Replace All Federal Taxes on Income with the Fair Tax Act , HR 25 and S 122
On Implementation of Fair Tax - Taxed Twice on Savings?
OK, so I have money that has already been taxed in savings or wherever. Say $1,000. On implementation of the Fair Tax, I now need to spend 23% more for a product using money that I've already paid taxes on. I've read both books and can't figure out how this is addressed. Effectively, I would be paying taxes on my saved money again.
The day before the Fair Tax is implemented, a product costs $1.00. The day the Fair Tax is implemented, I now have to pay $1.23. Which is fine, if there is no longer an Income Tax on my paycheck.
Wouldn't a Pre-bate on all my current cash / assets need to be made in order NOT to lose 23% purchasing power on money I've already paid taxes on?
Am I missing something?
Thanks!
Replies to This Discussion
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Permalink Reply by Tony on
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Everyone needs to understand that after the bailout mania and the federal reserve printing money like toilet paper....the federal reserve will need to adjust for the change in tax policy.
Prices may come down on many items almost immediately...but many will come down over time and 'settle'.
However the prebate and no federal taxes on your income will be instant.
As for retirement savings...a quick nutshell explaination.
Today you save $1,000 tax deferred. You are taxed when you take it out and when you spend it (indirectly in the cost of an item)
Under the FairTax you pay no taxes on that $1,000 until you spend it over the poverty level.
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Permalink Reply by Steve Bang on -
Don't forget that you pay income taxes on the interest you earn on your savings now. Under the FT, you don't.
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Permalink Reply by Jim Bennett on
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This is one of the more difficult criticisms, but there are good arguments on our side. Marilyn was correct in pointing out the moderating effect in the cost of living from savings in embedded tax costs. The FairTax does not save a full 22%, as is often claimed, but it does save some - assuming no "accommodation" by the Fed. Let us use a conservative 10% figure, which would suggest a general 17% rise in the price of goods and services over today's prices.
Upper middle-income people who make extensive use of Roth IRA's complain they will lose the benefit of their Roths. They argue that today they put after-tax savings into their Roths that grow tax free, and they never pay tax on any Roth withdrawals. Under the FairTax, they now will have to pay tax on their consumption.
The prejudice is overstated. Through the effect of the pre-bate and the indexation of social security benefits, a senior couple will have to consume close to $80,000 before it starts to feel any effect from the FairTax at all. For many seniors who have made their major life acquisitions, excess consumption over this level becomes discretionary spending.
For many seniors in this economic class, the ability that the FairTax permits to pass wealth to the next generation, free of tax or estate planning, has genuine value.
Seniors should be less sanguine than they are that the federal government will keep its Roth IRA promise. With the current level of federal deficits, the government will have to start taxing Roth IRA withdrawals, as it started taxing some Social Security benefits after having promised not to. The FairTax will assure that taxing Roths will not happen.
Social Security, whose solvency is threatened, will be strengthened by the FairTax by transferring the tax base from payroll, which is narrow and volatile, to consumption, which is large, stable and growing.
Finally, seniors can rightly assume a growth in the size of their Roth IRA portfolio as a direct result of the FairTax. This growth should more than offset any increases in the cost of living from the tax.
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Permalink Reply by E Wolf on -
Jim,
Thanks for replying... Seems you get it as well. However, see how many seniors who have already paid taxes on their life savings would support being taxed again on their savings.
If I have already paid income tax on my savings (I don't play the market game), then why should another 23% be collected on that money? This issue doesn't only apply to seniors. It applies to any small business owner that has paid tax on their income.
Just like businesses would get a one time pre-bate based on their taxed inventory value, can someone make an arguement that wouldn't extend that type of prebate to ever dollar I have on hand? My money (Roth IRA, Savings, etc) is considered my PERSONAL Inventory.
Why isn't that incorporated issues address by the Fair Tax? Those that have never claimed their cash income and keep it under their mattress, well, they haven't paid income tax on it anyway, so they don't take a hit. One would have to provide bank/account/balance information at the onset of the Fair Tax.
Thanks again Jim!
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Double taxation of savings isn't the only transition issue that may be unfair. Consider the fact that all retirees, having paid Social Security premiums for 45 years or so, would have to resume paying for their benefits with their sales tax dollars. Is that fair?
I agree on all points, however I'm going to throw a 'sort of' spanner into the works and add a counter point to your statement.
I know you're not saying they should be treated differently, but bare with me.
Is it just as fair to not charge those elderly Americans and give them 'special treatment' so to speak? (I'm not saying they don't deserve it however)
It's called the FairTax so it has to be fair to everyone, e.g. everyone pays the same rate at the same time. If we get into 'this age pays this' and 'under this age you pay that' then we're simply socially engineering with the tax code again.
Again I agree, is it fair for them to still pay in?
But is it fair to be allowed to pay less while others pay more?
If you think about it they can pay in as much or as little as they want.
Don't want to pay into SS.....reduce your tax rate by changing your spending habits.
I guess what I'm trying to say is, making it fair for everyone means almost every 'group' loses a benefit, but gains others.
Poor don't get all the credits in the tax code anymore, but they'll be paying little to no taxes due to the prebate.
Elderly will still have to pay into social security, but they'll also get the prebate and not have retirement income taxed.
Business still need to comply with the tax code, but they no longer have to comply with the 'current' tax code etc.
As the most recently Beacon Hill study states....lower 90% of people WILL be better off. All we need to do is look past what we'll lose and look at what we'll gain in the long run.
Again I agree with your points that it will not be instant 23% less in prices and then 23% more to balance it out. And yes in the the long run 90% will benefit directly and the transition will be less painless because the extra costs that will more than likely happen with the tax rate is instantly offset with the prebate and no taxes on your paycheck.
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I always hear the 'double taxed' point when talking to people and seniors and it is a valid point. Thank you for addressing it in a frank and 'to the point' manner :)
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Permalink Reply by Joe McCune on
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IMHO, all this talk about double taxation and this group getting this and that group getting that is all just talking points.
Once the FairTax is passed, you no longer have to worry about screwing up a tax return and hearing from the IRS. The only concern John Doe consumer needs to consider is do I want or need this product more than the money it's going to cost me.
Then the seller will be responsible for the tax implications of the transaction.
How much simpler and fairer can you get?
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Permalink Reply by E Wolf on
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Hank,
Thanks Hank... You worded it better than I have. I guess the bottom line is that most Americans are more in debt than anything else (as I was 15 years ago) and it really doesn't affect them as much (actually helps them pay off their debt faster).
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What we have today is really inter-generational child abuse, but you cannot use those words when you talk to seniors (at age 62, I suppose I qualify as one of those child-abusers).
If you are a senior and don't play the market, there is still one big asset you may still have - your house. If you still have your house and want to sell it, the benefit of the FairTax is enormous - particularly here in New Jersey.
Seniors will not be entirely without other benefit under the FairTax. Seniors who contributed to traditional IRA's and pensions will get their pensions, IRA withdrawals and social security - all tax-free under the FairTax, They also do not file tax returns on April 15.
Non-seniors are better able to adapt to changes brought about the a change in the system. The tax disadvantage here is a transitional one, and will go away over time.
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Permalink Reply by Terry Warns on
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It is incorrect to assume that that the goods and services seniors purchase does not have imbedded taxes, they do. Look at this equation:
Under current System:
Price = Cost + Tax.
Our current prices include both real costs plus the taxes on those costs.
Under Fair Tax:
Cost + Tax = FairTax Price.
Under Fairtax our final price is the real costs plus the taxes on those costs.
To indicate that seniors with SS is somehow being taxed twice under the new system and not under the old system, fails to understand the old system.
Now lets breakdown the equations slightly differently:
Current Price = Costs + Income Tax + FICA tax
Fairtax Price = Costs + Fica%(Tax) + (1-%FICA)(Tax)
Under these equations you can see that seniors do pay for FICA taxes whenever they buy a good or service.
The only difference is before you did not see that you paid the FICA tax, now you do.
Any argument about, now I did not pay the tax and under Fairtax I do pay the tax, just fails to understand the current taxing system.
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Permalink Reply by Ron Mullins on
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I am supporting the FairTax because it is simple and fair and would not penalize productivity. I do not care how much I have already been taxed on my savings and investments. What I do care about is with the FairTax every man, woman and child would be taxed exactly the same when they purchase new retail products and services.
With the current Federal tax system, it is hopeless, prices on products are increasing anyway. With the current Federal tax system, businesses are losing business and it is only going to get worse with much of the legislation in congress being tied to the Federal tax code. I don't know about you, but I am getting tired of our congressional leaders using what they do with the Federal tax code to make them, even more powerful and more difficult to vote out of office (many have become beholden to only a few people and organizations and have become agenda driven).
The FairTax would be worth any losses that would effect me. If we had the FairTax in place now the idea of being taxed an our savings (when we use it to purchase new retail products and services) would hardly be noticed.
If the FairTax was in place, It is great to have control of how and when I pay Federal taxes. I bought a sofa the other day with my savings and the receipt says I paid 230 dollars in FairTax and the sofa cost one thousand. Isn't that great? Oh, did I tell you I am working two jobs, one job all the money I earn is going to pay off my credit card debt. Job are starting to come back to america and unemployment is down to 4 percent, isn't the FairTax great. The grassroots effort of getting H.R.25 passed has really paid off.
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Permalink Reply by Ron Mullins on
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If we had the FairTax productivity would nolonger be penalized.
With the FairTax 100's of billions would be saved not having to comply with an antiquated good for some Federal tax code.
I do believe every man, woman and child buying new retail and products and services would pay their fair share of Federal Tax. I do not care, in some cases, that the prebate they receive is more than the taxes paid. Those families will have receipts showing they paid The FairTax. The men, women and children who spend / buy more pay more, I like it.
If someone needs to work a second job for a particular reason, they would nolonger have to worry about tax brackets, all the extra money earned can be used for that reason.
I do not care if I already paid taxes on savings or roth IRAs. Having the FairTax and seeing all the good it could bring is enough for me to be active in the support of the FairTax grassroots movement.
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