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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I agree with you 100% but, have you ever seen our federal government pass a bill as originally written. If HR25 is ever approved, it will probably end up being over 2000 pages and during the next 10 years they will add another 10,000 pages; this is the nature of the beast. Unfortunately, when you have 500 plus congressmen trying to please the thousands of lobbyists throwing favors their way, there is no way of keeping this bill simple. Our ridiculous health care bill ended up being over 2000 pages, so there is no way for a bill that changes the entire way our government collects revenue to contain fewer pages.
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I personally have no problem with the way it is written, but there are plenty of people that think that it wouldn't be fair to have their savings which was already taxed, taxed again when the FairTax goes into effect. Treating after tax savings like Inventory and giving out a one time credit would satisfy those that think that removing the embedded taxes won't make up the difference. This provision hasn't even been discussed anywhere but here, I made it up. But even if they did add this provision it would be the same bill and the same for everyone after the first day.
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Permalink Reply by chiefcook on
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"Wrong question, my friend. You ought to be asking whether or not some changes to HR25 could be made to make it fairer for everyone. HR25 isn't written on clay tablets (yet), and many changes can and probably will be made before this thing ever becomes law."
If there are changes made to the Fair Tax, it will no longer be "The Fait Tax". If there are exemptions or loopholes put into place, it will just create another mess like the income tax code. One of the major parts of the Fair Tax is that the same percentage applies to all people. If two separate rates are set, shortly there could be 200 or more.
"Who ever heard of an inclusive sales tax? HR25 is a piece of sales tax legislation and the rate needs to be expressed in exclusive terms that 305 million Americans understand."
Have you ever gone to a ball game (MLB, NBA, college football etc) movie theater or other events? The entrance fees and the food sales at these events are in most cases subject to a state sales tax! The price is set with an embedded sales tax. This has been going on since sales taxes were started.
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Permalink Reply by Terry Warns on
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If you believe the Fairtax does not have room for improvement and compromise, then you will be disappointed.
For instance, let's say there is one change such as continuation of the Estate Tax over $5M. That is the only change. Let's also assume that this tax is earmarked for deficit reduction.
Are you going to oppose that change because now it is not the FAIRTAX?
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It's not the FairTax will treat retires unfairly; it is our current system that requires them to save with after tax dollars that has for year treated them unfairly. Saying the FairTax is unfair to retires is like saying a surgeon is at fault for amputating a leg that beyond repair.
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Steve, Hank and Dan,
The FairTax will help supplement Social Security and Medicare. It will eliminate the gift tax, alternative minimum tax, and death tax.
Most of the products and services bought will cost close to the same price before the FairTax. The longer we wait the higher those costs will be and millions more will be dependent on government.
If we had the FairTax there would be less people retiring early, some people would work an extra job to help pay off debts, other people would work to get some extra money. All money earned would be tax free until it is spent. If it is spent on used products, there is 0% tax. People would have more choices and the prebate would supplement their household budget.
I don't like the direction our economy is going. The rate we are going, most of us will be going to the poor house, because countries like China will say our debt on borrowed money is too high and they can't loan us anymore. What happens if our country goes bankrupt, heaven forbid.
Taking in consideration all you know about the FairTax and if implemented, and all the positive changes it would bring, the positives out weigh the negatives.
I would much rather see double taxation, when spending money that has already been taxed on new products and services, than the alternative.
The FairTax needs to remain a level playing field. Every man women and child needs to pay the same FairTax when they purchase new retail products or services. Keep political correctness away from the FairTax.
Our country needs to stimulate small and large business and get people working. The FairTax could be the catalyst do just that.
Count the ways the FairTax could benefit America? Count the ways the IRS and Federal Income taxes benefits America?
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Hank, your income is almost identical to our income. Our combined S.S. income is $26,400 per year and my pension and our after tax savings represents an additional $16,000 per year. Of this $42,400 we were able to save approximately $10,000 last year. I still say anyone who is worried about the little affect the FairTax will have on their retirement nest egg is being selfish. That is the problem with today’s society. Too many people are concerned about their personal instant gratifications and not enough about future generations. I’m not saying we should pass all our hard earned savings onto our children, I am just saying we should make sure future generations are able to continue to live in a free country that protects them without this ever increasing government control. Implementing the FairTax is a huge step in this direction.
I live in a small town in Florida. On the first Friday of every month we have what is called a “Street Fest.” Different companies and organizations set up tent displays to represent their organization or business. The FairTax supporters in our area take turns manning our FairTax tent. On one occasion, I was working with a young man who was working an extra 24 hours per week so he could pay for his daughter’s college education. He told everyone visiting our tent that under the FairTax, he wouldn’t need this extra job. He explained how this extra income has thrown him into a higher income tax bracket. He said this increase in the tax rate, which by the way is applied to his total income not just his additional income, resulted in the government taking over 50% of his additional earnings. He said that his current total take-home pay from both jobs is less than the gross pay of his regular job. He said since he would be taking home his gross pay under the FairTax, and the fact that college tuitions are tax exempt, he wouldn’t need his second job. Hank, you may not be willing, but I will be happy to pay a little extra tax knowing that the FairTax will take the pressure off many young families like the one above.
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For me it is worth $200 per month to know my kids and grandkids can save anyway they choose with before tax dollars. The only regret I have is knowing my savings have been ripped off by our current tax system from the time I invested my very first dime. The problem with our society today is that there are not enough people willing to take on a noble position. What they don’t realize is that greed will eventually pop up its ugly face and bit them in the ass.
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Ain't been here in awhile. Just checked in a few minutes ago and some of you guys are killing me with this discussion. Leave the FAIRTAX alone. It is PERFECT!!! It was designed by experts thru years of research, with only one goal, a better way to fund the government. Some talk about double taxation, hell what you got now is triple taxation with even more on the way as soon as politicians decide they need more money. You not only pay income taxes when you earn your money, you pay them again when you buy something, plus you pay business taxes, plus you pay for cars, pickups, equipment, etc. replaced every 3 to 5 years because they get to write them off on their taxes, as apposed to replacing them every 10 years if there is no income tax deduction. Our Founding Fathers set up the FairTax with the Constitution of the United States, a consumption tax was the only legal tax allowed under the Constitution. They never thought we would change the tax laws or they would have said more about it. Thomas Jefferson said the people would make mistakes but they would also see the light eventually and change it. Everybody will be better off with the FAIRTAX except for the "Ruling Class". Before the year 1913 the government of the United States could not come into any citizens house and take one dime from him, only when you spent money could they collect a tax. If you've got $660,000 in the bank I'm proud of you, and if your being conservative your making maybe 5 percent $33,000, when the FAIRTAX takes hold and the economy starts rolling, it will probably be 7 percent $46,200 plus your prebate check.
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Say you got $1,000,000 in the bank, the FairTax goes into effect today, you are retired. You have decided to live on the interest. Maybe it's 5% [$50,000] before the FairTax you will be paying 22% of that money for embedded taxes. $11,000 in taxes is what you would be paying. After the FairTax the Prebate Check will be paying taxes on the first $27,500 and you will be paying taxes on the $22,500 which would be $5,175 in taxes. Before FairTax you pay 22%, after FairTax you pay 9.66%. Or let's Say you want to spend $100,000 per year, before FairTax you will pay 22%,[$22,000], after the FairTax you will pay 17.94%[$17,940]. The snapshot analogy is a good one, you go to sleep tonight and wake up in the morning with the FairTax in place and the 16th Ammendment repealed and you will be a richer person than you were the night before, this goes for the poorest man to the richest man, and it also goes for this country. Something I have not heard any proponent of the FairTax speak of is the FACT that all of the 22% embedded taxes in the price of our products is just wasted money, an artificial inflation, that drives our prices up, not only making them more expensive for us to buy, but making them less competitive in the world marketplace. The government [who we must fund for the obvious reasons] collects all revenue at the Income Level, they do not benefit from the second time we pay our taxes [22% embedded taxes]. We pay twice as much as the government collects. The Income tax may be the dumbest thing mankind ever devised, maybe thats why Karl Marx thought it was a good thing for his communist society.
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Hank you stated
If you believe that all 22% embedded taxes are wasted money, then it seems you don't understand that two thirds of that 22% is your pay withholding.
How can the employee portion of SS medicare withholding be two thirds of the 22% embedded costs. I understand Dale J included this in the original calculations but Larry K recalculated the embedded costs in 2003 and removing the employee portion made less than 1% of the total. (Dale did not include the income withholding tax.)
If you consider that a business would have to have only the payroll as all business expenses and you consider one half of the tax costs are the employer portion, how can two thirds be the employee's share? That does not include any adjustment for compliance costs or business income taxes! Maybe it is you who needs to do some recalculations.
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Hank,
So what your analysis says is that there is really only 9% imbedded tax on goods and services?
Can you reconcile why FT says it is 22%? It is a big difference.
This probably leads one to believe that we need to leave FICA alone and replace income taxes with a 10% sales tax.
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