining about paying $200 or so per year to my accountant. He deserves it. After Obama / Pelosi gets through with us, he will deserve it even more.
It's the debt and the spending, plus corruption, causing our downward spiral. Seems to me our energy would be better placed in getting those things under control.
Merci! Gracias! Many thanks.
Cheryl,
ReplyDeleteTake heart, my friend. There is an income tax replacement plan that may be put forth by the Obama Commission when they report in December. And if the Fairtax proponents have any sense, they will support and embrace the plan. Over 130 countries world wide use it to fund their national governments, and there are few if any mysteries about how to implement it.
If you want to replace the income tax, consider a national consumption tax called a Value Added Tax-VAT. A VAT is just the same as a national sales tax except it is collected at each stage of the production of goods in small amounts, whereas a Sales tax is collected only once at the retail cash register. At the same rate, each collects exactly the same amount of revenue. A VAT is just as transparent as a retail sales tax provided the rate and amount are shown on the retail sales receipt. Either can totally replace the hated income tax if so desired. For instance, a 10% VAT on both new goods and all services would be revenue neutral with the current income tax. Or, a 20% VAT on new goods only does the same thing. It is interesting to note that a VAT has a significantly lower evasion rate than a sales tax due to the self policing collection process.
If Fairtaxers really want to get rid of the income tax, a VAT would have a much better chance of Congressionsl approval than the Fairtax scheme. Stay tuned for developments! And don't believe for an instant all the nonsense being put forth about the VAT being hidden, etc. I sometimes wonder if the resistance to a VAT is simply a result of not being invented here???
Dutchman...Just when I thought there was a light at the end of the tunnel, here comes the Vat. I am aware of the Vat, but have not heard that it is proposed as a "replacement" for the income tax. What I have read and heard is that it would be implemented in addition to the income tax. As Alan Simpson says, "Everything is on the table." With the debts we are facing, I am expecting to be taxed if I sneeze. If you are hearing resistance to the Vat, it is because we are taxed enough already....and people perceive the Vat as yet another added insult. This is America. Whether the VAT was invented here or not, our revolution was about economic freedom from the tyranny of taxation. People are not looking to increase the power of the Federal government...so more Federal taxation is not popular...to say the least.
ReplyDeleteI can't imagine what our children are facing in taxes in their lives because of the irresponsibility and corruption of decades of bad government. I'm very worried. I have two children and 4 grandchildren. I have watched our liberties erode inch by inch, year after year, all because of unconstitutional socialist programs, political corruption, and control freaks who want more and more power over us in every aspect of our lives. I don't trust Obama's Debt Commission any more than I trust anyone in our government right now.
The focus in all of this tax discussion is going in the wrong direction from my perspective. I don't want revenue neutral. I want the Federal government to shrink back to its originally intended responsibilities. It is a bloated monster that is eating everything in sight. They are about to redefine waterways as Federal property. They, meaning out of control government officials, are regulating energy to the point of insanity to establish windmills and solar panels. The EPA gaming Cap and Trade in advance. They are implementing "smart meters" on people's homes in some areas. They are buying union votes with our taxes. They are trying to implement Card Check...no secret ballot in union voting. They are controlling schools with No Child Left Behind and Race to the Top. They are controlling which light bulbs will be marketed. We have towns taking "smart growth" money for facades for buildings. We are taking "stimulous" money to decorate sidewalks and build greenways. We are allowing non-profits to use tax money for land conservancies to take control of private property after the property is taxed so high the families cannot keep it. We are using our taxes to renovate minarets and mosques in Muslim countries. We are paying to study the drinking habits of prostitutes in China.
We have evidently educated a whole generation of people who don't know how to do anything other than work for the government and tell everyone else how to live. They don't manufacture anything. They don't know how to run a business. They sure as heck didn't study Hayek or Milton Friedman. And they sure as heck don't give a flying rat's behind about the U.S. Constitution.
However you look at whichever tax plans, we are facing a nightmare of a Federal government running all over us like a Mack truck.
My son is career military. I have skin in the game. And yes, I know the Federal government has to be funded. But not this Federal government..not this much government, not any more.
When does this stop?
Thanks Dutchman...I hope for the best, but I am not seeing it yet.
Dutchman, Dutchman, if you would have paid attention. I said my son and his wife’s combined income was $122,324. Neither reached the $106,800 cap. Their children are ages 18 and 19 so they did not qualify for the Child Credit. The $800 Making Work Pay credit was accounted for.
ReplyDeleteIf you are going to include the prebate into the comparison, you would need to add it to the income under both tax comparisons. If not, you will be comparing tax on gross income of $129,026 under the FairTax to the tax on $122,324 under our current system. Under our current system if my son and his wife were to have had and additional income of $6702, the taxes including S.S. and Medicare would amount to an additional $2321.00. Under the FairTax, if they spent the entire amount on new goods and services the tax would be $1541.
Dutchman said “the embedded costs of the income tax system impact only retail prices, nothing else. The fact that a business may pay an income tax on profits does not change my tax burden one thin dime.” Of course embedded cost of taxes doesn’t change your personal tax burden, but it does increase the retail prices, so indirectly we are paying these embedded taxes just as we are indirectly paying all other embedded cost such as utilities, and insurance. The fact remains that under the FairTax, retail prices will come done thus increasing our buying power.
The VAT is a bad idea. As being proposed, it would be an addition to our current tax system not a replacement. What a mistake this would be. If you want something to destroy what manufacturing we have left in the US, just add the VAT.
ReplyDeleteI don't know if I think the VAT is a bad idea for a "replacement" of the income tax, but I agree that for now it is being looked at in "addition to" our income taxes. Not sure if it would necessarily "destroy" manufacturing, but I can see the impact would be detrimental given global competition. We are already at a disadvantage in that area.
ReplyDeleteLet's face it, there is no good replacement for the income tax structure we have. Including the Fair Tax. There is NO good idea out there. As long as we are trying to pay for a corrupt government there will be no good ideas. It is like trying to pay off the mob. We are scrambling around here trying to figure out how to satisfy a beast. What we need to discuss is how to kill the beast instead....shrink the beast, make the beast less powerful, stop the madness. Until then, whatever Federal tax plan arrives is suicidal. We'll never satisfy the beast.
Steve,
ReplyDeleteSince you seem to know a lot about a VAT, please explain to us just why you believe that a VAT would destroy US industry? Every other industrialized nation in the world uses a VAT. What is it about our industry that makes a VAT unacceptable?
My understanding is that the only difference between a VAT and the Fairtax is that the revenue gets collected in small bites at each stage of production versus all at once at the retail cash register. I will grant you that there will lots more businesses remitting tax revenue, but that's actually good from the viewpoint of evasion rates. Clearly, the self policing nature of the VAT results in significantly less evasion at higher rates.
What am I missing, Steve?
I don’t know what happened to my last post but I will try again. This is in response to Dutchman3. My calculations for my son and his wife’s joint return is exactly correct. Their children are ages 18 and 19 so they are not entitled to the Child Credit as you suggest. Both of their incomes were under the $106,800 FICA cap so the paid the full 7.65% on their total income. Sch. M was completed for the Making Work Pay credit and $800 was included on line 63 of their 1040. I’m glad you did not do their return. In my previous post I indicated their tax liability including the 7.65% for Medicare and S.S. was $25,589. Even though the $800 Making Work Pay credit was deducted on their return, I forgot to deduct this amount in my illustration. One thing I did forget to do was deduct the $800. So the corrected figure for 2009 income and payroll taxes was $24,789.
ReplyDeleteYou are correct in adding the prebate to their gross income of $122,323 if you wish to show the worst case scenario. In doing so they would have had a total spendable income of $129,026. If they spent this entire amount on new goods and services, their tax under the FairTax would have been $29,676. When you deduct the tax from their total gross you would end up with $99,350 in after tax dollars. Under our current system their after tax dollars would be $122,324 minus $24,789 or $97,535. Now when you consider that retail prices will drop by at least 10% they would only need to spend $89,415 of their $99,350 to receive the same products and service; compared to $97,535 under our current system. As a result the FairTax would result in a total savings of $97,535 minus $89,415 or $8,120.
Dutchman3 The FairTax is proposed as a replacement and the VAT is being proposed as an add-on tax. Also on the manufacturing level, there are administrative cost associated with the VAT none of which would be present under the FairTax.
ReplyDeleteThere were two very long comments by a couple of people that for some unknown (to me) reason went into the new spam filter of Blogger. I could not figure out how to retrieve them, but here I see them published....so my comment in the post above this one is null and void. Except for closing the comments on this subject.
ReplyDeleteI hold to my view that the Federal government has become too big to manage in any efficient way, so trying to feed the Federal tax monster is not productive. None of the proposals I've seen or discussed here on taxes help shrink the size of government.
Steve, I concur with Vance on the subject of the Fair Tax plan. You might call Keynes a "top economist," but that doesn't make his theories successful. You might call Greenspan a "top economist," but that doesn't mean his policies with the Fed were always correct. You might call Paulson and Bernanke and Geithner "top economists," but I hardly think I can respect any of them for their manipulations of our financial system. Christina Romer was supposedly a "top economist" and look at the last 20 months.
I notice on wordpress blogs there is a way to close the comments on a particular post...but I don't find that option on blogger. I wish there were that option because I would close the comments on this tax question for now. No one has the definitive best answer, yet the arguments rage on. Reaching into someone else's pockets is never a good idea and when done in the name of taxes it always turns into corruption. That's just the sorry history of it.
As for my not being helpful by saying I think there will be a better answer to this at some point, sorry to disappoint. I have said and will say again, the simplest best answer that I think would solve most of this is a Flat tax plan with all sharing equally in the tax burden. That is too simple for our complicated government and probably will never happen. It is, however, what I would like to see.
Thank you all for your input.