You really should just stop, the more you type the more you show your ignorance on the subject. The Fair Tax is not an income tax or a transactions tax. It is a sales tax on the final product of goods & services, with a built in rebate to make it not a regressive tax. Investments would not be taxed, nor IRAs or 401Ks.
Calculations have been done about the Fair Tax by economists on the total cost of goods purchased in the US overall, and by each stratum of wage earners, to determine the effects of the Fair Tax on each stratum. You don't realize it, but a large % of the cost of current goods includes inbedded income taxes (at each layer of the production of that product). The Fair Tax would be infinitely more simple than the current 40,000+ page tax code, it would have a set % that lawmakers could raise or lower where taxpayers would be able to see i.e transparency (not current practice), it would encourage companies to move/keep business in the US, it would allow the poor to reap the jobs benefits without having to pay much in taxes, make taxes mostly out of politics, and encourage growth in business. The Fair Tax has supporters on both sides of the aisle (D & R).
The rebate is per household, and thus a family of 2 gets a bigger rebate than a family of 1 (because a family of 2 would need to spend more). Now if you have a roommate who is not family (common in bigger cities) then just like currently you would be considered as seperate families.
There is an entire book explaining the Fair Tax. Go read it rather than making incorrect assumptions.
I am quite familiar with the plan.
You don't realize it but you just made my case. If I'm bringing home $500K then I'm living pretty well off of $250K and investing the other half of my salary. My effective tax rate is cut in half.
How the Sales Tax Would Work
The proposed sales tax would amount to 23% of the total payment on just about all purchases. Sounds like you’d simply pay a 23% sales tax, right? Not quite. Basically, this works out to be a 30% sales tax rate, because you wouldn’t pay the tax at the register, like you do now.
For example, an item marked $100 would already include the sales tax within it – in this case, $23. This is called an inclusive tax. In other words, the cost of the item without the tax would be $77. But $23 paid on a $77 purchase is roughly 30%, the way we’re used to calculating it. While 30% is steep, you’d be working with a much larger paycheck, because no federal tax would have been withheld.
Further, the Fair Tax plan attempts to solve the issue of double-taxation. Currently, businesses must pay sales tax on the materials they use to create the goods they sell, which then get taxed again. In effect, the same material gets taxed twice. But under the proposed legislation, items purchased directly by businesses could avoid the sales tax and thereby avoid being double-taxed. This should bring the wholesale cost of your purchase down, and, in theory, it should reduce the retail price as well.
Lastly, used items would not be subject to the federal sales tax.
The Prebate
The prebate – or “annual consumption allowance” – is designed in part to relieve poverty-level Americans by providing a monthly check that would essentially offset all of their sales tax expenditures. The amount of the allowance would be based on poverty-level guidelines and would increase for larger families.
Though the prebate is geared toward poorer families, everyone would receive monthly checks, regardless of income. The prebate brings up yet another point of contention between critics and supporters.
It is the most expensive element of the entire plan, would be the largest entitlement program in American history, and would constitute a welfare payment, even for those without a need. In other words, a two-parent billionaire household with two kids would receive the same monthly prebate as a two-parent, two-child household struggling to get by on $20,000 per year.
Disadvantages
Scratch the surface of this plan and it falls apart, at least for many of us. Even if forward-looking economists can argue the potential long-term benefits, they don’t appear to be big enough or sure enough to offset the near-term havoc that would be wreaked upon the middle class should such a plan go through.
Major concerns include:
- Penalizing the Lower and Middle Classes. Individuals and families that are above poverty level and considered middle-class will bear the brunt of the tax burden for the country. This is a progressive tax, which means that the wealthy pay more and the poor and middle class pay less as a percentage of their income. This expectation will only come true, however, if individuals spend 100% of their incomes on taxable expenditures. Taxpayers – especially wealthier citizens – are not likely to choose to live paycheck-to-paycheck. The wealthy won’t likely trade investing for spending anytime soon, so this plan would indeed be regressive – meaning those with less money will end up paying a higher percentage of their income in taxes.
- Increasing Potential for Tax Evasion. Such a high sales tax rate would undoubtedly lead many toevade the tax, possibly through trade and purchasing goods in other countries.
- Decreasing Overall Spending. Under this proposal, the best way to lower your tax burden will be to spend less. Too little spending is not good for any capitalist economy. In fact, while many current tax incentives are specifically created to drive consumer spending, the large sales tax could discourage consumers from spending freely, thus hurting the economy.
- Eliminating Tax Deductions and Credits. Many people derive significant benefit from common personal tax deductions, such as the home mortgage interest deduction, the child and dependent care credit, education credits and deductions, and the earned income tax credit – not to mention the ability to deduct medical bills and expenses and student loan interest. The cost of home ownership, then, could significantly rise for homeowners who currently itemize and have large interest payments. Renting would become even more appealing, and an already ailing real estate market could be devastated.
- Making State Income a Bigger Burden. Though federal income tax would go away, state income tax would remain, and of course it would no longer be deductible against federal taxes. The effect would be a great burden on residents of high income tax states like California. Moreover, unless you live in a sales tax free state, like Oregon or New Hampshire, you could pay your state’s sales tax on top of the Fair Tax and on top of your state’s income tax. For a family living in Los Angeles making $100,000, this would be well over 40%!
- Depending Too Much on Spending. Paradoxically, this tax is dependent on spending, but at the same time discourages it. Plus, since many wealthy individuals already invest on their own and in other businesses, they may be further motivated to do so. Those moves could benefit the economy overall, but since these activities would be non-taxable, the national burden shifts to the lower economic classes.
There are many articles out there that give objective opinions on the Fair Tax both Pro and Con and every single one says that it is regressive against the poor and a boon to the 1%ers.
Perhaps you should check out the Brookings Institute and their opinion...
“He (Mike Huckabee being interviewed on Fox) has the distributional benefits backwards,” wrote Gale, a senior fellow at the Brookings Institution and a former senior economist for President George H.W. Bush’s Council of Economic Advisers. “The notion that a tax on consumption will help the poor and hurt the rich is contrary to just about everything that is known about rich/poor spending and income habits, not just our model.”
In a swipe at the FairTax program, he added: “The ‘people who spent over $20 million on this did not understand for a decade how the tax actually worked, and it took two papers by me as well as other work – for example, the Bush tax reform panel – to convince these people that they had vastly misstated the tax base because they made 20-25 percent of government disappear.”
Len Burman, the director of the Tax Policy Center, joined the fray as well. Also by email, he said that the idea that the poor would do better under the FairTax plan is simply wrong.
“This issue doesn't involve complicated economic analysis,” wrote Burman, who among other things served as a deputy assistant secretary for tax analysis in the Clinton Treasury Department. “It's simple math, and the FairTax advocates have repeatedly and willfully flubbed the math.”
“The distributional effects are pretty straightforward,” he wrote. “High-income people spend only a fraction of their income, so they effectively benefit from a giant tax exemption compared with an income tax.”
