Fair Tax

[cariad]

...and ID, almost without doubt 'fairtax' will do just that.

There are clear advantages to indirect taxation, as pointed out by Boortz and Linder; but there also advantages to direct taxation. This is why most countries have a combination of both.

cariad

[Lady Dena]

Sorry, but I'm not buying it.

The basic problem with replacing the federal income tax with a federal sales tax is that 1. Sales taxes are inherently regressive, and 2. Replacing the income tax with a sales tax will not solve the problems the proponents intend them to solve.

Income taxes are taxes on income, while sales taxes are taxes on consumption. It is a well known and scientifically provable fact that people with lower incomes have to spend a higher percentage of their incomes on consumer goods than people with higher incomes. Low income people, who live paycheck to paycheck, would pay taxes on 100% of their income. High income people, who may have the luxery of investing half their income, would pay taxes on only 50% (or less) of their incomes. Although high income people may consume more in absolute terms than low income people, they consume less as a percentage of their incomes. Thus, the wealthy would be taxed less, as a percentage of their incomes, than poor people. Under the current system, the wealthy pay a higher percentage of their incomes in taxes than poor people.

Yes, some people do not like having to pay FICA taxes, but replacing FICA with a national sales tax would not solve that problem -- it would simply move it. People would bring home larger paychecks, but their large paychecks would have less purchasing power (since they would have to pay high sales taxes on whatever they buy with their "extra" money), so economically they would not be any better off. And the low income, paycheck-to-paycheck crowd would carry a disproportionately higher share of that burden, so they would actually be worse off.

Yes, replacing the income tax with a sales tax would encourage investment in theory (by not taxing money invested as opposed to spent), but it would also discourage consumption. So, if you make enough money, you could use some of that money to build a factory tax-free. The problem is that it wouldn't really be tax-free, since you would have to pay high sales taxes on any goods you buy in building that factory (more on that below). More important, once you build the factory, the market for anything that factory makes would be chilled by the high sales-tax rate you would have to charge. Thus, although the investment itself may be theoretically tax-free, the high sales tax in place would reduce the return on that investment. You would have less bang for the investment buck, and would thereby indirectly discourage investment even as you directly encourage it.

Yes, the income tax system currently in place is too complex, but that doesn't mean that complexity is an inherent feature of any income tax system. We could, theoretically, have an income tax system that is as simple as "everybody has to pay 20% of their income," with tax return forms no bigger than postcards. Our income taxation system is complicated because the government has chosen to complicate it in order to achieve certain social goals. It has chosen to encourage marriage by taxing married people at a lower rate. It has chosed to give tax credits to people with children. It has chosen to encourage study by giving a deduction for student loan interest. It has chosen to make a distinction between a "business expense" and a "personal expense," making the former deductable while the latter is not. It has chosen to make a distinction between "income" and "capital gains" (the latter is taxed at a lower rate). There is no reason why an income tax system HAS TO have these complexities; it just happens that ours does.

Similarly, there is no reason why a sales tax system HAS TO be simple. Many sales tax systems make a fine distinction between "consumer goods" and "non-consumer goods," so that the above-described factory can be built tax-free. Some tax different goods at different rates, to encourage the consumption of some goods and discourage others (i.e. high tax on tobbacco, no tax on food). Some make distinctions between "used" and "new" goods. Others make distinctions between sales by merchants and non-merchants (do you really want to make anyone who holds a garage sale have to pay a "fair tax." It is not hard to see how a sales tax system could become every bit as hiddiously complex as our current income system.

The point is that if you want to simplify the tax system, focus on simplifying the tax system. Changing from an income tax system to a sales tax system is neither necessary nor sufficent to simplify the tax system.

If the national sales tax you propose were enacted, then those of us who are furtunate enough to live near an international boarder would probably make our major purchases abroad. Or, do you plan on enacting a large tarriff (and therby violating the North American Free Trade Agreement) to prevent this sort of thing?

Finally, as unpopular as the IRS may be, simply changing the tax code and giving the federal agency responsible for administering it a different name does not amount to "abolishing the IRS" any more than renaming AFDC to TANF amounts to "abolishing welfare."

Well . . . that was a bit more than my two-cents worth. Sorry for the length of the post. I can only promise that in return for reading my rant, I'll read whatever rants you may have :-)

- Lady Dena

[RickBulow74]

I admit that some of the things about Fair Tax are complicated to understand for those who do not know what it is, but if you look at it and compare it to our current system. But the bottom line is listed in the thumbnail below.

I know that links to other sites are not allowed (either that or discouraged), but I posted a few things about it on my blog which if people will ask in PM or on one of my two Messenger services, I will provide the link to it for them.