The FairTax is a proposed change to federal tax laws that would repeal all federal income taxes, including personal, corporate, capital gains and estate taxes, and replace them with a national retail sales tax. The proposed legislation would apply a sales tax rate of 23 percent on the transaction value of any new purchase or service.
A 23 percent rate may seem high – especially to low-income earners for whom consumption accounts for the largest portion of their take-home wages. However, it’s low-income and middle-income families who will benefit the most, thanks to the “prebate” system, which would eliminate the taxation of household necessities and make a fair tax plan more progressive.
Families would pay taxes on goods and services only if they spend above the poverty level. The amount that families would be able to spend tax free would depend on their size. For example, a family of four would be able to spend up to approximately $24,240 annually tax free.
The rebates would have the greatest effect at low spending levels, where they could lower a household's effective rate to zero or below; at higher spending levels, the rebate has less impact.
*the effective tax rate is the rate of taxes paid post-prebate to expenditures (i.e. $6,803/$50,000)
The FairTax would see many Kentuckians benefit because of the low-income nature of the state. Kentucky currently has the fourth lowest median income in the U.S. with a median income of $41,458.
This means that many Kentuckians would see a reduction in the amount of taxes that they pay and thereby allowing them to keep more of their paycheck. With more discretionary income available, citizens across the commonwealth will be free to spend, invest and save at their choosing.
8 comments:
This is anything but a fair tax. To be truly fair, it would need to be proportional on all sources of money movement, not just sales. If it were applied to the movement of all money's it wouldn't need to be anywhere close to the 23% you proposal. This is ridiculously close to Dick Armey's 27% sales tax proposal of some years ago.
Unless the movement of all moneys including personal, corporate, capital gains, estate taxes includng derivative transactions, it cannot be called fair.
Too, to be fair, it would have to be proportional. To call this fair is in abuse of language with the deliberate attempt to deceive on your part.
It would be a disaster for Kentuckians as well as anyone else subjected to it.
You don't like capitalism; you don't like the values and ideals of our founders, and you have no understanding of the meaning of fair.
This is a tax to put the burden on wage earners and let the corporate welfare queens get off scott free for all practical purposes.
May I ask how it's a burden on wage earners? When wage earners are now free to determine how much taxes they "want" to pay, depending on their level of consumption. Families are provided a monthly rebate, each month, to cover all taxes up to their respective poverty level.
The bulk of revenue raised will come from high-income earners who inevitably consume well above the poverty level, and therefore pay more in taxes. If one doesn't want to pay a greater amount in taxes then they simply choose to not spend above and beyond that which is necessary for their survival.
This is the epitome of capitalism to myself...allowing wage earners to keep every bit of what they earn.
A tax on consumption is just another sales tax. The proposal calls for a flat rate of 23%. People who have other sources of income such as derived from derivatives make more than enough to cover basic necessities. Many wage earners barely make enough to cover basic necessities.
It's necessities that are targeted to be taxed. That's not capitalism. Neither is it consistent with our founders. Alexander Hamilton disliked flat taxes for that reason. It violates the establish justice and secure the blessings of liberty statements in the Preamble to the Constitution.
Why exempt derivatives from this flat tax? That is preferential treatment favorable to wealth, which in the case of derivatives, was ill-gotten.
With the proportional rate on the movement of all money, the rate could max out at about 5%. There's no need for a 23% tax on necessities. Going through the year low-income families would still have to pay 23% for a dozen eggs. The rebates don't come until after the taxes are filed.
The rebates come each month, therefore low-income families have a check on hand to cover the taxes that they pay out each month. And with the FairTax there is no filing on the part of individuals, only retail businesses now file tax returns.
Example: The poverty level for a family of 4 is approximately $24,500 annually. If they were to spend all $24,500 they would pay taxes of 23% on top of that 24,500 which would be: $24,500 x 0.23 = $5,635 worth of taxes. Still with me?
The government is going to give these families $5,635 annually to cover their taxes, in the form of a monthly check: $5,635/12months = $469.58 per month. Therefore they pay no taxes and their tax rate is 0%. How's that a burden?
The burden is on what's subject to the tax. Why aren't derivatives subject to a similar 23% tax? In 2009, derivative transaction amounted to $600 trillion. That would result in about $138 trillion going to the Treasury.
With that kind of revenue, why bother to tax necessities at all? There'd then be no need for a monthly refund for poverty-level families.
A flat tax is inconsistent with our founders values. Alexander Hamilton did not like flat taxes because of the inequity they would work on lower income people.
Hamilton, like Adam Smith, preferred a proportional tax rate system.
Taxing derivatives and therefore not having to worry about taxing the necessities or worrying about the poverty level is not capitalism in the least.
Very few middle-class families have derivatives and hardly any low-income families. This method is dependent on the "rich" to carry the weight for all.
My point was at the 23% flat tax (that's inherently unfair), and just limiting it to necessities while allowing derivatives to get off scot free is not capitalism. That is known as feudalism. It's the old feudalist (Republican, Libertarian, conservative) mantra, "take care of the lords of the manor and to hell with the serfs."
A proportional rate tax that could easily max out at 5% would be fair, and would meet the definition of capitalism according to Adam Smith, the father of capitalism, in his book, The Wealth of Nations.
It could be applied to necessities as well as derivatives. According to Adam Smith the rich should pay a proportionally larger share. That can be done with a proportional rate that has no cap on the dollar amount as does Social Security.
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