Replace All Federal Taxes on Income with the Fair Tax Act , HR 25
Discussing the Merit of the Fair Tax
Replies to This Discussion
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Permalink Reply by cary henderson on
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This is an area where I too have seen a problem. But I think that the market will very quickly adjust to it. If the FairTax fails to effect a large enough downward adjustment in rents the market forces will. Landlords never want to see fast turnovers of renters and thus will try to quickly move rental rates down so that properties remain rented. There will be an adjustment period of course, but we are looking at paradigm change here, so everyone will have to bend with the changing course of our economy.
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Permalink Reply by Frank Gilbert on -
Dennis, Don't know if your interested or not, but this is the response I recieved.
From Steve Curtis
If he wants a detailed answer, and to be truthful, each case is different, then we need to have specific data. Ask if he'll fill out the attached spreadsheet and I'll take a look at it, show where the FairTax applies, and see ifhe is above/below water. He "should" come out ahead, but only the numbers will show "exactly" how the FairTax will really effect him.
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Rental Calc.xls, 14 KB
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I am not even going to bother to attempt to fill out that spread sheet. it is real simple, the mortgage, the contingency I have for when something needs to be repaired ($50.00 per month), the cost of water and trash and the property tax work out to $950 per month. My mortgage interest rate is 4.9% . The truth of the matter is my tennat is going to have to pay the $285 increase in the rent as There is no place That FT is going to save me money to where I can lower the rent . Filling out the spread sheet is a waste of my time and it was just Steve Curtis not wanting to admit that what I am saying is true. I have had this same discussion with several members of Fairtax2012 and it was the consensus there, that there was no way to lower the rent and the tenant was going to have eat the cost.
1. price of repairs will not change as remove 22% embedded taxes add 23% Ft and the price remains the same.
2, property tax rate will not change as it is 1.2% of the price of the house.
3. Interest rate is about as low as it can go. It would have to drop to about 2% for me to lower the rent.
4. Cost of water and trash will not change remove the 22% embedded taxes add 23% Ft = about same cost.
there is no place to remove $285.00 from the the rent to compensate for the 23% inclusive tax that I have to send to the government, unless I subsidies the difference out of the taxes that will not be withheld from my pay. I am not the only person that has recognized this, and it will effect millions of renters, of single family homes. Regardless of what the rental market does, you can not lower the rent to a price below, the cost to own the rental. I am now through with this conversation.
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Permalink Reply by Frank Gilbert on
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Okay. Just thought I'd give it a try. Have a nice fourth.
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As I said above I do see some problems with this. Perhaps you should take up the discussion with Karen Walby, she might have a better take on the actual effects. The full effects may or may not be unique to your situation.
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Dennis, there are two areas that you are mistaken on.
1. You will not have to pay the FairTax on the supplies you need for repairs. As a 'Rental Business', those costs should be untaxed.
4. You should not have to pay the FairTax on the cost of water and trash. As a 'Business', you do not pay taxes, you collect taxes and remit them to the collection agency.
The taxes you must collect on the rent includes all taxes on any thing that is included in the rent.
I realize that this is a paltry sum in the grand scheme of things, but in may allow you to only raise the rent by $225-$250.
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Permalink Reply by Bill Rollyson on -
One thing you need to do is compare this to the current system in terms of the renter. Are they taxed on their rent today? The answer is yes, even though we usually don't think of them being taxed on rent...or food for that matter...because we tax the income they used to pay the rent instead of taxing them as they pays it.
So as a comparison consider $1,000 in rent. We'll only look at the margins because both the current system and the FairTax include provisions that make taxes progressive (standard deduction/personal exemption versus prebate).
Assuming the rent payer is in a 15% marginal tax bracket, their purchasing power remains virtually unchanged. The 15% income tax plus payroll taxes equal 22.65%, virtually equal to the FairTax...both on a tax inclusive basis. If their marginal rate is higher than 15%, the comparison is even better for the FairTax.
They need to earn $1,300 before taxes to have the $1,000 necessary after taxes to pay the rent. They do not get to deduct this cost, so even though the tax isn't directly on the rent, the rent is indirectly taxed and the impact is the same as the FairTax. Under the Fairtax, they take the entire $1,300 home and even if you don't lower the base rent, they are no worse off than before. Their $1,000 rent will cost them $1,300 (which they have in their pocket now) and their purchasing power is unchanged. With a growing economy, they will probably find growing opportunity to enhance their position in life.
This doesn't even consider the impact of the prebate and the possibility some of your costs as landlord may be reduced and reflected in base rent. The same can be said of food, services, etc. If it isn't deductible today, it is effectively taxed. The FairTax just moves the tax from the front of your income where is isn't understood to the end of your consumption where it is clear. Everything else is a bonus.
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