Tuesday, August 3, 2010

The FairTax: Myths and Facts about the controversial Tax Reform being pushed by Right-Wing Republicans


We've heard so much about the Fair Tax & how it'll make the Tax System Fairer & more balanced & that evryone will pay their equal share of taxes, etc. I admit I dont know that much about the FairTax, only from what I've heard from Talking Heads. Well there is a group out there who disputes many claims about the FairTax.

Its called the FairTax Fraud Institute.

They describe themselves as Republicans, but also Democrats and Independents. The young and the old. The retired and the college student. The poor and the rich. Immigrant and 5th generation. They say they are fiercely nonpartisan & resent as well the belittling of the issue of tax reform, one of the most important issues to face the American people, as a political football. They say they never asked for anyone’s political affiliation for membership. They have the support of many liberals, they also want the enthusiastic support of all Conservative Republicans for the No-Tax plan and against the FairTax Plan.

They say once you understand the No-Tax plan, you will understand how the politics of greed have destroyed America and will be willing to sacrifice so all our children will have a future and the legacy of a great country as their true and deserved inheritance.

Here's what they say about the Myths of the FairTax & what it really does:

MYTH: Americans take home their whole paychecks.

TRUTH: There's no miracle that occurs and wipes out all other taxes as is implied by that statement. State and local taxes and deductions will still be taken out the same as the existing tax plan. Deductions for health insurance, IRAs, 401K's, union dues, etc. will still be taken out as always. You just get to see a little more of it before you purchase your $5 Big Mac (with 30% FairTax tax added). The real alternative to the FairTax called the No-Tax Plan will allow you to not only take home your entire paycheck, it will let you consume as much as you want and buy anything you want tax free.



MYTH: No federal sales tax up to the poverty level means progressivity like today's tax system.

TRUTH: Two things. First, since everybody (rich and poor) get the $187 poverty prebate it's not progressive. Second, since the FairTax taxes consumption (heat, rent, gas, healthcare) and makes investments (stocks, bonds) tax free then it's clearly not progressive. The fact is that the FairTax is an extreme burden for the working poor - those who are much above the poverty level but living paycheck to paycheck. Because they typically spend 100 percent of what they make to survive, then they are literally in the 100% tax bracket because all of their earnings are taxed. The FairTax is a penalty for the middle-class because they spend 80 percent of what they make in consumption, they are taxed on 80 percent of their income so they are literally in the 80 percent tax bracket.

The FairTax is merely a nuisance for the rich. Since they can save and invest most of what they get, and can invest tax-free, and transfer wealth tax-free they are taxed very little. They only spend 5 percent on consumption so they are taxed on only 5 percent of their income and are literally in the 5% tax bracket. This is by no means progressive or fair. In fact, it is just the opposite. Why should a person at the poverty level have all his money taxed while a billionaire is only taxed on 5 percent? Why is this simple concept so hard for the FairTax idiots to grasp? The alternative No-Tax Plan would make all money that was earned with your muscles or your brain completely tax free. It would only tax money that wasn't worked for and wasn't earned.

MYTH: No tax on used goods. The amount you pay to fund the government is totally visible.

TRUTH: This is just replacing one tax with another. It makes things things like used land, used acreage, used mansions, used yachts, used rolls royce's (long lived property) all tax free while things like food, healthcare, surgery, legal services, clothing, rent, mortgage, (consumable property) etc. all taxable. Now that all the best property - huge farms, ocean-side beach homes, private wooded acres etc. is owned by the rich, according to the FairTax it should now be tax-free forever and can be transferred to all succeeding generations of spoiled rich kids completely tax free. The visibility myth is complete nonsense. Things like food, rent, clothes are the visible items the FairTax wants to track.

Unfortunately tracking who ate what and how much heat you used is almost impossible on a large scale. The things that are tracked by banks like property, stocks, and bonds are the things that should be visible because they are so easy to track. The FairTax makes these property transactions tax free and thus invisible to the government. The alternative No-Tax Plan is just the opposite - it doesn't track and tax your Big Mac, or your new clothes, but it does tax and track estates, yachts, and investment property. The alternative No-Tax Plan would make new and used goods completely tax free.

MYTH: Retail prices no longer hide corporate taxes or their compliance costs, which drive up costs for those who can least, afford to pay.

TRUTH: Corporations will still pay taxes, will still buy raw materials, will still hire labor, and will still pass on costs to the consumer. Nothing has changed there. The FairTax only deals with federal taxes. Again, the federal taxes lost will need to be made up by someone. However, under the FairTax the working poor and middle class will now be paying a huge 30 percent tax on new homes, a 30 percent tax on health care, surgery, prescription drugs, day care, legal services, etc. The FairTax Plan drives up the cost of good for the working poor and middle class to astronomical levels. Corporations and the rich make out like bandits. Why would anyone endorse a plan that treats businesses better than people? The alternative No-Tax Plan would allow the anybody (including corporations) to pay no taxes if all their income was earned at a job or manufactured in America with American workers.

MYTH: The income tax exports our jobs, rather than our products. The FairTax brings jobs home.

TRUTH: By giving the rich $700 billion in free money from estate and gift taxes they will do exactly what they did when Bush and Reagan gave the rich huge tax cuts. Did they invest the money in building American jobs for a better tomorrow? Did they make America a better place to live? Did they modernize existing factories to compete with foreigners? NOPE! Even though America has one of the least repressive tax systems in the entire civilized world, they did exactly what Ross Perot said they would do. The took the money and ran.

They used the money to move the factories and jobs to Mexico, China, and India where they could get prison labor and third-world wages totaling mere cents per hour for hard work which no American could work for. Ross Perot was dead-on about the "great sucking sound." Wealth knows no loyalty or patriotism in America. The FairTax will result in more outsourcing and un-American behavior. The bottom line is the FairTax is a job killer. The alternative No-Tax Plan would tax all products that were NOT manufactured with American labor. It would tax money and property of those who outsource jobs and businesses. They can't escape the tax as long as they own property in America. It provides extremely strong financial incentives for bringing jobs back to America and would save millions of jobs.

MYTH: The FairTax strategy is revenue neutrality: Neither raise nor lower taxes so consumer costs remain stable.

TRUTH: The fair tax does not cut the overall revenue but it shifts taxes so the working poor and middle class pay the majority share. It makes money that wasn't worked for or earned tax-free while it taxes hard earned income. None of the studies that this FairTax plan are based on have been published or offered for scrutiny of critics. Many experts dispute the validity of the tax rate claimed. It's simple logic - when you take away $700 billion dollars from the treasury, you have to make it up somewhere. Also, the level of revenue this plan generates is still smaller than required as it was based on current funding without including current debt spending.

The alternative No-Tax Plan would cut tax rates to zero for working poor, middle class, and rich who work for and earn their money in America. It's extremely fair. It would heavily tax money that wasn't worked for or earned like estates, gifts, lottery winnings, gambling winnings, and capital gains. Unlike the FairTax, the No-Tax plan would provide more than enough money to fund all government needs and pay off the national debt.

MYTH: Eliminates Social Security withholding.

TRUTH: This sounds like a good idea on the surface - make everyone pay for social security without a maximum limit. If the estate, gift, and capital gains taxes were not repealed then this might work. However, by eliminating taxes on estates, gifts, and capital gains, there will be a $700 billion shortfall. This must be made up somewhere. There is also a $400 billion deficit not covered by the FairTax with interest to pay. As written, the FairTax will simply shift the burden to the middle class and cut benefits or raise retirement ages. The alternative No-Tax Plan would pay off the national debt, make education and health care tax-free, and fully fund the social security system.



MYTH: Dramatically lowers effective tax rates for lower and middle income persons and families; a rebate completely eliminates taxes for people at or below the poverty level.

TRUTH: The rebate is $187 per month per person. It doesn't sound that dramatic to me. That won't buy gas for a week. This prebate thing is all based on some unimaginable impoverished creature living in a car, not eating regularly, and making $9800 a year and that glorious $187 a month is the tax returned to him for his meager purchases. Now if that sounds like "completely eliminating taxes for poor people" to you then you are out of your mind. Most at that level of poverty won't have an address to mail the check to - let alone be able to afford a minimum bank account balance to cash it. The fact is that the FairTax is an extreme burden for the working poor -- those who are much above the poverty level but living paycheck to paycheck. Because they typically have to spend 100 percent of what they make to survive, then they are literally in the 100% tax bracket because all of their earnings are taxed.

The FairTax is a penalty for the middle-class because they spend 80 percent of what they make in consumption, they are taxed on 80 percent of their income so they are literally in the 80 percent tax bracket. The FairTax is a nuisance for the rich. Since they save and invest most of what they get, and can invest tax-free, and transfer wealth tax-free. They only spend 5 percent on consumption so they are taxed on only 5 percent of their income and are literally in the 5% tax bracket. The alternative No-Tax Plan would lift people out of poverty by making everything tax free. Eventually the working poor will become well off and will pay taxes by investing.


MYTH: Eliminates taxes on education.

TRUTH: There are no taxes on education in the current tax system. If fact, there are many deductions. The alternative No-Tax Plan would bring in so much money that college could be made tax free.

MYTH: Allows families to save more money faster for home ownership, education, and retirement.

TRUTH: Since new homes are taxed at 30% and the home mortgage deduction is eliminated they must be talking only about used homes. Since the majority of taxes are effectively shifted to the working poor and middle classes, that means it is more difficult to save. Since it double-taxes the retirement nest egg you already have in the bank and taxes your heath care it actually forces you back to work to make up for the shortfall. The alternative No-Tax Plan would not tax anything that was earned at a job or in a business as long as it was done by American labor. It would allow people to buy homes tax free. Only estates, gifts, capital gains, and other money that was not worked for would be taxed.



MYTH: Allows homeowners to pay their entire house payments with pre-tax dollars.

TRUTH: New houses under the old system didn't have the FairTax 30 percent sales tax on houses and even used homes had the home mortgage deduction. The pretax benefit created by the FairTax plan is so minimal it isn't significant. Since all goods and services bear the tax, every day is tax day.



MYTH: Frees up a great deal of valuable time wasted on filling out cumbersome and inscrutable IRS forms throughout the economy.

TRUTH: Anyone who has a business is turned into a tax collector who must report to the IRS or other revenue collection agency. This applies to businesses on eBay and babysitting jobs. If you don't become a tax collector you have to eat the tax yourself. The alternative No-Tax Plan would require the least reporting of any tax system ever proposed. The government merely monitors property, bank, and investment, and production records (collected by banks) and sends out the bills. It's that simple. No forms required.

MYTH: Raises the same amount of money to finance the federal government as the current income tax system.

TRUTH: This is disputed by many. The 30 percent written into the bill may need to be as high as 50 percent. The FairTax doesn't take into account the huge debt spending our government has been doing and doesn't account for some $700 billion in lost revenue due to the repeal of estate, gift, and capital gains taxes. The alternative No-Tax Plan would raise much more than the current system. The No-Tax plan could pay off the federal debt in the first year. After that, it could provide free health care, free education, and raises for social security retirees.


MYTH: Taxes the Trillion Dollar underground, criminal, and drug economy.

TRUTH: This is also disputed. One one hand, criminals already pay sales taxes on clothes, cars, houses, jewelry, etc. They just don't collect taxes on drugs, prostitution, etc. The FairTax will not change any of this. Criminals will not suddenly decide to start collecting taxes after the FairTax goes into effect. On the other hand, US banks are the major cause of money laundering in the United States and are responsible for hiding money from taxes. The FairTax would have no effect. The alternative No-Tax Plan would examine bank records to make assessments on taxes. If the money wasn't earned from a job then it is taxable. If the taxes are not paid the accounts are frozen and property is seized. This puts a tight lid on money laundering and underground economies.


MYTH: Makes future taxation of income unconstitutional by supporting the repeal of the 16th amendment.

TRUTH: The passage of the bill does not repeal the 16th amendment, it only suggests it. Politicians are still free to tax as they please on top of the FairTax. The alternative No-Tax Plan would not require repeal of the 16th amendment because there would be no need to.

MYTH: The FairTax Abolishes the IRS

TRUTH: There will still be an organization collecting taxes and enforcing tax law. The most that will happen is the IRS will be renamed and the government employees will be moved to that organization on paper. The alternative No-Tax Plan would drastically shrink the size of the IRS because only money that was not earned or worked for would be taxed. This new IRS would only have almost nothing to do. The job would be easier too because taxing wealth is more accurate than taxing income and can be traced via ownership documents.

MYTH: Closes all tax loopholes and brings fairness to taxation

TRUTH: It opens a huge tax loophole over the definition of what is new and what is used. Since used items are not taxed, everyone will be doing everything they can (legal and illegal) to acquire barely touched, "used" merchandise. Since even the smallest businessman will be required to collect the FairTax tax, there will be cheating. The biggest loopholes created by the FairTax are making money that was not earned or worked for tax free. And there is nothing fair about that. The alternative No-Tax Plan would close all existing loopholes and bring universal fairness to all Americans.

MYTH: Maintains our current Social Security and Medicare benefits

TRUTH: By removing the estate tax, the gift tax, and capital gains tax, there will be a $700 billion dollar shortfall in revenue. By eliminating the social security tax the only place the money can come from is the general fund. With current spending, there will have to be cuts to social security to keep it solvent under the FairTax. Since healthcare and surgery is taxed at 30% under the FairTax, there will be 30 percent extra tacked on to every medical procedure and existing Medicare dollars will evaporate rapidly. The alternative No-Tax Plan would provide enough money to raise social security benefits to all time records. It would provide enough money for free healthcare for all Americans.

MYTH: Brings transparency and accountability to tax policy

TRUTH: Only by taxing wealth, not income or consumption, can you have true accountability. All forms of wealth from real estate to stocks and bonds are very well documented and could not slip past the tax man. The FairTax makes every day tax day for the working poor and middle classes. The alternative No-Tax Plan would allow taxes to be collected fairly, without loopholes, without subjectivity, and without error.

MYTH: Reimburses the tax on purchases of basic necessities

TRUTH: The FairTax refunds a tiny pittance ($187) that is supposed to represent the tax a person at the poverty level might spend on necessities and not a cent more. In reality, basic necessities for an average person cost four to five times what the FairTax predicts. It's a bald-faced lie and a slap in the face to the working poor. The alternative No-Tax Plan promises no tax on income, no tax on consumption, no tax on goods, no tax on services, and no business tax. To take advantage of it you just have to work for your money, or if you are a business, all you have to is set up shop in America and hire American workers to take advantage of all these huge benefits.

MYTH: Enables retirees to keep their entire pension

TRUTH: The FairTax taxes a persons retirement savings twice. If the FairTax were a law today, any money that you had saved (and already paid taxes on) will be taxed again when you buy a new item or service. You will now be taxed 30 percent on all healthcare, and legal services. The alternative No-Tax Plan would provide enough money for free health care and a comfortable retirement without worry. You keep all your pension and savings tax free. You only pay taxes on capital gains.

Now this is the First I've heard of this type of anti-Fairtax Organization, so I'll leave it up to you to decide for yourself about the FairTax.

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