Monday, July 09, 2007
F**** Taxes!
Corey Pein at the Metro Spirit put together another great cover story last week. If you haven't read it then please read the full article which highlights many of the problems behind the fair tax initiative that is so popular in conservative circles. The FAIR tax that is supported by goofballs like Neal Boortz should be called the UNfair tax because it would be an extremely regressive tax system aimed at reducing taxes on the wealthiest Americans and creating a much higher average effective tax rate for working class tax-payers.
The article does a good job of pointing out several problems but missed the most compelling argument against the "fair tax". I really wish more people were educated about our tax system and I wish the article had gone further to explain about the structure of our marginal tax brackets. Many people assume that because their tax “bracket” may be 25% or 28% that a 23% sales tax would be a lower tax. That is NOT true. Most middle class people pay no more than about a 10-15% effective tax rate because of the marginal structure. If you are in the 25% bracket then only your last few dollars are taxed at that highest rate while the bulk of your income is taxed at a much lower rate. Deductions, which are mainly available for the wealthiest tax-payers, also play a huge role in flattening out what is supposed to be a progressive tax rate structure but is actually often flat or even regressive.
I think a brief description of marginal rates and a few statistics on median effective tax rates would have been enlightening for the audience of this article. If you are not sure about your effective tax rate, then try this handy online tax calculator. It will give you a decent estimate and it may surprise you. A couple earning 100k per year and having 1 child and an average mortgage currently pays around 10% tax after a few deductions. So unless this couple invests more than 50% of their income to avoid the sales tax then their taxes would go UP under the fair tax plan.
5 comments:
A 23% sales tax would prove unbearable to almost everyone making less than $100,000. Most of our major purchases aren't luxuries but necessities. You're right too about the way income taxes are structured -- This isn't a good deal at all!
Please answer this one question when you talk about the Fair Tax..
Who pays the taxes for a Corporation or Business?
If you answer anything but consumers then you may need an economics lesson.
If you eliminate the taxes on what a business makes then competition will bring prices down.
That is the beauty of free enterprise.
This alone will keep the price of goods about the same as they are now when the Fair Tax is fully realized.
Do you realize how much this country spends on complying with the income tax alone? in 2005 the US spent more than ($300,000,000,000) $300 billion dollars just to comply with the tax code. The fair tax virtually eliminates this cost. That is what, about 1/5 of the US budget? Income tax on businesses is a “cost of doing business”! Who pays that? You guessed it! The Consumer! You and I do! This forms a hidden double taxation. That you are already Paying above and beyond the current income taxes.
The Fair Tax brings this hidden cost into the open and puts it on the receipt.
Plus if you look at the pre-bate for “ALL”, US Families. Then you realize that the Fair Tax is a progressive tax that eliminates the taxes on all families that are at or below the national poverty level.
I would suggest that you do some more reading about HR 25 and S 1025 IE the “Fair-Tax” before judging too quickly.
Frank
Anonymous,
I use to be in favor of the Fair tax before I learned more about our tax system.
Who pays the taxes for a Corporation or Business?
The answer is fewer and fewer people. Corporations are paying less and less of our tax burden as they get more and more powerful. I know because I have owned a corporation and benefitted. I work for one now and deal with its taxes every day. Corporations are able (even encouraged) to shelter their money from taxes. More and more loopholes are added and the sales tax is another loophole for corporations to shovel money to their shareholders and bypass taxation.
The bloated tax policy is a huge problem but shifting the point of tax from income to sales doesn't eliminate the IRS. It may start as a simple tax but so did the income tax. If the goal is a simple tax then that can be accomplished by trashing the tax code and allowing ZERO deductions and eliminate favors to special interest groups. We could do that immediately. Somebody has to collect the sales tax so you still have an IRS and they still have to send out all the checks to people as "rebates" and that costs money. The UNfair tax won't elimante the IRS. It will actually cost money to institute and before long, it will be just as bloated with loopholes as the current tax code. All it will do is let more wealthy people off the hook. You are buying snake oil from Neal Boortz who would sit back and watch his investments grow tax free while middle class people continue to pay the same (or more) taxes.
you said: "...Then you realize that the Fair Tax is a progressive tax that eliminates the taxes on all families that are at or below the national poverty level."
You don't need to institute a sales tax in order to acheive that. If you want to help people below the poverty line then all we have to do is eliminate the bottom bracket or increase social security benefits and that could be done immediately. Don't pull out a line like that and pretend you care about poor people. If you did, then you would just help them, but instead you use that as a ploy to support a tax cut for the wealthiest people.
It all boils down to this...
Should the wealthiest people in America who are reaping the rewards of our costly infrastructure and pro-big-business government policies pay a similar rate (or maybe higher) as middle class people or should we institute a national sales tax that will reduce their effective tax rate and let them off the hook for their taxes. To be honest, because of my business ventures, I have to admit that I would likely benefit from the national sales tax more than most people. BUT I DON'T NEED A DAMN TAX BREAK. I do just fine and I have no problem paying my fair share to make a country run and help those that can't help themselves.
Do you want to live in a country where middle class people pay a higher effective tax rate than Bill Gates? That is the only question that matters. I'm with you on the need to clean up the tax code, but it doesn't matter what method you use to measure the tax bill. It only matters who pays their fair share and who gets off the hook.
Why not just own up to your fair share and be proud of our nation and help its people?
anonymous,
In 2006 the IRS budget was $10 billion. $6 billion of that was for enforcement which would likely go up with a sales tax and certainly would not go away. I've read several reports that suggest that our local sales taxes are already filled with more fraud than our income taxes. You would be replacing a collection method that does have some cheating with a new system that has already proven to be filled with fraud. IRS enforcement would NOT go away.
The $300 billion number you used is a estimate based mostly on the amount spent hiring tax attorneys which is mostly done by corporations and would still be done with a sales tax. A sales tax would not remove the need for corporate accountants so your $300 billion pot at the end of the rainbow is a fantasy. More proof that Boortz is selling snake oil.
Even if the $300 billion could be reduced it is mostly a savings that would be enjoyed by the wealthiest tax-payers and large corporations that hire accountants. The average joe that makes 50-100k and does his own taxes gets none of that savings but still pays the same sales tax on everything he buys.
Yeah, all these taxes are nuts. The Federal Reserve is nuts. The IRS are gangsters.
A gentleman by the name of Aaron Russo did an interesting, if erratic, documentary on the Federal Reserve and the Income Tax called "America: From Freedom to Fascism."
I'd like to see a day when bureaucratic leeches are not stealing the sweat of our brow, and utilities (which are the only thing taxes should go towards anyway) are solely maintained by counties and cities. No more welfare for the rich and no more extortion-money used to finance their wars.
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