Pros and Cons between Federal Fair Tax, Income Tax and Flat Tax
July 19th, 2006 | 
Author: If you’ve heard about the Fair Tax and Flat Tax proposals but don’t really know much about them, here’s a summary comparison which explains in some detail the differences between them.
16th Amendment
FairTax – Proposes repeal.
Federal Income Tax – No change.
Flat Tax – No change.Complexity
FairTax – Individuals do not file. Businesses need only to deal with sales tax returns.
Federal Income Tax – Very complex; 20,000 pages of regulations; I.R.S. incorrect over half of the time.
Flat Tax – Withholding continues. Individuals and businesses must still track income and file income tax forms.
What I like about the Fair Tax is you the individual control your Federal Taxes paid through your consumption, plus the IRS is GONE! Check it out!
Cao’s Blog? Blog Archive ? Fair Tax Blogburst
Comment from Mdmhvonpa:
Oh yes … fair tax. Of course, when the Fair Tax meets ‘Buying a Home’ … we have problems. It still needs a bit of adjusting.
With Fair Tax, the Federal sales tax is applied only to “new” items purchased. So, if you bought a previously owned home or vehicle there would be no sales tax. Those who bow at the altar of environmentalism should be thrilled with this! The building industry or auto companies probably aren’t too thrilled though. One has to keep remembering your gross pay is also your takehome pay.
The question that came to my mind a while ago was how would Social Security tracking occur? Who paid in, how much was paid in? This is aside from the issue of the value or validity of the U.S. even having Social Security which I believe was the one of the worst travesties pushed through by FDR. There were a lot of Socialist-like programs put in place by FDR but this one to me is the most aggregious. I’ll see what I can find out about this.
From Americans for Fair Tax on their FAQ page:
How is the Social Security system affected? Like all federal spending programs, Social Security operates exactly as it does today, except that its funds come from a broad, progressive sales tax, rather than a narrow, regressive payroll tax. Employers continue to report wages for each employee, though, to the Social Security Administration for the determination of benefits. The transition to a reformed Social Security system is eased while ensuring there is sufficient funding to continue promised benefits.
Meanwhile, Social Security/Medicare funds are no longer triple-taxed as under the current system: 1) when payroll taxes are initially withheld; 2) when those withheld payroll taxes are counted as part of the taxable base for income tax purposes; and 3) when the promised benefits are finally received.
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Oh yes … fair tax. Of course, when the Fair Tax meets ‘Buying a Home’ … we have problems. It still needs a bit of adjusting.
How about No Tax ! Kill off most of the Un-Constitutional Federal Government departments and programs. What ever happened to Less and Smaller Government?
This is concerning the “fair tax” and new homes. First all the new materials in the home are not taxed as the home is an OEM. The home will be initially less expensive to build as no taxes are incorporated into its constrjuction. Today all labor taxes, corporate taxes and products within the home components production have layers of taxes imposed. A faucet that is produced in the USA today has corporate taxes, social security taxes, labor taxes all included into the price the contractor pays for the faucet. With the fair tax the faucet is cheaper as there are none of there “hidden” taxes. There are hundreds of products used in construction of a home, like the faucet, that today contain all these “hidden taaxes”. The fair tax eliminates all of them.
Now think of this: Instead of getting an empty house you could possibly buy a fully furnished house cheaper than todays empty house. Why? Because the contractor would pay no sales tax on anything that is sold to him for OEM purposes. Therefore you would pay one lump sum for everything as a new home sale. The contractor can and will provide these types of incentives to get you to purchase a new home. Remember there are no taxes on any of the components in the new home so they are cheaper than any bargain store purchase and the contractor does not have to price the furniture as a furniture store would. The cost to the contractor is minimal and does not have to be fully priced in the purchase price of the home.
That is but one example of how buying a new home can be more attractive with the “fair tax” system than with todays income tax system. And remember you have all your money to spend not just a piece of it.
A thought about a national sales tax.
The government cannot require tax payment for any transaction it cannot verify. Since the burden of proof in any tax dispute will be on the government, it will have to verify every transaction. Since the seller is usually responsible for collecting and sending tax to the government, verification must come from the buyer. The government cannot require individuals to report their purchases by sending in report forms periodically. Instead it will require buyers to make these reports automatically at the time of purchase by implementing a transaction monitoring system. The goal will be to collect details of every transaction by every individual buyer. If the government does not do this, it will not be able to verify the amount of tax due from sellers. The system will be expensive to implement, operate, and keep secure, because it will be installed at as many points of sale as possible. To make it work, paper currency will disappear, bartering will become illegal, and all transactions will be done electronically. The government will know about every purchase you make: when, where, what, and how much. It will know whenever you rent a flick or buy a jar of Preparation H. Big Brother will track you throughout the day. He will know you ate a breakfast burrito at MacDonald’s and picked up a newspaper on the way in to the office, that you had lunch at Joe’s and bought a Coke from the machine in the hall in the afternoon, where you stopped to put gas in the car on the way home from work, and what you had for dinner, or at least what food you purchased at the grocery store. Those concerned about privacy issues related to the IRS under the current system will have a lot more to worry about when sales tax is implemented. This kind of monitoring for verification is as inevitable as the requirement that your employer, banker, and stock broker report your income under the current system.
i think that if the government is trying to make the economy even worse than they should let someone that knows a little more about what the people need instead of punishing the poor and making the rich even richer.
After studying the pros and cons which includes “The Fair Tax” by Neal Boortz, I find some real problems with the fair tax.
1. Workers paying less that 23% will be paying more for goods and services.
2. Rebates to non-tax payers will create a national welfare program.
3.All persons will have to report income, residences,number in family,and ages to the government just like with the IRS.
4. Rebate mechanism not equal to everyone.
5. Will hurt Seniors on fixed incomes.
6. Will create political manipulation
7. Doesn’t include all state, locate and exise taxes.
8. Fair tax penalizes younger adult starting out in the working field.
9. There is no guarantee that embedded taxes of 22% will disapear and lower prices.
10. Prices and wages don’t adjust downward either quickly or easily.
11. For fair tax to work, wages will also have to decrease 22%.
12. Massive fraud will occur cheating the government out of revenue.
13. The fair tax will benefit the rich the most.
14. The economy will not flourish because people with money will cut back on spending and also not buy new homes, boats, and motor vehicles.
15. Administrative problems will doom the fair tax. It will be too costly.
16. There is no guarantee that doctors and lawyers are going to lower their rates 30% like Neal states in his book.
The Fair Tax could head down the same road as the Great Depression. If the prices of goods and services don’t decrease 22% and the wages remain the same, this plan won’t work. If the Federal Reserve cuts the money supply as they did during the depression and workers refuse to lower their wages 22%, henceforth the new depression era arrives.