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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During the past 225 years over 1-million Americans have sacrificed their lives for the betterment of their children and future genterations. Now we have those who complain about their current after taxed savings being taxed again under the FairTax; what a selfish reasoning. The FairTax will allow all future generations to save and invest any way they choose with before tax dollars. Knowing my children and grandchildren will greatly benefit under the FairTax, this 66 year old retiree is willing to pay a little more tax on his S.S. and pension. Besides the prebate will pretty much offset any additional taxes I will pay.
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Steve,
The analogy to the sacrifices made by our military, law enforcement, fire-rescue is invalid... I know all about that and I can tell you they are two different things. One thing has NOTHING to do with the other. They have paid the ULTIMATE costs of our freedoms... paying taxes does not compare.
The majority of businesses are small business and not everyone has the luxury of having a tax-deferred PENSION or 401k. Some people have had to SAVE money their whole lives in order to plan for their retirement. It's easy to say it's selfish reasoning when you don't have to worry about such things.
Me, personally, I have enough time and I'm personally willing to accept the 'loses' and I understand all about the impact on future generations. And I'm sure the majority of our fellow Americans would be willing to do the same since they probably have more debt than anything else... but I guess all those retirees with who have savings, no new income and NO PENSION, they can bite the bullet...
I'm not being selfish. I'm asking a reasonable question because it does impact so many people and it's something that is one thing about the Fair Tax that, well, isn't so fair to those retirees.
Some type of prebate on post-tax savings/Roth/Stock value at time of enactment would be one solution... Can you think of any other?
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Permalink Reply by chiefcook on
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Take out your digital camera. Take a snapshot picture. What you see is what you have. The picture does not have any comments or footnotes. Everything you have is yours. If you no longer have something for whatever reason, it is not in the picture. Every consumer/individual is treated the same.
The income tax code is eliminated as of 12/31/XX and the Fair Tax is effective 01/01/XX+1. The new taxing program applies to retail consumption of new goods and services. The same flat rate of tax applies to every consumer/household. There are no exemptions or loop holes to the application of the Fair Tax at the retail level.
The Fair Tax does not apply on business to business transactions. The business that provides the retail transaction will collect and forward the Fair Tax to the government. Since the business to business process was started prior to 12/31/XX there is some embedded income tax cost built into the inventory of the business process. There is an inventory tax credit on those in-process expenses. This is to reduce the production expenses of the product or service and allow the retail price to remain close to the before Fair Tax price once the Fair Tax is embedded into the shelf price of the product. The Fair Tax will not be added to the shelf price of the product or service (as a state sales tax is often applied).
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If a retired couple is trying to survive solely on S.S. their combined income averages around $1800 per month. If they were to spend their entire income, which I am sure they do, their tax under the FairTax would be $4968. This couple’s prebate would be $4980 which would completely offset the tax they would pay. So to use the argument that the FairTax would burden seniors who have already paid taxes on their retirement income is a week excuse for opposing the FairTax.
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Thanks Hank...
I would love to see the Fair Tax enacted... I'm all for it... But I'm still relatively young (42) and working. And I certainly see the benefits it has for our country, our children, and so on.
I just don't see how this would be fair to any retirees with no additional income other than SS. I've not heard of this being addressed anywhere and brought the issue up since it does affect anyone that has savings and especially those with no new income.
I just wanted to make sure I wasn't miscalculating the impact on savings / Roth IRA's / Post-Tax investements like stocks.
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E Wolf
All forms of income are currently taxed including savings and capital gains on stocks. All that goes away with The Fair Tax. Also all the embedded corporate taxes and associated compliance costs passed onto the consumer at each stage of production with the income tax are gone. Purchasing power will increase due to taxes being deducted.
Regardless of these facts, and as Hank stated, are retirees truly willing to sacrifice the financial future of their offspring and descendants to prevent from being taxed twice?
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Your probably right the FairTax will get changed several times before it is finally passed.
I don't think that it's fair to give out a senior discount it would lead to many other discounts like student, disabled, and who knows what else, but to deal with the double taxation issue on savings maybe they could treat cash like they will treat inventory and give a one time 23% prebate on all money in the bank on the day the FairTax goes into effect.
Taxing the government is for simplicity, every retail merchant is required to submit taxes on every item sold, the paperwork to exempt the government would make things difficult than necessary, besides the government already pays embedded taxes and the FairTax just removes and replaces those embedded taxes so the cost of running the government won't increase drastically.
The FairTax doesn't mess with SS it only changes the way it is funded because keeping the payroll taxes in place would mean that the 16th amendment could not be repealed because it makes the income tax and the payroll taxes legal.
I see no problem with the prebate and many problems are created by its removal. Why do you think food and clothes are not taxed by state sales taxes? Because nobody wants to tax essentials! The prebate prevents anyone from defining essentials like they do in state sales tax systems.
The FairTax is an inclusive tax because the income tax it's being compared to is a inclusive tax and the tax rate has been defined in exclusive terms as well, either way it's the same: with a inclusive tax $0.23 of every $1 spent goes to taxes, or would you rather have the exclusive tax where a $0.23 tax is added to every $0.77 you spend. The advantage of inclusive is the price you see on the shelves is what you pay not 23% more that the posted prices. When you were a kid did you ever try to buy something that cost $1 just to have the cashier charge you 1.05 because of the sales tax. That will never happen with the FairTax the posted price IS what yo pay.
You are right we have had the income tax for 100 years and every year it gets more and more complicated we have to kill the entire system in one shot or it will become the smoker that smokes his last cigarette every day but never quits. The system will not be untested, by the time the Feds decide to pass it it will have been tested in several states.
You say its too complicated, needs to be simplified! The FairTax Bill take up less than 200 pages, the current tax code 70,000+ pages and growing every year, now that needs to be simplified! As for progress, when the FairTax becomes law the economy will go into overdrive and millions of jobs will be created within the first year after it takes effect. There is over $16 trillion hiding in offshore banks to avoid US taxes and a good deal of that money will be coming back to create jobs. Now that's what I call a stimulus plan. The US will become the biggest tax haven in the world and many of the jobs that went to China will return to the US!
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" maybe they could treat cash like they will treat inventory and give a one time 23% prebate on all money in the bank on the day the FairTax goes into effect."
This is a possible solution.
1) Just like businesses would get a one time prebate of 23% on their inventory, my inventory is my previously taxed cash/savings/roth ira/etc.
2) Those who have been reporting their income wouldn't be taxed twice. Those not reporting income and making cash under the table, well, they can't complain since they didn't pay taxes to begin with.
3) One would have to provide bank information for verification of balances (privacy concerns? Gov't has access to that stuff if they want to already).
4) Since this could be a potentially large hit on the gov't treasury, consider spreading the one time prebate over a period of 12 months. This lets the treasury take some Fair Tax in during that period and would lessen the impact (ie. we might not have to borrow money from other countries to do so).
I'm for the Fair Tax... I get all the benefits. It could change our economic situation for the better in so many ways... For us, for our children, for our country. I understand about the embedded taxes, the reduced prices over time, no fair tax on used products/education/dividends, etc... that is not the issue... double taxation on savings is... and it's not a small matter for many people.
Hopefully this can be addressed in the bill somehow.
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They could set it up like a 1099 or whatever, the banks and other financial institutions send the government and us an inventory/cash statement to let us know how much of a rebate we are owed.
I don't think a prebate on savings would be that bad on the treasury these guys spend trillions at the drop of a hat but it would probably be better to spread out the hit over a year based on your Social Security Number like they did with the stimulus checks.
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I'm all for the Fair Tax and would LOVE to see it become law. My fear is the prebate may be a stumbling block for too many of the polititians since many already look at it as an entitlement program that the wealthy certainly don't need but will get anyway. ( I agree they should since that would be "fair") HR25 says the prebate may take the form of a "smart" card. What if it was similar to the EBT food stamp program in that an allowance is put on the card rather than cash. The EBT card is only for food. Similarly, the prebate card would only be used to pay the tax. That should elimiate the fear of entitlement but would still take care of the tax on basic essentials. The entire years allowance could be put on the card at once rather than the fed sending out millions of checks every month. There would also be no need to provide the government bank account information.
Perhaps folks may want to "save" their allowance for a few years to apply to a large purchase like a new car or home rather than use it on their McNuggets.
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You will have the option to receive your prebate, by check, debit card or direct deposit. The debit card would have to spend like cash or the clowns in DC will start to determine what the card could be used to buy. There will be no restrictions on how or when the prebate is spent, and there isn't even a requirement to register for the prebate, if you want to keep your personal info personal and don't need the prebate money you just don't register. Unlike the current tax system where everybody who works has to file.
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John,
You said
"I don't think that it's fair to give out a senior discount it would lead to many other discounts like student, disabled, and who knows what else, but to deal with the double taxation issue on savings maybe they could treat cash like they will treat inventory and give a one time 23% prebate on all money in the bank on the day the FairTax goes into effect."
This is exactly the problem. People legislator, trying to work the system. In order for the Fair Tax to work, people are going to have to give in to what is good for the goose is what is good for the gander.
Same FairTax for everyone. Same prebate for every household base only on number in household.
Everyone is going to have to sacrifice to get the Fair Tax. Once it gets going you will be glad you did.
Like someone said, if you tweak it for one group, you have to do it for another and continue that until no one is happy and you have a 132 page bill turned into a 2000 page bill. Is that what you want or do you really want the FairTax?
I don't know where you get this 23% prebate on bank accounts. We are beginning to see nonsense.
The FairTax is common sense and a few are trying to manipulate it into nonsense.
Sorry for being critical, but for the FairTax to work it needs to stay vanilla as possible. Absolutely no favortism or political correctness.
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