Long answer is it will do 3 main things more beneficial then current system.
1. Eliminates the main problem of illegal immigration, that being they pay no taxes.
2. Makes running a business easier as sales tax is already compiled for states. It would free up millions (if not billions) of accounting hours every year. Think how much money you would save simply by not having to deal with income taxes every year. Think of the stress of it all as well. Its a freaking nightmare for any one self-employed or running any business.
3. No need for 3, 1 and 2 were plenty but it also would reduce corruption. Most lobbying in Washington is to influence the tax code. Kickbacks are arranged for lower tax rates in exchange for funding of political campaigns. Nothing comes close to introducing the amount of tainted money into the political process like the tax code.
Another point that is lost on people is taxes end up getting paid by the all of us collectively somehow. When I as a business person know my taxes are going up I am naturally going to increase my prices (and so will my competiton). If I can't sell at those higher prices I close my business. I'm not going to work for less just because the gov't increases my taxes.
The same thing happens when taxes are lowered. Not by the goodness of my heart but through competitive pressure.
Over time no one would notice a standard of life difference just because the tax system changed.
Gov't spending is the real problem. It all comes out of the private economy somewhere so every dollar spent by the gov't means one less in everyone's pocket that's not making money from the gov't.
This system couldn't be more broke if your 5 year old got a hold of it. So yes of course it would be more "equitable".
There would be no loopholes for the very greedy rich ones (not that all rich people are greedy, but some are, and cheat) and every illegal alien, every criminal, everyone fraudulently receiving public aid would pay. Meanwhile, those people who are actually poor would not pay more than their share because sales tax never applies to necessities like groceries.
There is so much in the media about tax havens and tax evasion. It's so easy at this time to lie or cheat on your taxes but if we had a FST there would be no way to cheat and if implemented properly a sales tax would not be applied to essentials such as food, clothing, school supplies and such. People below poverty could even get a rebate depending on income. Since there would be no tax on essentials which is basically all lower income people have money to buy then they would end up with more money in their pockets to buy the essentials. You would be able to get rid of the IRS and the countless expensive lawsuits it takes to enforce the current income tax system. Since wealthy people have more money and spend more they would still end up paying the majority of the tax.
This is the fair and affordable way to go!
Not to mention that we would not need the IRS any longer which would save a ton. We would just have to think of an option for homes, cars, boats, etc...
Seems to have bailed Russia out and we can't keep doing what we are doing and expecting it to get any better right? Simply crazy to me that the tax system we have now gets mishandled the way that it does. This could also fund no cost hospitals the way Brazil has. You can have insurance and go to the state of the art hospitals or walk into a free county hospital.
With the removal of the income tax and potentially other taxes ; a uniform sales tax placed on ALL purchases, including purchases for manufactured goods would be in the final product would be the same no matter who purchases it. Those with grater incomes would purchase more and hence pay more taxes. The end idea would be to tax based on use. If a person doesn't purchase a high dollar SUV they would not pay that expense. Perhaps they purchase a small economy car, they sales tax they pay on that would be equal to what they consume/purchase.
In contrast with income tax, there are rates applied differently at different levels of income. There are loop holes and deposits of income to countries outside the US to prevent being taxed. There are thousands of employees of a non-governmental bureaucracy that do nothing but add to the cost of taxation and have been know to apply tax laws differently. The fact that there are even many many tax laws should show how bloated this agency is.
In short a Uniform Sales Tax would equally be applied to everyone with a "tax what you consume" mentality
Instead of paying an income tax, people would only be paying a tax for items they bought. This allows the government to receive "tax" money from EVERY person buying items in the United States. Now take that in to consideration for a moment. If every person buying items paid a sales tax, that would include all of the tourists that enter the country, people who avoid taxes in the first place, and last but not least, illegal aliens.
Most people against this idea feel it would hurt the poor and benefit the rich. If you exempt the basic items that the poor consume, then it is possible for the poor not to pay any of the tax. For example, you could exempt milk, eggs, bread, fruits and vegetables, etc., to encourage people to eat healthy and not paying the tax for the incentive. Any behavior that we want to encourage our society to engage in could be exempt from the tax, thus giving the incentive to engage in that behavior, and the opposite would also be true. Any behavior that we want to discourage could be taxed, even at a higher rate, for example illegal drugs to discourage the behavior or to generate revenue to provide medical services to those that need it, instead of putting them in jail, which would be a cost savings.
The Federal Government spending is out of control. If the Federal sales tax rate was voted on by the citizens instead of by the politicians then the power of this country would be restored to the people. The money spent in the so called shadow market, including legalized drugs and all other retail sales would create enough tax revenue to run the Federal Government.
Yes for it would put an end to loopholes and everyone would be supporting our nation. Instead of just a few, would save government money by cutting down on materials used, employees, to run the way it is now and people would have their own money that they earned. Won't go into all the details but it would be better and millions of dollars saved.
The argument is that the top 1% wealth holders account for 25% of spending in our economy. They use this to justify the trickle down theory. The challenge is two-fold. For one, tax codes are written to help the wealthy shelter their income from taxation. This has created a very complicated and burdensome tax code and has also increased costs associated with the administration and enforcement of it. The simple saving to the federal government from just collecting sales tax (the mechanism is already in place at the state level) is staggering. More importantly, those buying big ticket items will pay tax. Currently, if a $5 million home is bought or $250,000 car is acquired by the wealthy, they have corporations and shelters set up to minimize the taxable value of these assets. They personally do not own the Bentley, their corporation does. By playing this tax shell game, they legally avoid taxes. Federal sales tax means they are forced to pay for their spending: all of it. For those worried about the poor, here is an option, have them save their receipts and at the end of the year those that fall below 60% of the federal median income for the country can file to get it back. Keep in mind, you champions of the poor, the states that collect sales tax do not rebate anything to the income-challenged.
In listening to the discussion, it struck me that a retail tax on goods and services, but no sales tax on wholesale or to make product - i.e. no Corporate or business would be paying any tax, would shift the burden to people. The high income earners will form businesses to shelter purchases from the 23% sales tax proposed. The rest of us, without money to manipulate purchases through shell companies will foot 100% of what previously was collected from businesses and Elitists (as well as middle income earners).
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I think that in theory this sounds nice, but in applying it I feel as if our debt deficit would increase, so I really don't know. I would need a lot more information on all of the details. If there is no payroll taxes we would not have social security. The Fair Tax is gaining traction because many people feel that our current system of taxation is unfair. But though it claims otherwise, this plan is no different. I see a bunch of loopholes for the wealthy.
Retail sales occur when businesses sell goods or services to households. Business-to-business transactions are not retail sales because the purchase is used as an input, not as household consumption. Household-to-household sales of goods or services are not included, either, since tax should have already been paid when the good was originally sold to a household from a business. For example, the sale of a newly constructed home to a family that will occupy it is a retail sale. But the sale of that same newly constructed home to a business that is planning on renting it to others is not a retail sale. Nor is a sale of an already existing home from one occupant to another.
Measuring the sales tax rate would seem to be a simple problem. Suppose a good costs $100 and there is a $30 sales tax placed on the item. Most people would probably consider that to be a 30 percent sales tax, since the tax is 30 percent of the selling price. This is known as the tax-exclusive tax rate. An alternative would divide the $30 tax payment by the total cost to the consumer ($100+$30), making it a 23 percent rate. This is known as the tax-inclusive tax rate. Sales taxes are typically quoted as tax-exclusive rates. Income tax rates, however, are typically quoted as tax-inclusive rates. For example, a household that earns $130 and pays $30 in taxes would normally think of itself as facing about a 23 percent (30/130) income tax rate.
Although there is no one true method of reporting the rate, it is crucial to understand which approach is being used, since the tax-inclusive rate will always be lower than the tax-exclusive rate and the difference grows as the rates rise. At a rate of 1 percent the difference is negligible, but a 50 percent tax-exclusive rate corresponds to a 33 percent tax-inclusive rate.
Both the Schaefer-Tauzin (S-T) and the Americans for Fair Taxation (AFT) plans would attempt to tax all goods or services purchased or used in the United States. Exemptions would be provided for business purchases for resales, purchases to produce taxable property or services, and exports. Expenditure on education would be exempted on the grounds that it is an investment. The sale of newly constructed single-family homes would be taxed, as would improvements to existing single-family houses. Already existing owner-occupied housing would be exempted. All financial intermediation services would be taxed. The tax would exempt expenditures abroad by U.S. residents and half of foreign travel, but tax domestic expenditures by non-residents. Notably, the proposals would tax all federal, state, and local government consumption items, as well as government investment in equipment and structures.
Although it seems like a great idea at first glance if you take the time to think about it, it is not as equitable as you think and could destabilize the US economy and places the financial burden on the middle class and poor. Most arguments say that it makes everyone pay their fair share but it doesn't really. They say it will eliminate tax shelters for the rich and businesses but it doesn't. In fact it has the potential to destroy the US economy. Even if necessities are untaxed which isn't guaranteed the rich would just buy in other countries to save 23%. Foreign investors in US companies would look for investments elsewhere where they can save an instant 23%. High dollar luxury purchases suddenly move overseas. Why would anyone want to pay 23% every time they made a stock purchase. Most investors would look to invest overseas or use foreign banks and brokerage firms to avoid paying sales tax. The tourist industry would suffer. My dollar is now worth 23% more if I go to Canada, Mexico or Europe. The only people that wouldn't be able to afford that is the poor or lower middle class. If there was no IRS or income tax than most likely you would have to pay sales tax on housing, food, medication and other things that were tax free. A 15% flat tax would be more fair. With a Flat Tax you could still eliminate the IRS and filing taxes, loop holes, etc. With Fair tax you are just creating easier loop holes and ways to avoid paying taxes. I could go on. This is just me thinking about it for an hour or so. Flat tax not Fair Tax!
While seems good, and I even was on the yes side initially, it will hurt the very poor. While I agree, the rich will pay more of an equal share without being able to use loopholes, very poor people may not have to pay an income tax at all due to a very low income. Therefore, taxing on their basic needs will add to their tax burden that they cannot afford. However, a flat tax will help eliminate the wealthy loopholes, while allowing the very poor to not pay high sales tax on basic needs they can barely afford now.
Unless all basic necessities are tax free, any consumption tax will affect those who have less more then the wealthy ones. This will cause the poor to have even less to spend, which will increase their need for additional assistance, or the spiral into abject poverty. Consumption taxes do not bring in more revenue and are a ruse used by the rich to relieve themselves of the burden of providing for those they exploit for profit.
Elderly living on social security alone and disabled vets would now have their living expenses increased. VA benefits and social security were not taxed with the income tax. This would be devastating. Food stamps would have to be increased. More people may become homeless. Guess maybe an 80 year old woman could get a job so she could pay her "fair share".
The leak is in spending; fix the leak and then we'll figure out how to decrease taxes. Otherwise, this is just an alternative way to raise money that will be wasted. Many people confuse *lower* taxes with *fair* taxes - which is an oxymoron in the first place: "fair" and "tax" shouldn't even be in the same phrase.
If you actually do the math, you'll find that this doesn't lower anything; just moves the costs from the rich to the poor. I think those who earn their money should keep it - including the rich. But creating a vast economic gap between the rich and the poor is not exactly the way to avoid a 1780 France. Do we really want to eat cake?
Think about it. Say, someone makes $30,000/year. Under current (2014) brackets, they'll pay income tax (15%) on $21,074 of it. That's a $3161.10 tax liability. Fair Tax is going to be about 23%. Let's say they spend $1300/month on rent, utilities, and groceries (all supposedly exempt from a nation-wide tax...But since when has our government agreed to permanently exempt anything?), and the remaining $1200/month goes to gas, clothes, non-grocery items, furniture, electronics, entertainment, and dining out. That's $14400/year, which, in a 23% tax comes to a $3312 tax liability.
And that's if our notoriously waffling government keeps it at 23%.
Besides hurting those with lower income, we're tempting people to buy internationally, producing a shortage of American jobs - and tempting people not to buy at all, which is good for long-term economy, but fatal short-term. We shouldn't punish for earning money, but should we punish for providing the means for people to earn money - i.E., buying? We're supposedly putting the IRS out of business, which sounds great, except we're transferring the workload from them to the shoulders of the sales tax collectors - businesses. That will be doable for the large retail stores, but small businesses spend hours every month (I know; I used to be a bookkeeper for a small store) filing taxes. Do we really want to make it harder for them to make ends meet?
The tax system needs serious work. But I think people are so in love with the "Fair Tax" name, they aren't paying attention to the ramifications.
People must pay their bills and put food on the table, so they must earn an income. The purchase of a particular product, or any beyond the necessities, is contingent on numerous individual factors, such as financial stability, disposable income, and current obligations. Additionally, the calculation of Gross Domestic Product involves the analysis of governmental income based upon verifiable and stable sources of tax revenue, whereas the proposed system would shift government income to a system that is unpredictable at best and mathematically chaotic at worst. Imagine experiencing stock market declines on the governmental level such that nations begin to rise and fall according to market trends. That would be the result of this move. Furthermore, the combination of income and sales taxes would introduce the same element of unpredictability while also straining the open market by causing immediate false inflation. The only viable application I can think of for this idea is the introduction of federal sales taxes on cheap, high-traffic products such as alcohol and cigarettes, treated as windfall profits for government, and used to soften budget deficits in an intentionally unanticipated manner such that fiscal year outcomes become perpetually better than expected.