Besides having a
decidely un-presidential name, who is this man? Sure, he's got
some nice endorsements, but where does he stand on these (not so) talked about issues? So, let's
go straight to the source . . . .Here's the one that caught my eye:
taxes. So he says he wants to do away with the IRS and all income/payroll taxes. So where would the government be getting the revenue to provide for things such as Social Security, Medicare and also pay for the ever expanding cost of Iraq and Afghanistan?
Answer:
The Fair Tax! (If you're too lazy to read the article, it's basically a federal sales tax.)
Ok, so we get that it's fair or it wouldn't be called the Fair Tax. Just like the Patriot Act was the essential act of patriotism, right? (Sorry, too early in the post to start getting snarky.)
To determine if it really is fair, lets see what the consequences of the Fair Tax would be:
All revenue previously acquired by the Feds by the IRS would have to come from the federal sales tax. What does this mean?The amount you pay in taxes will no longer be determined by how much your total income is, but by how much you spend. For example, if an household makes $50k a year and another household makes $200k a year and they both spend $50k that year, they'll be taxed for the same amount. Household 2 would end up saving that $150k a year without any tax implications.
I pay sales tax at the store everyday, so what?Well, the intention is to encourage people to save money and invest it rather than spend it on
the house built of golden steel or the diamond car with the platinum wheels. (Yeah, that's a mean sousaphone in the back.) There are two problems with this: 1) when a household cannot afford to save or invest; and 2) there are already tax incentives to save and invest.
When a Household Cannot Afford to Save/InvestSay a household brings in an income of the poverty level. Under the Fair Tax, the household would receive a check from the federal government each month for the amount of taxes they would pay if they spent their entire income. Every household receives a check for the taxable amount of the poverty level, regardless of their income. The problem is, however, that until they receive that check, they're being taxed. So, for simplicity of math's sake, let's say that the poverty level is $20k and the tax rate is 30%. (The 30% tax rate is what is suggested by Fair Tax proponents, but opponents suggest that it will need to be 34% to equal the same amount of revenue brought in by the government.) Each month they'd be taxed as they make purchases and have to wait for their refund check so they can get by. Essentially it'll create a lower class that is dependent on receiving their tax reimbursement check to get by. Any problems receiving this check could have dire consequences, especially since 30+% is such a large percentage.
Oh yeah, and this whole system would create a RIDICULOUSLY HUGE bureaucracy to mail out checks to every household, figure out who is in what household, when someone has moved, when someone has died, etc. And they'll have to keep this going every single month. I'm guessing that'll be pretty expensive for the taxpayers.
There are Current Save/Invest IncentivesIf you have an IRA, 401(k) or any similar defined contribution plan with your employer, you are already taking advantage of some of the tax advantages offered to individuals to encourage saving for retirement as well as encouraging investment of these funds. The money deposited into your 401(k) account is withdrawn from your paycheck before being taxed and deposited in your own personal account where it gains interest without being taxed. It is only taxed when you retired and take the money out of your account.
Now, if you have a Roth 401(k) or a Roth IRA the Fair Tax is pretty much the worst situation. You've already paid your taxes, probably cause you thought that the income tax rate at the time you were going to withdraw your retirement funds would be higher than they are now. Well, with the Fair Tax, the rate would be 0.
As for investing, currently money made through investments are subject to a lower tax rate than ordinary income. Money made through the sale of investment properties are subject to the capital gains tax.
So the Fair Tax is different than the Income Tax. Does that make it bad?I'm going to say yes. Most people make their money the old fashioned way: getting their ass to work and getting a paycheck at the end of the week. All that money you've saved up (if there is any) has already been taxed by the IRS. If we get this fantastic Fair Tax, as soon as you spend that saved money, you'll get taxed again. And you'll probably get taxed at a higher rate than you did when you first made that money.
The Fair Tax Double TaxSay you're just some dood who makes his $45k a year. You try to be good and have been squirreling away a little here and little there, trying to get that sweet sweet house in the 'burbs you've always dreamed about. According to the
2007 IRS tax rates , about 25% of your money has already been taken through income taxes by the IRS. Now that you've saved up your 20% of that $200k house, you're ready to make a downpayment. Oh, but wait. The Fair Tax is gonna charge you a 30% take on that downpayment. So get ready to cough up another $60k for that house. Yeah, you've already paid your dues to the IRS, but tough crapola. Thanks Fair Tax!
How has the Fair Tax worked so far?So former Arkansas Governor Mike Huckabee thinks the Fair Tax is a much better way to generate revenue for the government. So how has it worked for Arkansas? What's that you say?
Arkansas still has an income tax? Maybe it was the AK legislature. What's that you say?
Huckabee actually raised income taxes in his state? Makes you wonder why he's trying this grand experiment with the whole country when he wouldn't/couldn't do it with Arkansas.
ConclusionThis post is getting long, but I think you get the point. The Fair Tax is pretty whack. Sure, no one likes the IRS or paying taxes. Sure, paying income tax can be pretty confusing. But it works (kind of). Do you really want to roll the dice with our countries finances? Especially since we're now running a ridiculous deficit? Is this really a good idea or a ploy to get votes?
One thing is for sure though: the duty free section of the airport would be the most popular place to shop!
For some reference sites:
A Pro-Fair Tax SiteAn Anti-Fair Tax Site
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