Keep Your Entire Paycheck. Make April 15 Just Another Day

Wednesday, April 27, 2005

Flat Tax = VAT = FairTax? No Way!

A value added tax (VAT) like they have in Europe is the same as the FairTax and they are the same as the flat tax, you say? The three are synonymous?

Not on your life.

It's easy to confuse them at first glance; all three are consumption taxes. That, however, is where the similarity ends and there the danger begins.

The flat tax, as proposed by Sen. Armey and his supporters adds a consumption tax to the present income tax system. Even if the income tax should happen to be reduced significantly, the system would still be in place with all its rules and regulations, paperwork and time wasted filling out forms.

The Value Added Tax is quite another matter still. It's another hidden tax, like the ones embedded in prices by the income tax structure we have now.

Under our current tax structure, each entity that handles a product adds a portion of the taxes it pays to the price -- an estimated 20% to 30% of the prices we pay for products. The VAT is levied at each stage of production, so as products move through the various stages of production and distribution, a company pays taxes on only the value it adds. And that's on TOP of the taxes -- employee taxes, etc. -- the manufacturers and retailers already add to prices. France, Germany and England are examples of countries that tried that and discovered what a drag it was on their economies.

Another downside to the VAT is that it's invisible, like the embedded taxes. The tax burden is buried deep in the price of products. When a consumer buys a product, s/he doesn't know how much of the price is really a passed-along tax. As a result, the VAT becomes very easy to increase.

The FairTax, unlike the flat tax and the VAT, is visible, simple and gets rid of the income tax. It taxes only new products and services so you know exactly what you're spending on taxes. You get a rebate each month, which means you're not taxed at all until you begin spending above the poverty level. FairTax broadens the tax base and strengthens the US position in international trade by making US the only country that doesn't tax productivity.

The elderly no longer are taxed three times on their social security benefits and social security is strengthened because the bills, S 25 and HR 25 specify that social security funds are directed into a trust.
With the flat tax and the VAT, the middle class and poor are super-taxed and the evasion loopholes for the rich are still in place in the income tax code.

With FairTax, everyone pays the same. The wealthy buy more expensive cars, homes, clothes, vacations, so they pay more tax. The poor get a rebate (as do the rich) but pay no tax, so they can save and make their way up. Everyone wins.

But remember: The FairTax by any other name is not as sweet.


Blogger Chipman said...

The only way the FairTax could be at all fair would be for it to begin at a level far above the poverity level otherwise it is very regressive.

The lower income people would be taxed at a much higher percentage rate of their disposable income than the rich. That is the problem with our currect tax system and why the middle class is shrinking rapidly. Already 10% of the population owns 80% of the wealth in America that is a huge change from 40 years ago.

Any new tax system should be designed to fix this problem and put more money into the hands of the poor and middle class.


Wednesday, April 27, 2005 7:58:00 PM

Blogger Sunnye T said...

Actually the FairTax does exactly what you suggest, George. Because everyone who has a valid social security number receives a "prebate" (that's rebate before the fact instead of after) of $178 a month. That means the poor don't pay any tax at all and makes the tax pro- rather than regressive.

Since the working poor get to keep their entire paychecks, they'll have money to spend AND save, thereby giving them the choice of how fast they rise on the income scale.

It also makes the USA the only country in the world that doesn't tax productivity. With our economy booming, the poor should prosper along with the rest of us.

Thursday, April 28, 2005 5:19:00 AM


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