Fair Tax Revolt
Fair Tax Revolt, alternatively this could have been titled: Avoiding the Fair Tax.
If the Fair Tax crowd is successful in getting taxes raised on the middle class in order to give a big tax cut to the wealthy, what are we to do about it?
I say we protest. We protest by paying as little of the tax as possible. How could you avoid it?
Well, for me it would be fairly easy. I am self employed and I have already formed an S Corp due to the current tax advantages, so as my business interests are configured I already have the tools I need to avoid a large portion of the Fair Tax.
I only have to claim that as many of my purchases are a legitimate business expense as reasonably possible (and the definition of the words "legitimate" and "reasonably" will be for me to determine) since the costs of doing business are not subject to the tax. I will not have to worry about an audit or anything, because the Fair Taxers are promising to abolish the IRS, so I should be in the clear when it comes to avoiding the tax.
"But that would be unethical" some will scream. I'll be screaming back "But everybody else is doing it!"
Since a Fair Tax would lead to a huge underground economy, I am just going to have to make sure that I get my own fair share of avoiding the Fair Tax as everybody else gets.
I'm already in business for myself so I'm already set up for it. Now I just need to get to work trying to figure out how to justify a six pack of beer as being a business expense - just about everything else already qualifies - grin. Let's see... I purchased the six pack of beer to entertain one of my customers. Yeah, that's my story and I'm sticking to it. I bet I can even get my beer Fair Tax free.
We'll have a Fair Tax revolt!
If the Fair Tax crowd is successful in getting taxes raised on the middle class in order to give a big tax cut to the wealthy, what are we to do about it?
I say we protest. We protest by paying as little of the tax as possible. How could you avoid it?
Well, for me it would be fairly easy. I am self employed and I have already formed an S Corp due to the current tax advantages, so as my business interests are configured I already have the tools I need to avoid a large portion of the Fair Tax.
I only have to claim that as many of my purchases are a legitimate business expense as reasonably possible (and the definition of the words "legitimate" and "reasonably" will be for me to determine) since the costs of doing business are not subject to the tax. I will not have to worry about an audit or anything, because the Fair Taxers are promising to abolish the IRS, so I should be in the clear when it comes to avoiding the tax.
"But that would be unethical" some will scream. I'll be screaming back "But everybody else is doing it!"
Since a Fair Tax would lead to a huge underground economy, I am just going to have to make sure that I get my own fair share of avoiding the Fair Tax as everybody else gets.
I'm already in business for myself so I'm already set up for it. Now I just need to get to work trying to figure out how to justify a six pack of beer as being a business expense - just about everything else already qualifies - grin. Let's see... I purchased the six pack of beer to entertain one of my customers. Yeah, that's my story and I'm sticking to it. I bet I can even get my beer Fair Tax free.
We'll have a Fair Tax revolt!
posted by Little David at 12/28/2007 07:34:00 AM
21 Comments:
Edit-
Fair tax would give a tax cut to everyone EXCEPT the nuclear stereotypical American family, who is taking advantage of regressive taxation policies that should be eliminated in the first place. I have already proven how average unmarried Joe renter would benefit from fair tax, and even solid middle class married couples with no kids and no tax beneficial assets would benefit.
As a matter of fact, you champion this as tax to benefit the wealthy, in fact, the wealthy are the MOST likely to suffer from this tax. There was a recent article published in one of the top newspapers (I forget which one), that quoted a study stating that the wealthiest 1/5 of people are responsible for half of all consumer spending.
It is highly likely that spending would equate to a much higher gross tax burden for your average wealthy person then any income tax. An income tax can only account for a certain percent of your income (assuming your top notch tax lawyers and accountants cant hide it), while a fair tax on consumer goods is uncapped, meaning they could spend well over their gross income in a given year in tax alone. This is especially true since wealthy people are FAR more likely to draw their income from lower taxed sources then "wages and tips".
In theory, if the wealthy purchased a small amount of goods, they would be highly benefited by a fair tax, simply because their gross tax burden would fall....but it wouldnt be shifted anywhere. It would create the illusion of being shifted, since, yeah, the possibility exists that middle and upper poor would be carrying a higher PERCENT of the tax burden, but many of their actual gross dollars paid amounts would fall.
You are in favor of the Fair Tax because it might result in a tax cut for you because you have no intention of ever raising a family.
Perhaps you should realize your own Mom and Dad probably could not have afforded to put you through college if it had not been for "regressive taxation policies". What you call regressive I call progressive because I do not find anything wrong with society giving preference to citizens who raise families. I do not hold this opinion solely out of self interest since I no longer qualify for some of the most favorable aspects of this preferential treatment. Even though I no longer benefit I continue to applaud and be in favor of those aspects of the tax code that once helped me raise my family.
1. Regressive taxes are ones which penalize people for not following a certain option. Therefore giving tax benefits outside of standard deductions for crapping out kids, and deductions for living expenses (essentially the interest deduction for a mortgage), are regressive, because they have nothing to do with the natural state of a law abiding citizen. They serve nothing more then encouraging some ideal, which has no place in the "land of the free".
2. How do you know I "do not plan on raising a family"? Thats a large assumption.
3. I support fair tax, not because of its affects on me, but because its the fairest type of tax there is. Tax people on what they buy. As long as there is a provision for basic neccessities, so as to not unfairly tax people on stuff they NEED to live on, which would disproportionatley hurt the poor.
It also ensures that EVERYONE who consumes will pay, and nobody with a slick lawyer will be able to hide, and all illegal and untaxed business will be taxed at the end of the day. You are talking BILLIONS of dollars in the drug, prostitution, and gambling trades alone.
First off, with your genes, I would hope that if you intend to raise a family that you would consider adoption.
I disagree with how you define a regressive tax code. You can define it as you like, however please realize that your definition does not match what the majority of people mean when they use the term.
I do not feel that the Fair Tax would be fair. It will result in the middle class paying (through a cosumption tax) a higher rate of taxation on their income (because they - they being the middle class - will spend nearly all their income with little savings) then the upper class.
I estimate that my own taxes would go up by about $5,000 per year and I suspect that Paris Hilton's and Bill Gate's would pay less in taxes. While I might agree to pay additional taxes to balance the federal budget, I strongly object to paying additional taxes in order to give Paris and Bill taxcuts.
1. First off, with your genes, I would hope that if you intend to raise a family that you would consider adoption.
- Adoption is prohibitively expensive and time consuming. It is not an option anyone that anyone not in the upper income brackets would be able to achieve.
2. I disagree with how you define a regressive tax code. You can define it as you like, however please realize that your definition does not match what the majority of people mean when they use the term.
- a regressive tax code adversely affects people of lower income levels. That is the precise definition. Knowing that people in lower income brackets are more likely to rent (exponentially more likely to be precise), couldnt it be deduced that a code that gives tax breaks for items achieved by higher tax brackets, IS regressive?
3. I do not feel that the Fair Tax would be fair. It will result in the middle class paying (through a cosumption tax) a higher rate of taxation on their income (because they - they being the middle class - will spend nearly all their income with little savings) then the upper class.
- This is making tremendous assumptions. The biggest of which, is that you are assuming that the wealthy ALREADY do not pay a lower percent of their income then the middle class. The fact that the capital gains tax would be moved from 15% to an effective tax rate of 30%, would close to double the tax a wealthy person paid, assuming they spent all of their earned income. The majority of wealthy people in this country, derive little of their income from "wages", and that is a big assumption that is a cornerstone of your argument. It is my belief, that the total tax paid by the wealthy, would actually rise, given the amount they consume.
4. I estimate that my own taxes would go up by about $5,000 per year and I suspect that Paris Hilton's and Bill Gate's would pay less in taxes. While I might agree to pay additional taxes to balance the federal budget, I strongly object to paying additional taxes in order to give Paris and Bill taxcuts.
- Bill Gates, possibly, as he probably is not a huge enough consumer to counter balance his large income. Paris Hilton, who probably spends more then she makes, would likely see her taxes increase heavily, as her accountants would no longer be able to hide money in fake business losses and off shore accounts. Most of the wealthy would be in the Paris Hilton boat, and not the Bill Gates boat. They simply make way too many luxury purchases, and would lose too many tax loops from the death of the current system.
- You should be paying those taxes any how, you arent getting those tax breaks as a result of a graduated tax system, you are getting them from conformity bonus points. Oddly enough, people would go insane at the notion of a "white" or "black" person getting a tax break, but nobody has any problem with "land owner" getting a tax break.
I have proven that an average, married middle income wage earner would pay over $2,000 more per year under the fair tax and that is without him receiving any benefit from itemizing and claiming any benefits from home ownership on his tax return.
You have objected, in the past, to this "average" person receiving any benefit from having kids. However all persons raising a family, no matter which income bracket they fall into, receive this benefit. In fact, lower incomes raising kids might qualify for the Earned Income Tax Credit where they receive more back from the government then they paid in.
Proponents of the Fair Tax claim it would be revenue neutral. However it results in a large tax increase for most middle income citizens. It achieves revenue neutrality through giving over the gains to the wealthy in the form of tax decreases.
As for how you think the wealthy ccan now completely escape taxes you are either uninformed or delusional. The wealthy few pay most of the taxes under our current systems. Currently the wealthiest 10% pay 70% of all taxes.
1. Proponents of the Fair Tax claim it would be revenue neutral. However it results in a large tax increase for most middle income citizens. It achieves revenue neutrality through giving over the gains to the wealthy in the form of tax decreases.
- Actually, most of the "revenue neutral" equation is derived from taxation on illegal activities and closing tax loop holes for wealthy people with slick accountants. Not from shifting the dollar burden.
2. As for how you think the wealthy ccan now completely escape taxes you are either uninformed or delusional. The wealthy few pay most of the taxes under our current systems. Currently the wealthiest 10% pay 70% of all taxes.
- Id love a source on that, because I can list several that are in conflict with those numbers.
Even if your numbers were correct, who cares what percent they pay now? Why does that matter? The point is, if they are paying 70% now, they probably should be paying 95%, but they are ducking all those taxes through crafty loopholes.
I doubt that the additional revenue received from the sources you cite would even replace all the revenue lost from exempting businesses from taxes. I would also like to point out that the illegal activity itself is not going to be subject to the fair tax anymore then people currently involved in such activity currently pay existing sales taxes on their transactions. Only their profits would be subject to the fair tax when they attempted to spend their gains.
As for a source on the wealthiest 10% paying 70% of taxes, (see it here). Actually lists 70.3%. These figures are for the tax year 2005 which is the latest year for which statistics are available. Note this is for income tax only, and does not include the payroll (or social security) tax. Please also note that the bottom 50% pay only 3.07% of income taxes.
While the Fair Tax does provide some protection for those below the poverty level, and everyone's income up to the poverty level, after that threshold is crossed all income would be subjected to the 23/30% tax rate as it was spent. Surely the percentage of revenue raised from the bottom 50% will increase above 3.07%.
Even factoring in the payroll taxes, which would increase the percentage of revenue coming from lower percentiles, the total revenue coming from the bottom 50% is still apt to increase under the Fair Tax as the current employee share of social security taxes is only 7.65%.
1. Only their profits would be subject to the fair tax when they attempted to spend their gains.
- Which will net millions upon millions of dollars. Do you think drug king pins are stuffing the money in matresses? No, they spend it on stuff.
2. Actually lists 70.3%. These figures are for the tax year 2005 which is the latest year for which statistics are available. Note this is for income tax only, and does not include the payroll (or social security) tax. Please also note that the bottom 50% pay only 3.07% of income taxes.
- Good thing we are only considering income taxes.....I guess you do realize that there are many a CEO who have ZERO salary compensation, and are taking it all in stock options and other investment vehicles. Or maybe you also realize that there are numerous wealthy retirees who have NO taxable wages either. All these people paying capital gains taxes and other crafty methods of ducking wage taxes will be subjected to the sales tax on goods purchased.
3. Surely the percentage of revenue raised from the bottom 50% will increase above 3.07%.
- Not neccessarily true at all. If you only consider income taxes, that may be true, since in most cases, the wealthy would probably not spend more then their income, and in effect would probably end up being taxed less then they would be with the current income tax. That said, you are not calculating in capital gains, or any non taxable accounts (such as offshore ones in tax havens), both of which would be taxed at a much higher rate then they would currently when used to buy goods. Likely thousands, maybe even millions of people living almost exclusively on these minimally taxed sources of income, would be taxed at a much higher rate, and this group is made up almost exclusively of wealthy people, who are paying a smaller share of their pie, then some of the poorer middle class earners who depend on nearly all wage income.
OK, I went and did a little checking as to income distribution by percentile. Problem is that I could not find specific enough data to do a raw comparison of the 10% mark.
However, I can make a comparison of the top 1% level of income earners.
Also, in order to make a fair comparison, I had to go back to the year 2000 for total share of taxes paid because that is the last year for which I could find a breakdown of income earned by percentile.
So for the year 2000, for the top 1% of income earners the figures are:
share of income - 20.0%
share of income taxes - 37.42%
So it would seem that while the top 1% earn "only" 20% of all income they pay almost twice as large a share of the total income tax burden. If the fact that some of them are actually subjected to double taxation (the profits of their businesses are first taxed and then taxed again as personal income when distributed) I am sure their share would be larger if this was taken into consideration.
Since under the Fair Tax the highest that their share of taxes could be would be only slightly larger then their share of income, their share of the tax burden would go down under the Fair Tax. As I stated, and this analysis points out, the Fair Tax would give a tax cut to the wealthy.
Sorry, I am not going to agree to pay an additional $5,000 a year in taxes just so Paris Hilton gets a tax cut.
1. So it would seem that while the top 1% earn "only" 20% of all income they pay almost twice as large a share of the total income tax burden.
- Again, I could care less about income tax. When you find me total percent of taxes paid by the top 10% of net worth in the country, Ill give you creedence. Until then, you are ignoring people who live simply off of investments or mostly off investments, which is probably about 400 of the Forbes 500.
2. If the fact that some of them are actually subjected to double taxation (the profits of their businesses are first taxed and then taxed again as personal income when distributed) I am sure their share would be larger if this was taken into consideration.
- The majority of all businesses are sole proprietorships, and most of the rest are S-Corps, LLC's or simple partnerships, all of which are simply "filter" through operations.
3. Since under the Fair Tax the highest that their share of taxes could be would be only slightly larger then their share of income, their share of the tax burden would go down under the Fair Tax
- Incorrect. Unlike income tax, which is only slapped on your wages, a sales tax could be slapped on any amount of investment income, debt spending, or savings you spend in the market place. So, in effect, a person could pay many times what he would have paid in income tax, in fair tax. Once again, you are neglecting this, and only looking at actual earned wages.
4. Sorry, I am not going to agree to pay an additional $5,000 a year in taxes just so Paris Hilton gets a tax cut.
- Paris Hilton would probably see her tax burden rise. Only the thrifitiest of high wage earners, who have no investment income, or savings they spend in the market, and spend only as much as they make in income, would receive a tax break on the high end. Considering the CONSUMPTION RATES of the highest wage earners, Im guessing not many fit that mold.
Such a figure of "total taxes paid" would not be germane to the discussion since the Fair Tax would only replace federal taxes, not state and local taxes.
As for your statement "you are ignoring people who live simply off of investments or mostly off investments". Sorry, if someone is living off of income they receive from investments, that income too is subjected to income tax. Now, qualified dividends might be taxed at a lower rate, however the only reason they qualify is because the business actually paid enough in taxes already for the dividends to qualify. As for the sole proprieterships and S-Corps, the individuals receiving income from such entities have their income taxed at ordinary tax rates.
I am appalled at the logic you use to rationalize that the wealthy will pay more under the Fair Tax after all the statistics I have provided to you to prove otherwise. You make your arguments with assumptions not backed up by the figures young man.
I guess I should have added that some investment income is taxed at lower rates if they qualify for the lower capital gains rates. I understand the justification for such lower rates, it encourages investment etc etc, however I still disagree with it.
1. As for your statement "you are ignoring people who live simply off of investments or mostly off investments". Sorry, if someone is living off of income they receive from investments, that income too is subjected to income tax
- No it is not, depending on the investment. Interest from a bank is subjected to income tax, capital gains are not.
2. I am appalled at the logic you use to rationalize that the wealthy will pay more under the Fair Tax after all the statistics I have provided to you to prove otherwise. You make your arguments with assumptions not backed up by the figures young man.
- You make your argument with just as much assumption, even more, because you refuse to acknowledge gaping holes in your logic.
The whole premise of your argument is this.
If wealthy person X makes 200k in wage income, he couldnt possibly pay more in sales taxes at the assumed rate of 23% (30% effective), then he would have in income tax.
Middle class guy, with a load of regressive tax deductions will lose said tax deductions, and in some cases, that will make his tax burden go up.
So, consider the following situations
- Rich guy makes 200k, but its all in capital gains.....and spends all 200k on the market. Ignoring state sales tax, he is going to pay 15% on that capital gains, as opposed to 30% he would have from purchasing goods (it would actually be less then 30%, since he would get a deduction or prebate for neccessities), but we will just use 30% for arguments sake.
- Some guy has significant savings, maybe from an untaxed inheritance. This would never be taxed in the current system, and he could spend every penny of it. With a fair tax, he would spit out for it.....so sorry Bill Gates kids, you dont get to live tax free for the rest of your life.
- Through some tax loop, rich CEO claims residence in the Cayman Islands which his "business" is also based, dispite having all of its operations in Cleveland, OH. What.....CEO ducks income tax in the US on this money, and enjoys freedom to spend it on anything he wants. Sorry, not so fast slick, youve been caught by the fair tax trying to buy your Bentley at Miami Luxury Imports.
- Rich investor guy expects huge returns next year, and decides to upgrade his house in anticipation with significant debt spending, which outstrips the 20k pittance listed as his "consultant" salary. Turns out, the only tax hell be paying is whatever taxable amount of that 20k is left (and considering he lives in a 2 million dollar house, I doubt he has almost any taxable income at the end of the day). Under fair tax, he will be subjected to 30% on that 300k of home repairs he debt spent on.
The reality is, there are thousands upon thousands of people who sit in these or similiar situations.......here are my examples......now what do you have to say about them? The book "Perfectly Legal" donates several chapters to pointing out MANY tax loops the wealthy have, and do use to duck out of "wage" taxes, in the joke of a tax system that is "the American Way".
The ONLY argument you have involves wage income and regressive deductions. When you move outside of that box, the argument for a progressive tax cant hold any amount of water.
I understand that some wealthy people escape taxes. However the facts I sited prove that the wealthy, as a whole, pay more under the current system then they would under the Fair Tax.
The facts also prove that many Middle Class Americans will pay more in order to give most Upper Class Americans a tax break.
Just because you can site some tax evaders does not overcome the factual statistics of the current system.
1. I understand that some wealthy people escape taxes. However the facts I sited prove that the wealthy, as a whole, pay more under the current system then they would under the Fair Tax.
The facts also prove that many Middle Class Americans will pay more in order to give most Upper Class Americans a tax break.
Just because you can site some tax evaders does not overcome the factual statistics of the current system.
- your "factual" statistics only apply to WAGE EARNERS. You find me even 20% of the richest people in the United States, that earn even HALF of their income from wages, and Ill gladly agree with your premise. The "fact" is the richest of the rich, pay a tiny percent of their income in taxes, if any at all. Yeah, people sitting in the 100-500k area, probably do make most of their income in wages, and bare the biggest percent of taxes paid, as well as make up the majority of those upper income brackets. You cant duck wage taxes only but so much (pretty much just deductions allowed by law). You, on the other hand, are talking "Paris Hilton" kind of money. Here is news, the Paris Hiltons of the world pay almost no tax. They report only a small fraction, if that, as wage earnings, and sift the rest through reduced tax methods and loop holes.
Fact is, thousands, maybe millions of rich people ducking taxes, both legally and illegally, would be caught up in a fair tax.
It is true, someone making like 300k in wage earnings, who doesnt spend more then he makes, or is particuliarly thrifty, will see his tax bill go down. Bill Gates, Warren Buffet, Bill Ford, Steve Jobs, the stupid Google kids, all of them would get hit hard by fair tax.
So lets see, Bill Gates sells 250 million capital assets.......lets say the fair tax he would pay on the gains from the sale come to 40 million......gee I wonder how many "200K" guys it would take for their "tax cuts" to equal the MILLIONS of dollars of difference between Bill Gates fair tax and capital gains tax that would be collected.......if you answered thousands....you are exactly right.
Fair taxing the top 1000 richest people in the US, would probably make up the complete and total "tax cut" the wage and salary "rich people" (mostly between 100k-500k) would get reduced.
No, the figures I cited were for INCOME no matter where the income came from.
1. No, the figures I cited were for INCOME no matter where the income came from.
- Thats bularkey, all income sources cannot even be tracked, and you claim to have some empirical evidence of what they total, yeah ok.....Ill let you know when I stop laughing.
OK, all income that was reported then. Sure, some income in the underground economy is never reported, however most income received from the stock market (for example) can be traced and most of it would end up being reported.
However, this does not change that the figures I cited were for top income earners, not wage earners only. In fact, I would suspect that very little of the income received by the top 1% came from wages.
1. OK, all income that was reported then. Sure, some income in the underground economy is never reported, however most income received from the stock market (for example) can be traced and most of it would end up being reported.
- Once again, I suggest reading the book "Perfectly Legal". This dedicates several chapters to how the wealthy hide "income".
Do you have a copy of it that you can lend to me to read?
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