Flat Tax vs. Fair Tax - which would you choose?

Question

Flat Tax - taxes your income. You pay a fixed amount of tax (e.g. 19%). You might have to pay payroll taxes. You may not get deductions from mortgage interest payments. Flat tax doesn't get rid of other hidden taxes (i.e., social security, medicare, gasoline tax, sales tax, tobacco tax, alcohol tax, property tax, etc.). You may still pay capital gains taxes as income.

Fair Tax - taxes only when you spend (19-23% sales tax paid once). You don't pay income taxes anymore. It gets rid of hidden taxes such as social security and medicare. It gets rid of capital gains taxes when you sell your house or when you save your money, or when you invest your money. It lets you keep your entire paycheck (you pay no payroll taxes). It allows you more money to spend. It allows you to save money without any taxes on your savings. It also doesn't tax used items (eg. used cars, eBay items, etc.), and gives you rebate on necessary items (eg. food, clothing, etc.) http://www.fairtax.org

To NGC6205: How exactly is fairtax fairer to the lower and middle class? By removing the income tax , you have more money to spend. Also, lower income people get taxed at a lower rate (and no taxes up to poverty level), and they will also get rebates on necessities they spend on. Example, a family earning a total of $40,000 can spend only 2/3rds of that income with current system, because they have to pay social security taxes also. With Fairtax, they get 100% of that income because no federal taxes are withheld. You get to use what you earn.

Look here for the summary on FairTax.
http://www.fairtax.org/site/PageServer?pagename=about_basics_thumbnail

To rssr27: I agree - there is no such thing as a really "Fair" tax. So, to be PC, should FairTax be called "Less-punitiveTax" or "Less-offensiveTax" instead? :P

Answer 1

The Fair Tax is the most effective and efficient way to fund government while retaining the control with the individual. Under the Fair Tax the individual decides when and where to make purchases that result in tax proceeds for the government. This will empower individuals to become more involved in the expenditures of the government and thus demand more accountability of our elected officials.

The Flat Tax keeps the government in your back pocket without any control by the individual. Just as the current system, the government gets their money before you see a single penny of what right fully belongs to you. Since the effect of the tax is prior to your receipt of the money it is effectively hidden from the majority of Americans and so there is little focus on the amount that is being confiscated from your compensation.

Edit 1: The Fair Tax takes into consideration the poverty line income level and provides for an automatice refund of taxes on the purchase of basic neccesities for each family. For example, if the Poverty line for a family of 4 is $30,000 then that family will receive at the beginning of each month a check for $550 to cover the taxes they will pay on the expenditures they make for the coming month. This means that a family of 4 making $30k pays no income tax, a family of 4 making $60k pay an effective rate of 11% instead of the current maximum of 28%. So hos does this place more burden on the low or medium income families?

Edit 2: The Fair Tax also covers (eliminates) social security and medicare taxes currently deducted from one's paycheck.

Answer 2

Well i have been saying we should all pay %5 right across the board corporations included..with no refunds..no loopholes no kickbacks..then use the funds to pay back and eliminate the Fraudulent Federal Reserve (it is private banking printing monies without any thing to back up what they produce) after all programs are repaired IE the social security (broke by borrowing from the fed against future social security income) and the taxes then are eliminated. the school taxes come from property taxes...the road taxes come from gasoline and transportation taxes...and so on you see the income tax is a fraud anyway that was designed to tax corporations not individuals..laugh if you will but if you educate yourself about all that is going on in government you would be scared!

Answer 3

No matter which tax you may prefer, if the government decides after either one is in effect, that they have not enough money to blow, there will be an increase.
One other thing, the words "fair" and "tax" should never be used in the same sentence, the same as "temporary" and "tax" as there is no such animal.
Our "temporary" sales tax started here in Ohio as an emergency, temporary sales tax in the early thirties, and has done nothing but increase ever since.

Answer 4

I don't like either of them for many reasons, but if I had to choose, would take the "fair tax". The flat tax does nothing to tax the underground economy, and hits the poor hard, middle class might break about even or lose a bit, upper incomes get a nice break. And the flat tax wouldn't be as easy to administer as claimed, although would be less complex than the current ridiculous system.

Fair tax plan is still regressive, hitting the poor harder than upper incomes, but at least it does tax "under the table" income.

Answer 5

I agree with Wayne.

While the flat tax sounds nice, it actually would shift more of the tax burden to the lower and middle-class. What most people don't realize is that while the rich usually do have a lot of deductible expenses and other tax loopholes, the AMT usually recaptures a lot of that money. Currently, the rich pay a higher percentage of their income than the lower and middle-class do.

Same issue with the fair tax. The tax burden would also shift to the lower and middle class. The whole reason the rich get richer is because they don't spend 90 to 100% of their income. Lower and middle-class families spend that much of their income on essentials and a few luxuries. With the fair tax, lower and middle-class families would see their tax burden increase to around 30% of their income. The rich on the other hand would see their tax burden drop from currently close to 35% of their income to only 30% of the income they spend. If a middle class family makes $80,000 per year, their current income tax burden is probably close to $14,000 per year or less than 20%. Under the fair tax, their tax burden would increase to $24,000. If a rich person makes $1 million a year, but only spends $200,000 during the year, their tax consequences under fair tax would only be $60,000. Currently their tax consequences are closer to $300,000. Exactly how is this fair to the lower and middle class?

Edit: I just examined some more data from the fair tax website. While they claim that it will be a progressive sales tax, how is this going to be administered? They still don't take into account that higher income families spend a lower portion of their income. How many $1 million earners do you know that live paycheck to paycheck? It's probably close to none because they don't spend all of their money. Extra money gets invested which under the fair tax isn't taxed. Another claim is that state and local governments will pay a higher tax but won't reduce spending. How is this going to happen? State and local governments get a large portion of the money they have now from state and local taxes. If the State and local governments have a higher tax burden, that extra amount will have to come from somewhere. Maybe I'm reading it wrong, but from the little I've seen, it appears that they haven't thought it through correctly.

Edit #2: Sure, eliminate the income tax, you have more money to spend, but everything costs more because the sales tax is higher. I don't buy the argument that eliminating corporate taxes will decrease prices. That contradicts some basic economic principles. The fair tax may be able to do all of the things they say, but I have heard other promises in the past on how to make things better for the low and middle class and usually it ends up doing the exact opposite. A really true way of improving taxes is to keep the current progressive income taxes and eliminate the loop holes and the complexity. BTW, I'm in the highest tax bracket.

One last thing, your example of a family earning $40,000 a year only has 2/3rds of their income is way off. Social Security and Medicare taxes is going to be 7.65% of their income. 6.2% for Social Security and 1.45% for Medicare leaving $36,940 of gross income. A family of four would have $23,500 in standard deductions; $10,500 for married filing jointly and $3,300 for each personal exemption. That leaves $13,440 in taxable income. Income tax on that amount is $1,639. Total taxes paid by that family is $4,699, which is only 11.7% of $40,000. Which leaves them with 88.3% of their income for spending. The fair tax may help them, but not as much as you claim. If you take another example of a family that earns $80,000 a year, because they earn more, they will get hit with the higher sales taxes on most items they buy. I would bet they would end up paying more taxes than they are now.

Answer 6

Flat Tax all the way. It encourages individual responsibility.

Consider that under our current system, a person without a high school diploma contributes about $10,000 in taxes for every $30,000 he gets in federal benefits. The higher your income bracket, the more that number is reversed. You subsidize anyone who earns a low wage.

If EVERYONE has to contribute SOMETHING on a pro rata basis for services, it forces the now beneficiaries to do something to raise their wages.

Anyone in this country can raise their standard of living if they work hard for it. We have free education and lots of subsidies for college, bt you have to defer child bearing and time off if you want them.

I know I did. Why should I subsidize someone who doesn't or won't?

Of course, neither of these will pass, you know.

Answer 7

Neither.

The Flat Tax is huge benefit to the upper class. It actually takes money from the lower classes and gives it to the rich.

The Fairtax is really a 30% sales tax. The Fairtax would be a huge fiasco for multiple reasons. Too many to go in to now.

Answer 8

fairtax

duh!! no brainer our system is not working people

Answer 9

Sometimes "simple" is not so simple, but in the mind of the simple.