The FairTax - Familiar With It? Never Heard Of It? - Page 3

The FairTax - Familiar With It? Never Heard Of It?

This is a discussion on The FairTax - Familiar With It? Never Heard Of It? within the Off Topic & Humor Discussion forums, part of the The Back Porch category; Originally Posted by aus71383 This is interesting and depressing. I don't see a very bright future for us. Austin Shouldn't be depressing! We can chat ...

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  1. #31
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    Quote Originally Posted by aus71383 View Post
    This is interesting and depressing. I don't see a very bright future for us.

    Austin
    Shouldn't be depressing! We can chat and whine and complain, and jackboots don't come get us in the night!

    Now, if you find it depressing 'cause we're sitting around chatting about <boring> taxes, and not shootin', you're probably correct!

    It's a Republic - it'll survive.


  2. #32
    Member Array Lumberjack98's Avatar
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    I am a supporter of the fair tax.

    This is a great discussion!
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  3. #33
    VIP Member Array SammyIamToday's Avatar
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    Quote Originally Posted by Rock and Glock View Post
    I agree philosophically, but the "tax" as defined in the 24th and thereafter includes most all taxes.

    I would certainly think Proof of Citizenship should suffice, whatever that may be............birth certificate, USA Passport, naturalization papers, etc....but not that <gasp> "National ID Card"!
    Well, its not like we couldn't repeal the 24th Amendment if that was a problem. Of course this is hypothetical and I don't ever see that happening. Universal suffrage is a bad thing I think. When people get the ability to vote themselves money it is just a matter of time until things go to crap. Especially if those voting aren't providing the money they are voting for.
    ...He suggested that "every American citizen" should own a rifle and train with it on firing ranges "at every courthouse." -Chesty Puller

  4. #34
    Member Array ptmmatssc's Avatar
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    Hmmm , sounds interesting . But since states can and do set their own tax rates/structure , then in order to make up for any funds not coming from the fed , they could/would just increase taxes and what can be taxed .

    Now , lets say here in my state (maine) you go and buy a $100000 new house . You would have to pay an additional $23000 for the "fair tax . But you would also have to pay the 5% maine tax (another $5000) . that 100000 loan will be paid with income that is taxed at 8.5% . Then you have your yearly property tax . And on and on .

    I like the idea of a flat/fair tax , but truthfully , starving the fed will just make the states increase what they charge and what they will tax .

    Btw , I noticed that services would also be taxed under the "fair tax" . Kind of ironic that all the items used to perform said service has already been taxed , then the actual service itself will be taxed . 23% tax on a steak , then another 23% tax for someone to cook it ? And wouldn't taxing a service essentially be a diverted "income " tax? a restaurant will have to increase their prices not only for the initial purchase of the steak , but also for the process of cooking and serving it. This is a moot point if food items are exempt from the "fair tax" I guess. But , your still taxing a service , which once performed , has no monetary value once completed , unlike a tangible item like a car or house.

  5. #35
    VIP Member Array SammyIamToday's Avatar
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    Quote Originally Posted by ptmmatssc View Post

    Now , lets say here in my state (maine) you go and buy a $100000 new house . You would have to pay an additional $23000 for the "fair tax . But you would also have to pay the 5% maine tax (another $5000) . that 100000 loan will be paid with income that is taxed at 8.5% . Then you have your yearly property tax . And on and on .
    Yes, but how much of your income would you still have if you weren't dropping 3 monthes out of the year to the Fed (or more depending upon your income bracket).
    ...He suggested that "every American citizen" should own a rifle and train with it on firing ranges "at every courthouse." -Chesty Puller

  6. #36
    Member Array gdalton's Avatar
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    I know I'm new here but I figured I would jump in on this since I have been following the FairTax for some time now.
    The $100000 house mentioned befor is still going to cost $100000 after the FairTax because the tax is inclusive, as in it is built into the price not added on after the purchase, the same way companies taxes are built into the price of products now (companies just add on the cost of their tax burden to the price of their goods) once you remove the existing taxes which usualy run in the area of 20-25&#37; then add back in the 23% inclusive FairTax the price remains basicly the same.
    I know I did a piss poor job at explaining that math but if you take a look at www.fairtax.org you can see the difference between exclusive an inclusive tax structures.
    Also on the adding the tax on services, the services they are speaking of would be like a maid or an accountant, a cook is making a product (the dinner) and his contribution to the resteraunt is not considered a service so your steak is not taxed twice.
    And the fear of starving the feds of money (I wish we could) this plan was developed to be revenue neutral so what they are recieving in taxes now they will be getting the same amount with the new plan.

  7. #37
    Member Array BluesStringer's Avatar
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    gdalton is exactly right on every point he made. Thanks for the contribution.

    I still owe Glock and Rock a reply, which I haven't forgotten. Just been a ******* busy week so far with no respite in sight. I'll get back when I can, probably the weekend.

    Blues
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  8. #38
    Member Array ptmmatssc's Avatar
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    Also on the adding the tax on services, the services they are speaking of would be like a maid or an accountant, a cook is making a product (the dinner) and his contribution to the resteraunt is not considered a service so your steak is not taxed twice.
    So , does the restaurant pay the tax on the steak, then charge you the same tax (is the meal taxed as a service) ?

    Having been in manufacturing , I pose this question . A company buys 4 tons of steel , 8000' of oak boards , nails , and paint . Do they pay the 23% tax for each item ? If they did , then can the tax be charged again on what those materials made? As said before , a company will add the tax into their price . So now , when someone buys that product , won't they essentially be paying 46% tax , since the company added their share to the product price , as well as the consumer paying his 23% for a "new" product"?

    The $100000 house mentioned befor is still going to cost $100000 after the FairTax because the tax is inclusive, as in it is built into the price not added on after the purchase, the same way companies taxes are built into the price of products now (companies just add on the cost of their tax burden to the price of their goods) once you remove the existing taxes which usualy run in the area of 20-25% then add back in the 23% inclusive FairTax the price remains basicly the same.
    From what I'm reading , essentially , all tax burdens will be on the consumer . Taxes will be added to cost right down to Joe Snuffy to pay . If you own a company , you don't need to pay taxes since any tax you have paid will just be added to the product and therefore be paid by the common man .

    Now here's a question . Does the tax apply to items bought outside of the US? if not , then what would keep people from going to canada/mexico/china and buying what they want at whatever tax rate those countries have and coming back here to the states and selling it for an increased profit?
    What about bartering services?

    If Joe Citizen buys lumber with the 23% tax added , builds a desk , adds the tax into the price , then I buy the desk and have to pay 23% for this new item . Then didn't I just pay 46% tax for that item ?
    At what point does something stop being taxed? When is it considered a raw material vs a finished product? In other words , I can buy a tower , motherboard , and all other parts to put a PC together and pay the 23% , but when I sell it ,the buyer has to pay 23% for a "new" product , even though all those parts have already been taxed .
    Am I correct in assuming that is how it would work?

    I don't know , but simple solutions generally are neither simple nor solutions .

    Btw , playing devil's advocate . I WOULD like to see a better tax system , or none at all .

  9. #39
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    Quote Originally Posted by gdalton View Post

    .........if you take a look at www.fairtax.org you can see the difference between exclusive an inclusive tax structures.
    Also on the adding the tax on services, the services they are speaking of would be like a maid or an accountant, a cook is making a product (the dinner) and his contribution to the resteraunt is not considered a service so your steak is not taxed twice.
    Blues had a pretty good example of the math:

    Quote Originally Posted by BluesStringer View Post

    23% calculated as inclusive. What I mean by "inclusive" is that the tax will be included in the price-tag of the goods and services you buy.

    Now, this detail is the source of a lot of confusion about whether the tax is 23% or actually 30%. The truth is, it's both. Here's how I can say that without any legitimate accusation of trying to obfuscate and "cook" the numbers....

    If I spend $100 under the FT, the formula is as follows:

    $100 - 23% = $77 actually spent on the item, with $23 going to Uncle Sam.

    The confusion comes when you calculate in tax exclusive terms, ie:

    $77 spent + 29.871% (or 30% for simplicity's sake) = $100.

    So 23% can indeed be the same as 30%, depending on which formula one uses, and I really don't care which formula we use in discussing it as long as it's understood that the FairTax bill mandates that the tax be collected inclusively, and as well, that your receipt for every transaction that is taxable have your item or service cost and the FT itemized.
    It's the same either way - you just have to apply the appropriate rate to the appropriate base:

    23% for inclusive (tax included in the the total cost (Total Cost X 23%) , (e.g. 100 X 23% = 23 Tax included in the 100)

    OR

    30% for exclusive (tax on top of the pre-tax cost (Pre-Tax Cost X 30%), (e.g. 77 X 30% = 23 Tax excluded from the 77)

    That, my friends, is a matter of semantics - in the worst way! A 30% tax is not "sellable" to the public, but a 23% tax might be.

    Congress at its finest - just define the base and the rate differently.

    To compare it to your typical state sales tax, use 30%!

    You buy a $77,000 new house, the federal tax is $23,000, for a total of $100,000, a 30% increase.

    Think about that, younger folks:

    You can afford a down payment and mortgage on a $77,000 house, but the mortgage company wants you to pay the $23,000 out of pocket because it added no value, and the house, by definition, cannot appraise for more than $77,000, what you've contracted for.

    So now you have to save up the regular down payment, plus $23,000 to buy that house!

    You can finance the tax, you say? Think again - that's what Sub-Prime Mortgages are:

    Mortgages where the value of the house is less than the mortgage, or
    The borrower cannot otherwise qualify due to income, asset, or debt problems

    Just thinking some more here, folks, about unintended consequences and other stuff.

    For simplicity, just think of it as a 30% sales tax, and maybe the costs inherent in the product will decrease by 23% of so because the other taxes decline (SS, income, unemployment, etc.)..........

  10. #40
    Member Array ptmmatssc's Avatar
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    Just a note . The following quote points to a study as support , but neglects to say the author of the study that the quote points to has his own idea of tax reform other than the "fair Tax" .

    Like I said, this is hard to understand, and even those who understand the concept(s) behind it will have some trouble having confidence in the numbers. Here's a link to a Harvard study which impeccably details how the elimination of corporate embedded taxes will lower the price of goods and services commensurate with the 23&#37; FT.
    And the authors idea , rather than a "flat" or "fair" tax .

    http://www.economics.harvard.edu/fac...BURDEN_web.pdf


    Instituting the new investment tax credits would stimulate investment, especially in the corporate sector. The revival of economic activity would raise earned income from work and property-type income and would stimulate consumption. And Efficient Taxation of Income would have a much greater impact than a revenue-neutral version of the flat tax. I estimate that the flat tax would yield $2.1 trillion in new national wealth—only about 40 percent of the gains attainable from Efficient Taxation of Income.
    http://www.harvardmagazine.com/on-line/030388.html

  11. #41
    Member Array gdalton's Avatar
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    OK I'm no expert on this but I will give it a try
    Quote Originally Posted by ptmmatssc View Post
    Having been in manufacturing , I pose this question . A company buys 4 tons of steel , 8000' of oak boards , nails , and paint . Do they pay the 23% tax for each item ? If they did , then can the tax be charged again on what those materials made? As said before , a company will add the tax into their price . So now , when someone buys that product , won't they essentially be paying 46% tax , since the company added their share to the product price , as well as the consumer paying his 23% for a "new" product"?
    The tax is only on the retail level, so business to business purchases will not be taxed. So when business A buys raw goods from business B to manufacture its goods there is no tax but when the good is sold to the end customer then the tax is added.


    Quote Originally Posted by ptmmatssc View Post
    From what I'm reading , essentially , all tax burdens will be on the consumer . Taxes will be added to cost right down to Joe Snuffy to pay . If you own a company , you don't need to pay taxes since any tax you have paid will just be added to the product and therefore be paid by the common man .
    Ok, corporate taxes are not paid by corporations, I know that sounds dumb but just hang on for a second. When the corporation determains the price of goods on the retail level they include in that price the cost of making and destributing those goods, part of the cost is their tax burden so they adjust the final retail price accordingly to keep the profit margin safe. No corporation is going to set the price of it's goods without factoring their tax burden so you and I pay all the corporate taxes when we purchase the goods. I hope that made sense, again I'm no expert.

    Quote Originally Posted by ptmmatssc View Post
    Now here's a question . Does the tax apply to items bought outside of the US? if not , then what would keep people from going to canada/mexico/china and buying what they want at whatever tax rate those countries have and coming back here to the states and selling it for an increased profit?
    What about bartering services?
    It's called importing and anything imported and sold at retail will still get taxed. And actualy since the items will be taxed by the exporting country and our own at retail it would make more sense and be more profitable to buy goods manufactured in America and save the foreign tax. More American jobs and less cheap Chinese crap.

    Quote Originally Posted by ptmmatssc View Post
    If Joe Citizen buys lumber with the 23% tax added , builds a desk , adds the tax into the price , then I buy the desk and have to pay 23% for this new item . Then didn't I just pay 46% tax for that item ?
    At what point does something stop being taxed? When is it considered a raw material vs a finished product? In other words , I can buy a tower , motherboard , and all other parts to put a PC together and pay the 23% , but when I sell it ,the buyer has to pay 23% for a "new" product , even though all those parts have already been taxed .
    Am I correct in assuming that is how it would work?
    As long as Joe Citizen forms a business entity (Joe Shmoe Inc.) and he buys his materials from companies that sale to other business' then the tax will only be added at the retail level.

    I hope I helped and didn't add more confusion. There are much more coherent arguements made for the FairTax if you would please take the time at fairtax.org they get these kinds of questions all the time.

    Oh and the house question, the apraised value of a house has very little to do with the actual construction cost. If you got all of your lumber for free and built the house your self an apraiser would not give a value of $0. The market determains value and will continue to do so if the FairTax is put into place.

  12. #42
    Moderator
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    Quote Originally Posted by gdalton View Post

    Oh and the house question, the apraised value of a house has very little to do with the actual construction cost. If you got all of your lumber for free and built the house your self an apraiser would not give a value of $0. The market determains value and will continue to do so if the FairTax is put into place.
    I agree that Fair Market Value ("FMV") is determined by the "Market". FMV is a factual determination and is one of the "Black Arts" in my book (pretty sad for a tax geek to say that, eh?) but one of the considerations to determine FMV is "replacement cost" or cost per square foot to rebuild. Obviously, that's not the final answer, but merely a component.

    What I'm trying to say is that a $77,000 house is worth what you paid for it, not including tax. Transfer taxes of any type are never reflected in FMV that I've known of (I could be wrong here - any appraisers on board?). Thus, the mortgage company will not finance the tax using normal underwriting standards unless the FMV is equal to the purchase price plus the tax. Unlikely.

    However, if the selling price of an identical "used" house is $23,000 higher (because of the tax), then the appraiser would include that $23,000 in the analysis of the comparables - another component of FMV. That assumes the "market" establishes a "premium" on used because of the "tax avoided".

    Another consideration just reared its ugly head.........Used houses are now priced at a premium possibly (after enactment) so maybe this hammers the construction industry more? Who knows......just contemplating economic effacts and the Black Arts again.........

  13. #43
    Member Array ptmmatssc's Avatar
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    The tax is only on the retail level, so business to business purchases will not be taxed. So when business A buys raw goods from business B to manufacture its goods there is no tax but when the good is sold to the end customer then the tax is added.
    Ok , so what constitutes a "raw good" ? Couldn't I as an individual set up my own little "corporation" , buy PCs , tweak them with some mods , and not pay the tax ? Where is the "raw goods"line drawn?
    It's called importing and anything imported and sold at retail will still get taxed. And actualy since the items will be taxed by the exporting country and our own at retail it would make more sense and be more profitable to buy goods manufactured in America and save the foreign tax. More American jobs and less cheap Chinese crap.
    Ok , got that part . But what's to stop me from going to canada (live a few hours away) and buying my goods at THEIR tax rate and bringing it back without any money being paid to the US gov in taxes? If you start taxing personal items bought in other countries by individuals as part of or an extension of the "fair tax" , then in starts going down the same road we are already on .


    As long as Joe Citizen forms a business entity (Joe Shmoe Inc.) and he buys his materials from companies that sale to other business' then the tax will only be added at the retail level.
    Small businesses don't always get the wholesale/business cost (I know , former small business owner ) . So essentially , to get a business up and running would not be cost effective since you would not be able to compete with the large ones that don't have to pay the taxes that I would . Many small businesses start out by having to buy retail to get their business going . By having a 23% tax on top of trying to get the business up and running would kill the majority of any new ones starting out , leaving only the already established ones out there .


    I hope I helped and didn't add more confusion. There are much more coherent arguements made for the FairTax if you would please take the time at fairtax.org they get these kinds of questions all the time.
    Have been there , but still want to hear what people that support a cause have to say . If Joe Citizen can understand it and explain it , then it means a lot more than any "group" that is behind the issue .

    I always have to ask "this person is trying to change my view or saying what's best for me . So what do they stand to gain from it? "
    Well , the board of directors for fairtax.org are all company owners or executives in business . I can see why this is such a good cause for them .

    Leo E. Linbeck, Jr.,
    Chairman and Chief Executive Officer, Linbeck Corporation
    Robert C McNair
    Cogen Technologies founder sold nation's then-largest privately held power company to Enron for $1.5 billion in 1999; took cash and stock. Dumped shares before energy giant's spectacular fall.
    Howard W. Horne Sr., vice chairman of Cushman and Wakefield of Texas
    Allen C. King
    Venture Capital and Private Equity

    Funny , I don't see any "grass roots" normal people on the board, just businessmen (and a lawyer).

  14. #44
    Member Array gdalton's Avatar
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    Quote Originally Posted by Rock and Glock View Post
    I agree that Fair Market Value ("FMV") is determined by the "Market". FMV is a factual determination and is one of the "Black Arts" in my book (pretty sad for a tax geek to say that, eh?) but one of the considerations to determine FMV is "replacement cost" or cost per square foot to rebuild. Obviously, that's not the final answer, but merely a component.

    What I'm trying to say is that a $77,000 house is worth what you paid for it, not including tax. Transfer taxes of any type are never reflected in FMV that I've known of (I could be wrong here - any appraisers on board?). Thus, the mortgage company will not finance the tax using normal underwriting standards unless the FMV is equal to the purchase price plus the tax. Unlikely.

    However, if the selling price of an identical "used" house is $23,000 higher (because of the tax), then the appraiser would include that $23,000 in the analysis of the comparables - another component of FMV. That assumes the "market" establishes a "premium" on used because of the "tax avoided".

    Another consideration just reared its ugly head.........Used houses are now priced at a premium possibly (after enactment) so maybe this hammers the construction industry more? Who knows......just contemplating economic effacts and the Black Arts again.........

    Well like I said I'm no expert, but I would pose the arguement that the houses sold today already have the embedded tax burden of the developer built into the price so I don't see how the new tax that effectively replaces the old will make a difference. Half a dozen of one six of the other kind of thing I would guess.
    And I would also add that the used houses that do not have the new tax will not be devalued by the market because of it. I believe the home prices will pretty much stay the same (apreciating yearly when all is well) and the cost of new versus used will stay the same as well.

  15. #45
    Member Array gdalton's Avatar
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    Quote Originally Posted by ptmmatssc View Post
    Ok , so what constitutes a "raw good" ? Couldn't I as an individual set up my own little "corporation" , buy PCs , tweak them with some mods , and not pay the tax ? Where is the "raw goods"line drawn?


    Ok , got that part . But what's to stop me from going to canada (live a few hours away) and buying my goods at THEIR tax rate and bringing it back without any money being paid to the US gov in taxes? If you start taxing personal items bought in other countries by individuals as part of or an extension of the "fair tax" , then in starts going down the same road we are already on .
    I understand your argument, and there will always be people trying to dodge the system, however with the FairTax there will be a lot more black market individuals cought under the tax net they are dodging now.

    As for the small business start ups, if the price of the goods after the FairTax is basicly the same (give or take a percent or two) then there is no difference. Same price is the same price.

    Now as for the "big business" being the supporters it is very true that they will be the ones to reap the greatest rewards, but I like the plan because it takes a lot of the power to manipulate the people away from the government. Just take the most recent example of the congress trying to raise taxes on gasoline (which by the way they already make 3x more then the oil companies) to keep us from driving our SUV's, that is manipulation. Taxes are meant to fund the government not manipulate the people. With the FairTax if they want to increase the tax everyone will feel it and they won't be able to say "well we are just raising taxes on the so and so's because they don't do what we would like, and we are going to give all that money to the kids, or poor, or whom ever is in vogue this week." If everyone feels the increase more people will stand against it.

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