On Implementation of Fair Tax - Taxed Twice on Savings? - Fair Tax Nation2024-03-28T08:59:17Zhttp://www.fairtaxnation.com/forum/topics/on-implementation-of-fair-tax?commentId=2636007%3AComment%3A104949&feed=yes&xn_auth=noPlease do not mix vegetables…tag:www.fairtaxnation.com,2010-09-30:2636007:Comment:1128792010-09-30T13:49:48.474Zchiefcookhttp://www.fairtaxnation.com/profile/chiefcook
Please do not mix vegetables into our fruit salad!<br />
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The FairTax bill is designed to simply replace the funding source to the federal government from an income base to a consumption base. It has nothing to do with the spending programs of the federal government nor does it include anything about the state taxing programs. It does not change the state sales tax programs.<br />
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Yes there are some indirect effects on the on the states. The major effect will occur on the states and local governments that…
Please do not mix vegetables into our fruit salad!<br />
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The FairTax bill is designed to simply replace the funding source to the federal government from an income base to a consumption base. It has nothing to do with the spending programs of the federal government nor does it include anything about the state taxing programs. It does not change the state sales tax programs.<br />
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Yes there are some indirect effects on the on the states. The major effect will occur on the states and local governments that have their own income taxes based upon the federal program. There will no longer be an adjusted gross income on a federal tax form as none will be filed. States will have to determine if they will apply the state sales tax to the inclusive/exclusive product price. These are the state's responsibility and are not part of the federal governments responsibility to force on the states. It is not part of the FairTax discussion. My conclusion is that FairTax…tag:www.fairtaxnation.com,2010-09-30:2636007:Comment:1128712010-09-30T13:20:25.683ZRon Wenrichhttp://www.fairtaxnation.com/profile/RonWenrich
<i>My conclusion is that FairTax can only work if we try to keep take-home pay (and retail prices) about the same as before ON AVERAGE and accounting for the prebate. Thus, minimum-wage earners would NOT have a reduction in salary. This is the only way to avoid sudden inflation and other instabilities. Nobody should complain if they get the same take-home pay as before. As for retail prices being uncertain, they are more likely to be stable if take-home pay is the same. Your suggestion to take…</i>
<i>My conclusion is that FairTax can only work if we try to keep take-home pay (and retail prices) about the same as before ON AVERAGE and accounting for the prebate. Thus, minimum-wage earners would NOT have a reduction in salary. This is the only way to avoid sudden inflation and other instabilities. Nobody should complain if they get the same take-home pay as before. As for retail prices being uncertain, they are more likely to be stable if take-home pay is the same. Your suggestion to take 100% of gross pay is more likely to cause great inflation and instability.<br />
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I'm not sure I follow your inflation line of thinking. Inflation comes about when you have too much money chasing too few goods. That causes prices to rise. You then come to an equilibrium point where supply meets demand. So, if we increase price through taxes, where is the increase in demand going to come from to push the equilibrium price higher? If anything, the taxes would lower demand.<br />
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To offset that, the consumer would have more disposable income which would accommodate the higher price, but not necessarily increase demand.<br />
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My question is: Are taxes included in the inflation rate? The embedded taxes in products and services are, since they are part of production costs. But, do additional taxes like state sales tax get counted in?<br />
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Maybe I'm looking at it wrong. I'm coming to this party a li…tag:www.fairtaxnation.com,2010-09-30:2636007:Comment:1128692010-09-30T12:50:00.865ZRon Wenrichhttp://www.fairtaxnation.com/profile/RonWenrich
I'm coming to this party a little late. Hank, I agree with a lot of your thinking, and your math is right on. But, I'm wondering if we're not thinking about savings and retirement funds in a jaded light.<br />
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When we put a dollar into savings, whether taxed or not, we do so with the current tax conditions. There are no guarantees. We don't know how much those savings will be eroded by inflation or even if they will be stable. We invest in markets to protect our savings and allow them to grow, but…
I'm coming to this party a little late. Hank, I agree with a lot of your thinking, and your math is right on. But, I'm wondering if we're not thinking about savings and retirement funds in a jaded light.<br />
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When we put a dollar into savings, whether taxed or not, we do so with the current tax conditions. There are no guarantees. We don't know how much those savings will be eroded by inflation or even if they will be stable. We invest in markets to protect our savings and allow them to grow, but there is no guarantee that the principal will not erode. We don't ask the government to make us whole to offset these problems.<br />
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Should we be asking the government to make us whole by rescuing our savings from being double taxed? Our 401K and SEP savings have been set aside at different tax rates, all dependent on your withholding rates. Same goes for the IRA accounts. The taxes paid are at different rates, depending on the years that they were saved. And any gain in the IRA accounts is tax free. How on earth would they do that?<br />
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I think we have to look at savings, whether taxes paid or not, as being a good idea and those were the rules at the time. Times have changed, and the rules have changed. Like you said, accept it and move on.<br />
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If you are real worried about the increase in taxes for retirees, then that could be smoothed out by an increase in SS. It won't take out the entire bite, since the Fair Tax would also have to be increased to offset the increase in benefits. Hank, If we all get 100% of o…tag:www.fairtaxnation.com,2010-09-27:2636007:Comment:1126652010-09-27T17:29:35.668ZRon Beyerhttp://www.fairtaxnation.com/profile/RonBeyer
Hank, If we all get 100% of our gross pay (tax free), then as you mentioned there would be a large increase in retail prices (you said 18%), thus reducing the value of existing savings accounts. That is why for fairness, people with after-tax savings should be compensated, perhaps by giving them tax credits based on their after-tax savings. (Tax deferred accounts can be left alone since they already have an advantage.) However, giving all those tax credits might greatly reduce the tax revenue,…
Hank, If we all get 100% of our gross pay (tax free), then as you mentioned there would be a large increase in retail prices (you said 18%), thus reducing the value of existing savings accounts. That is why for fairness, people with after-tax savings should be compensated, perhaps by giving them tax credits based on their after-tax savings. (Tax deferred accounts can be left alone since they already have an advantage.) However, giving all those tax credits might greatly reduce the tax revenue, so it might not be feasible. Also, getting to keep 100% of our gross pay would increase high salaries much more than low salaries, i.e., it will make rich people richer. Also, I wonder how the huge increase in prices will affect exports.<br />
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My conclusion is that FairTax can only work if we try to keep take-home pay (and retail prices) about the same as before ON AVERAGE and accounting for the prebate. Thus, minimum-wage earners would NOT have a reduction in salary. This is the only way to avoid sudden inflation and other instabilities. Nobody should complain if they get the same take-home pay as before. As for retail prices being uncertain, they are more likely to be stable if take-home pay is the same. Your suggestion to take 100% of gross pay is more likely to cause great inflation and instability.<br />
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Pay reduction need not use W-4s. For example, one solution is to reduce everyone's pay by a fixed percentage (between 15% and 23%). If the prebate is counted as income, then people below the poverty level will not have any reduction.<br />
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One of my concerns with FairTax is still that after-tax and deferred-tax savings accounts need to be handled differently, for fairness. Simply taxing IRA/401K accounts by 10% helps, but not enough imho. Also, if we suddenly get paid 100% of our gross salary, then instead of taxing deferred accounts, after-tax accounts should be given tax credits (due to the reduced real value of those accounts) Ron,
It would be simple for…tag:www.fairtaxnation.com,2010-09-25:2636007:Comment:1125392010-09-25T02:41:54.300ZTerry Warnshttp://www.fairtaxnation.com/profile/TerryWarns
Ron,<br />
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It would be simple for the investment company to withhold a flat amount for each and every withdrawal. By trying to implement a graduated rate, it now requires much more paperwork.<br />
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Also if it was a flat 10%, then some people will bite the bullet and withdraw everything while others will withdraw only small amount and continue to let the money grow. For instance if I had a $1M IRA, i could withdraw everything and pay $100K, or I could withdraw 4% - $40K and get $36K. It would take 25…
Ron,<br />
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It would be simple for the investment company to withhold a flat amount for each and every withdrawal. By trying to implement a graduated rate, it now requires much more paperwork.<br />
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Also if it was a flat 10%, then some people will bite the bullet and withdraw everything while others will withdraw only small amount and continue to let the money grow. For instance if I had a $1M IRA, i could withdraw everything and pay $100K, or I could withdraw 4% - $40K and get $36K. It would take 25 years to reach the $100K.<br />
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The real question and I think there are other opportunities is what to do with this extra taxes raised outside the FairTax. I think it should go towards the deficit.<br />
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If that was part of the FAIRTAX proposal, deficit reduction, we have another great economic argument for the FAIRTAX Hank, I'm not assuming the sa…tag:www.fairtaxnation.com,2010-09-24:2636007:Comment:1125292010-09-24T22:21:28.173ZRon Beyerhttp://www.fairtaxnation.com/profile/RonBeyer
Hank, I'm not assuming the same gross pay. I'm assuming the same after-tax take-home pay, so wages will be reduced by about 23% on average to keep take-home pay the same. This is consistent with retail prices (including consumption tax) remaning the same, as in Jorgenson's research. This makes sense to me, since it results in the same take-home pay and the same ability to buy goods (on average). So there is no free lunch, just a consistent ability to buy goods.<br />
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To make this work, there should…
Hank, I'm not assuming the same gross pay. I'm assuming the same after-tax take-home pay, so wages will be reduced by about 23% on average to keep take-home pay the same. This is consistent with retail prices (including consumption tax) remaning the same, as in Jorgenson's research. This makes sense to me, since it results in the same take-home pay and the same ability to buy goods (on average). So there is no free lunch, just a consistent ability to buy goods.<br />
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To make this work, there should be a rule that when FairTax starts, everyone's salary must be reduced so that take-home pay remains about the same on average. To achieve this, salaries can be reduced based on the IRS tax table, or perhaps by a fixed rate such as 23%. (The prebate ensures that low-income people will not have a reduced ability to buy goods.)<br />
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On the other hand, if pre-tax wages remain the same (which I don't think is the best solution), so that take-home pay goes up, then I have another solution to avoid the double taxation problem, which is to give tax credits based on the amount of after-tax savings a person has.<br />
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Are you assuming that pre-tax wages will remain the same? I did some thinking to figure…tag:www.fairtaxnation.com,2010-09-24:2636007:Comment:1125102010-09-24T16:19:23.962ZRon Beyerhttp://www.fairtaxnation.com/profile/RonBeyer
I did some thinking to figure out how much withdrawals from tax-deferred savings accounts (traditional IRA and 401K) should be taxed under FairTax. (Hank suggested 10%.)<br />
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I like the following rule: A person who has all his savings in a traditional IRA should be able to buy the same amount of goods in a given year as he would have without FairTax, accounting for the FairTax prebate, and assuming retail prices (including the new tax) will be about the same under FairTax as before.<br />
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Thus, it is…
I did some thinking to figure out how much withdrawals from tax-deferred savings accounts (traditional IRA and 401K) should be taxed under FairTax. (Hank suggested 10%.)<br />
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I like the following rule: A person who has all his savings in a traditional IRA should be able to buy the same amount of goods in a given year as he would have without FairTax, accounting for the FairTax prebate, and assuming retail prices (including the new tax) will be about the same under FairTax as before.<br />
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Thus, it is just a matter of using the current (2010) IRS tax table. We can assume the prebate takes care of the standard deduction (although the prebate is more generous since it uses 23% as the rate instead of the minimum IRS tax rate of 10%). So simply using the IRS tax table on IRA/401K withdrawals should be fair enough. For example, a single person who withdraws and spends only $10,000 would be taxed $1000 (10%), but would get a FairTax prebate of $2491. Since retail prices will be about the same as before, he will be able to buy more goods than without FairTax.<br />
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On the other hand, a person who withdraws $100K from his IRA/401K would be taxed according to the IRS tax table (25% for the amount above $68K). > You are obviously new to…tag:www.fairtaxnation.com,2010-09-24:2636007:Comment:1125072010-09-24T15:40:25.708Zcary hendersonhttp://www.fairtaxnation.com/profile/caryhenderson
> You are obviously new to the FairTax. The whole idea behind the Fairtax is to do away with taxation on income. I know this goes against all that most people in this country have known all their lives, but we used to have freedoms here. The income tax is the first tool the politicians used to begin taking away those freedoms. All the bad distortions in our economy have occured as a result of the income tax, and the loopholes politicians have put into it. Read the FairTax books to get an…
> You are obviously new to the FairTax. The whole idea behind the Fairtax is to do away with taxation on income. I know this goes against all that most people in this country have known all their lives, but we used to have freedoms here. The income tax is the first tool the politicians used to begin taking away those freedoms. All the bad distortions in our economy have occured as a result of the income tax, and the loopholes politicians have put into it. Read the FairTax books to get an understanding of the issues. By the way, the income tax monster we have now was a flat income tax. I did some more studying befo…tag:www.fairtaxnation.com,2010-09-24:2636007:Comment:1125062010-09-24T14:52:03.453ZRon Beyerhttp://www.fairtaxnation.com/profile/RonBeyer
I did some more studying before reading the above messages of Terry and Hank, and came to the same conclusion that there is no problem with double taxation, but instead traditional IRAs and 401K's should be taxed. My reasoning is that take-home pay after FairTax is started should be about the same as take-home pay prior to FairTax, and that the same monthly take-home pay will buy the same amount of goods before and after FairTax starts, so there is no problem with double taxation.<br />
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The money in…
I did some more studying before reading the above messages of Terry and Hank, and came to the same conclusion that there is no problem with double taxation, but instead traditional IRAs and 401K's should be taxed. My reasoning is that take-home pay after FairTax is started should be about the same as take-home pay prior to FairTax, and that the same monthly take-home pay will buy the same amount of goods before and after FairTax starts, so there is no problem with double taxation.<br />
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The money in traditional IRAs and 401K's was tax deferred, so income tax must be paid on this money regardless of FairTax. However, I am not sure that 10% is enough. It should be roughly the tax they would have paid had they not deferred the tax. But to avoid a lot of protesting, maybe 15% would be fair, or maybe even 23%.<br />
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On the other hand, I don't see why FairTax would be better than a flat income tax (maybe at 23%) plus a prebate. Maybe someone can explain this. Hank,
First of all, in their…tag:www.fairtaxnation.com,2010-09-23:2636007:Comment:1124632010-09-23T01:44:10.667ZTerry Warnshttp://www.fairtaxnation.com/profile/TerryWarns
Hank,<br />
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First of all, in their current $53K of purchases there is at least 5K in embedded taxes (9% of 53K). So I would compare $7K to $5k. In addition, I agree there might be some price inflation which would be reflected in the SS received by the seniors, so the end result is not nearly as bad as you put it.<br />
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In my review of the FAIRTAX criticisms, the major one is we need to make it more progressive and we need to lower the tax rate. They go hand in hand. The more we do this, the less impact…
Hank,<br />
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First of all, in their current $53K of purchases there is at least 5K in embedded taxes (9% of 53K). So I would compare $7K to $5k. In addition, I agree there might be some price inflation which would be reflected in the SS received by the seniors, so the end result is not nearly as bad as you put it.<br />
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In my review of the FAIRTAX criticisms, the major one is we need to make it more progressive and we need to lower the tax rate. They go hand in hand. The more we do this, the less impact seniors will see.<br />
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I like taxing deferred accounts 10% upon withdrawal. It is easy to understand and easy to justify and it will make it more progressive and lower the tax rate. Great Idea.