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In Reply to: RE: Support the FairTax... posted by gymwear5@hotmail.com on April 8, 2008 at 08:04:22
NT
Follow Ups:
Yes, but only new houses - and remember those that build the houses will not be paying an income tax and neither will you, so the combination of the reduced house cost to build and the increase in your take home pay will make it about a wash! Experts say that the housing market will probably be a bit enhanced (slightly reduced prices on new homes) because the big money investors that speculate for a tax write-off basis - won't have to worry about that - there will be no income taxes to write-off against!
As this so called "idea' says you will take home your whole paypacket, where is the reduction in costs?
In fact, any reduction would be as the developer would not pay tax on his profits, but as the new tax falls on the whole price and not just the profit, it sounds as if prices for new houses would be massively increased...
OK let's make this simple - instead of making it a Developer - lets' make is an individual - the concept is the same. $100,000 House, OK?
Now:
Individual builder the house it costs him $90,000 in materials and labor, so he makes $10000, pays himself about $6000, pays the government $1650 for SS and Medicare, and figuring a middle income 35% income tax bracket - minus deductions - gets him to maybe 23.5% or $2350 for a total income tax of $4000. The materials also had labor costs involves and even the management of his suppliers products paid some income tax. Buy the time we get all those that are involve in the construction of the home - the embedded tax comes to an average of about 22%.Under the FairTax, the Builder and his suppliers don't have to contribute their portion if income and Payroll taxes - but the builder does have to pay a FairTax on his supplies that he later can write off against the 23% tax ($23,000) he owes the government as the completion of the sale of the house. Simple right?
Same holds for corporations that just pass their income tax burden onto the products they sell anyway! Another hidden tax done away with by the FairTax! All the taxes are exposed!
Going back the the Builder and his income tax, he pays the highest percentage of tax (on his income) 40% and has invested the most labor, the most risk - how fair is that? Some supplier just touched the sale for a moment and he only now pays a small 15-20% embedded income tax on his value added to the project.
The housing market is going to love the FairTax - except for the illegal immigrant labor and independent, cash only, income tax dodging, subcontrators that will now have to pay their FairTax when ever they pay rent or purchase something.
Let's assume that new homes cost less and that at least the tax on new homes helps old homes by not devaluing them by 23%. You still have a real problem with home prices because of mortgage deductions.
Since most regular people's wealth is in their home, they'd be creamed by loss in thaty equity. I can't see how home prices don't go down by 25-30% at least. Right now, a $2,000 mortgage is reduced to an effective $1,400 or $1,500 after tax savings at a marginal 30-35% rate. So now, I'm only willing to pay $1,500 per month, so the house has to be less.
-Rod
New home prices stay about the same, used home prices stay about the same. only about 40% of home buyer's use the itemized home mortgage deduction. But wait! Today, A renter looking to move into a house has save a little nest egg for the down payment, and looks at his rent and says - gee for the same monthly payment - the person makes 40K/Year and is in the 15% tax bracket the monthly payment on an 80K loan @6% is 480/month and lets assume 450/month is the interest. That is $5400 interest/year at least for the early years of the loan. The person will be able to deduct 15% of $5400 of of his income or $810 or $67.50 per month.
With the Fair Tax he will not be able to deduct anything from nothing - because he pays no income tax! The Fair Tax is equally Fair to homeowners and renters!
Also note: renter pay 23% tax on their rent - a new home buyer amortizes that 23% over the life of the loan. But remember the price of the home is the same with or without the FairTax!
"The housing market is going to love the FairTax - except for the illegal immigrant labor and independent, cash only, income tax dodging, subcontrators that will now have to pay their FairTax when ever they pay rent or purchase something"
Ummm.....I assume you weren't aware that most General Contractors "Sub" everything out.
Now, let's make this simple. I'm an "illegal immigrant labor and independent, cash only, income tax dodging, subcontrator" and so are the rest of my brethren. In a market that needs stimuli, I'm now driving my own cost of doing business up to absorb these new tax duties I have, which means passing that on to the General Contractor, who in turn will pass that on to the market, which as I said, is seeing their homes worth less.
It's interesting......many could be put out of work, but older homes in more affordable markets could come into greater demand.
This, by the way is what my wife and I are experiencing with our home. The McMansion owners are taking a hit, but the value of our home is actually rising.
It's a great time for bargains.
So people today have decades of money they've saved on which they have paid income tax already. So is this supposed to now be taxed again with a 23% tax on purchases? What is fair about double taxation?
If not, is there going to be some system to indicate which dollars have already come post-income-tax and which have not? How is this going to work?
I always question simple answers to complex problems. The more you look, the less simple they are.
Saved money is never taxed, just as invested money is never taxed. And, of course, with the FairTax, the returns on investments are not taxed - whether it is capital gains or dividends or interest. The only thing that is taxed is when you purchase something new! Say you are an older person and you've saved and saved for years and you have a little nest egg, you are ready to enjoy the fruits of your self control, and buy that McIntosh System you always dreamed of. First, you could buy it used and pay no FairTax because is is used, the tax was already paid on it (either by the Fairtax paid by its original owners or the embedded income tax by those who bought it if purchased by origionally before the FairTax came into effect. This embedded tax concept is key to understand this scenario.No, you want to buy a Brand Spanking New MC402, Control Center and all the accessories from your favorite audio dealer, About $20K price. You go to the dealer and pay him $20K - the Tax is embedded in the price, just like the income tax now is is embedded in the price of goods and services. Only now the embedded income tax is hidden through the maze of suppliers, the manufacturer, and distributer and even your favorite dealer - all those that touch the item you wish to purchase. With the FairTax the tax rate is 23% and if government wants to raise it it will be obvious to everyone. The Republicans want to fund another war and say they need another one percent - all hell will break loose. Same thing for Hillary or Obama Care! It's TOTALLY FAIR!
Money on which income tax has been paid should not be taxed again. This is blatantly unfair. This amounts to an instant inflation rate of 23%.
For people who did not pay income tax on income in the first place, maybe they would be willing to accept this instant inflation. I guarantee savers like myself would not accept this for a second.
Unless you provide a means to avoid double taxation, this proposal is dead in the water.
It is fantasy anyway. No tax is "fair" to everyone. Someone always wins, someone always loses.
Wrong, since the price paid on the goods is the same - not 23% higher. Who cares! In the current system - a person buying a object for 100 dollars is paying a portion of that money to cover the income tax payments of others - you could argue that is double taxation, too! except that the income tax is (like a VAT) is hidden through the maze of labor leading up to the sale of the product. With the FairTax it is visible on the receipt!
You are imposing a new 23% sales tax and the price is going to be the same?
Sheer fantasy.
Let's get real here. I know my income and my spending and I will end up paying about 1/3 of my current federal taxes under the fair tax. That's great right? But this is supposed to be revenue neutral, so that means someone else will end up paying more taxes than they do now.
So you have winners and losers. The winners will think this is fair. The losers won't. You don't get a free lunch. You don't get the same amount of tax revenue with everyone paying less taxes.
Winners are those that spend comparable or less than their income, losers are those that spend at a higher rate than their income. The prices will more or less remain the same because competitive pressure will force companies to reduce the price to match demand - and they can do so because they will not have the embedded cost of income and payroll and corporate taxes. My salary will be adjusted downward toward my take home pay, for instance.
At least you admit there are winners and losers. People with high taxable incomes and low spending will be big winners. I would be a big winner. Then again, if salaries reduce downward as you suggest, then we're not as big winners as I first thought.
People with low taxable income and required spending (shelter, transportation, food, clothes) are the losers.
In dollars, there have to be as many losers as winners.
I'm not sure what you're so hyped up about anyway. I live in a state with an income tax and a sales tax and I can't say one seems any more fair or unfair to me. I'd like to see responsible government spending rather than tax gimmicks.
Only if you believe it's a zero-sum game.
"Man is the only animal that blushes - or needs to" Mark Twain
What economic growth is a 23% national sales tax supposed to provide measured against an equivalent income tax burden? Why would a sales tax be any cheaper or easier to administer than an income tax? Do you think savings will accrue due to the different nature of the tax? If so, why?
The main economic growth is because of the elimination of on of the highest corporate income tax rates in the the world that forces our prices higher - in Ireland where tax rates have been reduced dramatically business is booming. Here in the US corporations make many business decisions based in the tax consequences instead of the business case... for instance moving a manufacturing operation to another country or state that provides tax relief - this alienates the local workers and adds to government relfare costs through unemployment insurance or reduced (shall I say it) income tax revenue.
As for winners and losers - the current system rewards losers and penalizes those that are conscientious. The FairTax reverses that while maintaining a constant "safety net" that eliminates the cost of the basic taxes.
Yeah, just those nasty rich folks. And a few million thrify grandmothers.
And what about the stock market? How does that get taxed? Every time you trade? Instant profit recording and payment? Take 23% off all the money you deposit in an eTrade account? It seems to get complex in a hurry. I like the idea, but it ain't happening anymore than a flat tax will fly.
Butt why not legalize and tax marijuana? It'd be a huge windfall and do wonders toward winning the war on drugs and solving the gang problems that are strengthened by the drug trade.
-Rod
There's no money in legal marijuana, It's too easy to grow your own.
________
"Occasionally we list eccentrically, all sense of balance gone."
The poor are still to be taxed on everything whilst the rich aren't.
In your world that may pass for fair, but not in mine.
If work was so good for you, the rich would do more of it.
No, every one, including the poor receive a stipend to cover the tax on the "necessities of life" - determined by the number of people in the household.
NOBODY, even the poor is taxed - in fact they receive that stipend - called a "prebate" prior to every month and are free to use it on any purchase and even carry over any left over from month to month.
Don't be lazy, go to the FairTax site or read either of Linder's books on the subject. This stuff is spelled out there.
For Americans from the right to be proposing such a system is an extremely odd event.
I would have thought vouchers for a sponsoring supermarket would be a more typical way to go.
Do you remember food stamps?
The more we change, the more we stay the same.
Dave, with the exception of those who inherited it, how do you think people get rich. Everyone that I personally know who is rich is a very hard worker and a SMART worker. Sure they don't physically work hard like a coal miner, but they sure work smarter than a coal miner. And most took risks that would have cost them everything they owned had their risks not succeeded, myself included.
You need to stop resenting those who have more than you and start focusing on why you don't. Come up with a good plan or product, take some risks and hold own. Assuming you work hard (probably harder than you've ever worked) and your idea is a good one, you may become rich also. But stop blaming others for your lack of initiative.
Let's say I'm very wealthy and don't hold a pay-for job anymore - I have investments that make money for me. Today I don't pay any social security or medicare tax (the payroll taxes) and my capital gains on my investments are taxed at only 25%. So the effective tax rate on someone wealthy is much lower than a typical worker that pays 16% up to $100K income on payroll taxes and 20% or so on the adjusted gross income.
The wealthy guy though buys stuff all the time....expensive stuff, too and he will not be able to avoid the FairTax consumption tax.
This Progressive part of the tax is where most of the 1% difference in embedded tax (22%) and the FairTax(23%) is made up.
Who else is similarly effected (no income tax payers but will be FairTax payer? Criminals - those that buy legal stuff with illegally gained funds. Undocumented workers, those that spend inherited money. The so called death tax takes effect only on the value of estates above $1 million or higher.
The FairTax is Fair!
If he is buying art (not the initial purchase), vintage or classic cars, motorcycles and boats, antique furniture, vintage collectible jewelry, vintage watches, antique oriental carpets, older houses, "used" champion eventing or cross-country horses, champion dogs if they have already changed hands at least once, archaeological or paleontology artifacts, ultra exotic audio gear as long as it is not purchased new, first printing collectible books, first pressing collectible records, etc. all those purchases are not taxed as I read the description. If I had it and was so disposed I could easily spend hundreds of millions without being touched by the tax.
That's true.... I'll be able to buy that classic Porsche I need for my mid-life crisis
z
Thank you for agreeing with me.I have no idea why the rich need you to speak for them but I guess they thank you anyway.
I have absolutely NO resentment towards "those who have more" than me.
But I do not despise those who have less, much less, and I can only speculate why you do or at least appear to.
Your final comments show exactly how little you are aware of.
Obviously you have not followed or joined in many threads here or you would know more about my background.
Perhaps that is not surprising though, as it may be too much like hard work for you to read much.
And I have no idea why ANYONE in America needs you speaking for them.
Oh, and BTW, I'm new around here. LOL
I doubt I speak for anyone except myself.
... sometimes the people who think them up in an attempt to cover their real agenda.
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