(1) HR25 abolishes the IRS and the IRC. – NO. It removes the IRS from the lives of individual taxpayers. The IRS still must collect taxes from the (28 Million, going from memory from the book or so) business instead of 280 million
individual tax payers. Looking at some of Hank’s previous posts, he
is worried about the impact of “cheating” under the Fair Tax Plan
(FTP). Can you imagine how much easier it will be for the IRS to manage
28 million vs. 280 million payers? That’s also making a bold
assumption that nobody currently cheats the IRS now! (Geithner comes to
mind!) You have REDUCED the POTENTIAL cheaters by a factor of TEN!
The IRS will still be needed to defend against fraud. We will cover this in another session (103).
(2) There are 67,000 pages in the Internal Revenue Code and supporting
Regulations. These estimates vary by font size, publishing details,
etc. Suffice it to say that it is bigger than the Bible! Is that
enough information to digest for ANY taxpayer!?
(3) A sales tax inclusive rate of 23% would be revenue neutral. Every
comment made by Hank excludes the fact that you no longer have payroll taxes,
income taxes, etc. Arguments like whether or not a consumption-based tax
code are more meritorious than the current tax code are easily justified in the
previous (2) points. Based on the book, “The Fair Tax –
Answering the Critics” by Boortz, the current overhead to businesses
average 30-35% when all tax costs are considered such as (Payroll tax which is
matched by the company, CPA costs and other various compliance costs such as
tax attorneys, etc.), the overhead is easily offset by the 23% consumption
tax. Also, since the worker now receives 100% of his pay, his dollar will
go farther. Finally, if Hank believes in the power of Capitalism and
Competition, if the price even so much as stays the same (revenue neutral),
wouldn’t it be better if 100% of PEOPLE in America pay into the system
instead of 48% who are constantly trying to “game the system” ?
(4) The after tax price of retail purchases will be about the same. I
don’t think so since embedded overhead is reduced by at least the same
amount. And if they do, so what? Our dollar is stronger and more
people are employed, receiving 100% of their check and are subsequently
SPENDING more which raises GDP.
(5) The “prebate” is a tax refund paid in advance. That
is correct, except it is only paid to LEGAL AMERICANS!
(6) Your dollars will purchase more under the Fairtax. You
will have MORE DOLLARS to purchase more goods and services. The higher the
spending the higher the revenue that is generated for the
(7) You choose when and how much tax to pay. In a sense…yes,
if you like a product or service, you pay your taxes with your everyday
purchases. So if you want to purchase an expensive $5000 suit you will pay $1150 in taxes. If you want to by a $200 suit you will pay $46.00 in taxes. Its totally up to you how much you spend and if you buy new, used, expensive or thrifty.
If you want FULL government transparency, it’s real simple. The Federal Government will receive 23% of GDP…PERIOD.
How’s that for transparency!
(8) Everyone will be economically better off under the Fairtax. I’m
betting that un-abated capitalism will be good for the economy…yes!
There are however some special circumstances that will be challenging. I will go over those later in special circumstances (104).
(9) Interest bearing investment and debt instruments are not taxed. Fair Tax incomes are derived from
consumption. Give me an example of debt instruments. Debts owed on Schooling loan? No, these would not be taxed. Debts owed on a new car? Yes, the tax would be in the cost of the car so the loan would reflect that just as it does now. Debts owed on a used car No, it would not be. Please be specific on debt instruments. Interest is not taxed under the Fair Tax.
(10) There is $10-$15 trillion of US owned assets in offshore accounts. Let me give you my own experience on this. I used to own a high end theater manufacturing business. My clients were millionaires , some Billionaires. My projectors cost $49,000.00 each so lets just say you couldn't buy them at Walmart. Anyway, I was approached by one of my very wealthy clients asking me if I would like to tax shelter my hard earned money by opening an acct. in the Cayman Islands. We could take his private Jet there once a month and legally bring home $9999.00 in cash and pay no tax . I contacted my attorney and accountant, they told me it is legal but not ethical so I did not participate. That client to this day still does. He owns 2700 apartment buildings and makes an 8 figure annual income. How much does he pay in income taxes? $0. Now that's only one billionaire. So I believe $15 trillion is low. My own opinion.
(11) Buying “used” goods, (tax previously paid), eliminates the tax
costs from the sales price. The Tax costs? wow, you are really trying to get tricky with this one. Bottom line, lets talk frank here.. Used products will not be imposed the 23% federal consumption tax. It may have State taxes or even local taxes but we are only talking federal taxes here.
(12) A national sales tax would have no impact on State and Local governments. No sovereign Government can charge another sovereign government taxes. So NO the States will not pay into the Fair Tax and will not generate income to the Federal government. Local and City governments will.
(13) The GDP will rise by around 10% in the first year of implementation.
Not sure, but I am willing to bet that it will EXCEED 10% within 2-3
(14) The Fairtax will save Social Security. It
may make it unnecessary.
(15) The Fairtax is progressive. Define…Progressive, Based on my definition.. the less you make the more the Fair tax gives you as a percentage of income. Then I would say yes it is because the higher your income, the less percentage the Pre-bate effects your buying decisions.
Example someone making $1M per year really doesn't care if he gets an annual $6200 pre-bate, but for someone living at the poverty line, $6200 is a considerable amount of money.
Now that we have covered Hanks comments lets get into some other issues people bring up.
People going to Canada or Mexico to buy a boat or car to eliminate paying the tax.
This is true, they can go to another country but as soon as they bring that vehicle or boat back into the country they must pay for the tax. Have you tried registering a vehicle from Canada? It not easy and will be an easy catch for the fraud police. Currently known as the IRS.
Charitable contributions will be reduced.
Not really. When you think about it, most people give to charities because they want to, because it makes them feel good and for me because you just think its time to give back when you have been successful. Not because they calculate what the tax savings are. PLUS once people have more money, they are more likely to give more money.
Isn't the tax rate actually 30% not really 23%. Well it depends on if the tax is inclusive or exclusive.
Say you buy a $100.00 pair of shoes. The way the fair tax is set up the tax is already in the $100.00. Meaning its inclusive. The retailer gets $77.00 and $23.00 is sent to the federal government. Now lets look at the way the critics do. The exclusive method that same $77.00 pair of shoes if you multiply $77.00 by 1.3 (30%) it comes to $100.00. regardless of how you calculate it you are still paying $23.00 for that $100.00 pair of shoes. But the critics will say you are paying 30%.
I wont get my mortgage deduction!!!
Yes you are correct. but this is a silly argument. You are only getting a portion back of what you already have paid the government in your total payroll taxes taken from the year. So you get back a $1000.00 for mortgage interest. Well that was your money in the first place. The government simply gave you a portion of what they took back. Why not get it ALL back?
My House value will be DE-valued.
Excuse me people but the opposite will occur. Why?
1) New houses are being taxed, used homes are not. An instant advantage to sell your home over a new one. Your home now becomes more affordable to more people. More people have money to spend so likely you will sell that home quicker under the fair tax.
It's bad for people that are retired.
No, the opposite. Remember the Pre-Bate? Well retiree's still get that and since retired people already have most everything they need they wont be buying new homes, they wont be buying many items because they already have them. Most retired people are content with their existing homes, they are into family and giving to children and grand kids. Their inheritance will go to their children, not the government. The items they leave their children are without tax. It is a very good program for retired people. No more death tax.
The Fair Tax Is Regressive:
ABSOLUTELY FALSE. What opponents would like you to believe is that the tax rich people pay is lower than the tax lower income payers pay. ABSOLUTELY FALSE. This argument is made by people that have never had big incomes. They do not realize the consumption rich people actually make. A Billionaire will buy a Jet aircraft for $580,000.00 and pay 23% tax on it.
A Millionaire will buy a $150,000.00 automobile and pay 23% tax on it.
A low income person will buy a used home and pay zero tax on it. A middle income person can elect to purchase a used car from that Millionaire and pay zero tax on it.
Again, the arguments are coming from either people with hidden agendas or they simply have never been poor, middle class and rich. I DO NOT BELIEVE this argument. Its simply a ploy to pit the classes against each other and stall the fair Tax in debate.
Why discuss it, Congress will never support it!
Well again not true. Does anyone remember the old Bewitched television show?
Remember Darrens boss, Larry Tate?. He never thought an idea Darren proposed was good unless the client said it was good. Larry Tate is congress., The Idea is the Fair Tax and the Client is us, the American people.
Congress will vote to save their jobs, Don't believe me?
The above link is a letter sent to President Bush by Nancy Pelosi herself supporting and encouraging his support of the Fair tax. This letter was sent on Dec. 15th 2004. Ironic isn't it? Now that the Democrats are in power you would be hard pressed to find one democrat in favor of the Fair Tax. Not because its a bad idea but because it takes away government power! Typical bait and switch that the two party system has done to America since I can remember. No, lets not take it anymore, lets educate everyone so when an Ad comes out telling only half the truth we can opening call these people out and make them AFRAID NOT TO SUPPORT THE FAIR TAX. Because if not, the thing they love the most, the money, the power, their jobs... will be lost. And in addition, lets elect non-career politicians that will vote to remove congress and senate Pensions. But I Digress.
- What is taxed?
The FairTax is a single-rate, federal retail sales tax collected only once, at the final
point of purchase of new goods and services for personal consumption.
Used items are not taxed. Business-to-business purchases for the
production of goods and services are not taxed. A rebate makes the
effective rate progressive.
- Exactly what taxes are abolished?
The FairTax is replacement, not reform. It replaces federal income taxes including personal, estate,
gift, capital gains, alternative minimum, Social Security, Medicare,
self-employment, and corporate taxes.
- How does the prebate work?
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. See chart in
Figure 1 below.
- Why not just exempt food and medicine from the tax? Wouldn’t that be fair and simple?
Exempting items by category is neither fair nor simple. Respected economists have
shown that the wealthy spend much more on unprepared food, clothing,
housing, and medical care than do the poor. Exempting these goods, as
many state sales taxes do, actually gives the wealthy a
disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after-income-tax and after-payroll-tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.
exempting one product or service, but not another, opens the door to
the army of lobbyists and special interest groups that plague and
distort our taxation system today. Those who have the money will send
lobbyists to Washington to obtain special tax breaks in their own
self-interest. This process causes unfair and inefficient distortions
in our economy and must be stopped.
- Is the 23% FairTax revenue-neutral rate higher or lower when compared to income and Social Security taxes people pay today?
Most people are paying that much or more today -- much of it is just hidden
from view. The income tax bracket most people fall into is 15 percent,
and all wage earners pay 7.65 percent in payroll taxes. That’s 23
percent right there, without taking into account the 7.65 percent
employer matching! On top of that, you have to add in the business
taxes and associated compliance costs passed on to consumers in higher
Effective tax rates vs. stated tax rates
the 23-percent FairTax rate of $0.23 on every dollar spent is not
imposed on necessities, an individual spending $30,000 pays an
effective tax rate of only 15.5 percent, not 23
percent. That same individual will pay 17.3 percent of his or her
income to federal taxes under current law. See effective tax rates for
a family of four at various spending levels in Figure 2.
Figure 2: 2007 effective tax rates
- Does the FairTax rate need to be much higher to be revenue neutral?
The proper tax rate has been carefully worked out; 23 percent does the job
of: (1) raising the same amount of federal funds as are raised by the
current system, (2) paying the universal rebate, and (3) paying the
collection fees to retailers and state governments. Unlike some other
proposals, this rate has been independently confirmed by several
different, nonpartisan institutions across the country. Detailed
calculations are available from FairTax.org.
- How is the Social Security system affected?
Like all federal spending programs, Social Security operates exactly as it
does today, except that its funds come from a broad, progressive sales
tax, rather than a narrow, regressive payroll tax. Employers continue
to report wages for each employee, though, to the Social Security
Administration for the determination of benefits. The transition to a
reformed Social Security system is eased while ensuring there is
sufficient funding to continue promised benefits.
Social Security/Medicare funds are no longer triple-taxed as under the
current system: 1) when payroll taxes are initially withheld; 2) when
those withheld payroll taxes are counted as part of the taxable base
for income tax purposes; and 3) when the promised benefits are finally
- How does the FairTax affect Social Security reform?
FairTax.org is a one-issue organization: Tax replacement. However, its proposal does benefit any Social Security reform proposal. The FairTax.org plan does not change
Social Security benefits or the structure of the Social Security
system. All it does is replace the current revenue source (narrow,
regressive payroll taxes) with a new revenue source (broad, progressive
sales taxes paid by all consumers).
shows that consumption is a more stable revenue source than income. If
Social Security is reformed or privatized in a way that reduces the
government’s need for revenue, then the FairTax rate can be reduced.
For example, if a mandatory private savings program is implemented
where people must save ten percent of their income and Social Security
benefits are curtailed, then the FairTax rate can be reduced just as
payroll taxes would be reduced.
- Is consumption a reliable source of revenue?
Yes, in fact, consumption is a more stable source of revenue than income, as
shown in Figure 3. The chart compares the yearly changes in the tax
bases for the income tax (adjusted gross income -- AGI) and the FairTax
(personal consumption expenditures -- PCE) for years 1974 to 2004. PCE
has always grown from year to year, whereas AGI dropped from 2000 to
2001 and from 2001 to 2002 -- two years in a row. The higher growth
rates of AGI in boom years result in overspending and then when the
economy slows down either budget cuts are needed or, what is more often
the case, taxes are raised or the budget deficit increases.
Figure 3: Stability of the tax base
1974 to 2004
- How is the tax collected?
Retail businesses collect the tax from the consumer, just as state sales tax
systems already do in 45 states; the FairTax is simply an additional
line on the current sales tax reporting form. Retailers simply collect
the tax and send it to the state taxing authority. All businesses
serving as collection agents receive a fee for collection, and the
states also receive a collection fee. The tax revenues from the states
are then sent to the U.S. Treasury.
- Why is the FairTax better than our current system?
Our present tax system is one of the reasons that people are finding it so
difficult to get ahead these days. It is one of the reasons the next
generation may not have a standard of living as high as this
generation. Cars replaced the horse and buggy, the telephone replaced
the telegraph, and the FairTax replaces the income tax. The income tax
is holding us back and making it more difficult than it needs to be to
improve our families’ standard of living. It makes it needlessly
difficult for our businesses to compete in international markets. It
wastes vast resources on complying with needless paperwork. We can do
better and we must.
- Is the FairTax fair?
Yes, the FairTax is fair, and in fact, much fairer than the income tax.
Wealthy people spend more money than other individuals. They buy
expensive cars, big houses, and yachts. They buy filet mignon instead
of hamburger, fine wine instead of beer, designer dresses, and
expensive jewelry. The FairTax taxes them on these purchases. If,
however, they use their money to build job-creating factories, finance
research and development to create new products, or fund charitable
activities (all of which help improve the standard of living of
others), then those activities are not taxed.
- How does the FairTax protect low-income and lower-middle-income families and individuals?
Under the FairTax Plan, poor people pay no net FairTax at all up to the
poverty level! Every household receives a rebate that is equal to the
FairTax paid on essential goods and services, and wage earners are no
longer subject to the most regressive and burdensome tax of all, the
payroll tax. Those spending at twice the poverty level pay a tax of
only 11.5 percent -- a rate much lower than the income and payroll tax
burden they bear today.
Under the federal income tax, slow
economic growth and recessions have a disproportionately adverse impact
on lower-income families. Breadwinners in these families are more
likely to lose their jobs, are less likely to have the resources to
weather bad economic times, and are more in need of the initial
employment opportunities that a dynamic, growing economy provides.
Retaining the present tax system makes economic progress needlessly
slow, thus harming low-income people the most.
the FairTax dramatically improves economic growth and wage rates for
all, but especially for lower-income families and individuals. In
addition to receiving the monthly FairTax prebate, these taxpayers are
freed from regressive payroll taxes, the federal income tax, and the
compliance burdens associated with each. They pay no more business
taxes hidden in the price of goods and services, and used goods are tax
- Is it fair for rich people to get the exact same FairTax prebate from the federal government as the poorest person in America?
Let’s look at a billionaire under the FairTax -- if he spends $10,000,000
dollars he pays a tax of $2,300,000 and gets a prebate of $4,697
(assuming he is married and has no children). His effective tax rate as
a percent of spending is 22.95 percent.
Now, let’s look at a middle-income married couple with no children under the FairTax -- if they spend
$50,000, they pay $6,803 net of their prebate for an effective tax rate
of 13.6 percent. The effective tax rate increases as spending
increases, but never exceeds 23 percent!
Figure 4: Comparison of effective tax rates: FairTax, income tax
|Expenditures = income
|Effective tax rate
In contrast, if this same couple earns $50,000 in wages today under the current tax system, they pay $4,093 in
income taxes and $3,825 in payroll taxes for a total of $7,918 in taxes
(15.8 percent) -- a tax burden 14.1 percent higher than under the
FairTax. In addition, their employer pays another $3,825 in payroll
taxes. Most economists agree that the employer payroll tax is actually
borne by employees in the form of lower wages. Looked at this way, this
couple is paying $11,743 (23.5 percent) in taxes today, which doesn’t
even include the hidden taxes they pay every time they make a purchase.
Finally, let’s look at a low-income couple that spends at the poverty level under the FairTax -- they pay no net FairTax at all.
Today, under the income tax system, they not only pay 15 percent in
payroll taxes, but they also pay hidden taxes -- arising from corporate
taxes, private sector compliance costs, and payroll taxes passed on to
consumers and embedded in the price of everything they buy.
- What about senior citizens, retired people, and anyone on a fixed income?
As a group, seniors do very well under the FairTax. Low-income seniors are
much better off under the FairTax than under the current income tax
Some erroneously believe that people who live
exclusively on Social Security pay no taxes. They may not know it, but
they are paying hidden corporate income taxes and employer payroll
taxes whenever they buy anything. Under the FairTax, seniors pay $0.23
out of every dollar they choose to spend on new goods and services.
seniors, like everyone else, receive a monthly prebate, in advance of
purchases, for taxes paid on the cost of necessities which more than
pays for all of the taxes they would pay if they received the average
Social Security benefit amount and spent it all. If seniors choose to
work, they are freed from regressive payroll taxes, the federal income
tax on wages, and the compliance burdens associated with each. They pay
no more hidden taxes on goods or services, and used goods are tax free.
There is no income tax on their Social Security benefits.
income tax imposed on investment income and pension benefits or IRA
withdrawals is repealed. Pension funds, IRAs, and 401(k) plans had
assets of $12 trillion in 2004. An income tax deduction was taken for
contributions to most of these plans. All beneficiaries and owners of
these plans expected to pay income tax on them upon withdrawal, but are
not required to do so under the FairTax.
All owners of existing
homes experience large capital gains due to the repeal of the income
tax and implementation of the FairTax Plan. Seniors have dramatically
higher home ownership rates than other age groups (81 percent for
seniors compared to 65 percent on average). Homes are often a family’s
largest asset. Gains are likely to be in the range of 20 percent.
FairTax makes the economy much more dynamic and prosperous.
Consequently, federal tax revenues grow. This makes it less likely that
federal budget pressures require Medicare or Social Security benefit
- How does the FairTax help seniors who have paid taxes on their retirement savings or invested in Roth IRAs?
Simply put, the FairTax is a revenue-neutral proposal, raising no more money
than does the current system. The FairTax only changes where the money
is raised, not the amount.
Additionally, some erroneously
believe that people who have invested in Roth IRAs will never pay taxes
on this money again. They may not know it, but they are paying
corporate income taxes, employer payroll taxes, plus the associated
compliance costs that are hidden in the price of every retail purchase
they make. Under the FairTax, these hidden taxes are driven out of
retail prices. And note, they can determine the amount of tax they
pay through their own lifestyle choices.
Furthermore, used goods
are not taxed because they have already been taxed once -- when they
were new. Therefore senior citizens, like all Americans, do not lose
purchasing power, but gain it instead. Moreover, the FairTax preserves
the purchasing power of Social Security benefits, and seniors receive a
monthly prebate so they don’t pay taxes on the purchase of necessities.
Tax-deferred investments get a one-time windfall. Savings invested in
any long-term, income-generating asset such as a stock, real estate, or
a long-term bond that can’t be called, increase substantially in value.
Finally, complex estate planning is an artifact of an earlier age.
- How does the FairTax affect wages and prices?
Americans who produce goods and earn wages must pay significant tax and
compliance costs under the current federal income tax. These taxes and
costs both reduce after-tax wages and profits and are then passed on to
the consumers of those goods and services in the form of price
increases. When the FairTax removes income, capital gains, payroll, and
estate and gift taxes, the pre-FairTax prices of these goods and
services will fall. The removal of these hidden taxes may also allow
wages to rise. Exactly how much prices will fall and wages will rise
depends on market forces. For example, in a profession with many jobs
and too few to fill them, wages will likely increase more than in
fields where there are too many employees and not enough jobs.
- Why not just exempt necessities from the FairTax instead of providing for a prebate?
The prebate is the most equitable and most efficient way to make the
FairTax progressive. If the FairTax were to exempt necessities, the tax
rate would have to be 20 percent higher than the FairTax rate with a
- Should the government tax services?
Service providers are not exempt from the income tax today, and should not be
exempt from the FairTax. Services now account for well over one-half of
the gross domestic product (GDP). Neither consumption of services nor
consumption of goods should be tax preferred. And it is economically
foolish not to tax the fastest growing segment of our economy.
Competition, not politics, should determine what goods and services
- How does the FairTax affect income tax preparers, accountants, and many government employees?
There are, of course, still some people who are involved in sales tax return
preparation and sales tax administration under the FairTax, but many
fewer than those involved with the income tax today. Those tax
preparers, tax lawyers, and Internal Revenue Service employees, who are
typically well educated and well equipped with transferable skills,
will have to find other, more productive work. The projected 10.5
percent growth in the economy during the first year of the FairTax will
provide plenty of new jobs.
But the heavy compliance costs of the income tax are like an anchor holding back economic growth. We
have nothing to show for the $265 billion (greater than the current
federal deficit -- $205 billion) that we spend each year measuring,
tracking, sheltering, documenting, and filing our annual income.
Surely these valuable labor and capital resources can be employed more
productively -- for example, in following the money trails left by
terrorist, drug, and other criminal enterprises, rather than in
tracking every American wage earner.
- What about the hom