What are the pros and cons of the Fair Tax?

Question

Is it worth supporting?Can it work?Wouldn't it be better if it was passed along with major spending cuts and a change in the way govn't does business???I'm a "centrist" Dem but I think big Govn't needs to be done away with...Ironically the GOP has helped make that Govn't bigger as well as old school liberals!

Answer 1

This addresses both the "Flat Tax" and the "Fair Tax" issues. Both of these are regularly bandied about as a solution to an alleged "tax crisis" in the US. IMHO, there is no "crisis" though there is work to be done simplifying some aspects of the Internal Revenue Code. Neither of these -- Flat Tax or Fair Tax -- would work for the following reasons.

The so-called Flat Tax is a ploy by the wealthy to transfer their tax burden to the shoulders of the middle class and working poor. Why do you think that folks like Steve Forbes like it so much?

For a flat tax to raise the revenue that the current graduated income tax raises would require a rate of around 25% - 27%. The wealthy pay a marginal rate of 35% so they'd see a nice fat tax cut. Steve Forbes, Bill Gates, and Warren Buffett would pocket MILLION$ on a flat tax.

Most middle-class working stiffs -- folks like you and me -- pay a total tax rate of between 10% and 20% of our total income. Pull out your tax return and compare the Total Tax line to the Total Income line -- and don't forget to add back any 401(k) contributions and your pre-tax medical insurance deductions -- and see what your total effective tax rate is. If you're like most folks, it will be a LOT less than 25%

Now, what would it do to the working poor? Let's have a look. Take a single parent supporting 2 kids on around $16k a year. They don't pay any tax at all and get about $4k in EITC payments. That makes for a little under $18.8k a year when SS and Medicare taxes are considered. They survive, but just barely. With a flat tax, the EITC would disappear and the tax bite would rocket to over $5,500 for them, including SS and Medicare. Take home pay would drop from from $18,800 to about $10,450. They'd be tossed into the streets by the millions. All so Steve, Bill, and Warren can have even more money than they could ever reasonably need.

The Flat Tax and the so-called "Fair Tax" -- a hugely expensive national sales tax -- both violate the first rule of taxation: Make sure that the taxpayer can afford to pay the tax. Our current graduated income tax does just that -- everyone pays their fair share and the poorest get an assist from those of us who are better off.

The impact of the "Fair Tax" on the working poor would be just as devastating as the Flat Tax since nearly every penny they earn goes to pay for essentials. The wealthy spend a far smaller portion of their total income and would get a major tax break.

The "Prebate" feature is often offered up as relief for the poor. Fraud with the so-called "Prebate" would make EITC fraud look like pennies in the fountain by comparison with so much money at stake. The IRS would need some way to track incomes in real time. They'd also need to tie the SSNs of family members together in real time as children grew up and moved from home. Currently it takes the IRS many months to match up reported wages to tax returns. The computer infrastructure investment necessary to make this work would make the current IRS budget look like an afterthought.

Worse yet, the "Fair Tax" would require just as much work by the IRS to ensure that all sales were properly taxed and that the funds were rendered. Black marketing of untaxed goods would go through the roof. Look what is happening with tobacco and liquor in high-tax states right now. And we all know the type of element that black marketing attracts -- organized crime and gangs. Wouldn't THAT be nice, getting a TV or your Captain Crunch from the local gang-banger. No thanks!

Answer 2

Pro if you are making a buck you pay the equal quantity as each person. Pro. No extra "wealthy pay much less" crap Pro: The reasonable tax is way simpler to realize than the present convoluted tax earnings tax process Pro: Transparency. Transparency in govt is consistently a well factor. With over sixty one,000 pages within the present tax code. Pro: With a countrywide revenue tax, there might not be a tax on investments Pro: The reasonable tax might optimistically broaden productiveness in our nation Pro: A significant professional of the reasonable tax is it might vastly increase the tax base Con: It might have got to be a patron tax, given that whatever else might carry much less cash until the reasonable tax was once 35%. And with a patron tax it might additionally combat with states revenue tax. So it might make matters skyrocket. Con: Accounting enterprise might be thoroughly destroyed. Con: tremendous revenue tax might discourage individuals from shopping matters. And the BIGGEST Con: Government might now not make alot opening out. And would not for a couple of years. So they don't seem to be going to vote for a reduce in closed door cash made. And with much less cash much less methods, much less methods, much less crusade contributions. Fair tax taxes whoever buys extra, and cuts into the cash politicians (skim)make.

Answer 3

It would seriously hamper consumer spending. Since consumer spending makes up about 70% of the economy, I'm not sure we want to go there. The progressive tax works. Eliminate the loopholes and then just leave it alone.

Answer 4

I think that the biggest pro is that it taxes the underground economy, and the biggest con is that it hits the poor (even with the "prebate") and middle class much harder than the wealthy.