The Pub Discussion Board

Jefferson wrote:

Obviously Congress doesn't like the idea, <snip> Not to mention it would tax everyone equally,

That is exactly why Congress doesn't like it.  It is the rich people who help get them elected by funding their campaigns.  Imagine getting dinged with a 22% on a really big ticket item.  Say someone needs to buy something integral to their business and it costs $1,000,000 that is $220,000 extra dollars.  Also under that kind of system the low income earners would have no means to get benefits to keep them hopefully above the poverty line and it would still leave the middle income guy shouldering more than he can afford.

The system initiates a payment system to EVERY tax payer of a specific amount, based on family size, to cover the essentials that need to be purchased (food, clothing, etc.).  This makes these items tax-free.  Since lowest-income families buy little else OTHER than these items, they would basically pay no taxes.  BTW, the increase in benefit amount per new child is NOT enough to encourage welfare-style chicken-hatching to increase benefits. 

SM69: If someone can't afford to buy an item, he doesn't pay tax on that item.  It's as simple as that.  Since the "essentials" have already been covered by the tax "prebate" (as they call it, since it is paid before you spend it), no one is going without food or clothing because they can't afford the tax.  This leaves only luxury or entertainment items being taxed.  I'm sorry that you can't afford your new Playstation 3, but you really CAN live without it.

And you're right, the guy buying the $5 million home will be paying a shitload of taxes (because there are NO loopholes in the NST concept), but then, if he's buying a home that expensive, he can afford it.

Neitherspace:  What problems, exactly, are those?  How about the billions of dollars a year WASTED on tax preparation?  And I'm not talking about rich people here: they just make their accountant do it.  I'm talking about middle- and lower-income people who are trying to eke out an extra $100 in their tax return... and end up spending at least that much at the tax preparer's office, anyway...  The NST has no forms for the consumer to fill out, no extra processes for them to follow (other than keeping the gov't informed of their location, so that they can receive their prebate checks... but guess what?  You're supposed to do this already, for Social Security and your Driver's License.)  There is no "tax day", no stress around the middle of April.  No IRS audits (at least not of a consumer... perhaps a business might be audited, but that's not your problem as a customer, now is it?).  No convoluted tax laws that require lawyers to understand.  No loopholes that allow the richest people not to pay even their fair share of tax, let alone the punitive amounts Congress is currently trying to get them to pay...

No, saying that this won't change anything is a knee-jerk reaction, especially for a plan you admit you know nothing about.

Personally, it makes good sense to me to tax people's non-essential spending.  If you have the extra money to buy frivolities, you can afford to pay to keep the government running.  Also, remember that you'll have an extra 15-20% or more of income that will no longer be taken out of your paycheck.  Anyone here NOT want a raise?

Net Wolf

From Net Wolf's description it is obvious I did not know about a key point of the system.  If it is only luxury items then yes I can see how that would work, the only issue I can see is how do you define luxury over essentials?  Is the $5000 Armoni Silk suit exempt just like the $100 Cotton suit bought from Cheapo Discount Clothiers?  Or the container of caviar and a can of soup or a couple of apples?

Restaurant food I think would be a given that it would be taxed but not the stuff you buy from the grocery store.

You didn't read what I wrote, SM.

EVERYTHING is taxed if it is sold.  However, the government sends everyone a "stipend", which is a fixed amount based on the size of your family, to cover the tax on essential items.  What you actually spend that money on is up to you, but the stipend will not change because you buy Calvin Klein instead of Fruit of the Loom.  What this does is allow your average family to pay the taxes on their normal food & clothing purchases during the month without cutting into their actual income.  Above and beyond that point, you will pay tax on everything.  Thus, you as consumer decide what is essential and what is luxury, but the government is only giving you $X to pay the taxes.

So, let's use an example.  These will NOT be the real numbers, because I don't feel like looking up the real numbers.

Family of two parents and two children are expected to spend $700 / mo. on food and another $300 / mo. on clothes, as well as $250 / mo. on other essential items.  (Remember, I'm just making these friggin' numbers up to illustrate the point.)  That's a total of $1250 of "essential spending" every month.

Don't ask me to explain how this part works, because I don't understand it myself... though the "effective" tax rate is 23%, the "actual" tax rate is 30%.  So, anyway, 30% of $1250 is $375.

The government sends this family, at the beginning of the month, a check for $375, to pay the taxes on the essential items they are expected to buy.  Thus, the first $1250 of items they buy in a month is, in essence, tax free.  They can buy whatever the hell they want, but if they don't cover the essentials, they're only screwing themselves.

If you are a millionaire with wife and two kids, living on filet mignon and caviar, guess what?  You STILL only get $375 a month to cover your taxes.  The fact that this amount won't cover your food taxes for a week is not really important: you COULD have bought food for a month tax-free, if you weren't buying so extravagantly.  And since you ARE living so extravagantly, you can damned well afford to pay your taxes.

This is why this system really DOES help the lower- and middle-classes: the essentials are covered by the system, and only what you spend on extras do you really end up paying taxes on out of your own pocket.  If you really can't afford anything but food and clothing, then you don't end up paying taxes out of your own pocket; the government stipend will cover it.

Here is my own personal gripe, and it's a small one.  The government should not send out checks.  They should give out the equivalent of a debit card.  When you go to buy something, you can swipe the card, and if there is any money left on it for the month, then your tax bill for that purchase will be reduced either to $0, or by whatever amount was left on the card.  There would be NO rollover to the following month.  This makes use of the (admittedly rare) cases where people actually spend LESS than expected in a month, saving the government money that they would otherwise have sent to those people.  For those who might feel this is "unfair", I say that the money was intended to pay tax on essentials.  If you didn't buy it, then it wasn't essential to you, and you don't need the tax money.  It is more unfair to give extra to those who don't need it.

Net Wolf

This is right out of the book. I might edit some.

Let's say your household consists of a married couple with two children. The Fairtax act sets forth a formula for computing the poverty level, based on govt. figures, which negates any marriage penalty. Under the Fairtax in 2005 your household would be granted an annual comsumption of $25,660. This is the amount the govt. estimates you would spend during that one year to buy the basic necessities. The sales tax on this amount would equal $5,902. The government would rebate this amount to you in 12 equal monthly installments of just under $492.

A single woman struggling to raise one child would collect a monthly rebate in 2005 (the year the book was published) of $250. The lowest rebate payment would got to a single person with NO dependents: such a person would receive $183 per month, or $2,201 for the year.

Now... Bear in mind the prebate isn't just for the poor. It's paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fairtax on the basic necessities of life.

A single person would get $183.43 a month.
A married couple with no kids would get $366.85
A family of three would get $429.33
A family of four would get $491.82
A family of six would get $616.78
A family of eight would get $8,901.00
For additional family member after eight you would get $749.80

As I said, that's right out of the book which was written in 2005. Those figures would change as the poverty level changed.

As Net said, everything is taxed because if you said, "We won't tax the necessities." You would end up with lobbyists yelling that the Sleep Number bed is a NECESSITY. This way, it's all even. Everyone gets whatever they deem to be a necessity, they get those taxes paid for, whether it's bread, milk and cheese or your prescription or your caviar, depending on your wealth and lifestyle.

I imagine that a court judgment could put a garnishment on those government payments.  In fact, it might become the case that this tax prebate would become the very first portion of child support payment, guaranteeing at least a certain amount of money to feed / clothe the child...  It would save money for the courts in the long run...

Net Wolf