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Author: mrgoo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: FairTax Date: 9/27/2012 2:58 PM
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Hi

By no means am I trying to create a political debate what I was curious what folks think of a flat sales tax being sold as a FairTax. For reference check out: http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWo...

To me it seems overly simplistic but maybe it would work?

Thoughts?

Gary
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116685 of 121565
Subject: Re: FairTax Date: 9/27/2012 3:21 PM
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By no means am I trying to create a political debate

Then what is your purpose in asking for thoughts?

what I was curious what folks think of a flat sales tax being sold as a FairTax.

I think it's a lousy idea.

To me it seems overly simplistic but maybe it would work?

To even discuss that question is the opening of a political debate. I don't mind political debates, but they belong in a different place. I'd suggest PA for the view from the left and RECF or Conservative Fools for the view from the right.

Thoughts?

You won't actually get any rational discussion from either of those places. You will get the wild-eyed, hyped-up, "my way or the highway" points of view. So be prepared for that.

Personally, I don't think it is possible to get rational political discussion on the internet. The kooks from both sides of the aisle quickly invade and drown out any rational thought.

--Peter

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Author: mrgoo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116686 of 121565
Subject: Re: FairTax Date: 9/27/2012 3:39 PM
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Peter wrote:

"You won't actually get any rational discussion from either of those places. You will get the wild-eyed, hyped-up, "my way or the highway" points of view. So be prepared for that."

Thanks Peter for your input and that is why I posted it here. I am looking for an objective point of view. You are right I would be hard pressed to get that on any other of those sites.

Gary

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116687 of 121565
Subject: Re: FairTax Date: 9/27/2012 3:45 PM
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mrgoo: "By no means am I trying to create a political debate what I was curious what folks think of a flat sales tax being sold as a FairTax. For reference check out: http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWo...... "

I am with Peter, the question alone is political.

I think FairTax has multiple problems:

1. It disguises its rate as 23% all inclusive, when it is really a 29.87 sales tax rate.

2. It will require a Constitutional Amendment. no easy task.

3. It is very regressive.

4. It relies on a lot of untested assumptions regarding its revenue neutrality.

Among others.

Regards, JAFO

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116688 of 121565
Subject: Re: FairTax Date: 9/27/2012 4:16 PM
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To even discuss that question is the opening of a political debate. I don't mind political debates, but they belong in a different place. I'd suggest PA for the view from the left and RECF or Conservative Fools for the view from the right.


maybe showing my bias, but i think you can get both sides at PA ... leans heavily left, but not simple echo chamber



Personally, I don't think it is possible to get rational political discussion on the internet. The kooks from both sides of the aisle quickly invade and drown out any rational thought.


ah.... i've been told there is a board with calm and rational politicals ... but they wouldn't tell me which board (>;

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116689 of 121565
Subject: Re: FairTax Date: 9/27/2012 4:35 PM
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JAFO31 writes (in part):

It will require a Constitutional Amendment. no easy task.

I reply:

Why would a national sales tax require a constitutional amendment? --Bob

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116690 of 121565
Subject: Re: FairTax Date: 9/27/2012 4:45 PM
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Why would a national sales tax require a constitutional amendment?

Because IIRC it is the 16th Amendment that allows the federal govt to tax income, but does not include the right to tax sales. The Federal gov't is limited as to what it is allowed to tax.

IP

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116691 of 121565
Subject: Re: FairTax Date: 9/27/2012 4:46 PM
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What the heck, here goes:

I agree with everything JAFO mentioned.

One additional item - and one I think that is just as important: Promoters of the Fair Tax say it will be simpler than what we've got. I agree that it will start out simpler, but it will not be long before Congress starts carving out exceptions and differences and all sorts of things. These will all add to the complexity of the national sales tax and negate that supposed advantage over the existing income tax.

--Peter

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116692 of 121565
Subject: Re: FairTax Date: 9/27/2012 5:24 PM
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inparadise writes:

Because IIRC it is the 16th Amendment that allows the federal govt to tax income, but does not include the right to tax sales. The Federal gov't is limited as to what it is allowed to tax.

I reply:

The 16th Amendment was necessary to permit an income tax because the Supreme Court held that it was a "direct" tax. I don't think sales taxes are direct taxes -- those are capitation taxes or property taxes. --Bob

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116693 of 121565
Subject: Re: FairTax Date: 9/27/2012 5:35 PM
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Here ya go then Bob. I confess I didn't read it, and would say it's probably biased based on the url, but maybe it will tell you what you want. Google is a great tool. If this doesn't answer your Q, keep googling.

http://www.tax-freedom.com/Federal-Sales-or-VAT-Tax-Is-Uncon...

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116694 of 121565
Subject: Re: FairTax Date: 9/27/2012 6:03 PM
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Bob78164:

JAFO31(in part): <<<It will require a Constitutional Amendment. no easy task.>>>

"Why would a national sales tax require a constitutional amendment?"

In and of itself, a national sales tax would not, but FairTax is a very specific proposal and is based upon abolition of the federal income tax as curretnly constituted. The proposal calls for the repeal of the 16th Amendment.

Regards, JAFO
(though it has been awhile since I read the FairTax site)

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116695 of 121565
Subject: Re: FairTax Date: 9/27/2012 6:30 PM
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I think you had a great question, but don't expect honest answers on this board since several of the biggies here are tax accountants (ptheland) and the Fair Tax would be an attack on their existence, LOL! The only drawback I've ever heard is those with Roth IRA's would get screwed since they grow their money tax free for years only to get zapped by the Fair Tax which includes all the taxes that were dodged for all those years. I've never followed up to see what the advocates have to say about that, but I'm sure there is a workaround. As to what board to put this on, who knows. Maybe try the Retire Early Campfire for intelligent right wing views and the Retire Early Campfire Liberal Edition for the other side. Then meld them together and determine for yourself.

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116696 of 121565
Subject: Re: FairTax Date: 9/27/2012 6:37 PM
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Wonderful idea if you've already made your multi-million dollar fortune or inherited it. All flat tax proposals I've seen exempt interest, diviidends and capital gains. The woriking guy getting along mostly on wages still pays. And a national sales tax really hits the poor and middle class hard. Proponents say they would rebate money to those below a certain income level. We don't replace the IRS with such proposals, we just change their function.

I might support a flat tax that covered ALL income but not the proposals I've seen put forward by Steve Forbes and others who get most of the income from investments.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116697 of 121565
Subject: Re: FairTax Date: 9/27/2012 6:53 PM
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I've never followed up to see what the advocates have to say about that, but I'm sure there is a workaround.

Therein lies a tremendous impediment to simplicity of the Fair Tax. When you start working around things, you start complicating things.

The Constitution. I'm not a constitutional scholar, so I'll not comment on whether any amendment would be required in order to impose the Fair Tax. I have read that supporters of it don't trust Congress not to reinstitute an income tax, thus they want the 16th Amendment repealed as a part of the process.

My biggest objection to the Fair Tax talking points is that supporters act as if it will collect itself, thus no more IRS and the money it spends. We'll leave aside the basics of keeping the books, which someone is going to have to do at some cost. My main problem is the result of years as a knuckle-dragging collection thug for the IRS. The biggest compliance problem we had was employers who withheld from employees' wages and didn't pay the withholding over to the gummint. States have a similar problem with sales tax collectors. The Fair Tax would just give businesses in trouble a larger, more attractive pot of "easy" cash to be tempted by when they got in a crunch.

Phil
Rule Your Retirement Home Fool

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116698 of 121565
Subject: Re: FairTax Date: 9/27/2012 7:09 PM
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And a national sales tax really hits the poor and middle class hard.

With half of the population not paying income tax, it isn't necessarily bad that a flat tax would obtain payments from those currently not paying.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116699 of 121565
Subject: Re: FairTax Date: 9/27/2012 7:19 PM
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With half of the population not paying income tax, it isn't necessarily bad that a flat tax would obtain payments from those currently not paying.

In theory, but for the vast majority the reason they're not paying income tax is that they're at or below the poverty level. I'll grant that we don't really give a rat's patootie about the poor in this country, but the politicians at least have to pretend they do.

Phil
Rule Your Retirement Home Fool

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116700 of 121565
Subject: Re: FairTax Date: 9/27/2012 8:06 PM
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but don't expect honest answers on this board since several of the biggies here are tax accountants (ptheland) and the Fair Tax would be an attack on their existence,

I am forced to take exception to that remark. I freely admit that I am a professional tax preparer. However, I have no fear of losing my job with the FairTax. Frankly, I could probably get a different job with minimal problems, or simply start a different business. I am not a one-trick pony. I choose to prepare taxes because, frankly, I enjoy it.

My objections to the FairTax are based on social equity. I believe that taxes should be paid by those that have the money to pay the taxes. The more money you have, the more taxes you should pay and the higher percentage of your income you should pay in tax.

Our current system is an attempt to tax in that way, but with some admitted flaws. However, those flaws are far fewer than the flaws in the FairTax. The FairTax is flawed at its core.

The FairTax would tax lower incomes at significantly higher rates than the much higher incomes because it taxes consumption rather than income. It does not tax savings. And the more income you have, the more you are able to save and the less tax you would pay as a percentage of your total income.

If you make $30k or $40k a year as a family today, you pretty much spend it all by necessity. The FairTax proposal would collect about 23% of that as taxes less a baseline spending allowance. From their web site, those two would net out to roughly zero. So the poorest in the country would end up close to where they are now. So far so good.

But let's say you make $100k and manage to save $10k. That leaves $90k for spending. Lop off 23% of that (about $20k) for the tax and you'd have $70k for spending. That's around at 20% tax rate on your total income. If you make $300k today and spend only $200k, you'd pay the 23% only on the $200k, or about 15% on your total income. And if you make $10 million and spend $5 million, that tax rate falls to 11.5%. That's a regressive tax.

And I don't like regressive taxes. I believe they are unfair.

Is that an honest enough answer for you?

--Peter

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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116701 of 121565
Subject: Re: FairTax Date: 9/27/2012 8:22 PM
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I am forced to take exception to that remark. I freely admit that I am a professional tax preparer. However, I have no fear of losing my job with the FairTax. Frankly, I could probably get a different job with minimal problems, or simply start a different business.

====================================

If you think having a fair tax is going to threaten your job guess again.

Before the ink is even dry there would be exemptions for this or that.

Washington State only has a sales tax. It makes my bookkeeping much harder keeping track of the different types of sales subject to or exempt from the tax.

After looking at the BOE-401-A2 it doesn't look as if it's much different in CA.

Shudder.

Jean

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116703 of 121565
Subject: Re: FairTax Date: 9/28/2012 7:36 AM
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It relies on a lot of untested assumptions regarding its revenue neutrality.

It also relies on the false premise that tax reform must be revenue neutral. That may be a political requirement for passage, but there's no other need for neutrality.

Eric Hines

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116704 of 121565
Subject: Re: FairTax Date: 9/28/2012 9:56 AM
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It relies on a lot of untested assumptions regarding its revenue neutrality.

It also relies on the false premise that tax reform must be revenue neutral. That may be a political requirement for passage, but there's no other need for neutrality.


It seems to me that if you want to debate the merits of two systems, e.g., Fair Tax vs. existing, you have to have the same revenue from both systems for the sake of discussion. Otherwise you're mixing spending policy with taxing policy.

Phil
Rule Your Retirement Home Fool

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Author: JoshRandall Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116705 of 121565
Subject: Re: FairTax Date: 9/28/2012 11:13 AM
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The Federal gov't is limited as to what it is allowed to tax.

Is that so. Coulda fooled me. We will have to pay a tax if we don't purchase health care.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116706 of 121565
Subject: Re: FairTax Date: 9/28/2012 12:48 PM
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We will have to pay a tax if we don't purchase health care.

Oh, but it isn't a tax, its a penalty (or some other fuzzy psuedo legal concept.)

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116707 of 121565
Subject: Re: FairTax Date: 9/28/2012 3:22 PM
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We will have to pay a tax if we don't purchase health care.

Oh, but it isn't a tax, its a penalty (or some other fuzzy psuedo legal concept.)


I think you have it backwards. IIRC Congress didn't want to call it a tax, so they called it a penalty, which they probably didn't have the authority to impose. The Chief Justice saved it by calling it a tax, which they had authority to impose. And if the Supremes say it's a tax, it's a tax until they say otherwise.

I was amused by all the ya-ya over Romney's comment that corporations are people. While he was speaking about a broader construct, I was reflecting on the Internal Revenue Code's definition of "person." It includes corporations (IRC 7701(a)(1)). When the Code is talking about what normal people call people it calls them "individuals."

Phil
Rule Your Retirement Home Fool

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116708 of 121565
Subject: Re: FairTax Date: 9/28/2012 3:22 PM
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Gary I think you are trying to start a fight - so I will just chime in and say the "Fair Tax" idea is just a set of code words for transfer my tax burden to someone else. If you doubt that, take a look at those favoring it. Exactly how many of those favoring "fair tax" would have their personal tax burden increased by such?

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116709 of 121565
Subject: Re: FairTax Date: 9/28/2012 5:43 PM
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It seems to me that if you want to debate the merits of two systems...you have to have the same revenue from both systems for the sake of discussion. Otherwise you're mixing spending policy with taxing policy.

The two are inextricably intertwined; it's entirely appropriate to discuss both together. Necessary, even, if we're to arrive at coherence in both.

Eric Hines

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116710 of 121565
Subject: Re: FairTax Date: 9/28/2012 6:33 PM
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I am forced to take exception to that remark. I freely admit that I am a professional tax preparer. However, I have no fear of losing my job with the FairTax. Frankly, I could probably get a different job with minimal problems, or simply start a different business. I am not a one-trick pony. I choose to prepare taxes because, frankly, I enjoy it.

It was a joke, hence the big LOL! at the end. Lighten up.

My objections to the FairTax are based on social equity. I believe that taxes should be paid by those that have the money to pay the taxes. The more money you have, the more taxes you should pay and the higher percentage of your income you should pay in tax.

Our current system is an attempt to tax in that way, but with some admitted flaws. However, those flaws are far fewer than the flaws in the FairTax. The FairTax is flawed at its core.


I think it's unfair that nearly half of Americans pay no income taxes whatsoever. 23% of a lot is a lot more than 23% of a little.

The FairTax would tax lower incomes at significantly higher rates than the much higher incomes because it taxes consumption rather than income. It does not tax savings. And the more income you have, the more you are able to save and the less tax you would pay as a percentage of your total income.

If you make $30k or $40k a year as a family today, you pretty much spend it all by necessity. The FairTax proposal would collect about 23% of that as taxes less a baseline spending allowance. From their web site, those two would net out to roughly zero. So the poorest in the country would end up close to where they are now. So far so good.


As you pointed out, if you are poor or lower middle class, it will be neutral to you. But, we the consumers get to decide WHEN to pay the tax as opposed to the federal government demanding it from us. I like that a lot. I also like that money not currently taxed in underground economies, illegal aliens, etc. will get taxed with the Fair Tax. This would be extremely lucrative.

But let's say you make $100k and manage to save $10k. That leaves $90k for spending. Lop off 23% of that (about $20k) for the tax and you'd have $70k for spending. That's around at 20% tax rate on your total income. If you make $300k today and spend only $200k, you'd pay the 23% only on the $200k, or about 15% on your total income. And if you make $10 million and spend $5 million, that tax rate falls to 11.5%. That's a regressive tax.

That's a lot of what ifs that are unlikely. Why would someone making $100K only save $10K but someone making $300K manage to save 10X more? This is an apples and oranges comparison. The flip side is in retirement, the higher income person will spend and consume more and will pay more in taxes in the future.

And I don't like regressive taxes. I believe they are unfair.

I don't like progressive taxes. I believe they are unfair. This whole "tax the rich" thing is a load of crap. You and I both know if you seize all of the assets of the "rich", it wouldn't make a dent in the deficit or the debt. There is an optimal tax rate at which people are willing to pay that maximizes revenue to the Federal government. Above this rate, people will dodge it and below this rate, people are more than willing to pay it but might be willing to pay a little more. This is Economics 101. The problem is taxing the "evil rich" as proposed pushes that group of folks into the former condition. Or worse, they bail on the USA like the French. I believe the optimal rate is lower, not higher than current rates. The government needs to maximize revenue. It is not the job of the government to guarantee anyone a standard of living. It's my job to guarantee my standard of living. And I hang out here to improve my standard of living.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116711 of 121565
Subject: Re: FairTax Date: 9/28/2012 6:51 PM
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It seems to me that if you want to debate the merits of two systems...you have to have the same revenue from both systems for the sake of discussion. Otherwise you're mixing spending policy with taxing policy.

The two are inextricably intertwined; it's entirely appropriate to discuss both together. Necessary, even, if we're to arrive at coherence in both.


I guess we'll have to agree to disagree. Or maybe you can explain to me how a discussion of moving from our present system to the Fair Tax using different spending numbers clarifies the discussion. It's easy to tweak either system to produce more or less revenue.

In my magic-wand world the conversation would begin with a debate about what the government is going to do and how much it will cost. Once that number is nailed down you move on to deciding how to raise the money. And more importantly, when unforeseen circumstances arise, e.g. post-9/11 military spending vs. "the Bush tax cuts" and the 2008 economic crisis vs. health care, you reopen the conversation.

Unfortunately my magic wand, an Acme (endorsed by Wile E Coyote) from the gitgo, is in the shop for repairs.

Phil
Rule Your Retirement Home Fool

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116712 of 121565
Subject: Re: FairTax Date: 9/28/2012 7:02 PM
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I also like that money not currently taxed in underground economies, illegal aliens, etc. will get taxed with the Fair Tax.

Oh, how I love the young mind. At least I hope you're young and still relatively unjaded by life experience.

What exactly is it about the Fair Tax that you think is going to prompt the black marketeer (and his suppliers) to report their sales for the Fair Tax even though they don't report them for the income tax?

As for illegal aliens, you don't have the first clue. They certainly do pay taxes through withheld income and payroll taxes. They actually make a disproportionate contribution since they don't get the benefit of such programs as the Earned Income Tax Credit and Social Security benefits based on their work histories. I guess you assume that they all work off the books, which is a Fox News falsehood. If you live in an area with a sizeable immigrant population, volunteer to work with the Volunteer Income Tax Assistance (VITA) program. (Info available at www.irs.gov.) It's an eye-opener.

Phil
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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116713 of 121565
Subject: Re: FairTax Date: 9/28/2012 7:11 PM
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What exactly is it about the Fair Tax that you think is going to prompt the black marketeer (and his suppliers) to report their sales for the Fair Tax even though they don't report them for the income tax?

I was referring to the other side. They have to eat don't they. They have to buy stuff, don't they. 23%. No matter the illegal activity, the tax gets collected when the bad guys spend their ill-gotten gains.

As for illegal aliens, you don't have the first clue. They certainly do pay taxes through withheld income and payroll taxes. They actually make a disproportionate contribution since they don't get the benefit of such programs as the Earned Income Tax Credit and Social Security benefits based on their work histories. I guess you assume that they all work off the books, which is a Fox News falsehood. If you live in an area with a sizeable immigrant population, volunteer to work with the Volunteer Income Tax Assistance (VITA) program. (Info available at www.irs.gov.) It's an eye-opener.

I guess you assume that they all work off the books, which is a Fox News falsehood.

I think quite a few work off the books as well as quite a few our own citizens. When they spend that money, they also get hit for 23%.

Spare me the liberal diatribe. I didn't attack you. So, I'm perplexed by your unprofessional Foolish response.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116714 of 121565
Subject: Re: FairTax Date: 9/28/2012 7:13 PM
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ferjen: "I think it's unfair that nearly half of Americans pay no income taxes whatsoever. 23% of a lot is a lot more than 23% of a little."

FairTax will not change that much.

According to the Tax Foundation, the AGI cutoff for the bottom 50% is barely above the rebate amount, see Table 7, http://taxfoundation.org/article/summary-latest-federal-indi...

"As you pointed out, if you are poor or lower middle class, it will be neutral to you. But, we the consumers get to decide WHEN to pay the tax as opposed to the federal government demanding it from us. I like that a lot. I also like that money not currently taxed in underground economies, illegal aliens, etc. will get taxed with the Fair Tax. This would be extremely lucrative."

Liek the seller's of drugs and other illegal products will collect sales taxes?

OP (peter, IIRC): <<<And I don't like regressive taxes. I believe they are unfair.>>>

"I don't like progressive taxes. I believe they are unfair."

Why?

"This whole "tax the rich" thing is a load of crap. You and I both know if you seize all of the assets of the "rich", it wouldn't make a dent in the deficit or the debt."


First, no no one is seriously arguing for seizing all of the assets of the rich. Second, the assets and incomes of the rich are substantially larger than the assets of the poor.

The top 1% report between 16.12% to 22.83% of AGI per year for the ten years 2000-2009), See Table 5, previously provided, while the bottom 50% reprot between between 12.26% and 14.23% of AGI per year for the same period. IOW, the top 1% always had more AGI than the bottom 50%, and at the wosrt year for the top 1%, they still reported 13.28% more income than the bottom 50%; and in the best year for the top 1% they reported almost twice as much AGI as the bottom 50%, 86.22% more AGI.

"There is an optimal tax rate at which people are willing to pay that maximizes revenue to the Federal government. Above this rate, people will dodge it and below this rate, people are more than willing to pay it but might be willing to pay a little more."

The Laffer curve.


"This is Economics 101."

No, it is further aong the chain that Econ. 101.

Of course, you cannot produce any evidence that we are above the inflection point of the Laffer curve, the evidence from the both the Reagan tax cuts and the Bush tax cuts show that real revenue fell for several years and did not surpass pre-cut revenue for 5 years for Reagan (including 1986 tax inscrease) and never exceeded during the entire GWB administration. I have not looked for 2010 or 2011, so I cannot comment on those years, but from 1980 trhough 2009, the year with the largest real FIT revenues was 2000.

And all of this ignores the GINI C coefficient for Wealth in the USA, which has become more and more concentrated.

"In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers)."

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

If you look at the graphic, it really is:

Top 1% - 35% of Net Worth
Next 4% - 27% of Net Worth --- IOW, Top 5% owns 62% of Net Worth
Next 5% - 11% of Net Worth --- IOW, Top 10% owns 73% of Net Worth
Next 10% - 12% of Net Worth
Bottom 80% - 15% of Net Worth

" The problem is taxing the "evil rich" as proposed pushes that group of folks into the former condition."

Hardly. Look at Tables 7 & 8 of the Tax Foundation link and do a little math.

Top 1% - AGI at least $343,927, Average FIT tax rate 24.01$, Net after tax, at least $261,350, which is considerably larger than th cut-off for the top 5% - $154,643 AGI.

"I believe the optimal rate is lower, not higher than current rates."

You may well "believe" that to be true, but you have marhsalled no evidence to support, it runs contrary to the evidence from the Reagan and GWB tax cuts, and it runs contrary to most economists thinking and reserach on the subject.

"The government needs to maximize revenue."

Really? That is easy, revenue would be minimized if the tax rate was zero. Are you really a closet anarchist? If not, you statement makes no sense.

Regards, JAFO

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116715 of 121565
Subject: Re: FairTax Date: 9/28/2012 10:22 PM
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It was a joke, hence the big LOL! at the end. Lighten up.

Sorry - the joke must have been lost in the translation. I didn't get it.

I think it's unfair that nearly half of Americans pay no income taxes whatsoever.

You're entitled to your beliefs, as am I. They may be wrong, but you're entitled to them. LOL!

But, we the consumers get to decide WHEN to pay the tax as opposed to the federal government demanding it from us.

Why shouldn't the government demand the tax from us? Their demand of a percentage of spending is no less a demand than a percentage of income. Both are demands on citizens and residents.

Why would someone making $100K only save $10K but someone making $300K manage to save 10X more?

I thought this was all about spending. The person making $100k spends $90k (including the spending on taxes). The person making $300k spends $200k - over twice as much. Why wouldn't the person making $300k spend only $90k just like the other person? Of course, that would give the $300k person an income tax equivalent rate of about 7%. I was trying to be generous to the FairTax in my example. I can be more brutal about it if you want.

This whole "tax the rich" thing is a load of crap.

If you don't tax the people with the money, who are you going to tax? The poor people without money? The concept is that you tax the people who can afford to pay the tax.

You and I both know if you seize all of the assets of the "rich", it wouldn't make a dent in the deficit or the debt.

Don't include me in that. I haven't run the numbers, so I don't know. And besides, it's off the point. We're not talking about taxing the assets, we're talking about taxing the income.

There is an optimal tax rate at which people are willing to pay that maximizes revenue to the Federal government.

Ahh, yes. The Laffer Curve. Interesting theory and one I can't argue with. Surprisingly, I agree with it. The problem is that it's not useful for setting tax policy. I don't know of anyone who has actually developed a formula for it. And without some provable or even rationally arguable basis for deciding where the peak is, it's completely useless.

I believe the optimal rate is lower, not higher than current rates.

You do realize that today's tax rates are the lowest they've been in many decades. And besides, you don't get to have a belief about where the optimal rate is on the Laffer Curve, you need to make a mathematical argument for where it is. I'll grant your beliefs on progressive vs. regressive taxation. That is in the domain of a belief system. But the Laffer Curve requires some proof, not a blind belief.

The problem is taxing the "evil rich" as proposed pushes that group of folks into the former condition. Or worse, they bail on the USA like the French.

Seems to me that a couple of centuries ago the French tried taxing the poor and not the rich. I believe you'll find the result of that tax policy filed under "French Revolution". I'd kind of like to avoid repeating that one. And I think the FairTax is a big step exactly in that direction.

--Peter

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116716 of 121565
Subject: Re: FairTax Date: 9/29/2012 9:04 AM
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...maybe you can explain to me how a discussion of moving from our present system to the Fair Tax using different spending numbers clarifies the discussion.

That's your straw man; you defend it. I've said two things in this thread: 1) that a tax reform, of necessity (as opposed to from political reality), needs to be revenue neutral is a false premise, and 2) that spending and taxing are too far interrelated to be discussed usefully apart from each other.

In my magic-wand world the conversation would begin with a debate about what the government is going to do and how much it will cost. Once that number is nailed down you move on to deciding how to raise the money.

Here we generally agree. I also suggest that the first clause of Article I, Section 8 of our Constitution opens the conversation, first by discussing taxes first and then by enumerating for what they may be raised, and that on what those taxes might be spent is first identified in that first clause and then further limited by the rest of the enumerated powers. Related to this are Supreme Court erroneous expansions of the things on which our money might be spent.

Eric Hines

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116717 of 121565
Subject: Re: FairTax Date: 9/29/2012 9:15 AM
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...without some provable or even rationally arguable basis for deciding where the peak is....

I suggest, also, that the peak would shift as the economy evolves. The peak likely would have been in a different location in the far more agrarian economy of the early 20th century when the 16th Amendment was passed than it would be today in our far more urbanized economy (and, yes, that's also along a different dimension, too).

Eric Hines

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116719 of 121565
Subject: Re: FairTax Date: 9/29/2012 11:07 AM
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Of course the Fair Tax sounds good, but can it really be implemented? As The wealthy spend more dollars in a year than the poor so they would pay more tax (unless they are misers). But there is a significant amount of the voting public that feels the wealthy pay a higher rate than the poor so it will be hard to get such a tax approved.

Some thoughts:

I wonder if a flat tax would stimulate a black market?

A flat tax is regressive in that a higher percentage of the income of the poor would be taxed than for the wealthy.

He who has the gold rules which is why we have such a complicated tax system to start with. As soon as one segment of the populace gets a break we start the slope towards a more complex tax system.

Would it be fair for someone who earns a million dollars a year but chooses to live like the poor pay very little tax?

brucedoe

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116720 of 121565
Subject: Re: FairTax Date: 9/29/2012 11:49 AM
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I wonder if a flat tax would stimulate a black market?

Any tax system will have those who find a way to work around it. Such is the nature of the beast.

I see one impediment and one reasoning flaw with what's commonly called "flat tax." BTW, since this disussion began with a reference to the "Fair Tax," we should note that there's no relationship between that and a flat tax, which is still income based.

The impediment you've already mentioned. Everyone's idea of a flat tax is "flat except for [adjustments which benefit the speaker]." Teamed up with "money is speech" and the resulting enormous clout of affected groups (can you say "real estate lobby"?), it's a long row to hoe.

The flaw is that people think a flat tax would be simple. They don't realize that the vast majority of the current law is devoted to defining income. Any income-based system is going to retain some level of complexity unless you go to a tax on gross receipts.

Phil
Rule Your Retirement Home Fool

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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116721 of 121565
Subject: Re: FairTax Date: 9/29/2012 12:41 PM
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Would it be fair for someone who earns a million dollars a year but chooses to live like the poor pay very little tax?

What is fair depends on what your culture is. In some cultures, there is no income tax, but there is a wealth tax. You pay a percentage of your wealth as tax. So if your parents die and you inherit a billion dollars worth of gold bricks, you pay no tax to begin with (whether it is income or not). Now if you have a rich friend who supports your physical needs, that is not taxed either. But you may pay 50 million wealth tax the first year, 47.5 million the second year, and so on, until it is all gone. The tax would drop as your wealth drops. I think this is a custom in Muslim countries, or it was the custom anyway.

And I suppose that system can be gamed just as an income tax system can be, whether it be progressive, flat, or regressive.

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Author: edranoff Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 117509 of 121565
Subject: Re: FairTax Date: 1/23/2013 8:04 PM
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I too was very interested in the FairTax known as H.R 25 and S 25. To get some info I read The FairTax Book (2005) and FairTax The Truth (2008). Both these books provide exactly what the the motivations are for the proposal and the mechanics for its implementation. I suggest that the best way to gain an understanding on the FairTax is to get a hold of these books. They can be purchased used very cheaply on the internet and are very readable. Whether one agrees with the concepts or not, the books are eye openers.

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Author: edranoff Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 117510 of 121565
Subject: Re: FairTax Date: 1/23/2013 8:09 PM
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The Constitutional amendment is necessary to repeal the 16th Amendment that created the ability of Congress to lay and collect taxes on income. This repeal of the 16th Amendment is part of the concept to avoid there being a consumption tax on top of an income tax. For text of the Bill in the House that was introduced a few weeks ago, see H.R. 25.

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 117514 of 121565
Subject: Re: FairTax Date: 1/23/2013 9:03 PM
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edranoff,

You wrote, I too was very interested in the FairTax known as H.R 25 and S 25. ...

Actually it's H.R. 25 / S. 13. And there is a pretty good write-up on Wikipedia at http://en.wikipedia.org/wiki/FairTax

Personally I wouldn't have too much of a problem with a FairTax. But as I get older, I have more and more pre-existing assets to consider. Switching to a "FairTax" would benefit people that have been spendthrifts relative to savers in prior years because the savers would have had to pay taxes on both earnings and purchases, while the spendthrift would not.

Of course this is obviously why getting such a tax through Congress is so difficult. The transition means that "wealthy" individuals will be double-taxed on existing assets - at least once they go to spend their money. And in general, it's the wealthy that control Congress so passing such a tax is asking the same people that would vote on the issue to take a huge haircut on their existing net worth.

Much of the populate might respond by saying, "So what? They're rich! They can afford it!" But the real problem with the FairTax is with people of modest means that are approaching their retirement goals. (Like me.) You're asking us to give up our goals and retire much, much later. Worse, people that have just entered their retirement years would have to either scale back their spending drastically or they'd need to go back to work.

The number of people in such situations is actually pretty substantial. In fact it's probably about 80% of all middle class Americans that are in their late 40's and up. That's probably at least half the voting population. So unless you can fix this issue, you would probably never be able to pass this measure. I really don't understand why the backers of the FairTax have never understood (or at least addressed) this crucial point.

- Joel
Who's been a FairTax supporter in years past.

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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 117520 of 121565
Subject: Re: FairTax Date: 1/24/2013 8:21 AM
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Much of the populate might respond by saying, "So what? They're rich! They can afford it!" But the real problem with the FairTax is with people of modest means that are approaching their retirement goals. (Like me.) You're asking us to give up our goals and retire much, much later. Worse, people that have just entered their retirement years would have to either scale back their spending drastically or they'd need to go back to work.

I am already retired, and my spendthrift friends who have borrowed out all the equity in their houses and have no other money saved think I am rich. My view is that what I have saved has to last perhaps 26 more years, and the inflation sure to result from quantitative easing and other money printing is sure to bite me sooner or later.

As far as the option of going back to work is concerned, the company I worked for for 25 years no longer exists, though it lasted over 100 years. The company I worked for before that is gone. As is the company I worked for most recently.

Those who think I could go back to work are kidding themselves. I am 74 now. Ever heard of age discrimination? Sure it is illegal. So what? And even without that, almost all the jobs I can do either are no longer done, or at least, are no longer done in this country. I am not eager to move to India or The People's Democratic Republic of China, if they would even have me. People in more need of jobs that I currently am are already having an almost impossible time getting one. And those jobs mostly do not pay enough to live on.

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Author: edranoff Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 117895 of 121565
Subject: Re: FairTax Date: 2/25/2013 10:36 PM
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Very good point Joel. I looked in the book FairTax: The Truth Answering The Critics and this is what the authors have to say at p190:

"Yes, you've been saving all your life. And, yes, you've already paid income taxes on that money you put in your savings or investment account. And, yes again, under the FairTax you're going to be taxed when you take that money out of your savings account and spend it.

So what else is new?

Think for a moment. You're going to be taxed anyway! When you take that money out of your savings or investment account and spend it, either you're going to pay the embedded taxes that lurk in every product and service you consume, or you're going to pay the FairTax. Six of one, half-dozen of the other. However- and here's your bonus - under the FairTax you're going to be receiving the prebate. Everything you buy with those savings is going to cost pretty much the same - plus you'll have that prebate check every month. Still sound like a bad deal?"


So that's the explanation offered. Whether it is accurate and satisfactory I can't say. But I wanted to share it with you.

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