Wednesday, November 02, 2005

April 15th--Let's just make it another day.

It's a bit roundabout how we got there, but Trixie and I began a back and forth email about the proposed Fair Tax. I know enough about it to be mildly informative to others. So, I copied the plain English summary from the Fair Tax website. I don't know if I'm gung ho for it, but isn't it worth a try?


The Fair Tax Act of 2005 – HR 25/S 25
plain English summary

The Act is called the “Fair Tax Act of 2005.”
As of Dec. 31, 2006, it repeals all income taxes and payroll taxes, specifically:
• The individual income tax (including capital gains taxes and the alternative minimum tax)
• The corporate income tax
• All individual and employer payroll taxes including Social Security, Medicare and federal
unemployment taxes
• The self-employment tax (a self employed person pays both the individual and the employer portions of Social Security and Medicare taxes)
• The estate and gift tax

Effective January 1, 2007 it replaces the above taxes with a national retail sales tax on all goods and services sold at retail, except that used goods are not taxed. The tax rate is set to be revenue neutral – at the level necessary to replace the revenues generated by the repealed taxes.
A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal
consumption of new goods and services. Exports and the purchase of inputs by businesses (i.e.,
intermediate sales) are not taxed. The sales tax must be separately stated and charged on the sales receipt.
This makes it clear to the consumer what the amount of the tax is and that he or she is paying it.
The FairTax provides every family with a rebate of the sales tax on spending up to the federal poverty level (plus an extra amount to prevent any marriage penalty). The rebate is paid monthly in advance. It allows a family of four to spend $25,660 tax free each year. The rebate for a married couple with two children is $492 per month ($5,902 annually). Therefore, no family pays federal sales tax on essential goods and services and middle-class families are effectively exempted on a big part of their annual spending.
Funding for Social Security and Medicare benefits remains the same. The Social Security and Medicare trust funds receive the same amount of money as they do under current law. The source of the trust fund revenue is a dedicated portion of sales tax revenue instead of payroll tax revenue.
States can elect to collect the federal sales tax on behalf of the federal government in exchange for a fee of one-quarter of one percent of gross collections. Retail businesses collecting the tax also get the same administrative fee.
Strong taxpayer rights provisions are incorporated into the Act. The burden of persuasion in disputes is on the government. A strong, independent problem resolution office is created. Taxpayers are entitled to professional fees in disputes unless the government establishes that its position was substantially justified.

2 comments:

Trixie said...

So the more we buy in goods and services - the more we contribute to the tax base.

Under what circumstances would someone end up paying more under this plan than under the current tax plan ?

Also it sounds like we need to purchase all of our big ticket items as soon as possible rather than waiting until 2007.

One more thing..."goods and services"....hum...what services are taxable?

Maverick said...

If you wnnt to make a lot of lawyers extremely rich, then be in favor of this. The time that it would take to phase out income taxes and replace it would be amazing - not too mention very costly. What would it cost to get all the merchants set up to do this? Lot of reprograming there. Also, you have to remember that this federal tax would be on top of what each State needs in sales tax revenues, so do you have the States collect it and remit to the federal government (larger staff required) or do you have the merchants send it to the feds directly? If so, that means changing the whole set up of the Treasury and IRS - again money and time costly.
And what about where sales tax currently isn't charged in States? Very costly to Delaware to set up a system.
And what about where there are lots of events where sales tax isn't charge - like the Junior League of Jackson's Mistletoe Marketplace? Will you make each merchant collect this tax, or the Junior League - both of whom currently are not equipped to collect at offsite events like Mistletoe.
And trust me, it will never be adopted with out EXCEPTIONS! And if it is adopted, how does that affect how Congress implements social policies by the tax code? Home ownership is encouraged because of the current tax laws,etc.

It is not as simple as it looks.