Sunday, September 18, 2011

Fair Tax: My first impressions

I have a friend who really enjoys political discussion on his Facebook page. Unfortunately, he also posts about 15 things a day, so it's hard to keep tabs on some of the conversations. Anyway, he is a fan of the 'fair tax' idea (a progressive flat tax system that does not tax business investment) I visited their website Fair Tax, and as I read about it, I wrote down my thoughts on his page. So, they may not be as wonderfully well written or thought out as most political analysis on the web*, but here it is in raw form. Other posters have had their names reduced to initials for privacy.

In a nutshell;
1) It still is not nearly as fair as I had hoped (prebate value will vary depending widely on where you live)
2) It might be somewhat simpler than our current system
3) It would likely encourage business growth for companies already in business, but I wonder if it would help new businesses spring up or stifle new businesses
4a) I'd be more likely to support the no tax on business part if there was a way to make this only apply to businesses that keep most of their jobs in the states (to encourage more US growth)
4b) Alternatively, they *could* tax businesses, and make the overall tax rate a bit lower.

FB entries:
Please explain your idea of "a flat tax and progressive fair tax." Because the flat tax has been shown to affect the poor the most, I'm interested in how the progressive part of your tax plan would balance that out.

Go look at's the best way to address your questions for flat/fair tax..... Troy: Thanks, will do

@ JC & @JB, I skimmed, and will look into it more soon. One thing that concerns me is that the sales tax rate at the store is different for different people. How will the store owner know which level to charge someone? (I need to look into the 'prebate' part more) Because, it would really suck if a poor person had to let every cashier know their income level when they are in the checkout line. Going to look into that part more.

Ah, found it here: Fair Tax Prebate FAQ It's money paid in advance to lower income people, and then they pay the same tax rate at the stores as everyone else. People could game that a bit, and if the table becomes out of date lower income people would get taxed more than when the system is put in place. Also, the table does not appear to take in consideration local variances to things such as housing & gas, which can be huge. Nor does it take into consideration massive price fluctuations on gas, which tends to be seasonal (anyone here buy gas right before labor day?) If it *did* take in consideration local variances, then people could really game the system, particularly those with long commutes to work, or those who have an address in San Francisco, but spend 5 months a year working in Portland as part of their job. I think this is one of the reasons they didn't include it. It would get too complicated. Either way, it doesn't seem as fair as I had hoped when I first heard about it. But, it may be more fair than our current system (which isn't saying much). Now off to research actual annual tax that someone making $250+ k would pay with this system compared to what they pay now. Fun site!

Please do troy, I haven't seen anything that would have them give their income level, the tax charged would be the same to everyone, and everyone would get the prebate.....

"the tax charged would be the same to everyone, and everyone would get the prebate...." Got it, I just want to do a little bit of work on whether people that make more money would continue to spend more money under this new system. One potentially funny side effect would be for the super wealthy to slowly replace their worn out spendy cars with Hyundai's as a form of tax evasion ;) Or, maybe they'd just do what I do, and drive one vehicle for 14+ years before buying a new one.

One contradiction on their page regarding running a business: They estimate that this type of tax system will simplify paperwork, and encourage more international businesses to open up shop or move here & domestic businesses would have an easier time with paperwork and TAX FREE BUSINESS purchases, thus encouraging more business growth. And therefore, less paperwork means no need for the IRS However, because this could be an easy way for people to evade taxes (make a fake company, and buy goods for their own home with them), there would be an institution created to ensure this does not happen, with a much higher chance of being audited than with our current system. So, sounds to me like both forces cancel each other out, and I doubt more domestic businesses would spring up under this plans for those reasons stated alone. Maybe other benefits of this tax system would encourage it.

Finally, I'm confused about their own graph that represents where revenue would be gathered.They say the same amount of tax would be gathered, but in every category listed in this graph, the amount is less: Fair Tax revenue Graph Although they *do* say more people in each category would pay taxes, such as illegal aliens & visiting tourists (just like I do when I go to Canada if I forget to fill out the exemption paperwork) Not sure I buy that counter argument.

Final thoughts on fair tax for now:
1) they imply that it would stick to 30%/23% but from what I have read, the number can automatically shift to keep it revenue neutral to today's amount of tax. I did not see anything to deal with inflation.
2) They claim it's a bipartisan bill, but I only saw one Dem senator & and 1 Dem rep out of 70 co-sponsors. Not saying it's not a good bill, just saying that their own site is deceitful on this point.
3) I could get behind the 'no tax for items bought for business use' if there was some provision that it be used for a business who keeps their most of their jobs in America. This would be potentially hard to implement, but if it could be implemented, it would help more US citizens get hired, rather than be outsourced

*yes, that is a joke.