The Unfair "Fair Tax"
Since I dared to criticize Thelma Drake for supporting the so-called Fair Tax, I was motivated to once again explore the issue to see if "Fair Tax" advocates have anything new to say. My conclusion, they're still spreading the same ole lies.
(See here) where "Marty" posts on SpeckBlog that the Fair Tax is not regressive. Marty shows where a lower class wage earner might actually end up paying less in taxes if the SSI tax of 15.3% is excluded. However this supposition is rather simplistic. I would assume that under the fair tax, this lower income wage earner would no longer be elligible for the Earned Income Tax Credit since income tax will be abolished. It also would seem to assume that the employer would be willing to give the employee, in the form of increased wages, the half of this 15.3% the employer currently pays. Yeah right. Marty states:
OK Marty, if the "Fair Tax" is not regressive, then how does it remain revenue neutral? Apply a little common sense to the issue Marty! Our current income tax code is progressive. Lower income pays little or no taxes. Middle income pays a higher rate, and upper income pays an even higher rate. Since the middle class is going to now going to pay the same rate of taxes, on purchases, as the upper class, how is this not regressive for the middle class? I will allow that the "Fair Tax" is protective of the lower class through the prebate. However it is going to result in a shifting of much of the tax burden from the upper class to the middle class. It offers protections for the lower class but replaces the tax rates that progress as one goes from middle income to upper income with an equal 23% tax on consumption. This is common sense, and one does not need to be a math whiz to come to this obvious conclusion.
After the middle income taxpayer's expenditures exceed the level allowed for in the prebate, his expenditures are taxed at the same level as Bill Gate's expenditures. Now note that as extravagent as Bill Gates might choose to be with his expenditures, his level of personal expenditures is never going to approach anything near 100% of income. Meanwhile, the middle income wage earner might have to expend nearly 100% of his income to maintain something approaching the American dream. This is going to result in a regressive tax code where the middle income wage earner ends up paying more money each year, as a percentage of income, because he can not afford to save as much each year as Bill Gates. I think this is called regressive.
"Marty" can choose to call his proposal "Fair Tax" if he wants to. Your local grocer can choose to label apples as oranges in his produce aisle because consumers are willing to pay more for oranges then apples. I am going to call the "Fair Tax" what it is. It is downright unfair. It seeks to replace our progressive tax code with a regressive tax system and shift the tax burden to the middle class. I stand against it, I already pay enough in taxes thank you very much.
(See here) where "Marty" posts on SpeckBlog that the Fair Tax is not regressive. Marty shows where a lower class wage earner might actually end up paying less in taxes if the SSI tax of 15.3% is excluded. However this supposition is rather simplistic. I would assume that under the fair tax, this lower income wage earner would no longer be elligible for the Earned Income Tax Credit since income tax will be abolished. It also would seem to assume that the employer would be willing to give the employee, in the form of increased wages, the half of this 15.3% the employer currently pays. Yeah right. Marty states:
I think that pretty well devastates the idea that the FairTax is “regressive”.
OK Marty, if the "Fair Tax" is not regressive, then how does it remain revenue neutral? Apply a little common sense to the issue Marty! Our current income tax code is progressive. Lower income pays little or no taxes. Middle income pays a higher rate, and upper income pays an even higher rate. Since the middle class is going to now going to pay the same rate of taxes, on purchases, as the upper class, how is this not regressive for the middle class? I will allow that the "Fair Tax" is protective of the lower class through the prebate. However it is going to result in a shifting of much of the tax burden from the upper class to the middle class. It offers protections for the lower class but replaces the tax rates that progress as one goes from middle income to upper income with an equal 23% tax on consumption. This is common sense, and one does not need to be a math whiz to come to this obvious conclusion.
After the middle income taxpayer's expenditures exceed the level allowed for in the prebate, his expenditures are taxed at the same level as Bill Gate's expenditures. Now note that as extravagent as Bill Gates might choose to be with his expenditures, his level of personal expenditures is never going to approach anything near 100% of income. Meanwhile, the middle income wage earner might have to expend nearly 100% of his income to maintain something approaching the American dream. This is going to result in a regressive tax code where the middle income wage earner ends up paying more money each year, as a percentage of income, because he can not afford to save as much each year as Bill Gates. I think this is called regressive.
"Marty" can choose to call his proposal "Fair Tax" if he wants to. Your local grocer can choose to label apples as oranges in his produce aisle because consumers are willing to pay more for oranges then apples. I am going to call the "Fair Tax" what it is. It is downright unfair. It seeks to replace our progressive tax code with a regressive tax system and shift the tax burden to the middle class. I stand against it, I already pay enough in taxes thank you very much.
posted by Little David at 10/13/2006 02:46:00 PM
16 Comments:
Some of the fair tax arguments are quite compelling.
For instance, the ones that offer a deduction amount, or rebate on neccessities, actually would amount to a lower tax for everyone but the most extravagant of spenders.
Look at it this way. The average person, discluding capital gains, children, or any other tax shelter, gets a $5500 standard deduction (on a non-itemized return of course).
So, each person is taxed on their income-$5500, correct?
Lets assume that a person makes 35,000.
That leaves taxable income of 29500. The tax on that is $730 dollars, + 15% over 7300.
3330 + 730= $4060 paid in taxes.
Considering the other scenarios.
Say you get a 10k deduction for purchases. The maximum purchases, assuming you dont go into debt on credit, is about 20,300, with a tax of about 4700, making up the rest of your taxable purchases. Thats assuming you spent every penny after the deduction. If you spent just 17500 instead of 20300, you would save on taxes over the conventional way. So, a person making 35000 a year, would legitimatley be able to spend almost 79% of their income, with a 23% national consumption tax, and still save over the current conventional tax system. As of now, they take the taxes before you even get a chance to spend the money, so people are already living on less then 90% of their true income.
Say you get a 5k rebate, or reduction in taxes due. If you spent every penny you made, it would be about 28500 of goods, and 6500 of taxes. Youd escape with about 1500 of taxes, as opposed to over 4k conventionally.
You also have to remember, not everyone is a proponent of 23% consumption taxes either, Ive seen it range from 8%-25%. Ive seen plans that completely abstain such goods as food and clothing from the tax at all.
If you look at it from the other side of the coin, rich people like Bill Gates will not be able to hide their income in capital gains, housing purchases, charities and other such methods of the rich to hide their incomes. They will get the same deduction as everyone else. Yeah, theyd be probably pay total taxes as a lower percent of their income, but the only way to fix that would be to slap an income tax of well over 50% on them, or reduce their income.
I for one, would rather be taxed on what I buy, then just get taxed off the bat.
23% is the figure that proponents march out as the figure necessary to replace the revenues generated from the current tax code. Anyone talking about a lesser amount is either talking of only replacing portions of the current tax system or they are talking about increasing the deficit.
However this figure is misleading, the actual increase in sales tax that is required - most people would describe as being a 30% tax rate. 30% is what will be added to the cost of an item, however only 23% of the end cost will go to the government.
Your $3.65 gallon of milk now will run $4.75. Your $15,000 dollar car will now run $19,500. Your $100,000 house will now run $130,000. If you rent, your $600 rent will rise to $780. Your heating bill, electricity bill, gas for your car, college tuition and everything else you currently spend money on will all go up by 30%.
Let me explain this in even simpler terms. Something costs $1.00. After the "Fair Tax" is tacked on, the item will cost $1.30. 30 cents is approximately 23% of a $1.30, so proponents then think they can describe it as a 23% tax even though they are going to raise the cost of everything by 30%. You be the judge if they are being honest.
Please note that under the "Fair Tax" proposal, state governments will be required to pay the tax as well, so states are going to have to raise their taxes to offset for the burden of the federal tax. If state governments are excluded from the tax, the rate of the tax would have to be raised beyond 30%.
Looking at last years tax return, I note that my own effective federal tax rate on all my income (excluding SSI taxes) was 12.32%. I do not wish to trade this tax rate for a 30% increase in everything I purchase even allowing for the prebate.
Take a look at your paystub. Does the amount with-held, including SSI equal 23%? (Please notice I did not say 30%.) If it exceeds 23% and you get nothing back come April 15th, you will gain from the proposal. If it is less then 23%, then multiply your gross (not net) income by 30% and that is what your new tax rate will be unless you save significant portions of your income. However, when you eventually spend these savings, you are still going to be taxed at the 30% rate.
1. Your $3.65 gallon of milk now will run $4.75. Your $15,000 dollar car will now run $19,500. Your $100,000 house will now run $130,000. If you rent, your $600 rent will rise to $780. Your heating bill, electricity bill, gas for your car, college tuition and everything else you currently spend money on will all go up by 30%.
Reply- Thanks for the math lesson and all, but Ive taken and passed Calculus and I can assure you, I understand percents. Unfortunately, you are seriously underestimating the tax shields affect on net effective tax rate paid. So below is your math lesson.
Using this tax table, http://www.fairtax.org/PDF/2006FairTaxRebates.pdf
Lets take your situation, you have two children, yourself and a wife living in your house. Lets assume your gross income is 70,000. Knowing that you are retired military, lets assume that 12k of that is subject to normal SSI, and 58k is subject to double SSI because its self employed income.
12k * 7.65
58k * 15.3
8874+918=9792
You stated your effective tax rate was 12.32%, which is 8624
This is a total tax of 18416, or 26% of gross income.
Since the Fair Tax plan exterminates the SSI tax http://www.fairtax.org/fairtax/about.htm, lets figure out what youd pay under the fair tax.
You get 6072 back in rebates, and a shield of 26400 in tax free purchases.
So, lets figure this out. Without going into debt, and without spending the monthly rebate money, you can make about 26000 worth of purchases, and pay a MAX of about 7600 of sales tax.
So...a little armchair math
60,000 gross income
26,400 shield
33600 maximum amount subject to tax
26000 max purchases
7600 sales tax paid
Lets see, which is more 18416, or 7600......yeah ok, I rest my case.
Even if you DIDNT pay any income tax at all, the fair tax would STILL amount to less then what you paid in social security.
Well, I went and dug out last years tax return. Total taxes I paid last year, including SSI Self Employment taxes, came to $3,579.
My military retirement check is not subject to SSI taxes of any sort. As for my self employment income, I have formed an S Corporartion which offers certain tax advantages (which is why I formed it). Since I am making interest payments on a home I am able to itemize and my itemized expenses exceeds the standard deduction.
I also note that you compare apples to oranges. For current income tax you use a figure of $70,000 total income and then compare it to a figure of $60,000 when computing the Fair Tax amount.
Not sure who your calculus professor was, but I am sure he/she would have deducted some points in your final exam in that Calculus course of yours.
- Well, I went and dug out last years tax return. Total taxes I paid last year, including SSI Self Employment taxes, came to $3,579.
My military retirement check is not subject to SSI taxes of any sort. As for my self employment income, I have formed an S Corporartion which offers certain tax advantages (which is why I formed it). Since I am making interest payments on a home I am able to itemize and my itemized expenses exceeds the standard deduction.
Reply-
1. I was not aware that government pension was not subject to SSI. The net effect of that is less then 1k anyway.
2. You are hiding behind the limitless tax shields that the fair tax hopes to eliminate. When comparing the merits of income tax, and fair tax, you cannot state that income tax is better, because you get all these tax shields that limit your taxable income. You must compare them on their individual merits, not merits that politicians have attached to those systems to profit corporations or owners of capital.
3. I assume as an S-Corporation, you are the sole employee, and Im figuring youre probably filtering most of the money through as a distributive share to avoid Social Security taxes rather then a wage. Crafty, but unfortunatley, this is just another artificial tax shield put up by politicians to benefit corporations, and not a merit to a graduated income tax. Because you are benefitting from it, does not mean average Joe does or will.
-I also note that you compare apples to oranges. For current income tax you use a figure of
$70,000 total income and then compare it to a figure of $60,000 when computing the Fair Tax amount.-
Reply- This is nitpicking, the net affect of that is 3000 dollars for a total of 10600, still not remotely close to the 17.5k you *should* pay WITHOUT the SS tax on the retirement income.
- Not sure who your calculus professor was, but I am sure he/she would have deducted some points in your final exam in that Calculus course of yours.
Reply- Probably not, the math is correct, I just simply accidentally used the wrong base on the second one. I probably should have looked it over, but I didnt. Its not of great importance to me, its not a "Calculus Test", a scholarly paper, or a project for work, which I might give a second glance over, its an internet post and at the end of the day, it still proves my point, which was its only intention.
Bottom line, the only people who would not benefit are the people who can take advantage of enough tax shields to reduce their taxable income low enough to get there income tax below their max sales tax. Which is not even a merit to the current progressive income tax system, but how many BS pieces of legislation can be passed through to assist land owners and corporations.
Unfortunatley, the average American is not self employed in an S corporation and does not have several dependents.
Average guy who goes to work every day, gets the 6.2 taken out up to 94k, and the 1.45 for medicare (7.65%), his withholding and goes home to an apartment, would benefit from this set up. Take away the interest deduction, and youre talking a majority of America here.
Wait a second I spoke to soon.....and this helps my argument more so then the last post.......
In the first post, I calculated a net effective income tax of %12.32. Presumably, this was BECAUSE of itemized deductions, since it is far lower then the actual income tax percentage on that wage amount. I assume my only mistake then, was overestimating your gross income, likely, quite heavily after seeing that your taxable income was probably under 20k, depending on what percent of that total was SS.
It is still likely though, that even WITH the itemized deductions, that if you did the math for whatever gross income you did have, max sales tax would equivalate to less then you paid in income/SS tax.
Sorry, I am not alone in being able to deduct the interest for my house from my gross income. Middle Class Americans value home ownership. I do not think most of them that end up paying more in taxes because of the exclusion of this right are going to be pleased.
I think that perhaps the 12.32% tax rate might be explained by that it includes my SSI income tax rate since my income exceeds $20K per year.
Do you understand that the "Fair Tax" allows for an exclusion of business to business transactions from the tax? Only the final consumer of the products produced or the services provided will have to pay the tax? That anyone owning a business can shield their personal consumption expenses from being taxed because they can claim these expenditures were for business?
The fair tax offers the same opportunity for the slick and the fraudulent to avoid paying their fair share of taxes as the current system. However the "Fair Tax" will withdraw the ability of government to lessen the taxes of the honest while encouraging things such as home ownership.
The Fair Tax is supposed to be revenue neutral. It remains revenue neutral while decreasing the tax rate for the wealthy and offering protections for the lower class. Someone has to take up the slack for this to remain revenue neutral. I say the burden is going to fall on the middle class.
If you are in the middle class, hang onto your wallet if you vote for anyone in favor of the fraudulently labeled "Fair Tax".
-Sorry, I am not alone in being able to deduct the interest for my house from my gross income. Middle Class Americans value home ownership. I do not think most of them that end up paying more in taxes because of the exclusion of this right are going to be pleased.
Response- If I had time, Id gladly figure some example. I think in many cases, even with the itemized deduction of mortgage interest, a fair tax would still be a better bargain.
-I think that perhaps the 12.32% tax rate might be explained by that it includes my SSI income tax rate since my income exceeds $20K per year.
Response-
1. you claimed this was excluding SSI tax
2. There is no way in the world your taxable income could be much more then 20k, and you have paid that little bit of taxes. Its not possible.
- Do you understand that the "Fair Tax" allows for an exclusion of business to business transactions from the tax? Only the final consumer of the products produced or the services provided will have to pay the tax? That anyone owning a business can shield their personal consumption expenses from being taxed because they can claim these expenditures were for business?
Response-
Currently, business to business transactions are excluded from tax, so whats your point? I stated nothing in any of my post about the taxation of business expense.
This is a problem with legislation creating corporations, not tax code.
-The fair tax offers the same opportunity for the slick and the fraudulent to avoid paying their fair share of taxes as the current system. However the "Fair Tax" will withdraw the ability of government to lessen the taxes of the honest while encouraging things such as home ownership.
Response- No, the fair tax will eliminate all normal tax shelters including capital gains. The only thing it cant eliminate is loops created by seperate legislation.
As far as encouraging homeownership, why is there no complaining about this as a regressive tax on the poor for NOT owning property? Isnt that pretty much what it essentially is? The Fair Tax will give EVERYONE the same deductions, property owner or not. Some of us who dont own property, and have little to no chance of owning property in the foreseeable future, are pretty much tired of getting penalized for it through a higher effective tax rate.
-The Fair Tax is supposed to be revenue neutral. It remains revenue neutral while decreasing the tax rate for the wealthy and offering protections for the lower class. Someone has to take up the slack for this to remain revenue neutral. I say the burden is going to fall on the middle class.
The idea is that the wealthy consume far more then what their current tax rate would be.
In other words, assume somebody with a gross income of 200k ended up paying 25k in taxes after all of their fun rich people deductions. The idea is that the total amount they consume, taxed at .23% (or 30% or whatever) is going to be more then those taxes. In reality, theyd only have to spend about 60% of their taxable income to pay more out in sales tax then they would in income tax.
It is true that the filthy rich will probably get off with less tax then they do now, because they couldnt possibly consume enough stuff to equivalate their income tax.
But the majority of that slack will be picked up by the upper middle class, the 75k-250k set, who will probably pay slightly more in consumption taxes then they would income, depending on their spending habbits.
The lower classes, and poorer middle classes will also get tax breaks as the shields will cover all or most of their income from being taxed at all.
-If you are in the middle class, hang onto your wallet if you vote for anyone in favor of the fraudulently labeled "Fair Tax".
Actually, a majority of the "middle class" would benefit from a fair tax. The only ones who wouldnt, are people who either can come up with enough deductions to reduce their taxable income to an insanely low amount in the current system, or make enough money AND spend enough, that they can force their sales tax higher then their income tax level.
Well I hope someday you make enough money to become a homeowner instead of a renter.
I would hope that are grateful for the tax breaks your daddy got for putting you through college unless you paid for this expense yourself.
I too criticize that the capital gains tax rate is too low. This lower rate was recently enacted by a Republican led Congress. However how is it progressive to never tax these gains instead of taxing them at a lower rate when they are realized?
You stated: "It is true that the filthy rich will probably get off with less tax then they do now, because they couldnt possibly consume enough stuff to equivalate their income tax."
Yeah my point exactly. And since the filthy rich now pay a disproportionate share of taxes, federal revenue is going to see a disproportionate decrease from these revenue sources. The Fair Tax is supposed to be revenue neutral. This revenue neutrality is going to come at the expense of the middle class.
Use common sense. If the wealthy pay less, but the revenues remain neutral, the money has to come from somewhere. You might be willing to increase the taxes on the 75k to 250K set, however I am unwilling to sacrifice them to the burdens of the tax system in favor of Bill Gates and Paris Hilton.
You stated: "The lower classes, and poorer middle classes will also get tax breaks as the shields will cover all or most of their income from being taxed at all."
Sorry, the tax breaks under the Fair Tax will not cover "most of their income" if they are in the middle class. The tax breaks only cover that level of income that does not exceed the poverty level. Since this is a FACT, once again the middle class loses.
Why is it fair for the middle class to be expected to pay a larger share of income in tax then the wealthy are expected to pay? The middle class is willing to pay higher taxes then the lower class. Call it that Christian upbringing or something. However, when a tax system is designed that calls upon them, the middle class, to pay a HIGHER rate of taxes, as a proportion of income, then the wealthy, I think they have reason to SHOUT Bullshit.
- Well I hope someday you make enough money to become a homeowner instead of a renter.
Reply- That will never happen in Hampton Roads, VA. Besides, why should I be penalized because Im not wealthy enough to purchase real estate? Why dont I get a tax break on the rent I pay? Why does a person who owns a house get their living expenses offset, while I dont? How is that fair? I say this is regressive on the poor, who largely rent, you say "Tough, maybe one day youll be able to afford property". Thats pretty hypocritical. I say, tough upper middle class guys, maybe you shouldnt spend so much money, and youd get the same benefit from a fair tax I would.
- However how is it progressive to never tax these gains instead of taxing them at a lower rate when they are realized?
Reply- It depends on what the capital gains are used for. If one wants to hoard the capital gains, its no different then someone hoarding their wages. The difference is, if they ever spend it, its going to cost them that 30%, instead of the 15% or less they get hit with through capital gains. Considering many wealthy people realize most of their income through capital gains (such as Bill Gates, who makes 99.9% of his money through gains in Microsoft stock), depending on how much they purchase, those profits realized through capital gains may actually end up taxed at a higher dollar figure.
- This revenue neutrality is going to come at the expense of the middle class.
Reply- Thats not 100% true. It is likely going to fall on the upper middle class, but not neccessarily. If a person making 200k a year, lives on 20-40k of purchases, as a lower class person would, their sales tax wouldnt even be a fraction of what their total income/SS tax would be. The only point which it would be higher is if they had a pant load of deductions in the current system, or they spent like water. In other words, it would be their own decision as to whether or not they paid a higher tax then they normally otherwise would have, by what they purchase. If government got a shortage of revenue out of it (which I concede is very possible, since their tax revenue depends fully on peoples purchasing), theyll have to deal with it, maybe cut a few billion out of the DOD, or maybe hand a few less billions out to Israel, I dont know.
- Sorry, the tax breaks under the Fair Tax will not cover "most of their income" if they are in the middle class. The tax breaks only cover that level of income that does not exceed the poverty level. Since this is a FACT, once again the middle class loses.
Reply
Uh, yeah it will. Pretty much any family making under 75k, without significant deductions, is going to benefit from the fair tax. Period.
For instance, my wife and I would be on the hook this year, I think, for around 5200 in income taxes, and about 3800 in SS taxes. Thats 9000.
With fair tax, the maximum tax wed be subjected to is about $6,600, thats if we didnt save a dime, but didnt spend the rebates. Thats a $2400 dollar savings, and we dont have to worry about the money being taken off the top of our check each month.
Is the guy who has 23 itemized deductions going to suffer....yeah maybe. His loss is going to be the gain of over 30 million people http://www.networkideas.org/news/sep2002/news26_Poverty_US.htm IN poverty will no longer have ANY income tax taken out of them, and the lower middle classes, on a majority, will see their tax burdens drop as well.
Unfortunately, in theory, the upper middle class will take the squeeze from both ends, but its their fault at the end of the day. If they didnt choose to buy the 50k Mercedes, and the 500k house, they wouldnt be paying so high of tax. I have no compassion for someone bitching and moaning about how theyd have to pay more tax, because they refuse to reduce their extravagant lifestyle. A few yuppies suffer, couldnt care less.
As you can probably tell, I dont care for the wealthy at all, and my concern lies pretty much with the majority of America who is struggling paycheck to paycheck, who could use a break instead of picking up the tab for welfare for the wealthy and land owners.
- Why is it fair for the middle class to be expected to pay a larger share of income in tax then the wealthy are expected to pay? The middle class is willing to pay higher taxes then the lower class.
Reply- But they ARENT. It would be their own lifestyle decisions that force them to pay a higher rate. If they lived below poverty, they wouldnt pay a dime, just like Bill Gates wouldnt if he chose to do so. Its a CONSUMPTION tax, not a flat income tax. In other words, someone making 200k, can pay less of a tax percentage then someone making 40k, if they so choose. Its not Bill Gates fault, or the guy making 40ks fault that guy making 200k wants to drive a new CLK500 and put in a swimming pool.
-However, when a tax system is designed that calls upon them, the middle class, to pay a HIGHER rate of taxes, as a proportion of income, then the wealthy, I think they have reason to SHOUT
Reply- Again, it doesnt call upon them to do anything, they are free to choose their tax rate as a percent.
Ill give you a little clue, the Bill Gates' of the world, are already paying less of a percentage of taxes then average Joe middle class. He is filtering all his money through every tax trick in the book with his left hand, and his right hand is in a politicians pocket trying to get more tax tricks created. That is fact.
At least a fair tax gives a person some control over what they pay, and it doesnt just come "off the top". Proponents of fair tax feel it will end up revenue neutral, because they depend on the yuppies spending enough to pay more in sales tax then they would income tax, and it will fill in the gaps. Notice how I said, they depend. There is no law stating that they must, and as I stated above, somebody making 200k a year, could, in theory, pay absolutely nothing in taxes a year, if they lived on a fraction of their income. It would be their own choice that they paid more in sales tax then they would in income tax/ss tax. Maybe they should have bought the Toyota instead of the Bentley, I dont know.
Sorry, there is nothing extravagent about my lifestyle. For example, a big chunk of the money I spend goes for tuition for my kids. Under the current tax code, I get a tax break in the form of Hope and Lifetime tax credits for this tuition. Under the fair tax, I would get to pay an additional 30% for the tuition.
I didn't give your example on how your taxes would be less because your argument contains this absurd statement "...thats if we didnt save a dime, but didnt spend the rebates." Heh heh, your expenditures for everything that is below the powerty level is going to go up by 30%. You are going to have to expend 30% more just to maintain the poverty level so you are going to have to spend the prebate money, you are not going to be able to keep it. Your expenditures for anything above the poverty level are then going to go up by 30% as well.
If you want to accurately figure out your tax, take all of your annual expenditures and increase them by 30% (because all your costs will increase by 30% not 23%) and then deduct the amount of the prebate. Since you seem to indicate you can not afford to save anything, your annual income should suffice. However, if you are like many people, perhaps you spend more then you make each year, so then your tax should reflect the amount of your consumption which exceeds your annual income.
- Sorry, there is nothing extravagent about my lifestyle. For example, a big chunk of the money I spend goes for tuition for my kids. Under the current tax code, I get a tax break in the form of Hope and Lifetime tax credits for this tuition. Under the fair tax, I would get to pay an additional 30% for the tuition.
Reply- I was not suggesting "you" had an extravagant lifestyle. I was suggesting the reason most people in the 75-200k bracket would end up paying more is because they live an extravagant lifestyle.
Im not sure that higher education would even be taxed. Im sure there would be some debate about that.
- Heh heh, your expenditures for everything that is below the powerty level is going to go up by 30%. You are going to have to expend 30% more just to maintain the poverty level so you are going to have to spend the prebate money, you are not going to be able to keep it. Your expenditures for anything above the poverty level are then going to go up by 30% as well.
Reply
You arent getting it are you? You are completely rebated for EVERYTHING under the poverty level. In other words, unless the BASE price goes up for the merchandise, which is unlikely because the tax is slapped on the final consumer of the good, you will pay ZERO tax on anything purchased under the poverty level, so that will only go up by a "gross" 30%, but will actually equivalate to a net 0% when the prebate is subtracted.
Anything you purchase OVER the poverty level will go up 30%, but assuming that you dont spend into debt or spend the rebate checks (which in both cases is giving you "false" additional taxable income), there is a MAXIMUM sales tax you can be subjected to shown by the following equation
Taxable income= purchases+sales tax paid
-If you want to accurately figure out your tax, take all of your annual expenditures and increase them by 30% (because all your costs will increase by 30% not 23%) and then deduct the amount of the prebate.
Reply- Actually, that isnt going to net you the amount of your tax.
Going your way, tax would be arrived at like this
((Current Expenditures-Sales Tax)*1.3)-(Current Expenditures-Sales Tax))-(Poverty level*.3).
Thats essentially saying the exact same thing Ive been saying for god knows how many posts.
Example.
Say, current expense-sales tax is 50k, tax shield is 10k, prebate is 3k.
Your method
50k * 1.3=65000-50k=15k-3k=12k of tax
My method
50k-10k=40k*1.3=52k-40k=12k of tax. Very simple.
Thats accounting 101 my friend, its the whole concept of a before- tax shield.
- However, if you are like many people, perhaps you spend more then you make each year, so then your tax should reflect the amount of your consumption which exceeds your annual income.
Reply-
When you "spend on credit" or go into debt, you are essentially giving yourself additional income, correct?
The only problem is, this "additional income", is not counted as income for tax purposes in the year that it is incurred, even though the purchasing power of that income is realized now.
The income you use to pay down that borrowed income, is taxed as income in some future period.
The Fair Tax will simply shift that around. If you give yourself unearned income to spend on something, youll be taxed on that now. However, you will not be assessed a consumption tax on the accounts/notes payable as they are paid in future periods.
This comment has been removed by a blog administrator.
Heh heh, by either method it shows me paying 12K in taxes after the prebate. Anything beyond $50k involves a tax increase by the way you figure it. Sorry, I only pay 3.5K in taxes now. I am not going to break down the gates to the polls to vote for the tax increase.
The Fair Tax is unfair, just examine the arguments of those who are in favor of it, then apply a dose of common sense, and then decide for yourself!
I'm abandoning this thread while I take up the issue (here).
Heh heh, by either method it shows me paying 12K in taxes after the prebate. Anything beyond $50k involves a tax increase by the way you figure it. Sorry, I only pay 3.5K in taxes now. I am not going to break down the gates to the polls to vote for the tax increase.
Reply-
Were you paying attention? Those prebates werent ACTUAL prebate figures, they were sample figures because 10k and 3k were easy numbers to figure with, to show you my point that you werent fully understanding what exactly a tax shield is, and that it amounts to the same tax either way you figure it, the way you claimed, or the way I was pointing out.
This was not meant to be an actual figuring of any taxes.
Post a Comment
<< Home