Replace All Federal Taxes on Income with the Fair Tax Act , HR 25
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 Steve Keller on
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Exactly, so which is the better tax system for those wishing to sell their business? We can stick with our old broken down system and continue to punish all those who wish to sell their businesses sometime in the future or we can approve the FairTax; a tax system that will benefit all future sales. Besides when trillions of investment dollars begin to flow into the US under the FairTax, your friend will have a much better chance of selling his business and he may even be able to sell it for more than $1-million.
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Permalink Reply by Jamie Wheeler WA on
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E Wolf, I personally experienced the "capital gains tax" as a 2 income family making less than $100,000. The money they TOOK would have paid for our daughter to go to college, BUT NO....now we have to be PINCHED & come up with yet MORE money to help her through college as many loans aren't available to her because her parents make too much, yet she is almost 21 and lives on her own. This current system IS REPULSIVE and destructive to those trying to stand on their own two feet! We owned a 4-plex and the gov. wasn't there lending a hand when we had vacancies, but boy howdy they are there to TAKE it if we are seen to be making too much.
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I should think the solution would be much like the business owner who has previously taxed inventory on his shelves the day after the FT goes into effect. I've heard there would be a "grace period" to declare that inventory and receive a one-time tax credit for it. Couldn't you do that with savings, 401k's, etc...?
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You got it Mark!!! Thank you!
If I put $6,000 into my Roth IRA (I've had to earn, say, $8,500 to do so) for the year prior to the Fair Tax, and my friend put $6,000 into his Tax-Deferred 401k, we would both have $6,000.
However, I'd be at a serious disadvantage because if I was smart, I would have put $8,500 into tax-deferred savings.
Everyone would have to provide account balances (savings, checking, 401ks, stock values, etc) effective a specific date and be given a one time tax credit in the form of a prebate.
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The one thing that you're missing is that the prices will not change when the FairTax is implemented, the merchants will get a onetime tax credit on all inventory, the only thing that will change is the way it appears on your receipt. So technically you are already being double taxed, the only money that will avoid double taxation is money in tax free retirement accounts and money earned after the FairTax is implemented. A $100 item in stock the day the FairTax is implemented will get the merchant a $23 tax credit, and you will still pay $100 for that item the next day. Hope this helps.
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True... But as an individual, my cash on hand at time of FT implementation is my "inventory" that has been taxed. No?
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True, but you don't lose any purchasing power because of the inventory tax credit. The $100 item bought the day before the FairTax is implemented will still cost $100 the day after the FairTax is implemented. Another thing to remember is that you prebate check will arrive the day before the FairTax is implemented which will increase your purchasing power even more.
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Only problem, John, is that there is NO guarantee that the price of products/services will go down immediately... It is presumed that prices will go down due to decrease in the embedded taxes, but It may take years to settle.
And even if it does change from one day to the next, I would have to have earned $130 the day before the FT takes effect to pay for the $100 item (assuming I am ligit and pay my taxes), and my buddy would only need to earn $100 the day after the FT takes effect to purchase the same Item. I've effectively been taxed twice.
This is a big deal for those who have post-tax savings.
The purpose of the monthly prebate is different. It's to help offset the taxes paid for basic cost of living without allocating specific exemptions to the tax..
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You remind me of my farmer grandfather. I can remember my dad telling me this story. For many years after the invention of the tractor my grandfather still used a team of horses to plow his fields. His reasoning was that if he bought a tractor he would still need to feed his horses. One year there was so much rain he did not have enough time to prepare the fields for planting and by the time he did all the other farmers with tractors had corn croups measuring three feet in height. As it turned out, his croup produced about one fourth as much corn as the other farmers. Next year he had a tractor.
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Good story, and I get the point, but not really the same. :) Trust me, I'm all for the FairTax, provided there is some type of prebate for cash on hand and other post tax assets (Roth IRA's, Stock Cash Values, etc). I'm not prepared to be taxed again on my cash that I've already paid tax on.
We'll see how it pans out... Thanks, Steve and have a good night.
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I understand, I am retired and my wife and I are trying to survive on our Social Security checks and a small pension. Under our current system, we pay no income tax. I just feel our country needs the FairTax for future generations. I recently compared the FairTax to what my son and his wife paid under our current system. With the FairTax they would have saved over $11,000 even if they would have spent all their income on new goods and services. They have an autistic child and the cost associated with his condition is horrendous. This additional $11,000 would have paid for a lot of his speech and occupational therapy.
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I now see there is a new bill being presented to congress called a Federal retail sales tax. It calls for a 1% tax on every transaction me make. It would even be charged when we use an ATM machine. This is an add-on tax. We can not let this happen. We need a replacement tax (The FairTax) not another add-on tax.
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