Its already cheaper in the US, Then factor in the exchange.Originally Posted by For-Life
Under the fairtax plan, producers will have a lot less overhead "payroll+SS" and that will translate into even lower prices through competition.
Yes
No
I will read the bill and vote later
Its already cheaper in the US, Then factor in the exchange.
Under the fairtax plan, producers will have a lot less overhead "payroll+SS" and that will translate into even lower prices through competition.
I have been trying to figure out how to voice my concerns over the fairtax compared to the current system. When I went through on read the previous discussions Shanbaum linked, I stumbled across one of his posts. I think it illustrates wonderfully the bulk of my concern
Original poster shanbaum
FairTax
Rep, you're responding across chm's objection, not to it, and while I don't really know about anyone else's taxes, I rather suspect mine would be somewhat higher under the FairTax scheme.
For the last few years, I've spent more than I earn, and because I have a large mortgage (relative to my income) the mortgage-interest deduction has reduced my effective federal tax rate significantly.
As the graph indicates, the maximum tax rate on consumption is 23%, period (well, it's really 30%, but I think that they are correct in asserting that a 30% consumption tax rate is functionally identical to a 23% income tax rate). That's 30% on my purchases - which for the last few years, have exceeded my income - and 30% on Tiger Woods' purchases. For argument's sake, let's say, Tiger's income last year was roughly 800 times mine (at about $80 million); I bet his expenses didn't come close to exceeding his income. In fact, I bet his consumption expenses were a fraction of his income. What do you think he might have spent - 20 million? So, he pays 30% on that, or $6 MM - about 7.5% of his income. In my case, (again, for argument's sake), say that I made $100K and spent $150K. I would pay $45,000 in tax (30% on the $150), or about 45% of my income.
Even allowing for the promised 20% reduction in prices, that would be 30% on $120,000, or $36,000 - 36% of my income. (Actually, that promised reduction wouldn't apply to the entire $150K, since a substantial part of that is interest, but then, neither would that be taxed). And of course, if there were a 30% tax on purchases, I wouldn't be able to spend $150K, because it would really end up being $195K, which I don't have, which illustrates another problem: this scheme could actually force me reduce my spending, as one would expect; taxing an activity implicitly discourages that activity.
Now, there are only a couple of ways by which I'm able to outspend my income: I either borrow, or I draw from my savings. My savings, outside of my retirement savings, are presently composed (like everyone else's, I think) of 100% after-tax dollars. That means, were we to shift from an income tax to a consumption tax, every dollar I spend from my savings would be taxed at an extraordinarily high rate, well over 50%; some of those dollars have already been taxed at close to 50%, and they'd take another 30% hit when I spend them. So, if I have substantial after-tax savings, I'm not going to be real fond of this idea.
In any case, it looks to me like in my scenario, Tiger's paying out 7.5% of his income, and I'm paying out around 40% of mine, so naturally, on that basis alone, I'm not too thrilled.
I also submit that the effects of a transition to a consumption tax are simply too pervasive to be determinable. The FairTax website is full of assertions that x or y would certainly follow, like the 20% reduction in prices, to which, I submit that the market plays a much more significant role in determining prices than does cost of production. Unfortunately, they chose to make arguments riddled with specious assertions; for example: "Consumers see their paychecks increase by over $1.6 trillion because income and payroll taxes are eliminated". Yes, but - since the scheme is intended to be revenue-neutral, they obviously have to pay out that $1.6 trillion in sales tax, along with the taxes not collected from businesses; that, or it's not revenue-neutral.
And what about dwellings? Homes represent the lion's share of most Americans' wealth. What would the effect of a 30% tax on home purchases be? Personally, I have a lot invested in my house, and it's not clear to me why so dramatic an addition to its cost to a prospective buyer wouldn't lead to a dramatic reduction in the price such a buyer would be willing or able to pay - and of course, most of the money I've put into my house has been after-tax money; to the extent that it includes profits from prior homes, well, that money is currently tax-deferred, and, depending on my "last" sale, may be tax-free - not that I think that's particularly fair, but it is the case, and a lot of Americans are in the same boat.
Advocates of FairTax seem to think that the fairness of their proposal is self-evident, as though its alleged "voluntary" nature lends that to it - "Hey, you don't want to pay any tax? Just don't buy anything!" I don't see it, especially given the limit on progressivity at the upper end, and the unfairness that would arise from the transition. By the way, they included a really nasty version of the marriage penalty, which would provide a financial incentive for the poor to not marry; I gather they had to do that to keep the rate at 30% and still provide a minimal degree of progressivity.
Personally, I'm not convinced that taxation will ever be "fair" when broadly viewed. Certainly, it will never be fair, so long as it is opaque.
Some of the benefits that are claimed for this proposal have little to do with the fact that the tax is on consumption as opposed to income. I have long argued that business taxation should be ended, simply because it's really just a way of hiding taxation from the voters, since businesses don't vote. In fact, I believe that the biggest flaw in our current tax system - aside from its insufficient progressivity - is its opacity. No one really knows what he's paying in taxes. That would be most easily remedied by a single form of taxation - as the FairTax proponents assert. But if taxpayers received a single invoice from the government, whether annually, quarterly, or monthly - that would be pretty transparent. Especially if it showed a coarse breakdown of how that money was spent. Especially if there were exactly one invoice, instead of the unknown number we effectively have presently. I think that a system like that would render taxation far more visible than a consumption tax, which would never be visible in the aggregate.
Regarding progressivity, I might be able to make a rational argument for Tiger paying 40% or more of his income - since I consider those sorts of incomes to result from a failure in the market's resource allocator. This is one of a number of modern phenomena which are essentially unprecedented: mass communications (like television), and the aggregation of businesses into huge enterprises have made it possible for a small number of individuals to generate huge sums of money for themselves - and because there's nothing in our experience that tells us how to deal with this, we let things transpire "naturally." Well, I don't think that there's anything natural about a guy being paid $80 million to hit a ball, no matter how well he hits a ball; not when my kids' schoolteachers in North Carolina were being paid less than $20K. I don't believe that that's the way that any of us, or any group of us, would choose to allocate those resources; and so I have to conclude that either we're all wrong (that is, it is meet and just for Tiger to make $80 million, while a schoolteacher makes $20K), or the process doesn't work correctly. I believe the latter, and that's one reason why I think that relatively higher taxes on extraordinary incomes are appropriate: while such incomes may appear to happen "naturally", they're not natural, and their effect on society is distortive.
Having said all that, thanks for pointing me to a provocative site. I think most of the objectives they're trying to achieve are laudable. I don't think their proposal would achieve all of them, and I think their treatment of the difficulties that would arise in the transition from one method of taxation to another is glib. I also think a lot of these objectives are attainable while still basing taxation on income and not consumption. My preference for an income basis is simple; it's the same reason Bonnie and Clyde robbed banks: that's where the money is. Or, more accurately, it's a better indicator of one's ability to pay. While I don't think that Marx got much right, I think there was a kernel of merit in his maxim, "from each according to his abilities, to each according to his needs." The last part belied his naivete about human nature, but the first part is, I think, rather noble - if not exactly "fair".
This is where Chip calls me a Communist.
Basically my biggest concern is this is that is a regressive tax. The lower income folks who live paycheck to paycheck purchasing their food, utilities, etc will end up paying out a larger percentage of their income to taxes compared the those who only spend small portion of their income. Housing, cars and other major purchases will cost much more due to the taxes and reduces their buying power.
Also, I don't think that the our purchasing power will increase. The manufacturers and retailers will take what the market will bear. How many of us really think we would slash our prices by 20% or more? How about the fact that we would be collecting potentially more money to simply turn over to the fed?
"Some believe in destiny, and some believe in fate. But I believe that happiness is something we create."-Something More by Sugarland
Uh...no, unless you're a presidential appointee...:o
Tax Problems Surface for Trade Rep. Nominee Kirk
By Michael D. Shear
Former Dallas mayor Ron Kirk, who is President Obama's nominee to be the U.S. Trade Representative, failed to pay almost $10,000 in taxes during the past three years because of a series of mistakes, the Senate Finance Committee announced today.
Kirk's errors involved honoraria from speeches, on which he should have paid taxes; the cost of sports games, for which he deducted too much; and improper treatment of
accounting fees on his income taxes. Kirk has agreed to file amended returns.
U.S. Trade Representative-designate Ron Kirk . (Lawrence Jackson/Associated Press)
The news about Kirk's mistakes comes as tax-related issues have become a topic of great sensitivity for the administration, following incidents with several high-profiled appointees whose nominations were threatened or derailed because of tax mistakes.
Former senator Tom Daschle was forced to abandon his bid to be secretary of health and human services after revelations that he had failed to pay taxes on the use of a chauffeur. Obama's choice to be the country's chief performance officer, Nancy Killefer, withdrew because of a failure to pay a small amount of employment taxes.
And Treasury Secretary Tim Geithner was confirmed after acknowledging that he had paid more than $40,000 in back employment taxes and interest only after being chosen to lead the department.
Obama picked Kirk on Dec. 19, the final Cabinet choice before Inauguration Day. The former mayor's nomination has languished since then for unknown reasons even as other Cabinet nominees were confirmed.
Ophthalmic Optician, Society to Advance Opticianry
Thank you for this post. I have to read this again when I am not so tired. I only read down to where the guy is making $100,000 a year but spending $150,000 per year. I think that is exactly what got us into this mess.
Under the fairtax plan, people with low incomes get a monthly prebate check in the mail to offset essential cost of living expense tax.
Competition will dictate retail prices as they do today. If your company drops the cost of doing business along with the competition down the block, what will you do to get the customer? The only way this will not work is if every business in the country collaborates to keep prices high. That will never happen.
I am sorry if I sound like I bought into the plan 100%. Right now it looks really good and I started this topic to hear what everyone thinks. I am mostly interested in the opposing position. Maybe I am overlooking something big and I want to know about it before I march to Washington:D
turbo tax again???uh...no, unless you're a presidential appointee...:o
My concern is with those who just fall above the current tiered system. I know several people who make just above what it takes to be able to get the earned income tax credit. These people have a tax responsibilty, but don't have enough money to sock much away into 401k, IRA, and other tax shelters. Heck according to the Fed, the poverty level for a family of 4 is $22,200. However currently families who make twice this level still have the majority of their taxes refunded back to them. This means several of the lower middle/working classes will have a substantial tax increase.
Why do you think that prices will go down 20%? As it is now, we have many people on this forum who price frames, and other goods not so much as a cost plus formula, but in terms of what people are willing to pay for it. So who care is this frame is only 1/3 of what the name brand costs, I will still price it in the same vicinity because the quality, detailing, and styling is still there. It comes down to once again, what the market will bear.
More thoughts to come later.. however time to go for now!
"Some believe in destiny, and some believe in fate. But I believe that happiness is something we create."-Something More by Sugarland
So when you purchased your home, or made vast improvements to it.. did you have all the cash in the bank? Or did you spend more than you brought in for the year? Have you ever had to dip into your savings for expenditures or receive a loan?
However as I referenced in the post before the hubby forced me out the door.. The rebates are for those BELOW the poverty level, and a modified rate to those who make up to 200% of poverty level. However I doubt a family of 4 can support a 23% sales tax on an income of 45K a year which is ABOVE any reduction of rates. Good luck on saving that 20% down payment for a home and an extra 23% for the taxes..Under the fairtax plan, people with low incomes get a monthly prebate check in the mail to offset essential cost of living expense tax.
As it is we have much disparity between prices, even in our own industry. Some will always be the bottom of the barrel, and some will be on the upper end, depending upon what value we place on various services, etc. However as evidenced in our current markets, a reduction in manufacturing costs, doesn't always equate to a reduction in the price. LC can make a pair of glasses for way less than I can, however the price of lenses and frames here are less. More importantly to me anyway is.. does this mean daycare and other services will go down? Will healthcare be fixed because we can take out the payroll taxes being paid to the 6 admins for one provider we have in they system? Will servicing my car be less and only $60/hr labor instead of $72?Competition will dictate retail prices as they do today. If your company drops the cost of doing business along with the competition down the block, what will you do to get the customer? The only way this will not work is if every business in the country collaborates to keep prices high. That will never happen.
All my years working with businesses and taking courses for my MBA the mantra was reduce costs, to maximize profit. Not reduce costs to lower the ceiling. If costs go down by 20%, then perhaps in order to increase your share, you will lower price by 5-10%.. not 20. PLus if we have so many companies on the verge of collapse, won't they need the reduction of taxes, but every penny they have been trying to get from sales?
No problem. Everyone wants to champion what they think will be best for them. I agree whole heartedly that there is a lot of flaws with our current system, however I think there are ever more with this one. Particularly combined with how many states use sales taxes for revenue.. discretionary spending may slink even further down. It will be worse than dealing with ticketmaster.. where your tickets cost 50% more than you thought because of the this fee and that. Thus making concerts and other performing arts less affordable.I am sorry if I sound like I bought into the plan 100%. Right now it looks really good and I started this topic to hear what everyone thinks. I am mostly interested in the opposing position. Maybe I am overlooking something big and I want to know about it before I march to Washington:D
"Some believe in destiny, and some believe in fate. But I believe that happiness is something we create."-Something More by Sugarland
Hi Jubilee, You make some excellent points!!! Really, I am just learning about the fairtax and I want to mainly learn about the negatives so you are helping a lot. I am just so tired of getting outright robbed by the IRS. And I am even more tired of trying to find honest help to file my taxes. Our system needs to be simplified.
I love your ticketmaster reference. I could turn that into a thread in itself. Ticketmaster is nothing more than organized crime at its best.
Anyway, April 15th is only 6 weeks away, I need to go make some money.
Thank You!
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