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H R 115: the "fair tax"

pinqy said:
The Fair Tax proposals are fundamentally dishonest in that the stated tax is the percent of the price plus tax. In the U.S, sales taxes are added afterwards, so that if the price of an item is $100, and the tax is 10%, then the total cost is $110.00. But using Fair Tax math, the total cost is $110, of which $10 is tax, so they would say the tax rate is 9.1%.

Looking at the Bill: “(b) Rate.— “(1) FOR 2019.—In the calendar year 2019, the rate of tax is 23 percent of the gross payments for the taxable property or service."
And "gross payments" are defined as "“(5) GROSS PAYMENTS.—The term ‘gross payments’ means payments for taxable property or services, including Federal taxes imposed by this title."
To show the math, then, the amount of tax T on the price P is:
T = .23(T+P)
T= .23T + .23P
.77T = .23P
T = .299P

So in reality, it's a 30% sales tax. In the District of Columbia, then, which has a 10% sales tax, most goods would have a 40% sales tax on them.

And let's look at the prebate. I did the math, and assuming all families of size 2 or more include a married couple, the monthly prebate for 2017 would be
Size prebate
1 $231.15
2 $462.30
3 $542.42
4 $622.53
5 $702.65
6 $782.77
7 $862.88
8 $943.00

on average, yes that would make up for the price increase, but spending would increase as disposable income increases. That's a lot of math I don't feel like doing right now.
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What they're proposing, then, is basically taxing a tax.
 
Dittohead not! said:
What they're proposing, then, is basically taxing a tax.
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What they're doing is trying to equate it to the income tax. You earn $50,000 and your take home is $40,000.....10% of your income is tax. How they spin the Fair Tax is that if you spend $40,000, then $9,200 of that is tax (23%)
 
pinqy said:
What they're doing is trying to equate it to the income tax. You earn $50,000 and your take home is $40,000.....10% of your income is tax. How they spin the Fair Tax is that if you spend $40,000, then $9,200 of that is tax (23%)
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Doesn't work out, does it?

No, I was referring to your example of paying taxes on the $110 when $10 of that $110 was already tax. It's paying a tax on taxes.
 
holbritter said:
I admit I didn't read the details of the bill, only the summary, but it sounds fair to me. Be taxed on what you purchase or services? Why would that be a bad thing for people in the lower and middle class?
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Lower income and lower middle class spend a much larger % of their income on basic necessities. Things that are not optional to live.

As you move up the income scale the % of income spent on basic necessities drop drastically.

So in this system (excluding rebates/prebates)

A single person earning say $100 000 who lived next door (paying the same rent) and lived the same lifestyle as a couple earning $20 000 would pay less tax
 
Dittohead not! said:
Doesn't work out, does it?

No, I was referring to your example of paying taxes on the $110 when $10 of that $110 was already tax. It's paying a tax on taxes.
Click to expand...
That wasn't my example....I didn't say paying tax on top of the $110.
Look at it this way: the PRICE of an item without tax, is $100. If the amount of the tax is $29.87 then the COST to the consumer is $129.87 What percent is the tax? Is it 29.87% (of the price) or 23% (of the total cost)? Both are true, of course. The dishonesty is that we currently look at sales taxes as percent of the price, not total paid
 
pinqy said:
That wasn't my example....I didn't say paying tax on top of the $110.
Look at it this way: the PRICE of an item without tax, is $100. If the amount of the tax is $29.87 then the COST to the consumer is $129.87 What percent is the tax? Is it 29.87% (of the price) or 23% (of the total cost)? Both are true, of course. The dishonesty is that we currently look at sales taxes as percent of the price, not total paid
Click to expand...

OK, I misunderstood your post.

The honest answer is that the tax is $29.87, and not 23%. Calculating the tax based on the cost with tax is just a dishonest tactic.
 
ludin said:
they don't have to spend anything. the prebate follows the federal poverty guidelines.

so for instance in 2013 a family the poverty level was. 31,040 the fair tax issues a pre-bate of 23% of that over the course of 12 months.
so a family would get 595 dollars a month in pre-bate.

it doesn't matter how much money you make everyone gets the same prebate. so the family that makes 1m a year gets the same prebate.
as the family that makes 20k.

so lets take that as an example. a family of 4 that is poor. they make 20k and they spend all 20k. they have a tax rate of 20,000(23%)= so their pre-bate tax is 4,600. they get a prebate total of 7,135 dollars a year. so they have an additional net positive of 2,535 dollars.
(this is also if they bought all new items and didn't buy used items (which there is no tax on used items).

so lets take the family that spent 1m dollars. 1m * 23%= 230k dollars in tax. they get the same 7,135 dollar prebate. so their tax bill would be 222k dollars.

they get prebates now however it isn't until the end of the year and they are paying regressive payroll taxes that hurt them more.
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Which is the problem. Every proposal for a national sales tax that I have ever seen starts with the rate then lists the exemptions. The poor, the kiddies, the elderly, then Johnny down at the convenience store.

Like the flat tax, the NST will only work if no exemptions are allowed, ever. Which will not work since the poor , the kiddies, the elderly, and Johnny cannot possibly be expected to pay the tax.

BTW, who specifically in Congress is considering this? I find nothing with a quick Google, although the idea surfaces fairly often.
 
pinqy said:
The Fair Tax proposals are fundamentally dishonest in that the stated tax is the percent of the price plus tax. In the U.S, sales taxes are added afterwards, so that if the price of an item is $100, and the tax is 10%, then the total cost is $110.00. But using Fair Tax math, the total cost is $110, of which $10 is tax, so they would say the tax rate is 9.1%. ...
Click to expand...

Pinqy, I’m searching for the proposed bill’s text to see and read what you’re describing. I haven’t found it in the bill’s summary.
Respectfully, Supposn
 
pinqy said:
That wasn't my example....I didn't say paying tax on top of the $110.
Look at it this way: the PRICE of an item without tax, is $100. If the amount of the tax is $29.87 then the COST to the consumer is $129.87 What percent is the tax? Is it 29.87% (of the price) or 23% (of the total cost)? Both are true, of course. The dishonesty is that we currently look at sales taxes as percent of the price, not total paid
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Pinqy, “The tax is 29.87% “ implies the qualifier of the words “of the price” unless another or differing qualifier is explicitly included.
That's the extremely conventional, (i.e. entirely or almost entirely) interpretations of english language applied to your given text.
Respectfully, Supposn
 
Dittohead not! said:
What they're proposing, then, is basically taxing a tax.
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Dittohead not!, regarding your mentioning it, excerpted from the first post of the thread,
https://www.debatepolitics.com/economics/295404-value-added-tax-vat.html

“Value Added Tax, (i.e. VAT) compared to prior conventional sales tax methods.

Unlike any other sales tax method, VAT does not any manner increase prices by additionally taxing the sales taxes levied within previous sales transactions. ...”.

Respectfully, Supposn
 
sangha said:
There are no net economic advantages to a FST. It is a net disadvantage
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Sangha, excerpted from the first post within the thread,
https://www.debatepolitics.com/economics/288632-fica-tax-proposal.html
“...This proposal would not increase net taxes upon the working poor and their dependents but due to the greater base of taxes upon USA’s general sales rather than upon payrolls, it increases federal revenues available for Social Security and Medicare. ...”

Actually the proposals is not detrimental to those incomes derived from employment or from any source that are shielded by annual cost-of-living-adjustments such as Social Security retirement benefits.

Respectfully, Supposn
 
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I'm Supposn said:
Sangha, excerpted from the first post within the thread,
https://www.debatepolitics.com/economics/288632-fica-tax-proposal.html
“...This proposal would not increase net taxes upon the working poor and their dependents but due to the greater base of taxes upon USA’s general sales rather than upon payrolls, it increases federal revenues available for Social Security and Medicare. ...”

Respectfully, Supposn
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You are begging the question (ie using your premise to prove your premise is true)
 
Dittohead not! said:
Being considered currently in Congress:



Opinions?
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Not as worded.

I like the idea of replacing the federal income tax with a consumption tax. I want to see necessities exempt, which would have to have merit. Things like sugar, flour, toothpaste, bread, toilet paper, etc. would have not tax, or partial taxes.

If there is going to be a rebate, it should be equal to all adults citizens 18 years and above, and emancipated minors. Not based on income or family status, though it can be declined by those who wish to opt out. Maybe the government would take more care in taking dead people off the voting rolls is checks are sent...

I understand the intent of the last paragraph, with the repeal of the 16th, but that would be as messy of an endeavor as trying to repeal Obamacare once enacted.

This is attempted in every congress for a pretty long time now. I would like to see a version of it, but don't think it will ever happen. Congress loves controlling people and business with taxation, and getting contributions to modify the tax laws. Congress will never allow that loss of power.
 
holbritter said:
I admit I didn't read the details of the bill, only the summary, but it sounds fair to me. Be taxed on what you purchase or services? Why would that be a bad thing for people in the lower and middle class?
Click to expand...

That's just it. If you exempt the necessities, the working poor pay no FICA or income tax, and pay no tax on food items, clothing, school supplies, etc. They would only pay taxes on TV's movies, etc.
 
longview said:
I think if it replaces the income tax, and is not a value added tax.
I am also concerned in how expensive the rebate program would be,
I think the tax should be applied to everything except food and basic housing,
and not have any rebates.
It also should be defined as a final point of sale tax, to keep future politicians from applying the value add tax later.
Click to expand...

Right.

It is a consumption tax, not a VAT.
 
Crovax said:
Because they are required to spend more of thier income so it becomes a regressive tax
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That's why you exempt necessities from taxation.
 
sangha said:
You are begging the question (ie using your premise to prove your premise is true)
Click to expand...

Begging what question?

I'm Supposn said:
FICA tax proposal:

FICA is the most regressive federal tax. It’s particularly a burden upon the working poor and their dependents.

It’s proposed half of the payroll’s 12.4 earmarked for Social Security, and the entire 2.9% earmarked for Medicare to be revenue neutrally transformed from the FICA payroll tax to an effectively 4.55% general sales tax earmarked for the same purposes.

This proposal would not increase net taxes upon the working poor and their dependents but due to the greater base of taxes upon USA’s general sales rather than upon payrolls, it increases federal revenues available for Social Security and Medicare. ...

Respectfully Supposn
Click to expand...
 
pinqy said:
The Fair Tax proposals are fundamentally dishonest in that the stated tax is the percent of the price plus tax. In the U.S, sales taxes are added afterwards, so that if the price of an item is $100, and the tax is 10%, then the total cost is $110.00. But using Fair Tax math, the total cost is $110, of which $10 is tax, so they would say the tax rate is 9.1%.

Looking at the Bill: “(b) Rate.— “(1) FOR 2019.—In the calendar year 2019, the rate of tax is 23 percent of the gross payments for the taxable property or service."
And "gross payments" are defined as "“(5) GROSS PAYMENTS.—The term ‘gross payments’ means payments for taxable property or services, including Federal taxes imposed by this title."
To show the math, then, the amount of tax T on the price P is:
T = .23(T+P)
T= .23T + .23P
.77T = .23P
T = .299P

So in reality, it's a 30% sales tax. In the District of Columbia, then, which has a 10% sales tax, most goods would have a 40% sales tax on them.

And let's look at the prebate. I did the math, and assuming all families of size 2 or more include a married couple, the monthly prebate for 2017 would be
Size prebate
1 $231.15
2 $462.30
3 $542.42
4 $622.53
5 $702.65
6 $782.77
7 $862.88
8 $943.00

on average, yes that would make up for the price increase, but spending would increase as disposable income increases. That's a lot of math I don't feel like doing right now.
Click to expand...
Please don't forget that with corporate taxes gone, US suppliers competing for business will lower their prices. This will help balance our trade deficit with other countries as well, bring more jobs back to our shores.

It is a win-win.
 
Hari Seldon said:
Would create a huge black market. Talk about something falling off a truck.
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No matter what is regulated, there will be crime to get around it. Like anything else, you punish violators of the law.
 
Hari Seldon said:
Would create a huge black market. Talk about something falling off a truck.
Click to expand...

No doubt.

That 23% would have to cover virtually everything: Goods and services, real estate, nearly everything. Basic foodstuffs could be exempted, as Lord of Planar suggests, but either the tax would have to cover things that most don't anticipate it covering, or the federal government would have to be cut way back.

And so far, any attempts to cut back the size and power of the federal government have gone nowhere.
 
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