Fair Tax Nation

Replace All Federal Taxes on Income with the Fair Tax Act , HR 25

I've been having a discussion about the Fair Tax with some folks on another forum.  I've run into some questions I don't know the answers to.

One guy is rather adamant that the Fair Tax just doesn't tax the rich very well, and that they will be able to skate on the tax burden.  That means that the little guy will take it in the shorts and have to pay a higher proportion of his income in taxes than a rich guy.

His example was in Ted Turner.  Turner gave $1 billion to the UN and when he gave it, he stated that a person couldn't spend much more than $200 million in a lifetime, and that meant he could afford such a donation.  So, that means that the super rich would only have a lifetime tax burden of 23% of the $200 million and the rest is tax free.  A valid point to which I don't have a good response.  The average Joe would have a 23% lifetime tax burden.  Before you point out the prebate, I'm well aware of that reducing the actual number, just too lazy to scratch it out. 

Other points I need clarification on.  How will old real estate be treated?  If Ted wants to go out and spend a couple of million on a beef farm in Montana, would that be tax free? 

One thing I have been wondering about was the business being tax free portion.  Lets say I have to take a business trip.  How does the travel agency decide whether I should be taxed or not?  Will there be some sort of card to give me tax free status?  How about going to the local gas station to fill up my company car?  How will they know whether I'm putting it in a company car or a personal car?  How about the 3 martini lunch I'm having with business associates?  How does that become a business expense?  Do you save receipts and get a refund? 

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What an individual's net worth or investments they hold are not taxable. The Fair Tax applies to new goods and services at the retail level. Business to business transactions are not taxed.

The "rich " buy expensive new items and will pay the Fair Tax on those items. It has been stated that Brittney Spears spends $250,000 per month for clothes and whatever. Think of the taxes on that.

Ted Turner's funds come from business to business operations and investments which are not personal expenses (retail) His donations to charities (or UN) are not taxed under the IRS code. However his effective tax rate under the Fair Tax would be close to 23% which is the highest tax rate under Fair Tax. He would be paying that rate for the rest of his life.

If Ted Turner buys a beef farm for business purposes, it is not taxed. If it is a used farm and it is for his personal residence, there is no tax on it, It is not New Goods or Services.

Every business will file with the State to obtain a business license. When there is a financial transaction such as purchasing travel tickets, vehicles, meals, etc this identification would be provided to the seller in order not to pay the Fair Tax. Some business may charge the Fair Tax on all transactions, such as restaurants, but the receipt will display the Fair Tax. Then your business will be able to take a tax credit on your Fair Tax monthly/quarterly report to the State to report the Fair Tax collected from your customers. (Gross taxes collected less the Fair Taxes paid on business transactions to equal the Fair Tax remitted to the State.)

The States will have an incentive to keep track of the business Fair Tax reports as they will receive an administrative fee on the total Fair Tax collected. They will also be picking up their own state sales tax at the same time. This will increase the state taxes collected and will be catching a lot of people that have been avoiding their state sales tax responsibility.
Thanks. I sort of figured out the part about the percentage of income. My perspective is that we don't buy any goods or services where the fee is dependent up income. We don't pay a graduated sales tax that is dependent on income. Why should any taxation be predicated on the perceived ability to pay?

The business angle was one that I've been thinking about seeing as it could be a means to dodge the Fair Tax. Start a business and avoid the tax. No one is going to question you if you have a card. Wouldn't it end up like all those guys that had "churches" in order to avoid taxes? There won't be any money trail except at the state level, if they maintain an income tax.
> The state tax collection departments would quickly develop methods that will detect this type of fraud. Few businesses need a Ferrari for instance. And if a yacht is used for business purposes an audit can determine if it is also used for personal purposes. Just having a card doesn't exempt a business from reporting it's gross revenue to the State tax agency, risking an audit. The business can use a card to buy tax free but must report it's sales. If purchases don't match an appropriate levels it will trigger an audit of the businesses books.
I take issue with the claim that a person can only spend 200 million in a lifetime. I challenge Ted to give me 400 million and I bet I can spend it all before the end of the year.
The purchase of the farm question is something I've been wondering about. I think I understand that if I purchase an existing home then it would not be taxed.

Now if I purchase a 100 acre farm and keep it intact, there would be no tax on it. But what if I decide to split it up into 1 acre lots and sell them. Would the FairTax have to be paid on the sale of these lots?

In my opinion, if you are creating a new deed, or a new property, then it should be taxed, but then the land existed before the FairTax became law, so it should not be taxed.

Taxed or not?
When a raw product (farm land) is refined into a new usable product (lots for sale) it becomes a new product. If it is sold to another business (home builder) that will improve the product into an item for retail (home owner) use, the Fair Tax would apply to the final sale to the consumer use (new home on lot). If the product (lot) is used for business use (warehouse or apartment building) there would be no Fair Tax. The owner of the apartment complex would collect Fair Tax on the retail use of the rental apartment.


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