How does the "Fair Tax" screw the poor and middle class?

In my heart of hearts I know is HAS to, but I'm not not smart enough to figure out how.

Who knows and can you explain it to me?

Thanks in advance.

Forgot to post the link -- Slate likes it??

http://www.slate.com/id/2181833/nav/tap3/

That excludes capital gains, dividends, etc. that provide the rich with most of their income.

It is a national sales tax that replaces all income and corporate taxes.

It is unfair that a businessman that makes $32K pays $12K in tax. The $32K is money that cannot be otherwise deducted. Like the principle on a mortgage is very hard to hide. So, the $32K is actually the remainder of probably $2M in gross income.

meaning the poor have a huge drop in spendable income while they're waiting for the "rebate" to come through at the end of the year. If you think there are a lot of foreclosures now, pass this dog and see a real deluge of unsalable housing on the market.

It's unfair because it taxes labor, only. It's unfair because it's flat and taxes people barely scraping by who get the worst services the same percentage as the obscenely paid CEOs who get the best infrastructure plus the whole country kissing their asses. It's unfair because it cuts into subsistence and it's unfair because the starting amount will never be enough to fund the Pentagon and they'll keep on increasing it.

All this stuff was fought out for decades before the progressive income tax came in. Read a little history and find out why a progressive tax on all income was seen as the most fair and equitable way of raising enough money to run this country.

It doesn't matter how you earn the money, what matters that you spend the money. Inherent in a consumption tax, which the Fair Tax is, is income abstraction, it doesn't matter how money is earned, for all spending with tax compliant merchants is taxed. So if you earn money through inheritance or investment or hard ass work, your money is taxed when you buy something.

The unfortunate problem with this system lies in the fact that poorer and middle class people spend a higher percentage of their income on goods and services than rich people. So effectively the taxation percentage rate fluctuates depending upon the percentage of one's income spent on goods and services.

If a middle class person makes $32,000 a year and spends 100% of their income, and the sales tax rate is 20% then they pay 20% of their income in taxes.

If a rich person makes $1,000,000 a year and spends only 3.2% ($32,000) of their income, and the sales tax rate is 20% then they pay only .64% of their income in taxes.

You can see how this is innately unfair.

the fair tax exempts the first $20,000.00
so would that not help the poor they would not pay any taxes if they make less than 20 grand a year?

It's NOT BASED ON INCOME and besides, how is Walmart supposed to know if you're over your $20,000 limit? Do I need to carry around a card at all times that keeps track of my purchases? This is not in Bortz's book. I don't know what version of the Fair Tax you are looking at but I have never seen this anywhere.

All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services’ poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc

www.fairtax.org/site/PageServer?pagename=about_faq_answers#3

The example I outlined is not only applicable for essentials, but in general for the unfairness and regressiveness of the tax plan, which holds true despite these "prebates".

As the site indicates, only Alaska and Hawaii have their own poverty lines, but in states like California and New York the essentials cost more than they do in Kansas or Oklahoma.

So when he moves out, my son would get his own $20k "prebate".

Makes sense to not marry.

People structure their lives for rational purposes. The fairtax law makes single parenthood rational.

If my wife and I and our three kids live in one house, we get a check from the gummint for $600. If my wife lives in one house with one child and I live in another with one, and the 18 year old lives in a third. We get $1800. Additionally, if I rent the houses to my wife and 18 year old, that "business income" and its associated expenses are tax free.

Yes, I know about the pre-bate

Everything that the fair tax says? It's all bullshit.

A 30% sales tax rate, with a $20k exemption and an exemption for investments and business expenses (but which does not exempt the uniforms, medical insurance premiums, cars etc that your city spends to operate) would bring in nowhere near enough to run things.

Using a more realistic assumptions, as well as honest math, the Brookings Institution estimates that the sales tax rate would need to be 82% to even maintain the current level of deficit spending.

It's the clusterfuck of all clusterfucks. It's Grover Norquist's bathtub - its intent is to starve local state and federal governments so that tax-free businesses can take over.

It taxes your town, but not the businesses that do business in it. How could it get any clearer?

I was obviously thinking of the flat tax.

As about a dozen others have pointed out already, the problem with VATs and sales taxes is that the poor have to spend a larger portion of their incomes on taxable items than do the rich, so the tax is quite regressive.

Also, the rich will jst buy their high-ticket items in various offshore tax havens. The Caymans will become a major outlet for multimillion dollar yachts, private planes & the like.

Someone who makes 10 million a year isn't going to use most of that to buy food, clothes, and other basic necessities like you and I will. There is only so much food one person can eat in a given period of time, even expensive crap has a limit.

There is, however, supposed to be a pre-bate that every household will get every month, that pre-bate is supposed to account for this difference. I fail to see how it is effectively better, and I do see how it could be much worse.

Here's more on it from Wikipedia, though take it with a grain of salt, you're going to be propagandized by boths those for and against this proposed taxation system:
http://en.wikipedia.org/wiki/Fair_Tax

So their entire income would end up being taxed.

The rich only spend a smaller % of income on stuff.

So, in the end, the rich would pay taxes at a lower rate than would the poor and middle class.

Which is what they did with the Income Tax and is why they have had their taxes reduced so significantly. Also, they would get their purchases handled outside of personal purchasing (setting up a corporation to do it?) so that they wouldn't have to pay the tax.

And the 23% FAIR Tax is actually 23 cents out of every dollar. So, since 23 cents is 30% of 77 cents, the effective tax rate is 30%.

And, the Bush administration admits that the effective tax rate would actually have to be about 34% to be revenue neutral.

And, it would tax hospital bills, medical bills, prescription drugs, etc. All services would be taxed and many are not taxed now.

And it would create a huge Federal government organization to disburse the "pre-bates" and another one to handle auditing. These would basically replace the current IRS so there's no net reduction in services.

And, for places like Tennessee which currently have a high sales tax, that would be added on to the Federal sales tax so 34% plus 9.75% means that we'd pay 43.75% in sales taxes on EVERYTHING we buy. EVERYTHING! And state and local income taxes would remain in place.

Investments are tax free
Business investments are tax free.

Their cars are business expenses, their meals are business expenses, the ivy league tuition for their kids are investments, their apartment complexes are business expenses, their yachts are either investments of business expenses... etc.

Since no income tax are collected from individuals or businesses, there are no business expenses to right off, no exemptions, no tax shelters. All federal tax would be collected when the car is bought, the meal is paid for, or the yacht is paid for. No income tax, no deductions. This also means that there is no interest deduction for the purchase of a home, or medical expenses, or any other of the deductions normal folks use to reduce their income taxes.

Business expendatures are not taxed, so rich business people or any business people could buy a yacht, car whatever and claim it as a business expendature to avoid the tax. The truly frightening thing is that under the Fair Tax, government expendatures (state and local) WOULD be taxed so state and local taxes would go up and almost everything would need to be outsourced. It might start with highways and lotterys and end up with a privately owned police forces. Very scary stuff.

are written off on business income taxes. Without Federal income taxes, there are no business expenses to be deducted. Therefore a car or a yacht bought will have the tax paid on them, regardless of who purchases them. Without federal income taxes there is no method of "writing off" or "Deducting" the expense from taxes, which no longer exist. The collection of the "fair tax" has nothing to do with anything any state or sub-jurisdiction does as far as their taxes are concerned. States are in no way restricted in collecting any tax that they currently collect. So the states or sub-jurisdictions will still collect taxes from their citizens to pay for highways, schools or police departments. You should really read the specifics of the "fair tax" proposal. There is a lot of what I consider voodoo mathematics and suspicious assumptions that are used to support the proposition. Nor do I favor it. Many solid logical arguments can be made against the "Fair Tax proposal". But most people that post on this forum make fairly wild ass assertions about the original proposal that are not in any way directly related to the actual "Fair Tax" as it is proposed. JMO

make state and local governments contract corporations to do the work government agencys used to handle. This is accomplished by making corporate purchases exempt from the Fair Tax. Personal expenses are subject to it but business people will purchase the boat or the car for the BUSINESS and get around the tax even if it is sometimes used for personal use. State and local governments will have to pay the tax. This will put them at a competative disadvantage to contractors and presumably they will have to farm out the work to corporations. Bortz says, "We believe this is a good thing.", so you might even say this is his stated goal. All of this according to his Fair Tax book.

I must have missed it when I read it. Also, he never mentioned any exemptions from the fair tax for anything. Thats why the hairbrained monthly rebate program for food/medicines.

Once I get my copy back I will read it.

with each other..

in my hometown, the auto dealer's daughter got some pretty spiffy braces, and the orthodontist's kid got a Mustang..

In the real world, maybe we can all barter too..

I'll cook for you, if you clean for me :)

The tax shelter is buying out of country. Imagine Jetting to Mexico picking up a bunch of things and flying back.

they are not hardly paying anything in taxes NOW - by the time you have a low capital gains tax, no estate tax, huge corporate tax shelters and subsidies etc.

I KNOW, deep inside me, I KNOW, that if the right is pushing this sucker it HAS to fuck over the little guy. As in make life worse instead of better. I know it will make life less complicated for the rich, and save them oodles of money on accountants and lawyers, but how, exactly does it hurt the little guy?

We spend every penny we make and then some NOW - so in that regard I don't see any difference.

Supposedly, since our income taxes will go away, and all these business taxes will go away then SUPPOSEDLY we'll all instantly get a 25% or more raise. (That one made me laugh out loud).

Anyways, I know it screws us - I just can't figure out how.

But it will definitely screw the middle class.

We need something like we had in the 1950s - a 91% top tax bracket for the ultra-rich, and capital gains taxed at the same rate as earned income. Did you know that we had a Republican president then (Eisnehower), and Republicans controlled both houses of Congress? And that we had the highest GDP growth that we've ever had since WWII?

but here's an example from a website that is promoting the UnFairTax

"The following should demonstrate points #3-5, from their website

http://www.fairtax.org/PDF/FairTax-Fundame... ...

"Consider a middle-aged couple with two children earning $20,000 per year compared to that same couple earning $500,000 per year. In switching to the FairTax, the low-income couple’s FairTax rate is only 1.5 percent versus 11.0 percent under the current system. The high-income couple’s FairTax rate is 20.5 percent versus 35.6 percent under the current system. The low-income couple gets an 86 percent cut in their average remaining lifetime tax rate, whereas the high-income couple gets a 42 percent cut."

I have no idea where the 11% number comes from (it is possible that it is from an old study, before the child tax credit was jacked up to $1,000, but then, they oughta update their website instead of pushing misinformation.). It is wrong. It is light-years from the truth. Currently the $20,000 a year couple pays NO income taxes - zero. In fact they get an EIC (Earned Income Credit) of $3,641. They do pay $1530 in payroll taxes, assuming all of their income is wages (and above-board. Face it, many people have side jobs of cutting grass, or painting, or other contract work or a hobby (antiquing or arts or crafts) that they get paid in cash and never report or pay taxes on). Their employer also pays another $1530 in their name, and although that could goto them in wages, to a degree that tax is NOT coming out of their pocket. Even including that, their net tax is ($581) or -2.9%. I repeat, I have no idea where the 11% figure came from, but it is way off.

The figures for the $500,000 couple probably cannot be trusted either. They are also much harder to figure since that couple doubtless itemizes deductions. Taking their numbers though, that rich couple gets a tax cut of $75,500. They claim the poor couple gets a tax cut of $1900, and use the patented "Bush-lie" to try to make $1900 look like it's bigger than $75,500. See? $1900 is 86% :wow: and $75,500 is only 42% :cry: Oh, those poor, abused rich people, hurt by that progressive UnFairTax :nopity:

The fact that the lower income couple actually would face a tax INCREASE of $881 means that fairtax.org is even more full of sh*t. Like Bush's tax cuts and Reagan's tax cuts and Forbes 'flat tax' plan, the UnFairTax is primarily just another way to reduce the taxes that rich people have to pay. Remember to call it what it is - an unfair tax."

It's simple, really. It hurts the poor and lower classes by raising their taxes. It's just another big tax cut for rich people.

It's just another way to help the wealthy become even wealthier - and fuck the workers.

If folks want any kind of national sales tax, let them FIRST place a tax on the sale/exchange of corporate stock!!

For one thing, on the day it's implemented, every single thing bought or sold in this country becomes 30% more expensive. Including your house, your car, your haircut and your medical insurance.

On the day after it's implemented, it is realized that 30% (after subtracting deductions and the inevitable "business purchase" loophole, and the fact that every piece of property instantly became 30% less valuable) doesn't bring in nearly enough. The rate goes up to 70%.

On the third day, since 70% of the value of every item is tax, pretty soon a vigorous black market results.

Is there an upside? Yes. It'd end illegal immigration because Mexico would build a 40' tall wall to keep the starving gringos out.

... and you can be sure that they won't buy the bricks from the US side of the border. That would be stupid.

http://www.brookings.edu/views/articles/gale/20050516.pdf

Everything include rent, food, etc. etc. etc.

Corporate propaganda designed to make you believe bullshit.

is not an income tax at all, it is a consumption tax. That means that every little thing that you buy will be taxed. If you can save anything at all (which basically only the rich can do these days), that money is not taxed. So the poor and middle class are basically taxed on 100% of what they spend, and the rich are taxed on a lesser amount, depending on how much they can save. Also, only consumption is taxed, not any other form of income.

Since this needs to be a revenue neutral plan, the tax rate would be fairly high, I doubt that 20% will be adequate, many have estimated 30% or higher. That also means that any assets you own immediately decrease in value by the amount of the tax. Want to buy a house? You will have to pay sales tax on it. For example, if you want to sell your house, the buyer will have to pay sales tax on the sale. That will immediately reduce the value of the house. If you buy a house and the house costs $100,000, you will have to pay $130,000 to buy it. Will the morgage companies let you roll the tax into the mortgage, therefore having a higher mortgage than the value of your house, or will you have to save the comsumption tax amount first? And there will be no incentives to even buy a house. Buying food will become more expensive too.

No taxes on inheritance, so Paris Hilton can get all that money tax free, and meanwhile, the consumption tax percentage will have to take into account the loss of that revenue, so you will be paying more so Paris can inherit billions of dollars. Don't get millions in divident revenues or interest revenues? Well, the amount of that tax will will have to be plugged into the consumption tax formula also.

It is a gift to the rich, and especially the richest 1%.

The "fair tax" proposal is applicable to new purchases only. If you buy a house that has been lived in, you pay no federal tax on the purchase of that house, nor does the seller have to pay any federal tax. Like wise if you buy a used car, you pay no federal tax on that purchase. What it also means is that the Feds are not deducting tax withholding, Fica or medicaid from your pay check. By the same token, there will be no mortgage interest deduction on you house because there will be no federal income tax.

I still think it will depress home values only because new housing prices will be depressed by the tax. Maybe it depends on which proposal you look at.

I'm not sure how they can stop collecting FICA and medicare without bankrupting the system. Interesting. Do you have a link to that part of it?

Boortz co-authored a book on the proposal. That is what I read about 8 months ago. It does call for ending "all" Federal taxes including FICA and Medicare. I don't think the plan is workable even under the best of circumstances. The underlying assumptions strike me as grossly inaccurate.

But it does tax mortgage interest. So instead of paying $90,000 sales tax on a $30,000 house, you'd pay $100,000 tax on the interest. (assuming 6.5% and 10% down)

I'm disregarding the possible exclusions, credits & possible monthly checks because it seems to depend on who'[s idea of the fair tax you're looking at. Lets just assume for the moment that everything you buy would now have a 30% tax instead of what we've all come to accept as sales tax in our given location. There are MANY exemptions. The largest is a house! I even lived in a State where the highest you could ever pay for sales tax on a car was $300, no matter how much the car was. That means a house that's selling now for $150,000 would cost you $195,000! Everything else would be nearly as cost prohibitive too. Now, I've heard the argument that you would no longer have Fed taxes taken out of your paycheck, so you'd have a LOT MORE money. What the hell makes you think your employer would continue to pay you your current gross? What makes anyone think you'd ever get another raise? I can hear it now. "Look at how much money you're making after this new tax change! Hell, you're income has increased enough to cover any raises for the next 10 years at least!" I sure can name a number of employers I've had who would say that! I can even think of a few who would reduce your gross because "they need to reduce costs at the consumer level to maintain their market share and keep their profit margin for the stockholders!"

... the "Fair Tax" has about as much chance of becoming the law of the land as I have of growing a second penis.

That is to say, zero.

Since it is a consumption tax, this means that most of their income will be taxed because they spend most of their income. And yes there will be some exemptions but that actually makes the numbers even less likely to work out so in fact the rates will have to be much higher than 30% (not 23% - that is a lie - thirty cents on the dollar is 30% in every other case - the "fair tax" people have the right to their own opinion but they do not have the right to change the rules of mathematics).

The rich can only spend so much money, and a lot of times it is in other countries. What will happen is much of the consumerism that our economy depends on, will go underground. Quite simply those who can least afford it, will end up paying the taxes. Taking 20 to 30 percent of your pay check to pay for essentials will make it tough for most of the public. No one who is making minimum wage can afford to wait for tax time to get their money back.

zalinda

"Basically, trying to explain why the Fairtax is a bad idea is like trying to explain why having trained elephants perform open-heart surgery on every first-grader in America is a bad idea." --Jonathan Chait

http://blogs.tnr.com/tnr/blogs/the_plank/archive/2008/01/10/someone-tries-to-defend-the-fairtax-bad-idea.aspx

It would pretty much put the last nail in the lower and middle class coffin.

Sixteen Tons
Sang by Tennesse Ernie Ford

Some people say a man is made outta mud
A poor man's made outta muscle and blood
Muscle and blood and skin and bones
A mind that's a-weak and a back that's strong

You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

I was born one mornin' when the sun didn't shine
I picked up my shovel and I walked to the mine
I loaded sixteen tons of number nine coal
And the straw boss said "Well, a-bless my soul"

You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

I was born one mornin', it was drizzlin' rain
Fightin' and trouble are my middle name
I was raised in the canebrake* by an ol' mama lion
Cain't no-a high-toned woman make me walk the line

You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

If you see me comin', better step aside
A lotta men didn't, a lotta men died
One fist of iron, the other of steel
If the right one don't a-get you, then the left one will

You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

If you had saved $10,000 after paying income taxes then you would now have to pay tax on it again when you spent it. Seems like this would initially be a major restraint to consumer spending and create an immediate (deeper) recession or perhaps push us over into a depression.

http://journals.democraticunderground.com/hfojvt/55

First of all, you are using the wrong name. Do not call it FairTax when it is an UnFairTax.

"This is about the so-called 'FairTax' which I, more accurately, call the 'UnFairTax'.

I have written about this before

http://www.democraticunderground.com/discu... ...

but since Huckabee is pushing it, and gaining in the polls by doing so, just to reiterate why it is a bad idea, in sum

1) The UnFairTax is not fair

2) the UnFairTax is not progressive

3) the UnFairTax increases taxes on the poor

4) the UnFairTax is a huge tax cut for the rich

5) the accuracy of the promoters at www.fairtax.org is not to be trusted"

more at the above links

also check my journal for a table on the "Flat tax" and how much money rich people would save if we had a flat tax.