The Blue Board

Poorer people spend a higher amount of their income on stuff though, hence they would bear a higher burden.

I'm a total noobie with the stuff, just a uni student lol, but interesting thread. Got me wondering so I asked my dad what we have in Canada and I guess we have a VAT as well as income tax.

Personally, I think you guys are F'd for a long time haha. Too many stubborn idiots trying to equate any government action to communism. Same people are the ones asking the gov to ban gay marriage too haha. I really like how the PC gov up here is running things (well for the stuff I understand) but I'm biased being from Alberta as well as wanting to work in the oil patch :/

Don't you mean wealth?

Lower income individuals have no wealth. So, for simplicity's sake, I chose to call it 'income'.

Stop avoiding the "tax burden" comment you made. Higher incomes will pay more tax in sheer dollar terms, but will have a much lower "burden" because of a lower tax rate.

So the flat tax is a nominal number? Pardon for my confusion. I always assumed the tax would be one percentage for all brackets with no deductions.

My appoligies to the OP, I tend to reply to BLF a lot and get a bit off topic, but the advantages of the "Fair Tax", the tax system that eliminates the IRS/Income tax and establishes a national sales tax on all new (key only new) goods and services. Another key point to understand is that the tax is only added at the end, not to intermediate products. Say I make the bumber for the new Chevy pick-up at my factory. I will not add the tax to the bumpers that I sell to Chevy, b/c the bumper is a piece of a new assembly that will be on the shelf with the tax added in. In other words, the "Fair Tax" is not a VAT.

Advantages:
1 - You get your full salary as take-home pay (not counting state/local income taxes). You boss gives you a rais to $60K/yr and you are paid once a month. Each of your checks would be $5,000 (no FICA, unemployment ins...just what state/local takes out).
2 - April 15th becomes just another day (well I earned my submarine officer dolphins on 4/15/2004 - so I will remember it).
3 - People who work in the black market economy (get paid cash under the table - drugs, illegals ...) will pay taxes and do so at a higher rate if they are not here legally (not here legally, you don't get the pre-bate).
4 - All federal taxes are voluntary - see above.
5 - Assuming that virtually all people who make more than the poverty level will choose to spend a good percentage of that money (easy assumption), then we greatly expand our tax basis.
6 - Reduced lobbyist power over congress. The way we got to 70K+ of pages in the IRS tax code and all the loopholes that allow for firms like GE to pay 0% taxes while little start-up competing against them pays 35% are very related. Firm X gives $$$ to Congressman Y's election, after election Congressman Y adds a litle rider to a bill that adds a new page to the tax code and what do you know, Firm X's effective tax rate just went down b/c the loophole was written for them to take advantage of and likely written by their tax lawyers (first draft anyway). Well, under the FT, everything is taxed the same from milk to a yacht, they're all getting the same % tacked on. This point is crucial to understand, you cannot start handing out excemptions. The pre-bate ensures that you don't pay taxes on the necessities and once you start adding exceptions to the rule, then lobbyists start circling with their campaign contributions in exchange for their products exemption.
7 - Levels the playing field for US products. It doesn't matter if the widget was made in the US or in China. If it is a new good on the shelf in the US, it has the X% FT added onto it.
8 - Prices on goods does not effectively change. 22% of the average item's price is due to the embedded taxes. The general FT rate to get an neutral revenue from today's IRS is 23%. So (1-0.22)*(1+0.23) ~ 1. Basically, the FT eliminates the middle men, instead of taking out taxes at each step in the process it is aggregated at the end.
9 - 500 top businesses were polled about their reaction to the FT if it were enacted. 80% said they would open their next factory in the US, the best part is the remaining 20%. They would re-headquarter to the US immediately. This is an extremely good thing for factory workers and all of us.

Draw-backs:
1 - Regressive Tax (claimed). See my post about the pre-bate and thus all taxes are voluntary. This is an invalid response that is either un-informed or is from a person who doesn't thin much about personal responsibility.
2 - Business's won't collect the tax. There will be tax fraud no matter what system is used. Under this system, the only people that have to be "watched" are final point of sales business for new products and services and the rate is X%, no exceptions. The current system collects taxes from individuals and businesses alike and has 70K+ pages of regulation. Which one do you think is easier to circumvent? The simpler system (FT) is much much easier to oversee.
3 - Businesses tax rate is 0% under the FT. Well that is the true tax rate for all businesses since the beginning of time. A business only gets money from two sources: the investor and the entity that buys their goods or service. So any tax that the company pays, is paid by the individual whoe purchase that stock/widget. This is a whole new discussion, but screaming for higher corporate taxes is asking to tax yourself and rather myopic and illogical.

Wrong. You clearly don't know the meaning of regressive.

Regressive Tax - you pay a smaller % of your earnings in taxes as your income increases
Progressive Tax - flip side, % goes up as earnings go up. This is how our income taxes are set-up, but the loopholes make it easy for those in the low and high ends to eliminate a lot of their taxes, thus creating a bell shaped curve when looking at effective tax rate vs income.
Neutral Tax - flat tax, everyone pays the say %, obviously the more you make, the more you pay, but not on a % scale.

The "Fair Tax" is neither regressive nor progressive. The pre-bate eliminates all taxes paid up to the poverty (min amount to live on) level, thus all taxes paid are voluntary and will vary greatly based on individuals spending choices.

Even with a flat tax, the current leadership would still use that talking point of having the "rich" pay just a little bit more because they can afford it,

Even if a flat tax was instituted, the current leadership would not eliminate the irs - they would still be needed to maintain the administration's improved unemployment numbers as even more agents would be required to oversee the Obama Care Protocols.

I know South Africa uses it as well as many British dependancies and commonwealth nations. Should be enough material out there about the realized pros and cons versus the projected ones before it was implemented.

CMXI,

If it were a flat sales tax alone, you would be right. However the "Fair Tax" includes a pre-bate to every household for the taxes that they would pay up to the poverty level. Thus as explained above, the tax is neutral and the % of income you pay in taxes is completely up to the individual and their spending choices (note choices not requirements). Milk and bread are necessities, a 60" TV with all the cable channels is not.

Again, example (these are just numbers to illustrate a point):
* Assume poverty level is $1,000 per month
* Assume "Fair Tax" rate is 20%

This would mean that you would spend $200 per month in taxes just buying the basic necessities. Under the "Fair Tax" you would get a monthly prebate of $200 (FT rate * poverty level) and thus pay a net of $0 in taxes on necessities. Everything you spend beyond necessities is a choice. A person making $2000 per month can choose whether or not to spend all none or a portion of the remaining $1,000.

The "Fair Tax" is not regressive.

I think the burden of estate taxes on family members of those that pass, should go away.

BLF, you are smarter than this (I don't always agree with you, but I recognize that you are intelligent). As I said above, I was just choosing easy numbers for the example.

The actual $ value is determined by 2 things:

1 - The poverty level or in essence the bare minimum to get by on (roof, food and clothes). Poverty level is typically quoted at the fedearl level and some adjustments based on location (similar to housing allowance for military) could be added for location (ie NY versus Oxford, MS). I just used $1,000 per month to make the numbers easy. I think the national poverty level is close to $24K, so the real number is closer to $2,000 per month

2 - The "Fair Tax" rate, I used 20% for easy numbers, but the rate that is most often quoted and I believe the intial rate that is put in the bill is 23%. Keep in mind that the price of goods on the shelf does not really change as the "Fair Tax" eliminates 22% of the embedded cost of goods on average (the taxes paid by the companies getting the good to the shelf).

Using closer to real numbers, the monthly pre-bate would be $460 or the taxes you would pay while spending the $2,000 per month on basic necessities (I don't know how the feds go about coming up with the poverty number). There may need to be an adjustment based on location, but I would caution against it (opens up more fraud and abuse). In any event, it would still boil down to more jobs, simpler taxes for the people, and in essence you can vote everyday how much you want to pay in taxes by how much you spend beyond your basic needs.

Bottom line again: THE FAIR TAX is NOT regressive b/c of the pre-bate (nor is it progressive)