The unfair Fair Tax

Is the "Fair Tax" fair for the middle class?

I took some time out to do up a 1040A for a middle income tax payer.

(See here) where Speckblog speaks in favor of the "Fair Tax".

I did a little math on my own. Speckblog claims the median income of an American with 2 kids was $43,000. So I adopted $43k as my figure.

Doing up a 1040A for a family of four with $43K for income, I come with with federal income tax being owed as $2,304. Allowing for a 7.65 percent SSI tax I come up with $3,289. Total = $5,593.

Now what would this same families tax obligation be under the "Fair Tax"? (See here) where a family of four can expect a prebate of $6,072.

So, $43K plus $6,072 equals $49,072. Multiply this by 30% and you come up with $14,722.

$14,722 minus $6,072 means the $43K wage owner pays a "fair tax" of $8,650.00.

Have you got that? The "average family" gets to pay an additional $3,057 in taxes. This is without allowing if they had a few income deductions due to home interest or college tuition.

Perhaps this example gets into whether or not the "Fair Tax" calls for a 30% tax or a 23% tax. It depends on how you look at it. Something that now costs $1.00 will cost $1.30 after the Fair Tax is added on. 30 cents is only about 23% of $1.30, so there you get the 23%. But that $1.00 soda you buy is still going up in price by 30%.


Blogger Little David said...

Taking a look at my post this morning, I decided to critique my argument a little on my own.

For example. Under the fair tax, it might be erroneuous to include the prebate amount in the figure multiplied by 30%, since the prebate is there to make up for the 30% paid on anything below the poverty level.

So, taking the "before prebate" figure of 43K times 30% = $12,900.

$12,900 minus the prebate of $6,072 = $6,828.

Our "average family" will still pay an additional $1,235 under the Fair Tax then they do under the current system. And this is if the "average family" only takes the standard deduction and is not able to itemize because of home interest or college tuition or something.

10/21/2006 08:16:00 AM  
Blogger Little David said...

Further critically looking at my figures, I came to this conclusion. If the "average family" did not qualify for the $1K per individual child tax credit, the $43K wage earner, married, with a family of four would pay $443 less in taxes under the fair tax.

However, if this "average family" included two individuals under the age of 17, they qualify for $2k in tax credits under the current system. So this "average family" (which is probably more realistic) would end up paying $2157 dollars more under the fair tax even if they are unable to itemize.

I didn't show the math, however I am prepared to defend these figures as being an accurate assessment on how the Fair Tax compares with the current system for an "average family" in America based on 2005 tax tables.

If this "average family" happens to be making a mortgage payment, and are able to itemize, the increase will be even steeper.

10/21/2006 09:36:00 AM  
Blogger Little David said...

I am going to "show the math" along with an explanation in a new post now that I am done arguing with myself.

10/21/2006 09:42:00 AM  

Post a Comment

<< Home