Fair Tax Nation

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!

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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.

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.

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?

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.

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.
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.


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.

To offset that, the consumer would have more disposable income which would accommodate the higher price, but not necessarily increase demand.

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?

Maybe I'm looking at it wrong.
Please do not mix vegetables into our fruit salad!

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.

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.

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