Is the Fair Tax Fair?

by Joni Douglas

The nation should have a tax system that looks like someone designed it on purpose . ~William Simon

There is a lot of talk going on these days about the Fair Tax. Folks are talking about the Fair Tax vs. the value added tax (VAT). The VAT tax is getting mixed up in people’s minds with the Fair Tax, because they both are a form of a national sales tax. The VAT tax that certain members of Washington are considering right now, would be in addition to the income tax and all of the other taxes that we currently pay. The major difference is the fair tax would be instead of the income tax and all of the other taxes we currently pay.

Did you ever notice that when you put the words "The" and "IRS" together, it spells "THEIRS?" ~Author Unknown

What is the Fair Tax?

I want to like the idea of a Fair Tax; I just don’t know enough about it. Some of the politicians that I admire are all for the Fair Tax. So I did some checking to figure out why. The first thing we need to do is define what the Fair tax is. I found this definition on Wikipedia that simplifies the whole thing down to a single sentence. ”The Fair Tax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national consumption tax on retail sales. “

This is a very simplified definition to be sure. Article after article has been written about it, some are all for it but there are a whole lot of people vehemently against it. There is absolutely no way we could cover all the information about the Fair Tax in this article, so we will just stick to the basics of the plan.

The first thing that people realize about the Fair Tax is that no federal taxes would be withheld from their paychecks, and that includes Social Security and Medicare withholdings. Initially, that sounds like a great plan. That also means individuals would not need to file a tax return at all.  April 15th would be just another day.  We would totally do away with the IRS and all 20,000 pages of their regulations.  We would all receive our full wages.  State and local taxes would still be deducted as would any other deductions you normally have taken out of your check, however.

So far, I’m liking it. There’s something about seeing all of those IRS agents looking for work that appeals to me. Maybe that’s not fair, given the economy and all, but nonetheless, just the thought of it makes me smile.

Okay, so here we are with all the extra money in our paycheck. How do we pay taxes? Well, with every purchase you make, you will pay a national sales tax. There are a lot of arguments as to what that percentage would have to be, in order to match the revenue received by all the various taxes which would no longer be collected. Some argue the tax would have to be as high as 33%, but the writers of the bill place the percentage at 23%. Either way, it will be a noticeable increase in the purchases we make.

Now I understand that the retail price of any given item currently includes a certain amount of taxes before it ever hits the retail market.  These would be taxes that were levied against the raw materials to make the item and would also include any taxes levied against the item during the manufacturing and distribution process. Estimates of these taxes placed upon products are as high as 22%. These taxes would be totally eliminated making the actual price of the item less. So the product would sell at a lower price and this would be the amount that the sales tax would be figured on. It sounds kind of complicated. But I understand this much, people will get a lot more money in their paycheck but everything they buy is going to cost more.

Right now, we have a graduated tax. This means that people, who make a lot of money, pay a higher percentage of taxes than those making less money. The Fair Tax would charge every one equally at the cash register. But as logic tells us, people who make lots of money also spend lots of money. So the actual amount in taxes that they pay will still be much greater than those don’t have a lot of money to spend. Although the Fair Tax is not a graduated tax, because the percentage would be the same for everyone, it would be a progressive tax because those that spend more will pay more.

So how does this help the middle class or folks nearer the poverty level? Here is where it gets really complicated.  I’m going to try and explain as best as I can from what I understand. First, let me say these poverty guidelines are set by the Department of Health and Human Services. Using their guidelines of2003, the poverty level was set for a family of four at $24,240 annually. Using that family of four as our example; means that this family, would be able to spend up to that amount tax-free.  The Fair Tax would provide the family a monthly prebate check of $465 that would cover the sales tax for that month.  

[23% (the tax rate) of $24,240 (the yearly poverty rate)equals $5,575 which divided by12 months equals $465 (the amount of the prebate check) a month.]

Stay with me now. The Fair Tax is going to pay the family $465.00 every month to offset the 23% rise in the cost of the sales tax added to the retail products that they buy.  So, if this family spends less than $24,240 a year, then they actually make money and no taxes would be required from them.   But if they spend more than $24,240 a year, they pay taxes.  

Let me phrase this in a different way.  If you divide the annual amount of $24,240 by 12, you get $2,020.00.  The sales tax of 23% on $2,020 equals $465. The government is going to assume that a family of four living at the poverty level, making only $24,240 a year, will spend $2,020 every month on new purchases, including food, gas, and clothing. So, the rebate check of the $465 that the government will issue every month is to cover the cost of the sales tax of the $2,020 worth of spending each month.  Every American family will receive a $465 every month. The money is not tied to purchasing; it is yours to spend or save as you will.

The first $24,240 spent every year then becomes tax-free. If you spend more than that amount, the sales tax is paid out of your income. For low income families and the middle class, would be exempt from paying any taxes until their spending exceeded the $24,240 a year. Under the Fair Tax all taxpayers would sit pay the same rate of taxes, the 23% sales tax. 

The special rates for special circumstances of our current tax system violate our Constitution and can place unfair burdens on many taxpayers. The Fair Tax allows every family to control their tax liability through their spending. Their spending habits will determine the amount of taxes that they will pay. Basically, the more you spend the more tax you’ll pay.

You can figure out what your tax liability would be under the Fair Tax click Calculator

To learn more about the Fair Tax click Fair Tax

Or visit their website click Fair Tax Org.

What will be taxed?

The Fair Tax is a federal retail sales tax. This tax is collected only once, on every new product purchased for personal use. Used items are not taxed.Business-to-business sales are not taxed.

What taxes will be eliminated?

Unlike the VAT tax, the Fair Tax will replace our current tax system. That means it will replace the federal income tax including individual and corporate income tax, estate, gift, capital gain, dividend, alternative minimum, payroll, Social Security, Medicare, self-employment, and corporate taxes.

Summary of the Pros of the Fair Tax

The Fair Tax is one national sales tax; a fair, simple, transparent, easy to collect, harder to cheat, revenue neutral, end-of-sales process consumption tax, can collect the same tax revenue, if not more, than our current tax policy. Every American, no matter how they earn their money, will pay their fair share. Folks will have more of their own money to spend. The economy will be stimulated which will create jobs and bring in off the shore capital. Everyone buying new products in the USA will contribute, that includes visitors both legal and illegal.

Summary of the Cons of the Fair Tax

Studies show that the actual tax rate would have to be much higher than 23% in order to make up the revenue that would be lost by eliminating other taxes. This would certainly lead to higher levels of cheating and tax evasion requiring intrusive enforcement. The end result may be a marked shift in the tax burden from the wealthiest Americans to the middle class as many of the wealthy would purchase their expensive products outside of the USA, to avoid the sales tax.



The income tax created more criminals than any other single act of government. ~Barry Goldwater



If you would like to support the Fair Tax

http://www.fairtax.org/campaigns/support_fair_tax.html

For an in-depth read or for printing

http://www.pafairtax.org/resrcs/FAQprint.pdf



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Comments 82 comments

thevoice profile image

thevoice 6 years ago from carthage ill

Terrific first rate hub facts great write you have my vote thanks


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you very much, thevoice.


American Romance profile image

American Romance 6 years ago from America

The best part is if you dont want to pay taxes then dont consume! and billions in drug trade would at least start paying off! if a drug dealer buys a million dollar home then he pays just like us!


Joni Douglas profile image

Joni Douglas 6 years ago Author

Yes, then they would also be paying taxes.

Good point. Thanks.


TinaMarieTad profile image

TinaMarieTad 6 years ago from Michigan

Joni~~ Great article! Very informative. I have always thought the fair tax attractive but did not realise exactly how it worked. Thanks for the great information!


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you TinaMarieTad, appreciate the comment.


electricsky profile image

electricsky 6 years ago from North Georgia

I didn't even have to read much of the article, because no taxes seem fair especially if a person doesn't have enough money anyways.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Did you read enough to know that low income folks wouldn't be paying any taxes? I know it is confusing and I sure thank you for your comment.


mystere profile image

mystere 6 years ago from Southern California

If there is one group who would hate this idea, it would be those politicians who like to spend our hard earned money on earmarks, and other pork barrel "frills".


Joni Douglas profile image

Joni Douglas 6 years ago Author

I think so too mystere. Thanks for your comment.


SOBF profile image

SOBF 6 years ago from New York, NY

Joni

Excellent explanation of the fair tax but I'm not understanding the prebate theory. Are you saying that the government will send every family a check or just those who qualify as low income?

If the latter is the case would not those who are middle income pay taxes on a much higher percentage of their earned income (due to their lack of ability to shelter income) than the wealthy, making the fair tax regressive?

Another concern surrounding the fair tax is the long term affects it would have on the manufacturing industry due to the incentive to purchase used items in order to avoid paying the tax. New items would be in less demand, causing losses in jobs and tax revenue. How would the fair tax adjust for this?


Joni Douglas profile image

Joni Douglas 6 years ago Author

From what I understand, everyone would get the prebate checks to offset the first 2,000 spent every month. Business is not affected, they don't buy retail. Wholesale and business to business would not be affected. Thanks for your comment. I hope I helped clear that up for you.


SOBF profile image

SOBF 6 years ago from New York, NY

Joni

I ask because at one time I was a big fan of the fair tax but these question were raised to me.

The question regarding businesses related to say a new car dealership selling a new car now for 30,000. With the fair tax the price of the car would raise to about 37,000 while a used vehicle would actually remain the same because it would have no added tax. This would cause the demand for used cars to increase dramatically while the demand for new cars would fall. Car makers would make less new cars, workers would get laid off and tax revenue would drop when unemployment increases. This example could be applied to a multitude of industries.


Joni Douglas profile image

Joni Douglas 6 years ago Author

SOBF, from the stats I looked at, the initial price of everything even those associated with a making a new car would go down. Think of the costs that go into making a car. Even the payroll taxes are included. The raw materials to make the car are taxed now and under the Fair Tax those taxes would be eliminated. So the final sale price would be less to start with but yes, the price we all would eventually pay would be more with the new tax, but we would also have quite a bit more of our own money to pay for things.


SOBF profile image

SOBF 6 years ago from New York, NY

Joni, I'm not sure what you mean by the cost will go down. Companies don't currently pay taxes on raw material or anything else that is purchased for resale. Where are these savings coming from?


Joni Douglas profile image

Joni Douglas 6 years ago Author

I am only going by what the Fair Tax information stated, that taxes and costs were incurred on products throughout the manufacturing and distribution process. Taxes on payroll and overhead costs would also be included in those costs. The products would be cheaper to make, because these taxes and costs would be eliminated thus not adding to the cost of the product which would allow the cost to be lower at the retail level.


Hank Van Gieson 6 years ago

Joni,

Sorry to be late to the party! Here is what is most likely to happen to retail prices. If we all get 100% of our pay/pension, then only business tax related costs can be used to reduce producer costs. What are those costs?

Using 2007 actual federal revenue data, businesses had $9.5 trillion in retail sales. Businesses paid $291 billion in income taxes or 3% of sales. Businesses paid $435 billion in payroll contributions or 4.5% of sales. And businesses had $147 billion in compliance costs or 1.5% of sales. Add them up and business tax related costs as a percent of sales was 9% on averager across 20 million retail businesses.

Reduce producer costs by 9% and add the 30% sales tax and retail prices will rise by 18% on average. (1.00 x .91 x 1.30 = 1.18) Simple math which everyone should understand.

Using a different years data might change the result a little, and some businesses will have greater or lesser price increases than others, but on average retail prices will rise by 18%.

Hope this helps!


ripplemaker profile image

ripplemaker 6 years ago from Cebu, Philippines

Your hub has been nominated on the Political and social issues for the Hubnuggets. Isn't that good news? Taxes are really something we should try to understand and even it gets lost on me too. lol :) This link will take you to the Hubnuggets: http://hubpages.com/hubnuggets10/hub/HubNuggets-Pi...


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks Hank Van Gieson, for helping to spell that out. Appreciate the input. Do you think it will be a more fair tax system?

ripplemaker, thanks for the link and the nod. I am very pleased that this hub is being considered for Hubnuggets.


Hank Van Gieson 6 years ago

Joni,

Unfortunately, the Fairtax is not fair for retirees such as myself. There are two transition issues for which I see no fair solution. First, all my after tax savings that I'm living on will be double taxed under the Fairtax. And, after paying into the SS Trust Funds for 45 years or so, under the Fairtax, I will be forced to resume paying for my benefits with my sales tax dollars. Not fair!!!

I do believe that a national consumption tax would be better for our country than the income tax. But I'm not sure the Fairtax scheme is the way to go. How about a 12% consumption tax with no exceptions that replaces just the income tax, no taxation of government consumption, no inventory tax credits, a targeted prebate for just the poor, and phase the whole thing in over five years or so. Might work?


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for your quick response Hank. That is a very good point, seniors would be hit with this tax harder than most. I did not read anywhere about phasing this in or anything addressing this particular issue of double taxation. But my guess is, proponents feel that the prebate check would offset the major portion of senior's tax obligation. Of course, to my way of thinking, cutting out the outrageous spending would benefit America the most.


Hank Van Gieson 6 years ago

Joni, you have nailed the real problem. It matters not how the federal government is funded. What matters is how and how much revenue is spent. I wish the energy of the Fairtax supporters would have been spent supporting a "10th Amendment Commission" or whatever, that would be charged with reducing the size and cost of the federal government by 10% annually until we get back to a constitutionally appropriate federal government.


Pamela99 profile image

Pamela99 6 years ago from United States

Joni, Very good hub on Fair tax. A couple of things I like about the tax is everyone pays, including criminals, drug dealers and tax cheats. If you purchase items, you pay. That is a plus. I thought you explained the way the tax works very well.


Hank Van Gieson 6 years ago

Pamela,

But everyone doesn't pay, at least net of the prebate. Turns out 30 million workers won't pay any net federal tax annually due to the prebate. Compare that 30 million to the less than 1 million workers today that pay no income tax and qualify for the refundable tax credits in an amount to totally offset their 7.65% payroll contributions. Do you think that having 30 million workers disconnected from the cost of the federal government is a good thing?


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks Pamela99. Appreciate the feed back and the compliment.

Hank, there may be a quite a few that don't pay any taxes due to the prebate, but think of all the 'workers' as Pamela99 suggests, that aren't paying anything right now. They will all be included in paying under the Fair Tax.


Green Lotus profile image

Green Lotus 6 years ago from Atlanta, GA

Joni congratulations on a Hubnugget nomination and an excellent Hub. You are so clear and concise. Even your responses to comments are excellent! Welcome to HP and thanks for putting this out there.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you Green Lotus, for the welcome and the compliment. I am pleased about the nomination, of course, but I am really impressed and fascinated by HubPages. I am learning so much.

So I wish to add my thanks to everyone in the Hub community.


Hank Van Gieson 6 years ago

Joni,

With all due respect, you are missing the point. True, half of Americans pay no income tax. But all workers pay the 7.65% payroll contribution. My data shows that less than 1 million workers today can use the EITC and Child Care refundable credits to completely offset their payroll contributions.

Under the Fairtax, 30 million workers would pay no net federal tax annually, yet would still qualify for government pension and health care benefits. Part of the reason the number of "free loaders" is so high is that AFFT revised the HHS poverty level upward by 25% in order to get rid of a perceived marriage penalty. For instance, the HHS poverty level for a family of four is $22,000, yet the AFFT poverty level for four that drives the prebate amount is $29,000. As a result, actual IRS data shows that 30 million workers won't pay any net federal tax. I don't think that is what our nation is all about!!!


Joni Douglas profile image

Joni Douglas 6 years ago Author

Hank, according to IRS tax information for 2006, the percentage of Americans not paying into the tax system was 41% of the entire population and that number is growing.

The Fair Tax is looking at the whole population in America not just workers.


Hank Van Gieson 6 years ago

Joni,

Fairtax advocates are fond of claiming that the prebate untaxes families with incomes less than the AFFT adjusted poverty level. My question originally was-"How many folks does that include?" My Initial answer was 50 million, but 20 million of those folks were retired and would not be still paying into the SS Trust Funds. Thus, my estimate that 30 million workers would pay no net federal tax due to the prebate.

I was curious just how many workers pay no net federal tax today, and using the same IRS date, it looks like less than 1 million workers (1) pay no income tax, and (2) qualify for refundable tax credits in an amount that totally offsets their payroll contributions, resulting in those workers paying no net federal tax.

30 million versus 1 million. I'm concerned!


sheila b. profile image

sheila b. 6 years ago

This is the best explanation I've read.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you sheila b.

If the Fair Tax ever hits the floor of Congress, it will be interesting to watch the national debate.


Springboard profile image

Springboard 6 years ago from Wisconsin

A short while ago I became a strong proponent of the Fair Tax. It now stands as THE tax system I support. This was a very good analysis of what the Fair Tax is basically.

One of the best benefits of the tax is that thrifty people, such as myself, would now actually have the ability to CONTROL my personal tax rate. Everyone's spending habits are very different and so we effectively each dictate our own taxation.

You may prefer Del Monte, while I prefer the white can with black letters. I'll pay less tax overall. And those Jaguars and Bentley's will certainly increase the tax rate for the top echelon a bit as well. :)

BTW, I should point out that not all "used" items would not be taxed. Retail resellers will still charge a federal sales tax for purchases, such as used cars, and used appliances etc. Goodwill, for example, by my understanding would still be taxed. Exempt would be things like garage sales.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for your comment Springboard.

It may certainly change some people's spending habits.

Upon reading your comment about used goods, I wanted to answer you right away. But instead, I double checked my notes and facts before answering. Sales of used goods are not taxed and that includes the retail sale of used goods at Goodwill. The understanding given is that the value of the used item being sold, still contains the original tax cost embedded within the sale price. The purchase of an existing pre-owned home is the only used item that I could not get a clear understanding of whether or not it is exempt from the Fair Tax.


Springboard profile image

Springboard 6 years ago from Wisconsin

Hmm. The used goods exemption could kill the possibility this could ever be passed. It's an unbelievably large loophole when you consider the size of the used market. I'm a supporter of the Fair Tax, like I said. But this would be a loophole I'm not sure I could live with without doing more research on the impact of it.

Again, very helpful and informative hub. Got my brain juices working, and that's always a good thing IMO. :)


Joni Douglas profile image

Joni Douglas 6 years ago Author

It would definitely impact the resale market. I imagine the sale of used goods would become big business.


Money Glitch profile image

Money Glitch 6 years ago from Texas

Congrats on being selected to this week's HubNuggets Wannabe nominees. Good luck to ya!


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you Money Glitch. It is sure nice to see all the support from everyone on HubPages.


Hank Van Gieson 6 years ago

Joni/Springboard,

On the subject of used goods, "used" is defined as "tax previously paid". There is a one year transition period where goods in the pipeline produced under current tax law would go untaxed. As Joni wrote, used houses would not be taxed, which would cause the retail price of those houses to increase in value. The usual laws of supply and demand will go to work and in just a short time, the current used/new price relationship will be restored. While you won't be paying any federal tax on a used house or car, you won't get any extra savings bonus. If you don't buy used stuff now, there will be no economic reason to do so under the Fairtax.

I reviewed my burchases for 2009 and couldn't find any used purchases. I suppose if you really don't want to pay federal taxes, youy could buy your underwear at Goodwill, but I doubt that many people would do that.

The used goods story has been badly overplayed, imho. There are no used groceries, no used restaurant meals, no used home heating oil or used gas for your car. There are no used services, which make up roughly half of the family budget, nothing used at Wal-Mart, etc. etc. The opportunity to buy used is pretty much limited to infrequent purchases of houses, cars, boats, appliances, etc. And, to repeat, there won't be any extra savings from buying used.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for your comment Hank.

The law of supply and demand will hold true, and I agree with your prediction that new/used pricing relationship would be restored in record time.

You may be right that used goods would still only make up a small portion of peoples spending but I'd like to add to your limited used purchase ideas. Clothing (not underwear), furniture, tools, lawn mowers and toys and items for babies and children. Perhaps repair shops would see a boom. All the things that are now sold at used retail shops and yard sales will fuel a robust used goods market.

For instance, a new baby crib that sells for $500 now will sell for over $600 under the Fair Tax. This may cause some who don't normally buy used to at least consider pre-owned purchases.


LRCBlogger profile image

LRCBlogger 6 years ago

Thanks, very informative


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for your comment LRCBlogger.


tom hellert profile image

tom hellert 6 years ago from home

Ross Perot said "People who don't make nothing don't buy nothing". If ytou equate that into the fair tax people who don't buy nothing don't pay nothing...The only problem I see with the faur tax would be the loss of jobs for all the tax preparers Other than that if your looking for equality for all the fair tax is the ticket but it will never happen because .....

1.It is too easy

2. It makes sense

3. Tax cheats like tim Guytner and Al Gore will have to pay more.

4. Something that is equal for all Sharpton will say is racist.

Nice Blog


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for stopping by Tom. You got me on #1 and #2. The government sure doesn't like easy things that makes sense.


tony0724 profile image

tony0724 6 years ago from san diego calif

Joni when you wrote this hub I voted for it on the hubnuggets . It was articulate and very well done. Good job.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you Tony. As a recent newbie, I sure appreciate all of the encouragement from everyone here.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada

Nice hub. The Vat tax is a bad and hidden tax. I would suppose that it is a tax on production. It is from the IMF and we hate the IMF. I think we need some austerity and some tax increases, but I would be careful because once the IMF gets a hold of a country, it rips it apart with massive austerity and massive tax increases.


Joni Douglas profile image

Joni Douglas 6 years ago Author

The VAT tax is an extremely bad idea. Simply because it is in addition to the taxes we have now. The system is so messed up and it will take a huge effort to fix it. I keep looking for major flaws in the Fair Tax but so far, I am not seeing any. Thanks for commenting, bgamall.


Tom T profile image

Tom T 6 years ago from Orange County, CA

Terrific Hub. I like the idea but first something has to be done with the 16th amendment so that this replaces income taxes and there is no possibility for the politicians to monkey with the system. Thanks for the terrific summary.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thanks for stopping by Tom. I do believe it would take another amendment to do away the 16th, which could stir up another hornets nest.


Shawn Scarborough profile image

Shawn Scarborough 6 years ago from The Lone Star State

I enjoyed reading this hub very much. You presented the information in a clear, easy to understand manner. I look forward to reading more of your hubs. Keep up the great work.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Thank you Shawn. I appreciate the clear and easy to understand compliment because that is exactly what I tried to do. Your comments are welcome.


CMerritt profile image

CMerritt 6 years ago from Pendleton, Indiana

Thank Joni, I am becoming a big fan of the fair tax, the more I read and learn about it. I'm not sure IF it would ever happen, but I think the pro's are bigger than the con's. Thanks for your very clear approach to explaining this.


Joni Douglas profile image

Joni Douglas 6 years ago Author

The name suits it CMerritt as I believe it would be a much fairer system than what we have today. I have become a fan of it too since researching it for this article.

Thank you so much for stopping by and sharing your thoughts.


Old Poolman profile image

Old Poolman 6 years ago from Rural Arizona

Joni, nice to meet you and this is a great hub. I learned a great deal I did not know from your hub and the research you did to write the hub.

The fairest thing I see about the Fair Tax would be everyone would pay their share. Right now, all the drug dealers, prostitutes, and other under the table income earners pay no tax at all. I just have to believe if everyone was paying, the government would not need as much taxes from each of us as individuals.

This will undoubtedly be a long uphill battle to get this accomplished. It is my understanding the IRS has the largest number of employees of any governmental agency, and none of them want to lose their job. The huge number of people in this country who make a good living just figuring out and keeping current with the latest goofy tax law change would also not be needed any longer. I believe they might fight this change tooth and nail to keep their incomes rolling in.

Someone in another hub mentioned that the Fair Tax would require every business owner to become a tax collector. I responded by telling them we already are tax collectors, and having to collect and report the Fair Tax would not be much additional work. I was then advised that some states don't collect sales tax and it would be an extra burden for them, and I should have known this. Oh well, we all live and learn I guess.

Thanks for a really great hub and keep them coming.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Welcome Old Poolman, it is an honor to meet you too. It may be wrong of me, but I must admit to a snide little smile thinking of closing down the IRS. Live and learn....ah yes. Thank you for stopping by and adding your comments. I appreciate it.


Old Poolman profile image

Old Poolman 6 years ago from Rural Arizona

Joni,

With that many newly unemployed persons perhaps they would set up special lines at the Unemployment Office just for EX-IRS employees? I can visualize this line stretching for miles and what a beautiful sight that would be. Not that I enjoy seeing anyone lose their job.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Exactly, Old Poolman.


BDazzler profile image

BDazzler 6 years ago from Gulf Coast, USA

"Studies show that the actual tax rate would have to be much higher than 23% in order to make up the revenue that would be lost by eliminating other taxes. "

This I'm not too sure about ... there will be unforeseen and unpredictable consequences and side effects that make those studies speculative at best. For example, the cost of hiring people would go down because you don't need all the overhead to deal with it. Employer contributions to Social Security would give them more money... Employment would skyrocket, providing a larger tax base.

On the other hand, payroll services would probably go out of business or lay off a large percentage of their workforce.

Retail accounting, however, would get more complicated.

The biggest issue is the the radical transition. Having both not work at all. And the training and record keeping process for the transition would be very high.

It would also give all those unemployed IRS workers some temp jobs.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Welcome Bdazzler. I found that quote as one of the main objections to the Fair Tax by numerous people. In my opinion that quote - that argument against the tax, is wrong. Yes, payrolls would change. But nothing that ingenuity couldn't manage. The actual purchasing end of the record keeping process is already in effect in every state that now has a sales tax. The rest of the process would take time to get used to but can be done. Thank you so much for your comments.


Old Poolman profile image

Old Poolman 6 years ago from Rural Arizona

One of the biggest mis-understandings about the Fair Tax is many people are thinking this would be on top of what we pay now. They need to be educated to understand this would take the place of what we now pay.

As a business person, paying the monthly Fair Tax I had collected would only mean one more piece of paper and one more check to write, no big deal. I would probably keep my payroll company as that means one less thing I have to do. I may be unclear on this but don't think the Fair Tax would replace our current Social Security structure.

I'm not at all sure the total percentage we pay would need to be inflated if everyone was paying taxes. My gut feeling is the government would be receiving far more tax revenue than they are now. If I saved the money I pay for income tax preparation services and book keepers, I could afford to pay a little more and still break even. Our current tax laws are so complicated very few even understand them or interpret them the same. When I call our State Department of Revenue for information, they have a recording that states "they are not responsible for giving you incorrect information" prior to your speaking with a live person. That sure leaves one with a warm fuzzy feeling regarding tax information.

Oh well, I am old enough I will not live long enough to see the system change anyhow, I just like to dream about it.


Joni Douglas profile image

Joni Douglas 6 years ago Author

Old Poolman, your observations are right on target. Social Security isn't connected to the Fair Tax at all. Estimates for the revenue collected from the Fair Tax exceed the amounts currently collected. You are also right about folks getting the Fair Tax confused with the Vat Tax, which is a tax in addition to our current tax structure. The Fair Tax replaces the current system of income tax. Thanks for pointing that out.


Old Poolman profile image

Old Poolman 6 years ago from Rural Arizona

The really hard part to understand is why can't we just make the change to the Fair Tax system and get it over with?


Joni Douglas profile image

Joni Douglas 6 years ago Author

Exactly. But there are those who are opposed to this plan, lawmakers included, and some with big money behind them.


BDazzler profile image

BDazzler 6 years ago from Gulf Coast, USA

If SS and Medicare are not withheld from our checks, how are they funded?

BTW, I agree with Old Poolman ... one more check as a percentage of gross beats the crap out of the current way.

Intuit, H&R Block, etc. would probably go out of business.


Joni Douglas profile image

Joni Douglas 6 years ago Author

BDazzler, I did not find anything that would lead me to believe that the funding for Medicare and Social Security withholding would necessarily change under the Fair Tax plan.


BDazzler profile image

BDazzler 6 years ago from Gulf Coast, USA

Another thought disturbs me more, what about people on fixed income, that are currently getting social security and living on savings (in some cases Post-tax savings ?).


Joni Douglas profile image

Joni Douglas 6 years ago Author

Those issues would be covered under the pre-bate check. The first $465.00 in sales tax, which is about $2,000 worth of purchased goods are covered by the pre-bate. I hope that helps clear things up.


BDazzler profile image

BDazzler 6 years ago from Gulf Coast, USA

I'm liking it. A lot.


AskAshlie3433 profile image

AskAshlie3433 5 years ago from WEST VIRGINIA

Joni, your such a great writer! Very professional. What a fantastic hub, great hub! You are truly gifted. I loved that chart! Just wanted to wish you a Happy New Year! Have a good one Joni.


Joni Douglas profile image

Joni Douglas 5 years ago Author

Why thank you AskAshlie - such wonderful compliments. I hope you have a Happy New Year too.


AskAshlie3433 profile image

AskAshlie3433 5 years ago from WEST VIRGINIA

There is so much info about taxes. I think it is important to learn. When we learn about them, we understand more about where are money goes. Thanks Joni!


Joni Douglas profile image

Joni Douglas 5 years ago Author

I wanted to understand the Fair Tax and once I started researching it, I was prompted to write about it. Thanks again AskAshlie.


Scott_Grigg profile image

Scott_Grigg 5 years ago from Midwest USA-Southeast

I LOVE this hub Joni. Big fan of the Fair Tax, cept for one thing. IF someone actually figures out how much in taxes and hidden fees they contribute, income taxes, gas taxes, fees, etc. it's a whole lot more than 23%. I did it over a two week period, taking into account every type of tax I pay local, state and federal and it was OVER 50% of what I earn.

If people in the US actually got everything in their paycheck each time, THEN had to turn around and pay all those taxes there would be a revolution in this country in about three weeks, guaranteed. They'd suddenly realize how much of their sweat is going to everyone else!!!


Joni Douglas profile image

Joni Douglas 5 years ago Author

Welcome Scott, glad you like the article and the Fair Tax. So true about all the hidden taxes we pay right now. The Fair Tax is a lot less complicated and convoluted than the mess we have right now. Washington won't like because it makes too much sense.


Convo's are great 5 years ago

Hi, although I feel it's usually best to avoid labels, I want to point out that I am a environmentalist, buy pretty much everything but food, toiletries, and underwear used, college educated, democrat, feminist, and make under the poverty level (way under), I'm a full time Americorps volunteer. I think the idea of the Fairtax makes a lot of sense. I also believe that there will not be a revolution if people realize how much they are paying. Taxes are important. 23% is little to pay for Military, Parks, Social Services etc. I have no doubts that within 7 years I will be making near $90,000 a year as an NP and I could not gotten as far as I did without government assistance. I worked up to 50 hours a week while attending school full time. I had Pell Grants and an Education award from a previous Americorps stint, I still have 10,000 in loans though. Which is extremely reasonable. I am thankful everyday for government funded colleges and educational assistance.

I think that a whole lot more people will be setting up fake businesses to avoid taxes. Business licenses are not expensive and there are all sorts of things you can purchase as business expenses. Won't we need some of those IRS workers to monitor this?

I also think that in addition to this to make investing fairer we need to put a tax on trading stocks and bonds. The reason is that day trading has huge affects on the stock market that do not reflect businesses reality. A tax on trading a stock would encourage people to move money around less often and the stock market would actually reflect how well a business is doing. It would reduce speculation.

Back to the Fairtax, if everyone starts trying to buy used items, I think this is great. It's more environmental. We would be paying repairmen a tax on fixing our older items though. So even older stuff would contribute to the tax system. Also if we make this exemption included in housing then this will encourage people to buy existing building rather than building over our precious farm land and using limited resources to do so. Most likely people will remodel these homes though, and that will be taxed. So it isn't like nothing from that home will be taxed, unless it isn't worked on at all. For cars, the automotive industry will have to make fuel efficient cars to compete with the cheaper used gas guzzlers. If gas is taxed fairly then the price will get up high enough that fuel efficient cars will be more in demand. Those buying used gas guzzlers will pay more in gas taxes. If we tax home heating fuel gas or oil we will encourage people to buy instant water heaters and to insulate their houses to keep the heat in, to offset the costs of the tax on heating fuel. It think that Fairtax actually encourages sustainability far more than our current system.


Joni Douglas profile image

Joni Douglas 5 years ago Author

Welcome Convos! You certainly have had your hands full. I really appreciate it that you took the time to comment.

Not really sure that services will be taxed the same under the Fair Tax. Using the free market to to make healthier choices for ourselves and the planet is a great idea. Not sure how they would monitor businesses like you mentioned. But maybe all those unemployed IRS agents could do it. Thanks for adding your thoughts.


Ghost32 5 years ago

Not until I published my own Fair Tax page did I become aware of your definitely awesome contribution to the discussion.

One thing I came across at FairTax.org was the point that implementing the Fair Tax would absolutely turbocharge our economy--because of the complete elimination of corporate taxes, for one thing, which would make our nation instantly and once again desirable to many firms planetwide.

Voted Up and Stuff!


Joni Douglas profile image

Joni Douglas 5 years ago Author

Thank you Ghost. Appreciate the thumbs up and all. I'll head over and read your hub too. With the talk of the tax reform coming up again, I wouldn't be surprised to hear the Fair Tax bandied about as well. Politicians may not go for it because it limits their money flow but the people should be all for it.


nifty@50 profile image

nifty@50 5 years ago

Love the idea, I don't think the politicians will go for it, because they would lose too much power and influence. The politicians love the vat tax because it is invisible to most people.


Joni Douglas profile image

Joni Douglas 5 years ago Author

I think you are right nifty@50. They don't really want to cut anything, just spend, spend, spend, all with our money.


dianah 4 years ago

thumbs up for you joni

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