question about the fairtax?

Question

I really like the fair tax for several reasons. However, I hear two lines of thought...

1. It will benefit the rich and the poor the same.
2. It will benefit the rich much more than the poor.

Which is true and why?

Answer 1

It is based on perspectives. BOTH might be concidered true, but also the poor will benefit more than the rich would also apply.

The Fair Tax will totally untax all legal residents of USA up to the poverty level for their size household. (This is acomplished by the prebate.) The same percentage applies to everyone. The individual has the power and control over how much federal tax they will pay. Everyone will get to keep their gross income, until they decide to spend the money.

It treats everyone the same. It does not matter whether you are rich or poor, this is why it is a FAIR tax.

The Fair Tax eliminates all the embedded income tax that is charged to businesses that are paid by consumers. Everyone will benefit from this reduction.

The poor will be totally untaxed (up to the poverty level). The working poor currently pay SS tax on their payroll. This will be eliminated.

When an individual says they do not pay any income tax, they even get an earned income tax credit, they generally do not consider the above two taxes that they are paying but never see.

The rich will pay taxes under the Fair Tax based upon all the new goods and services they use. These individuals do not buy clothes from Wal-Mart. They go to designer shops and pay a much higher amount for the items they buy. Therefore they will pay a higher dollar amount of taxes for an item that a poor person might buy at Wal-Mart or a thrift store (used goods have no tax on them).

The wealthy (income from tax loopholes) will be paying a much higher amount of tax than they currently pay as income because their current tax condition allows them to pay minimal tax. (Warren Buffet recently stated he pays a lower percentage [17%] of his income than his office staff pays on their income [35%].) Consider how much "income" Paris Hilton had last year and what tax she might have paid. The consider how much she would pay at 23% of everything new she would buy under the Fair Tax.

The reason everyone pays less is because the tax base is greatly expanded to include those that currently do not report earnings for income tax (drug dealers, underground economy etc) and that all the tourists visiting the United States would also be contributing!

Answer 2

The government is going to need the same amount of money to operate, so any tax change that lowers someone taxes is going to raise taxes on someone else. It looks like to me that is will be a tax cut for the very rich, with a tax credit that will also lower taxes for the poor, and the people in between will pay more to make up the difference.

Edit: It would also be a tax increase on people who are retired and living on social security and savings, because they do not currently pay payroll taxes. To see the current total federal tax by income group see
http://www.visualizingeconomics.com/2007/11/03/nytimes-historical-tax-rates-by-income-group/
The top group on this graph have an average income of 18 million dollars a year. It is hard to imagine actually spending that amount of money, so it is unlikely the will be paying even 23% of their income in taxes. They currently average around 35%.

note to chiefcook:
Warran Buffet is noted for living frugally. so under the Fair Tax his tax rate would probably drop to less than 1% of his income which will be much less than his current 17% and will still be much less than his office staff.

Answer 3

Fairtax? Now that's an oxymoron!