Flat tax vs Fair tax?

Question

I've just recently become interested in this issue/idea. Im a struggling college student and from the little bit that I've read about the fair tax, and the very basic knowledge I've aquired, it would seem to me that the fair tax has tremendous merit and perhaps would actually be more "fair" -as its namesake presupposes. I was wondering if anyone could briefly present both sides of the debate (pros-cons) and then tell me what you believe and why? thanks.

Answer 1

The "Fair tax" would be anything BUT "Fair" for the vast majority of Americans. Here's what it does;
"The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment. The FairTax Act (HR 25, S 1025) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities. The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system. "

So I ask you, what exactly do Corporations BUY? Nothing! That's what. A "Fair Tax" would deprive the US government of BILLIONS of dollars in revenue. What the website does NOT mention is that you'd pay a "consumption" tax or sales tax on EVERYTHING you buy from a car to a house, etc. You'd pay taxes on credit card debt, student loans, etc.
According to Citizens for Tax Justice, "But of course the bigger problem with the flat tax is that it's just blatantly, unapologetically, regressive. Currently the wealthy pay income taxes at higher rates than middle-income and low-income families. (This helps balance out the regressivity of other taxes, like federal payroll taxes and state sales taxes.) A flat tax has just one income tax rate, which will be lower than the rates paid now by the wealthy and probably higher than the rates paid now by the middle-class. If the switch to a flat income tax is revenue-neutral, that means poor people will pay more in income taxes and rich people will pay less. If everyone can pay less, well, then it can't be revenue-neutral and must involve massive cuts in government spending. We'll take a wild guess that any such spending cuts won't be at the expense of the wealthy. "

More info about those "Fair Tax" advocates.
Leo E. Linbeck, Jr.
Leo E. Linbeck, Jr. is Chairman and Chief Executive Officer, Linbeck Corporation, a holding company of three construction firms, one of which is Linbeck Construction Corporation which was founded in 1938 by his father, Leo E. Linbeck, Sr. Linbeck is also a member of Texans for Lawsuit Reform.
Robert C. McNair
Is owner of the NFL and number 235 of the 400 RICHEST Americans. He's worth about $1.4 BILLION dollars.

Just judging by these two examples alone, one can tell they clearly have an agenda they're pushing that doesn't include you and me and will let them keep more of their OWN money while costing poor and middle class and even upper middle class more and more of THEIR money. You can read more about the way the Wealthy use the government to stay rich and get richer in "The Conservative Nanny State." Or check out the link below!

Answer 2

Neither, actually. Unless you are hideously wealthy that is, then it's pretty much as wash.

The so-called "Fair Tax" is a massive 30% or higher national sales tax on all new goods. How does an additional $6,000 in tax on a new $20,000 car sound? Not so good, eh?

It's a common misconception that the wealthy would pay higher taxes under the "Fair Tax." They tend to amass wealth, not spend it. They'd pay a MUCH lower percentage of their gross income under the "Fair Tax." If you cut the burden from the wealthy, you either have to cut services or transfer the burden to someone else. That would be the poor and middle class. The poor would be tossed into the streets, and the middle class would bear the brunt of the load and would become the new "Working Poor."

On top of that, as currently proposed there are massive opportunities for fraud and black marketing that have not been addressed. Those issues would almost certainly lead to draconian new laws and terrifying powers for the IRS to combat that fraud and black marketing.

The Flat Tax would have to be levied at around 27% to raise the same revenue as the current graduated tax. The wealthy pay a marginal rate of up to 35% so they'd be looking at a nice tax break. Most taxpayers pay a net rate MUCH lower than 27%. Crunch the numbers from your return last year and I'll wager your total income tax bill is LESS than 20%. (Just divide the Total Tax line by the Total Income line.) And if you're a struggling college student, it may have been as low as 0%. With the flat tax, your tax bill would rocket to 27%. If you earned $5,000 last year, you paid no Federal income tax. Under the Flat Tax, you'd pay about $1,350. Does THAT sound like a good idea? So Paris Hilton can save a million or so in taxes? Didn't think so!

The fairest of all taxes is a graduated income tax, just as we have now. Sure, the Tax Code needs some simplification and modernization, but neither the "Fair Tax" nor the "Flat Tax" would be any kind of a good deal for the average citizen.

Answer 3

I think both adjectives are interesting when next to the word tax. I will proposed the wonderful tax, or the loved tax, how about the imaginary tax, or better yet the invisible tax. A flat tax is ridiculous, and created expressively for the rich to keep dominion. A fair tax sounds to me like when you use the word as fair skin or fair hair more than just. That would sky rocket the price of all good and services which the poor is already having trouble acquiring. Regardless of what I think or say people will be stupid enough to believe all the crap the wealthy say because if they are successful they should know.

Answer 4

The Fair Tax is a flat tax on consumption of new goods and services at the retail level. There are no taxes on used goods (they have already been taxed.) There is no taxes on any income: wages, savings, investments, capital gains, estates, or any other income. Also there is no tax on education as this is an investment.

Businesses do not pay any taxes! There are a considerable number and forms of taxes imposed on the businesses, but these are merely another cost of doing business. All these tax costs are passed on to the consumer (individuals)in the price of the new goods or services. Any tax costs that cannot be included in the price of the item are deducted from the profits that are distributed to the stockholders of the business. (again, these are individuals) Because of this, the Fair Tax does not apply to businesses. This keeps the price of the new goods and services much lower. The Fair Tax is applied at the retail level when the item is sold to the consumer. The shelf price (what you see) will include both the price of the goods or services and the Fair Tax. The price at the register will display each cost separately (what you pay) and the total amount, the shelf price. This does not include any state sales taxes.

Generally a "sales tax" is considered a regressive tax. The Fair Tax Bill includes a provision where by every legal household will receive a prebate. This is the amount of federal tax the household would pay up to the poverty level for their size household. The poverty level is set each year by the Department of Health and Human Services of the federal government. You take the poverty level (family of four in 2007 is $27,300) times the Fair Tax rate (23%) and divide by 12 to arrive at the monthly prebate ($525). This represents the average amount of tax the household would spend in federal tax during the year. Therefore this household (annual income
$27300) would have an effective tax rate of 0.0% if they spend all their money on new goods and services. If they buy used items (clothes, furniture etc) their effective tax rate would be even lower!. Another household with annual income of $54600 would have an effective tax rate of 11.5%; household with $109200 would be 17.25% and so on if they spend their entire income on new goods and services.

It is true that individuals that have higher levels of income can save or invest their money and not be forced to spend all of it and therefore would not pay the Fair Tax on all their income. However, when they invest their money, other people will borrow that money to spend it! The money will still be generating tax dollars.

The wealthy have their money currently invested in accounts and other tax loopholes where they do not pay any taxes on the proceeds of their investments. But they do spend this money. Every time they spend their money on new goods and services, they would be paying the Fair Tax. The lifestyle of these individuals tend to buy the most expensive items they can. They do not shop at Wal-Mart or Target as the low income people do. They pay a higher price for clothes, they pay more in taxes. They buy new high priced autos, their tax burden will be higher!

What are the Pros?
1. American people will regain the power and control over how much taxes they pay.
2. There are no income tax forms to be completed
3. Individuals will have their privacy again. No longer will we have to tell the government where we work, how much we earn, where we have our savings and investments etc!
4. You will see the actual amount of taxes you pay. You will be able to hold the politicians accountable for spending too much of your money.
5. The IRS will be shut down 36 months after the Fair Tax goes into effect.

What are the CONS?
1. Politicians will lose their power and control! They will not be able to reward their friends, penalize their enemys and do social engineering.
2. There will be no more hidden or embedded taxes for politicians to raise taxes on you without your knowledge.
3. Individuals that have their money invested in tax loopholes will no longer be able to avoid paying taxes.
4. Lobbyist in DC (35,000 plus earn 53% of income lobbying for changes to current tax code) and IRS workers would have to find work elsewhere.

Answer 5

The 'Fair Tax' is a very regressive tax. If you make enough to put half (or more) of your income away in investments, not only do you not pay taxes on this income but you don't pay taxes on the income your investments make. But the 'working poor' who live hand-to-mouth and spend their whole paycheck for necessities like food and rent pay tax on all of it.

The end result is further concentration of wealth as the rich get richer and the working class pay all the taxes. But wealth in the US is already more concentrated now than any time in 100 years, not since the era of the Robber Barons.

Also the loss of the home mortgage deduction will mean that a certain number of people will lose their homes. This is going to be bad enough in the next few years as so many 'sub prime' mortgages go south. These properties, of course, will end up in the hands of rich investors who won't pay taxes on the money they make for them.

I like the idea of a flat tax better because it's so much simpler. People should get a deduction for their mortgage or their rent (renters should get a break too, don't you think?) and for each child or dependent, then everyone pays the same percentage. The nice thing about it is that you can do your tax return on a postcard.

But what I like even better is a progressive tax plan where the richer you are the more you pay (within reason of course). Richer people -get- more from government, why shouldn't they -pay- a little more? Conservatives like to claim that 'You can't tax a nation into prosperity', but if you look at the historical record, this is exactly what we've done. The times of the highest progressiveness in taxation were the best times we've had in this country, e.g. the years after WWII.

But sadly I doubt -any- of these plans will happen. Our tax code is as complicated as it is because it masks all kinds of corruption, special deals and favors done by Congress for campaign financiers. Every plan to 'simplify' the tax code results it in becoming just that much more complicated.

Answer 6

a person on low income has to pay a large percentage of their income for shelter, food and other basics. The person with a high income has disposable money for luxuries. Therefore, in most Western countries, the tax rate increases somewhat in proportion to income. That is regarded as 'fair.'

In Britain, Thatcher tried to impose a flat tax (head tax) on all citizens except those in prison. It hot the poor very hard (something of little concern to Thatcher), and led, in part, to the end of her government.

The rich complain that they have earned their money and should not have to pay more than others. Perhaps some of them did. But it also suggests that people are poor because they deserve it, which usually is patent bull____.

Answer 7

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 8

By fair tax I'm going to assume you mean a graduated tax system. I agree with it too.

Pros of Fair Tax:
- equity. It would only seem fair that those who can afford to pay more taxes do. In the end it won't hurt them anyways, because they'll still have more disposable income than others. Those that have the least ability to pay tax, and need their money for the necessities of life.. by fairness sake, shouldn't have to pay lots of taxes because they need that money.

- A graduated tax system is pretty common in most Western developed countries, and it seems to work just fine... usually upping the amount collected by governments, and in turn, providing social assistance that helps eliminate poverty. These dividends are usually shown in the national economy, with increased skilled labour force participation and job creation. America, for example, has a low unemployment rate compared to say France. But America doesn't include low wage, low skilled na underemployed categories. If you look at it this way, France does indeed have more employment stability.

Cons:
- The rich would argue it's not fair... they are members of society just like me and you. Why should they be labelled out to "owe" more. They worked hard for their money, they should be able to keep it.

- It'll encourage people to work less, because they have to give away their money anyways. It creates a dis-incentive.

I happen to agree that a graduated tax system is best. It's important to even out the playing field. I'm not saying take al lthe rich's money.. there needs to be an incentive quality there as well. But I am saying that if I'm making lots of money, I can afford to pitch in more to making this country a better place. Even out the playing field is all I'm saying.. not taking away the incentive to work.

Answer 9

It is My understanding that Taxes to begin with are not right

However it is my experiences that the ignorance of the general public will allow our government to continue this wrong

so if we are going to have a Tax then I think a consumption tax is the best (National Sales Tax)

you are only taxed when you spend
Drug dealers or people who deal in cash will have to pay when they consume

it is about the American Pie you only pay for the amount you consume

In Texas we do Not have a State income Tax

but we have a sales Tax that runs our state government and it works great

A flat tax is the next best thing no complicated form you make x and your percent is y X-Y= amount your taxed

Answer 10

No tax is fair. Politicians use the term because it sounds good. I am in favor of a universal sales tax to replace all other taxes in the US, including state and local.
If you saw how much you were paying in taxes every time you opened your wallet, you would be outraged.