So, what do you think of the Fair Tax? I think it’s a good idea.
April 14th, 2009 at 02:19pm Chuck Sweeny
Not being an ideologue of either left or right, I have the freedom to look for good ideas wherever they might be. Because the income tax code has become so complicated and is used by congressmen, senators and presidents to reward and punish people depending on the kind of economic activity they engage in, I’ve been looking into a proposal known as the Fair Tax.
You can read all you want about the fair tax at fairtax.org
Here it is in a nutshell: The fair tax is a national sales tax of 23 percent payable at the cash register. No, it’s not regressive, because low income people would get monthly “prebate” checks from Uncle Sam, up to about $28,000 a year.
The fair tax would eliminate all other federal taxes, including payroll, corporate and capital gains taxes. It would result in much more corporate investment in the U.S. economy, particularly from foreign companies. The U.S. currently has the second highest corporate tax rate in the world, which encourages American businesses to go offshore and discourages foreign companies from coming here.
It would also get rid of the legions of tax accountants, tax lawyers and garden variety tax preparers who would be free to engage in productive activity. It would end the IRS.
This idea comes from the right, and Mike Huckabee is one of its biggest promoters, but the way I see it, the fair tax is ideologically neutral. It’s a more efficient way of collecting tax money, and there’d be no tax code for the politicians to manipulate according to which special interest gives them the most money.
This idea could spread to state and local governments, so that eventually, all taxes are collected at the point of sales of goods and services. Poor people get prebates, and there’s more money freed up for businesses to create jobs, leading to a more productive economy.
Go to the website, read it, and send me your thoughts.
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10 Comments Add your own
1. bob trojan | April 14th, 2009 at 5:44 pm
Chuck;
This sounds like the VAT tax popular in Europe/UK. I know it’s more complicated that it appears, but having lived in England and paying taxes as an ex-pat, I still had to cough up other taxes such as income and property taxes. I don’t know about the cap gains, etc. but my overall UK taxes were in a much higher tax than as a US citizen.
The only thing I’ve seen work for job creation and productivity is lower corporate and high income taxes.
I was there (UK) when Maggie cut personal and corporate taxes and that created a recovery that matched the US at the same time. I wonder why?
At the time, I talked with UK executives who were becoming blaise about creating growing companies and wealth..”why should I work harder, the government will only take it away” Thus the Maggie tax cuts.
Would you also apply this tax for importers? They do in Italy that I know for sure…except when the customer then re-exports something he bought fro the US he gets a credit!
I think this model needs to be examined against European/UK taxes to see what they do to get the total picture.
Mind you, I’m all for simpler and LOWER taxes, I just don’t know if our U.S. politicians have a clue in understanding these complexities.
Keep at it, I’m sure you’ll come up with an understandable plan.
2. coldhotel | April 14th, 2009 at 7:04 pm
It’s a dang good idea if you’re in the 30% or higher tax bracket; otherwise not so much. I think my Federal tax rate is around 12 or 13% now; I think under this scheme I would be paying around 10% more in order to give affluent Americans a very nice tax cut. The economic arguments are trickle-down; don’t think they worked so well when we tried them in the 80s.
I also remember the 1986 Tax Reform Act which greatly simplified tax codes for awhile; loopholes started appearing the following year IIRC. Human nature being what it is, there will be loopholes.
Proponents of FAIR tax say it would be revenue-neutral, but I think it would be a huge tax cut. How would the Federal govt. pay off the huge deficit and cover operations? I think the driving force behind the FAIR tax is to choke off the Federal govt.
3. Juice | April 14th, 2009 at 7:13 pm
Coldhotel,the “rich” wealth kept people like GM in business. Poor people don’t buy new cars. Great idea Chuck, but the extreme opposite thought process from Marxism/Socialism inplace now. Not enough votes to pass, not even in Wyoming. It’s a different world. Gimme, Gimme, Gimme.
4. Juice | April 14th, 2009 at 7:15 pm
I’m sure it would make Applesauce cringe at the thought of a “fair” tax system.
5. coldhotel | April 15th, 2009 at 6:41 am
Juice, I think the rich are buying Lexus, BMW, and Mercedes. GM wasn’t doing so well even at the crest of the last economic cycle.
6. DavidNC10 | April 15th, 2009 at 10:54 am
Um, in order to get a prebate of 28K a couple would have to have 33 kids.
http://www.fairtax.org/PDF/FairTaxPrebateExplained2007.pdf
7. DavidNC10 | April 15th, 2009 at 11:06 am
Cold Hotel,
Go to the FairTax calculator to find out how your current status would compare to life under the FairTax.
http://www.fairtax.org/site/PageServer?pagename=calculator
Once you fill in the blanks, you can even modify the assumptions. I think you’ll be surprised.
8. coldhotel | April 15th, 2009 at 7:45 pm
David, Thanks for the link. The calculator says I would pay about $100 less in taxes. It says my purchasing power would increase by more than that, because of the effect of fairtax on prices, I suppose, but I think they are ignoring some basic economic principles in terms of pricing mechanisms.
Also, I will reiterate my opinion that this is an attempt to choke off the federal govt by vastly reducing revenue. Unless Americans are willing to do an abrupt about-face in terms of services they expect from the government, this will result in either vastly increased federal deficits or a shift to states s providers of these services. I imagine that the $100 cut in federal taxes might be made up with a like increase in state taxes.
This looks like a variation on the flat tax. Conservatives have been trying to gain support for some form of the flat tax for the last 30 years, usually under the claim that it will simplify taxes; the simplification will drive an economic boom. I don’t know that any evidence supports this. I think this is mainly an attempt to get middle class Americans to support a major and permanent tax cut for wealthy Americans.
9. Chuck Sweeny | April 18th, 2009 at 10:41 pm
The fair tax eliminates all other federal taxes. In Europe, the VAT is in addition to high income taxes.
If we adopt the idea that we’re going to do it, then obviously the politicians could argue about what’s the proper percentage, and where the cutoff would be for who actually pays and who gets how big a rebate, or as the proponents call it, a “pre-bate.”
My thinking is that the tax code is so confounding and complicated, that it’s got to be a drag on productivity. If the same simple rules applied to everyone, it would encourage us to use our time more creatively!
10. TBiondo | April 26th, 2009 at 1:16 pm
Fair tax proponents never seem to answer the question, “What happens to the money you placed in a savings account over the years on which you have already paid federal taxes?”
Answer - You still pay the Fair Tax when you withdraw and spend money from your savings account even though you have already paid taxes! Why don’t we hear about that one?
Fair tax would be Ok with respect to 401Ks and IRAs, where taxes have been deferred, then collected as the money is withdrawn and spent!
Ted
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