Fair Tax

What do you think about the "Fair Tax"? I have a hard time seeing any down side to it but thought I would get opinions from others. Maybe there is something I am missing. :)

The downside is the massive percentage it would have to be, to meaningfully work -- in the neighborhood of 30-40%. It's also regressive -- meaning, it costs more compared to income for the poor, than it does the rich. The poor, essentially, will pay more because they spend a greater percentage of their income than the rich do.

The legislation calls for 23%. I guess the poorer you are the more you spend as a percentage of what you make but the wealthy spend a lot more money than the poor and every dollar anyones spends would be taxed. That still seems fair to me.

23% isn't enough. Sorry, but do the math.

Even 23% would be a beating for middle- and lower-income folks. Heck, after adjustments and deductions, my income taxes are only about 10%. Even with Texas' high 8.25% sales tax (which would still be in effect under Fair Tax Act, to my understanding), I am better off as-is.

As I understand the proposal, there would be a tax credit which would offset some of the regressive nature inherent in it. Those with Roth IRAs would lose as compared to those with deductable plans like 401ks as we would have prepaid a tax that would supposedly disappear. I suspect that compliance issues will immediately appear. So they wouldn't collect what is owed. We'd be looking for more revenue (which, unless spending is somehow controlled, we always will be anyway). I fear the income tax wouldn't disappear, and we'd have both a national sales tax and the income tax as well.

As I understand the proposal, there would be a tax credit which would offset some of the regressive nature inherent in it. Those with Roth IRAs would lose as compared to those with deductable plans like 401ks as we would have prepaid a tax that would supposedly disappear. I suspect that compliance issues will immediately appear. So they wouldn't collect what is owed. We'd be looking for more revenue (which, unless spending is somehow controlled, we always will be anyway). I fear the income tax wouldn't disappear, and we'd have both a national sales tax and the income tax as well.

so would it make sense for me to convert my Roth to a traditional IRA if this was the case?

so would it make sense for me to convert my Roth to a traditional IRA if this was the case?

The horse is already out of the barn, and the barn has already burnt to the ground, in that instance. You can't un-tax the ROTH, and get the tax money back.

As for tax credits to offset the harshness of the "Fair Tax" -- well, then, what good is it? Either we're all taxed, or we're not. If we all are, then it's fair, even though it's ungodly painful. If we're not, then it's not fair to the rich.

And when we speak of "rich" and "poor", we keep forgetting the rest of us -- the middle class. In every battle between the rich and the poor, we are the ones getting peppered by buckshot from both sides. Take the healthcare crisis -- we are too "rich" to let the government pick up the health care tab for us, too "rich" to qualify for charitable programs that would assist us, but neither are we "rich" enough to actually be able to afford a serious medical crisis, even with insurance. But then, who cares about the middle class, other than John Edwards (according to himself)? Let's ask the Ron Paul supporter over in that other thread!

On that note, it's amusing that the only ones who can seem to afford college are the poor and the wealthy.

Concerning the fair tax regression, couldn't you just not tax certain essential items so that the poor don't pay a greater percentage?

Concerning the fair tax regression, couldn't you just not tax certain essential items so that the poor don't pay a greater percentage?

That is one of the frequent proposals, and that's why the 23% won't work. Once you eliminate food, clothes, transportation, and healthcare from the tax structure, you need to raise the rate to make up for the missing items (which represent the vast bulk of what people buy!). When you get rid of the "essentials", the effective tax rate jumps to about 37%. Since that tax rate is too high, Blixet is right -- we'll end up with both an income tax AND a national sales tax ("fair tax").

I'm for anything that works. I still stick with my "stick your toe in before diving headfirst," and do a small percentage for a trial period and see what happens. Tack on a small amount (0.75%) flat tax and reduce income taxes by whatever percentage the "experts" determine that rate offsets. Economists will obviously have consider many factors (changes in consumer staples and discretionary, non-farm payroll, CPI, etc.).

If it works for a tax year, double both rates and test again for the same duration.

If you count the amount of taxes IRS lose every year due to loopholes and fraud, maybe the rate isn't going to be as high as people thought with the "fair tax" after all :) And you are able to cut down the size of IRS and save tons of money that way!

There is also a possibility to cut the number of federal and state lawmakers by half, since they no longer have to spend a better part of their career debating about taxes. This is like the biggest benefit of fair tax, which is also why it will never pass.

Another huge but hidden advantage is the amount money, and the many hours (which equal to money), spent on preparing taxes each year by millions of Americans.

People who truly hate fair tax (other than politicians) are TurboTax/TaxCut, and independent accountants. But just like travel agents, they have to figure out something else when the world has seemingly turned upside down.

If you count the amount of taxes IRS lose every year due to loopholes and fraud, maybe the rate isn't going to be as high as people thought with the "fair tax" after all :) And you are able to cut down the size of IRS and save tons of money that way!

Highly doubtful. With "fair tax", you'll just devote more IRS resources to catching the vendor tax cheats. As I mentioned in another thread, it's incredibly easy to under-report the amount of sales you have, and thus under-report the amount of tax you collected and are remitting. I see an increase in the numbers of IRS agents, as you will now need forensic accountants capable of reconstructing the sales record of every business from Walmart to Grandma's Quilting Corner in Dogbreath, NE.

There is also a possibility to cut the number of federal and state lawmakers by half, since they no longer have to spend a better part of their career debating about taxes. This is like the biggest benefit of fair tax, which is also why it will never pass.

Ummm, no. The number of legislators is determined by the Federal and State constitutions. The Senate is comprised of two representatives from each state, while the House numbers are based on population of the state. That won't change. The breakdown is similar in the states (House and Senate members come from various districts). As to time wasted discussing taxes -- the ugly truth is that the bulk of Legislative time is spent deciding how to spend the money, not how to get the money. That won't change.


Another huge but hidden advantage is the amount money, and the many hours (which equal to money), spent on preparing taxes each year by millions of Americans.

That time will just be transferred to the vendors, who now have to DOUBLE their time filling out monthly sales tax remittance forms -- one for their state and one for the Feds. Those states without a state income tax will also add a steep learning curve as their vendors struggle to deal with the hassles of sales-tax collection and remittance.

People who truly hate fair tax (other than politicians) are TurboTax/TaxCut, and independent accountants. But just like travel agents, they have to figure out something else when the world has seemingly turned upside down.

They'll still pick up the sales tax remittance duty, and still make money. My company's bookkeeper charged extra to do sales tax, so that's the only reason I did it myself. We paid her monthly to do the books, and then she wanted nearly double the price to also do the sales tax. She tossed in annual taxes for free, since she did our books.

fair tax = you can see where your tax is going.

i am a huge proponent of the fair tax ... though it might kinda put me outta business.