"Fair Tax"-a better alternative than "Flat Tax"

[bookie socks]

The flat tax retains the invasive income tax administration apparatus.
Under a flat tax, individuals would still file an income tax return each year similar to today’s 1040 EZ. While this is a simple postcard, the record keeping required to fill in the blanks is still long and burdensome. Under the FairTax, individuals would never file a tax return again, ever! Under the flat tax, the payroll tax would be retained and income tax withholding would still be with us. Under the FairTax, the payroll tax, which is a larger and more regressive tax burden for most Americans than is the income tax, would be repealed. Under the FairTax, what you earn is what you keep. No more with-holding taxes; no more income tax.
Since he FairTax plan removes the payroll tax while the flat tax keeps it, the FairTax makes it eaiser for the working poorto climb out of the dependency trap. In contrast, the working poor will continue to pay the 15.3 percent payroll tax on their first dollar earned under the flat tax. Under the Fair Tax, payroll taxes are repealed, a rebate of the consumption tax on expenditures up to the poverty level is provided, and all tax costs currently embedded in the retail supply chain are eliminated. Thus the marginal tax rate the poor face is zero up to the poverty level spending, and therefore, lower under the Fairtax than under the flat tax.
A flat tax is easy to convert back to an income tax. A flat tax fully preserves the IRS infrastructure.

Fairtax vs. Flat Tax

[jaxmike]

The fair tax would be so much better.

[The Dude]

To anybody who doesn't know about the FairTax plan:

IT IS FAR SUPERIOR to any income tax, or alternative tax system ever suggested. There is a book that just came out, The FairTax Book by Neal Boortz and congressman John Linder that explains it in detail. You can also visit www.fairtax.org to get info.

It has been discussed in this forum before, but I'm more than willing to answer any questions anybody has about it. I don't so much mind redundancy when it comes to lobbying this issue.

[BCPVP]

What is the general opposition to the Fair Tax comprised of? I haven't done much reading of the Fair Tax, but what I did read, I liked. But the elephant in the room seems to be if this is such a superior system, why the difficulty in enacting it?

[jokerthief]

[ QUOTE ]
What is the general opposition to the Fair Tax comprised of? I haven't done much reading of the Fair Tax, but what I did read, I liked. But the elephant in the room seems to be if this is such a superior system, why the difficulty in enacting it?

[/ QUOTE ]

Liberals who feel it's regressive, ie the poor spend a higher percentage of their money on comsumables than the rich do. So the poor pays a higher percentage of their income than the rich. I don't know much about the fair tax but I'm sure proponents of it dissagree that it's regressive.

[bookie socks]

[ QUOTE ]
What is the general opposition to the Fair Tax comprised of? the elephant in the room seems to be if this is such a superior system, why the difficulty in enacting it?

[/ QUOTE ]

Some are hammering the "progressive" issue. They're playing on the wealth envy of the American people by telling you that the rich just won't be paying their "fair share." The purpose of a tax system is to raise money for the necessary operations of government, not to punish people for daring to achieve.
And about the poor? The FairTax is the only tax reform plan that completely relieves America's poor from the responsibility of paying taxes for the operation of the federal government. Under the FairTax plan the poor don't even have to pay for their own Social Security and Medicare.

Other detractors will tell you that the FairTax can't possibly be revenue neutral, that the rate would have to be as much as 50 OR 60% to fund the government at its current levels.

[tread]

The biggest problem is that people endorse it before fully understanding it. I love the comments that the current system unfairly punishes those who dare to achieve and rewards underachievers. If I understand correctly, the basis for that claim comes from the fact that those who earn more are taxed at a higher percentage of income.

Well, by that same line of logic, then the rich are unfairly rewarded by the system of LIFE because they get to use such a comparatively small percentage of income to purchase the basic needs (food/housing, etc) and the poor are unfairly punished there.

Like it or not, there is a cost to running this federal government (although the current administration and congress doesn't seem to fully grasp the concept with the massive continual debts they run up from the reduced revenue streams resulting from their current tax breaks).

The evaluation of any alternative taxation plan is simple, you start with the baseline of the current system and ask yourself, will the new system continue to bring in the same revenue stream as the current system? I believe Boortz calls this concept "revenue-neutrality".

So question one is, what is the required flat-tax rate required to keep us revenue neutral? I'm not sure if the book defines this or not, I haven't read it. But whatever it is, we have to assume the system is revenue neutral because not taking in as much money as we do currently would add to even larger debts than are currently projected and hopefully no one would find that acceptable (although you would may have a hard time convincing Republicans on this point).

So once you have determined it is revenue neutral, now you need to ask yourself, what is the current breakdown of % of revenue paid into the system by each quadrant of taxpayers? What % of tax revenue do the top 20% of earners pay? What do the bottom 20% currently pay?

Now the million dollar question, how do those percentages change with this new system? Again, I have not read the book, but my understanding of any flat/fair tax scheme is that they are designed to allow rich people to pay less in taxes. If we have revenue neutrality, then if someone is paying less, then someone else must be paying more.

This is the inherient flaw in flat tax schemes. You presumably have done nothing to change the percentage of money that the poor need to spend on essentials yet you are now asking them to pay a higher percentage of their income in taxes.

[The Dude]

[ QUOTE ]
So once you have determined it is revenue neutral, now you need to ask yourself, what is the current breakdown of % of revenue paid into the system by each quadrant of taxpayers? What % of tax revenue do the top 20% of earners pay? What do the bottom 20% currently pay?

Now the million dollar question, how do those percentages change with this new system? Again, I have not read the book, but my understanding of any flat/fair tax scheme is that they are designed to allow rich people to pay less in taxes. If we have revenue neutrality, then if someone is paying less, then someone else must be paying more.

[/ QUOTE ]
The FairTax system is not designed to make it easier for rich people to pay less in taxes. It's designed to give everybody more control over what they pay in taxes, and encourage behavior that is good for our economy in the meantime. (Not to mention cut out hundreds of billions in economic waste, which is completely independant of the amount being taxed.)

A rich family that wants to live very modestly will pay very little in tax. If they save the rest of their money or give it to charity then they don't pay any taxes on that. But if they want to consume a lot, or buy luxury items, they'll pay a ton of tax - often more than they are under the current system. And the same goes for middle- or lower-class families. If they spend all of their money on consumption items, they will pay more in tax (including things they went into debt for, and didn't actually earn the money to pay for this year). But if they choose to save their money, give it to charity, spend it on education, or pay down their debt, they can do so without being burdened by the tax on these things.

There is more to taxes than simply how much you collect, and where it comes from. Different taxation methods have different effects on how people spend money, thus affecting the economy - either in a positive way or a negative way. There is also the issue of cost of collection. It is HUGE under our current system, about $250 billion if I remember correctly. I believe FairTax proponents say their system will reduce that by 90%.

[ QUOTE ]
This is the inherient flaw in flat tax schemes. You presumably have done nothing to change the percentage of money that the poor need to spend on essentials yet you are now asking them to pay a higher percentage of their income in taxes.

[/ QUOTE ]
Again, you're missing some key components:
1. Cost of compliance.
2. Economic effects of the taxation method.
3. Giving individuals more choices on how much they pay, depending on how they spend, not how they earn.

[tread]

[ QUOTE ]
A rich family that wants to live very modestly will pay very little in tax.

[/ QUOTE ]

Precisely the problem I am refering to. If the rich have the ability to CHOOSE to pay less in taxes, there can only be one of two possible outcomes.

1) Less revenue will be taken in OR
2) The poor/middle have to pay more in taxes to make up for the shortfall.

Less adminstrative costs are great, and this would be part of the revenue neutrality concept. So if your facts are correct about 250 billion (this was per year?) in administrative cost, a revenue neutral system would only have to take in 250 billion less than it currently does. In essence creating 250 billion dollars in tax breaks over the current system. Again I ask you, where will these breaks manifest themselves? Will the be another Bush-like cut where 53% of the cut goes to the wealthiest 10%?

[ QUOTE ]

There is more to taxes than simply how much you collect, and where it comes from. Different taxation methods have different effects on how people spend money, thus affecting the economy - either in a positive way or a negative way.

[/ QUOTE ]

Could you be a little more specific about what your point is here? Are you saying that putting more money back in the hands of poor/middle class improves the economy, or are you advocating "trickle down" economics? All I have to say is there is, in order for there to be a coorelation between tax policy and the strength of the economy, you have to have a noticeable shift one way when you take one action and the exact opposite way when you take the opposite action. There isn't a shred of evidence that supports a coorelation in this case. Economies were very strong during both the Reagan and Clinton presidencies (and ultimately collpased at the end of each) and one lowered taxes and the other raised taxes. Any attempt to link taxation policy to being the determining factor as to whether or not we can have a thriving economy is baseless rhetoric.

You actually answered my post with mostly baseless rhetoric and gave us no facts/projections with which to analyze or judge the system and compare it to the current one. Yes, we all understand it gives some people the option to choose how much they pay in taxes, is this a good thing? Since control is in the hands of the people, how can you project what revenues will be? Especially for future years? Much of legislation in congress deals with deciding on programs, how can you accurately asses that legislation when it is very difficult to predict future budgets? Are you going to use current spending habits to make estimations when they most obviously will change under the new systems? Or has someone figured out a way to estimate this?

Perhaps I am wrong and they have figured out reliable ways to estimate this stuff. If they have, please provide the facts so we can evaluate them. What will the overall revenue taken in be and what classes pay what percentage of the revenue taken in. With everything I have heard so far (upper class "option" to pay less and rebates to the poor) it sounds like a squeeze on the middle class to me, but I will wait to see the facts before making a final judgement.

[bookie socks]

[ QUOTE ]
The biggest problem is that people endorse it before fully understanding it. I love the comments that the current system unfairly punishes those who dare to achieve and rewards underachievers. If I understand correctly, the basis for that claim comes from the fact that those who earn more are taxed at a higher percentage of income.

[/ QUOTE ] That and the fact that their money they spent time earning is taken from them and given to the underachievers.

[ QUOTE ]
Well, by that same line of logic, then the rich are unfairly rewarded by the system of LIFE because they get to use such a comparatively small percentage of income to purchase the basic needs (food/housing, etc) and the poor are unfairly punished there.

[/ QUOTE ] THAT IS NOT A REWARD OF LIFE, THAT IS A REWARD OF HARD WORK AND ACHIEVING SOMETHING MORE THAN JUST WANTING TO GET BY. The poor are not rewarded because they chose to be lazy or party and just accecept getting by.

[ QUOTE ]
Like it or not, there is a cost to running this federal government (although the current administration and congress doesn't seem to fully grasp the concept with the massive continual debts they run up from the reduced revenue streams resulting from their current tax breaks).

The evaluation of any alternative taxation plan is simple, you start with the baseline of the current system and ask yourself, will the new system continue to bring in the same revenue stream as the current system? I believe Boortz calls this concept "revenue-neutrality".

So question one is, what is the required flat-tax rate required to keep us revenue neutral? I'm not sure if the book defines this or not, I haven't read it. But whatever it is, we have to assume the system is revenue neutral because not taking in as much money as we do currently would add to even larger debts than are currently projected and hopefully no one would find that acceptable (although you would may have a hard time convincing Republicans on this point).

So once you have determined it is revenue neutral, now you need to ask yourself, what is the current breakdown of % of revenue paid into the system by each quadrant of taxpayers? What % of tax revenue do the top 20% of earners pay? What do the bottom 20% currently pay?

Now the million dollar question, how do those percentages change with this new system? Again, I have not read the book, but my understanding of any flat/fair tax scheme is that they are designed to allow rich people to pay less in taxes. If we have revenue neutrality, then if someone is paying less, then someone else must be paying more.

This is the inherient flaw in flat tax schemes. You presumably have done nothing to change the percentage of money that the poor need to spend on essentials yet you are now asking them to pay a higher percentage of their income in taxes.

[/ QUOTE ]

Numerous studies have shown what the percentage needs to be. The "poor" would be able to 1) spend all of their money up to the poverty level tax free 2) they would get a pay raise in their checks equal to the amount of SS, Medicare and federal income tax that has been taken from them under the current tax system. 3)their dollars would go further because of the removal of the embedded taxes in the products they buy.
Any spending by them above the poverty level and they would pay the same tax as everyone else in this country.