Thoughtful reader F2L wrote in with this question: Ed - I would like your take on the fair tax if you would be so kind.
Is it really as simple as it sounds?
Why, yes it is freedom. That's the beauty of it. Let me break it down...
As you know, at every stage of production, there are taxes levied by the federal government. For instance, take a gallon of milk: The farmer pays taxes when he sells his milk to the bottler, the bottle manufacturer pays taxes when he sells his bottles to the bottler, the bottler pays taxes when he sells his bottles to the distributor, the distributor pays taxes when he sells his bottles of milk to the grocery store and so on. It's this way for every single product that ends up being sold as a retail product. Those federal taxes(or embedded taxes) average around 22-23% of the final retail price, since at each stage of production the cost of that tax is passed on the next stage. So you see, all these taxes are paid at the retail level by the consumer. No corporation, farmers, bottlers, etc pay those taxes, they are passed on to the retail consumer who pays them. So because of those onerous federal embedded taxes, the cost of business is 23% higher and the prices of goods at the retail level are 22-23% higher than they would be if there were no taxes.
As you've heard me whine about, the federal government seizes between 25-35% of our paychecks. So if your salary is $100K, you only keep about $65K, the government takes the rest.
Enter the Fair Tax. All federal taxes both embedded taxes and income taxes would go away to be replaced by one 23% consumption tax. No embedded taxes and no income taxes would be collected by the government. So you would take home all of your $100K salary.
"But Ed", you wonder, "won't the prices of everything go up by 23%?"
That's what opponents of the Fair Tax want you to think, but they are flat out lying to you. Without those embedded taxes, simple competition will quickly reduce the retail prices by 23%. Think about it. Milk is about $4.00/gallon. Grocer#1 could keep the price of milk at $4.00/gallon and we would pay $5 because of the consumption tax and the grocer would effectively double his profits. But grocer#2 down the street will rightly figure that he can sell way more milk than grocer#1 by dropping his price to say $3.50. Then people will stop buying milk at the other place. Grocer #1 will then be forced to reduce his price to $3.25 to reclaim his market share...and so on until milk is at $3.00/gallon, and plus the consumption tax comes to $4.00/gallon, or exactly where it was to start with.
The grocers still enjoy their previous profit on milk and consumers continue to pay the same prices for milk and other things.
With a consumption tax, there are no tax loopholes for people to wiggle through either. Even drug dealers, pimps, and lemosine liberals will pay their fair share of taxes because they consume just like everybody else.
In addition, because there are no federal embedded taxes, the cost of production drops by 23%, making the United States a tax haven for businesses. Then instead of American factories fleeing to China, Mexico, and Europe to escape the abusive federal tax burden, foreign compainies will be scrambling to build factories here in the US, creating hundreds of thousands of jobs for Americans.
By all estimates, there will be so much federal tax revenue generated by the Fair Tax that Medicare, Medicaid, Social Security, you name the program....they'll all be permanently well funded.
But the best thing is you get to decide what to do with your money. Think of the savings account, the investments, the paid-off credit cards if you got to keep all of your paycheck.
One last thing, under the Fair Tax plan, every month or every quarter, each family will receive a pre-bate check from the federal government based on family size, that covers basic living expenses. The reasoning is that we should not be taxing the essential living necessities. So things like food, medicine, clothes, rent, gas, electric, etc will be paid for with that pre-bate check if you choose to use it for that.
With Mike Huckabee, a big Fair Tax proponent, still lingering around probably waiting to be Johnny Mac's running mate, the Fair Tax will get some attention. The more people learn about the huge possibilities the more excited they'll become and maybe we can motivate Congress to take some sort of action at least in that direction. Heaven knows we need to simplify the tax code if nothing else.
For more information buy the Fair Tax book or go here and check out the web site.
Hope that answered your question.
3 comments:
I definitely agree here, fair tax is much better than what we have now. This will alleviate much of the tax burden on the wealthy, and cause everyone to pay taxes, which was the way taxes are supposed to work anyway. And many poorer people will whine that it is unfair to the poor because the wealthy will pay the same amount of money as the poor on common goods such as milk and eggs, etc. but the wealthy will also buy expensive things such as nice tv's. Poor people will complain about that too, but here is my take on that, if you are poor and don't want to pay taxes, save your money. It solves the problem of paying taxes, and it will help them save money. I dont see how people argue against this plan.
Actually under the FairTax, rich people will probably end up paying more in taxes than the gov't seizes from them now because they buy so much expensive stuff.
How many jobs were ever created by a poor person? Answer: none
Rich people create wealth for others just by spending and investing all that money.
But you're right K, the poor and the liberals will complain no matter what.
To the first thing, i understand that, i just don't think liberals see it that way, mainly because they are too nearsighted. Thats actually a better way to look at liberals and conservatives. Liberals are nearsighted about issues, and conservatives are farsighted on issues. If i had to pick one, i would have to pick farsightedness.
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