Replace All Federal Taxes on Income with the Fair Tax Act , HR 25 and S 18
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David, I forgot to mention, in reply to your statement about retirees, that I am one of those retirees. But not only have I calculated that my wife and I will have an overall better lifestyle under the FairTax, my wife, who is a CPA, has also calculated that we will live better under the FairTax.
Notice that I used the words, "better lifestyle", instead of talking about taxes. That's because overall lifestyle is what it comes down to. That takes into consideration the prebate, lower costs of products and services and all of the other benefits of the FairTax combined. And that doesn't even take into consideration the fact that there will be less crime, due to the fact that more people will have jobs. It's about the overall improvement in lifestyle that every US citizen will see under the FairTax. Of course, it doesn't hurt that the FairTax will drive many illegal aliens to self-deport, since it will amount to a 23% tax on illegal aliens, who won't get the prebate.
You can't look just at taxes. There's a lot more going on that will make your lifestyle better.
Remember to research the relationship between "market price" and "natural price." Your belief that there is no evidence that any business will reduce their prices as their costs drop is completely without basis, since it completely ignores years of history and the teachings of EVERY business school in the country. Every time a new innovation reduces the cost of manufacturing a product, prices of that product drops. As initial R&D costs are paid off, prices of related products drop. That's the effect of "natural price" on "market price." In the end, the market price of almost all products will seek the same "PERCENTAGE" of profit that has always been seen for that product. Business schools like Wharton and Harvard wouldn't continue to be so highly respected if they taught things that were wrong and that, although abbreviated here, is a part of their curriculum.
Both wholesale and retail prices will drop, in relation to the drop in costs, after the FairTax becomes law and they no longer have to include an income tax component in their prices.
David, I'm sorry that it has taken me so long to bet back to you. I've been very busy with TEA Party Insights.
First, the HHS "assumptions" are "implied" by the fact that their tables increase for the amount of a child for every person in the household, beyond the first adult. They provide no tables that provide a higher amount for a second or third adult - just children. This is also why HR-25 included the marriage adjustment.
Second, your belief that retail establishments won't reduce their prices is a clear indication that you have not read any of even the most basic business books. I suggest that you read "The Wealth of Nations", by Adam Smith, for a start. Business schools from Harvard and Wharton, down to the most unpretentious community college programs teach that the "market price" of every product or service drawn toward the "natural price" of that product or service. This is driven primarily by the desire for a profit driving prices up and competition driving them down.
In the case of the FairTax, smaller, "hungrier" companies would take advantage of their ability to move faster than their more ponderous competitors, to lower their prices a few percent, as soon as their costs drop. By lowering their prices a little, they would end up making a lot more money, by gaining market share. This would force the larger producers to lower their prices, in order to compete. This cycle would repeat as many times as necessary, till the market price stabilized at about the same profit percentage as before the FairTax was implemented. Economist disagree on how long this would take. But even the most pessimistic economists don't think that it would take more than 9 or 10 months. Most estimate that prices would reach the same profit percentages that were seen before the FairTax in around 4 to 7 months.
One other thing to point out is that it's not just retail establishments that will be forced by competition to lower their prices. It will be the mining company that digs the iron, the trucking company that delivers it to the steel mill, the steel mill that turns the iron into steel, the trucking company that delivers the steel to the auto manufacturer, the auto manufacturer, the trucking company that delivers the car to the dealer and the dealer. Of course, that ignores the gas and coal companies that sell their product to the electric utilities and those utilities that keep all those other companies running. Of course, the gas and coal companies will pay less for the equipment that they use in production, since the steel that is used in the machinery that they use will cost less, which will drive their costs down even further. All those embedded costs, at every level of production and distribution, will go away under the FairTax and prices will naturally move toward the "natural price" of the product or service.
Third, when you talk about the single mom, you're talking apples and oranges. There's the employer portion of the payroll tax to be considered and of course the 10-20 percent in embedded tax that she pays on every retail purchase under an income tax. When she buys a head of lettuce or baby formula, she's paying embedded income tax. Even when she pays her rent or electric bill, she's paying the embedded income tax that those companies pass on. But it gets worse. An income tax is just another cost of doing business. Companies set the price of any product or service by adding up all of their costs, INCLUDING TAXES and then add a percentage of profit, based on what the market and competition will bear. This is repeated throughout the entire manufacturing and distribution chain. So that means that not only is she paying the embedded tax on every product or service that she buys, but she is paying a percentage of profit on those embedded taxes, as well. So under the FairTax, her $15k will go a lot further than her $18k does today.
John, I never did see anything in the HHS about the assumption you say they make. However, I did see where I misread the part about the marriage adjustment ( which I believe has its own set of issues but that is for a whole other discussion. That said below is my response to your last response and I guess we will just have to agree to disagree because I don't see a lot of the assumptions that must be made to make the fair tax what you say it is. I have also attached an updated spreadsheet that reflects the marriage adjustment as I read it in the Fair Tax Act.I reread the section that states used items are not taxed ...but there seems to be caveat of that it has to be shown somewhere the item was taxed previously. You make the statement that certain conditions will “...more than make up for what she is currently paying in payroll tax and embedded income tax in all of her new retail purchases.“ I have to take issue with this assumption. It seems to assume prices will immediately fall under the Fair Tax. Sorry John, but are you kidding me? There is no way all retail establishments will reduce their sales price as a result of the implementation of the Fair Tax. I would be surprised if even one retail establishment lowers its pricing. This may (although I seriously doubt it) allow retail prices in the United States to rise more slowly in the future, but all that will come of this change is that all retail establishments will immediately receive yet another windfall of a price structure meant to support a higher tax rate that they will no longer have to pay. That coupled with the fact that employers will no longer be on the hook for matching the FICA taxes paid by employees means that the fair tax will be the best thing that has ever for businesses.As for the single mom, if you remember the numbers, she made just $12.500 to support her and her daughter. At the end of the year, even though she not only did not owe or end up paying any income tax, she received an earned income tax credit of @ $6,000. If you take her base salary of $12,500, subtract out the 1.45% Medicare tax ($181.25) and add back in the $6,000 in earned income tax credit she ends up with $18,318. Under the fair tax she gets, as you pointed out $3,479 in the form of a tax rebate. If you calculate her total spending capability based on the amount of her tax rebate, she can spend a total of $15,126 which is $3,192 less than her total spendable income under the current tax system. Once again, I disagree with you on the lower price detail. There is absolutely not one shred of evidence that even one single establishment will lower their prices one red cent. And as I have previously stated, the Fair Tax would cause me to pay more than I have had to pay under the current tax system. I believe my income would put me around the middle of the middle class. Under the Fair Tax I have to pay 62% more than current tax. The congress and I assume those that made $400,000 had a fit over 4.6%! Yet the Fair Tax expects me to support a 62% increase in my taxes.I once was a strong proponent of the Fair Tax but the devil sure as hell came out in the details on this tax. Also, I cannot imagine any one currently retired and living primarily social security and any savings they may have accumulated supporting this tax. Currently they pay 0 FICA tax. Under this plan, they will be paying a significant amount of federal sales tax. The new SpdSht should fairly accurately show a family's tax obligation under the Fair Tax. It is a simple matter to just look at how much their total tax was for 2012 and compare the two. If the number in cell B9 is larger than their current total tax, then they will pay even more with the Fair Tax.FairTaxCalculator004.xls
David said: "I don't see anything in this that says anything about a child."
The HHS guidelines for a family of two assume one adult and one child. So 303(a)(b) goes the long way around to say that for the FairTax, you subtract the HHS poverty level for a child, that was represented for that second adult and add back in the full adult amount for that second adult.
As for your single mother, the economists who crafted the FairTax found that people who earn that little, do a lot of their spending at re-sale shops, flea markets, garage sales and the like. None of those "used" purchases are taxable. Then consider that she would receive $3,479.90 a year in prebate. The lower prices on all new retail goods and services, combined with the prebate and her current level of non-retail spending will more than make up for what she is currently paying in payroll tax and embedded income tax in all of her new retail purchases. Remember that the money that she currently spends at the re-sale shop has already been taxed, under the income tax. So she ends up having more money to spend at the re-sale shop, under the FairTax and she pays no FairTax on used goods.
But middle class and above probably do little or no spending on used goods. Even so, they get the same prebate, based on family size. But they spend all of that prebate on new purchases. Their total tax rate is then based on the difference between their total tax bill and their prebate. Here's how it works out.
Many years ago, I had a friend who told me that he didn't make enough money to pay any tax. So I loaned him my copy of "The Tax Racket: Government Extortion from A to Z". He determined that after all of the embedded taxes, telephone excise taxes, gasoline taxes, cigarette taxes, taxes embedded in his rent and more, he was paying more than 30% of what he earned in taxes every year, without paying a single penny of personal income tax. Those who pay income tax pay even more. That was more than 15 years ago and at that time, I calculated my total taxes to be more than 50%. But the part that hurts the desperately poor is the embedded tax that they have to pay on EVERYTHING... even a head of lettuce or baby formula. It's those people who will benefit most, from the lower prices and no embedded federal corporate income tax on anything.
Hi John, I am not sure what you are reading in section 303 a & b. Here is what is currently says:
``SEC. 303. MONTHLY POVERTY LEVEL. ``(a) In General.--The monthly poverty level for any particular month shall be one-twelfth of the `annual poverty level'. For purposes of this section the `annual poverty level' shall be the sum of-- ``(1) the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 for a particular family size, and ``(2) in case of families that include a married couple, the `annual marriage penalty elimination amount'. ``(b) Annual Marriage Penalty Elimination Amount.--The annual marriage penalty elimination amount shall be the amount that is-- ``(1) the amount that is two times the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 for a family of one, less ``(2) the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 for a family of two. I don't see anything in this that says anything about a child. However, that said, I can see where I did not read the section about the marriage penalty close enough. From what I read now, it basically says find the number of "people" in your household get that number from the poverty guidelines, then "IF" this number includes a married couple, add to that amount the difference between the ((APL of 1) x 2) - (APL of 2)). In the case of a couple with no children, the amount (from the 2012 guidleines) (APL of 2) or $15,130 plus ((APL of 1) x 2) or $22,340 minus the APL of 2 or $15,170 for a result of $7,210 added to $15,170 for a total of $22,340 of basically exempted spending. I did not include the additional $7,210 for the marriage penalty. However, even including the additional $7,210 of exempted spending, I am retired, drawing a pension, social security (reduced) and my wife drawing a pension, none of which could be considered anywhere close to outstanding, we basically spend everything we take in. Given my numbers and even with the additional $7,210 of exempted income, we will have to pay over two times what we currently pay under the current system. I agree that there will be a number of people who will have to pay perhaps for the first time. And while the earned income tax credit has never and hopefully will never benefit me (at least not directly) it will be closed under the Fair Tax. Those people and I can give you an example of one on 60 Minutes of a single mother with one child, making just $12,500 a year. She was eligible under the earned income tax credit to get a refund of $6,000. Even with that, it is only $18,500 a year to support two people. I cannot imagine living on that but with the additional $6,000 and education support, she was able to work, go to school, then get a better job and now makes @ $32,000 a year, no longer gets the earned income tax credit and pays income taxes now, where she did not before. Like I said in the past, I used to be a ardent fan of the Fair Tax until I was actually given the numbers on which it is based. This tax will penalize every retiree as they don't pay Medicare tax (and Medicare is another issue altogether) and depending on their income, may not pay any income tax. With the Fair Tax they will charged with paying both on everything above the poverty level. And in 2015 most likely will have to pay an additional 7.65%. I will fix Spsht.
David, the basis for the prebate is stated very clearly in HR-25, Sec. 303(a & b). It explains that the basis for a second adult in the household is to add in the difference between the allowance for a child and the allowance for the first adult. In other words, the allowance for the second (or third) adult is the same as for the first adult.
I don't know about your situation. But for me, I retired about 15 years ago and it won't be much longer before I start getting Social Security. That means that I'm one of the people who the big government types like to try to scare, saying that older people will be hurt by the FairTax. But that's not the case. I've crunched the numbers. But then, I'm not a CPA, so I could be wrong.
But my wife IS a CPA and she has crunched the numbers every way possible and it always comes up the same. The FairTax will benefit us rather significantly, just as it will benefit other older people. In fact, the only people who will will be hit harder under the FairTax will be illegal aliens and the underground economy, since many will pay federal tax for the first time ever.
I'm still working on getting TEA Party Insights WebTV looking and working perfectly. But I'll dig into your spreadsheet as soon as I get the program under way.
Thanks for taking the time to look at the spreadsheet. I don't have time to discuss thoroughly but I will make two quick comments. First on the Fair Tax, I am still looking for clarification on HHS for clarification on the adult/child rating. But (and I am definitely a proponent of facts not agenda) that changing the spreadsheet in that way does not make it even as attractive as it might have been using my numbers.
On the Flat Tax, regardless of sponsors or cosponsors, it is one of the only other tax reform ideas being floated these days and I wanted to include it for comparison sake. I can also tell you unequivocally that the Fair Tax would be anything but for me personally, the Flat Tax would fair significantly better for me but I do better under the current system than with either the Fair or the Flat tax.
David, I noticed in your spreadsheet that you included a section for a Senate Flat Tax bill that has only one sponsor, no co-sponsors and no related bill in the House. Until a bill has at least 6 or 8 House co-sponsors and 2 or 3 Senate co-sponsors, it's seen as a Ron Paul bill. That's because he was famous for submitting bills that had no chance of ever passing.
In fact, over the last two decades, the largest total number of both sponsors and co-sponsors in both houses that a Flat Tax bill has ever had, has been 5. The Flat Income Tax bill that you referred to in your spreadsheet is clearly a Ron Paul bill.
The fact is that nobody wants to sign on to a Flat Income Tax, since a Flat Income Tax is and in fact, has to be regressive. Every Flat Income Tax that has ever been introduced has put far too much of the tax load on those who can least afford it. Signing on to such a bill is political suicide.
By contrast, The FairTax now has 70 sponsors and co-sponsors in both houses (1 sponsor and 61 co-sponsors in the House and 1 sponsor and 7 co-sponsors in the Senate). It's expected to cross 80 by the end of March. The rule-of-thumb is that any bill that reaches 100 co-sponsors can't be stopped. We could do that this session.
David, I'm rather surprised that nobody else has taken the time to look at your spreadsheet. As I mentioned earlier, I have been busy getting TEA Party Insights WebTV off the ground (new microphones, new video camera with fixed focus option, setting up the feeds for the podcasts, etc.). We even evaluated "Motion", but there is somewhat of a learning curve, so we decided to implement it later, after we have the shows up and running.
I did glance at the spreadsheet and I appreciate all the work that went into it. It is so detailed that it will take some time to go through it.
In just the small amount of time that I had to look at it, I have two points that I would make.
1) At first glance, it appears that you may be over-thinking it. But, that's only at first glance and I may be entirely wrong on that point. It's just my first impression, without any real examination of the details.
2) Your table for prebates makes the same mistake that many people make, when calculating the prebate. Based on HR-25, Sec. 303(a & b) and 2012 poverty guidelines, the annual consumption allowance for each adult would be $11,170 and for each child, it would be $3,960. This is different from the HHS poverty guidelines, which allows $11,170 only for the first adult and $3960 for every other household member, adult or child.
Therefore, a family of two adults and three children would have an annual consumption allowance of $34,220, which would result in an annual prebate of $7870.60. In other words, whether you're a dishwasher at the truck stop, with a wife and three kids or Bill and Melinda Gates, with three kids, your first $34,220 of "retail" spending is tax free. If you spend double that ($68,440), at "retail", then half of your spending would be taxed at 23%, making your overall average tax rate 11.5%. But since lower income people tend to buy at least some used products, this would mean that they would be able to spend a little more, before using up their prebate.
However, those numbers work out a lot different, if you don't include the full amount for the additional adult(s) in the home.
This is the kind of thing that I was talking about. It's an easy mistake. In fact, I almost made it myself, when I first came over to the FairTax. I would have, too, if I hadn't taken a few moments to go back and read Title 3 of HR-25.
I'll try to get some time to look more closely at your spreadsheet soon. I also sent messages to a couple of other people in this group, asking them to check it out, too. I also imagine that you'll want to revise the consumption allowance table, to consider the full allowance for additional adults in the household. Instead of a big table, you can just include the two amounts and multipliers for each, based on household size.
Thanks for your patience.
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