Fair Tax. What are the drawbacks?

Question

Can someone give me a well reasoned answer. I have read the Fair Tax book and the Fair Tax sounds like a good thing. Good to the poor and great for business owners and good for the immigration issue going on. I am not a democrate but I really think that if they pushed it thru it may give them the victorys that they need comming up in November. So I would like to know what the drawbacks are.
No political hating please. I would like reason and logic

So I don't confuse anyone I am talking about HR 25

For everyone who has not read HR 25(Fair Tax) the poor would pay 0 tax on basic living. And would in fact get a PREbate (not a rebate) every month so their income would actually go up.
I am hoping to get people who have actually read the fair tax law and disagree with it. I am trying to find a logical reason to disagree with it but am having trouble finding one. If you have not actually read the Fair Tax law please don't post.

Answer 1

As I see it there are three main drawbacks:

1) The 16th Amendment which established the income tax will need to be repealed. That is planned as a seperate legislative action, but it is possible that we could wind up with both. HR 25 should include a mandatory sunset clause that will kill the Fair Tax, UNLESS the 16th Amendment is repealed by a specified date.

2) The Fair Tax is being promoted as a 23% sales tax, but that number is calculated on an inclusive basis. (Like the income tax.) The problem is, we are used to paying sale tax on an EXCLUSIVE basis. Here's an example:

If you earn $100 and pay 23% income tax, you are left with $77.

Under the Fair Tax, if you purchase something that costs $77, you will pay $23 in Federal Sales Tax for a total price of $100.

BUT, $23 is 30% of $77, and that's what it will look like on the sales receipt. You do want to show it on the receipt too, so that people realize just how much money the government is taking. Right now thegovernment is doing a pretty good job of hiding what they're doing.

If people see 30% tax on the receipt and think they've been lied to, there will be blood in the streets.

3) Retired people have already paid the income tax all their lives, and are living on after tax money. Unless something is changed, some of them could be double taxed, depending on their buying habits. (See additional comments below.)

Additional Comments
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Most of the people who have failed to read the Fair Tax plan object to it for two reasons. The first reason is, they think it will hurt the poor. THE TRUTH IS, this plan does more for the poor than our current system. The Fair Tax replaces ALL current Federal taxes, including the Social Security and Medicare Wage Taxes. All familes receive a tax prebate check equal to all taxes that would be paid up to the poverty line, whether you spend the money or not! Here's how it would work, in round numbers:

Let's say a family of four has an annual income of $10,000, and the poverty line for that family is $12,000. Their prebate checks will equal $2,760. If they then spend $12,760, (income plus prebates) they will pay a total tax of $2,935 dollars, for a net tax bill of $175, much less than the wage taxes they now pay.

The figures above assume that this family is foolish enough to spend 100% of their income on NEW items. The Fair Tax only taxes new items. There is NO TAX ON USED ITEMS. So if you go to a thrift store, no tax. Used car? No tax. Used items on ebay? No tax!

The second common objection centers around confusing the Fair Tax with a flat income tax. The Fair Tax is levied only when you pay for something. Everybody pays though. A retired couple current living on interest income pays no income tax, but they will pay the Fair Tax. Likewise drug dealers and pimps do not pay income tax on their illegal earnings, but they will have to pay the Fair Tax on their "bling" and other goodies.

Answer 2

I read the fair tax web page quickly and here's what I see:

1. Tourism. Tourists will have to pay tax to our government despite the fact they will probably never use any of its services. This may or may not be a big deal
2. True, we could shut down the IRS, but I'm sure an equally large bureaucracy will have to replace it to rule on all kinds of cases where tax isn't being collected and why and if the correct amount is coming in, etc. Just think "endless audits".
3. Many people make expenditures like boats and extra cars and such that are elective. If an extra 15% goes on the $50,000 boat you are planning on buying, you may think twice about it despite the fact you have the money. Under current tax rules, you'd be paying tax anyway, but under the fair tax you could skip out and just not get the boat.

Those are my thoughts, but I've never delved very deep into it.

Answer 3

The only real known problem with the fair tax is getting it fully implemented. Most plans that are brought into law usually don't end up replacing the plans they were designed to replace. They usually end up in addition to the bad programs in place already under the guise of phased in implementation. But politicians usually manage to stop that process in the middle, ending up with both programs indefinitely.

The other problem is since this is a theoretical plan, there are likely loopholes that noone has thought of. Our government is very bad at plugging such holes once found. If the loophole is too large it could destroy the country. We would be gambling that the people who made the plan, did their homework well enough.

Answer 4

Fair tax as in, the flat tax rate?

Yeah, doesn't work. It's actually not fair to the poor at all, and only benefits the wealthy.

Let's say you have a person who has $100, and another person who has $1,000,000, and you take away 10% of their money from both of them.

The millionaire now has $900,000 (one million minus one hundred thousand) and the other guy now has $90.

Where does that leave each of them?
The millionaire is pretty much just as well off now as he was before. His spending habits will change very little, in that he still has a very substantial amount of money.

The other guy also has pretty much the same amount of money. But he didn't have much money to begin with. Taking $100,000 away from a millionaire means he may have to save a bit longer to get a yacht. Taking $10 awayn from a guy who only has $100 means he may have to go a night without food sometime.

Taking away the same percentage of money from everyone doesn't affect everyone equally. That's why we have a "progressive" tax rate - the more money someone makes, the higher a percentage of their income is taxed.

Answer 5

The only real drawback is that many people would be aware of how much they were paying, as compared to the withholding tax, and become upset. Also, many people would have trouble adjusting their budget to the new tax.

In the long run I personally think it is the best thing we could do for taxes. For the record, it is actually a very bi-partisan issue and not a "Democrat" or "Republican" idea.

Answer 6

The only objection that I can think of that anyone would raise is the fact that the IRS and lobbyists would be out of business.

I am all for it!

Answer 7

as opposed to unfair tax?

you need to explain what you mean.