Keep Your Entire Paycheck. Make April 15 Just Another Day

Friday, July 22, 2005

Lower Taxes Anyway You Slice It

I know that we have been technical in the blog lately, but I am sorry; I have to continue with it. The only reason is that this piece of information I am about to share with you, is so important, it makes or breaks many people’s perception of the FairTax.

Many opponents of the FairTax argue that volunteers of the Americans for Fair Taxation and many proponents of the H.R. 25 plan are liars. This just is not true. The opposition claims that the 23% sales tax rate is actually a 30% rate in disguise. While, the H.R. 25 FairTax plan will charge 30% at the register, I argue that this is not deception.

Let us define some terms here: Sales taxes are typically quoted as a tax-exclusive rate and income taxes are normally quoted as tax-inclusive. Tax-exclusive is defined as what the rate is after you paid for an item. Such as, you go to the register to pay for a $100 item, but the total comes to $107. The 7% sales tax was excluded from the price until you had to pay for it. Although 7% on the $100 item is $7.00 – that same $7.00 is 6.54% of $107.

Tax-inclusive is defined as what the rate is, inside the total amount (gross pay). Assume you bring home a $1,000 paycheck, but really only get $800 take-home pay. The 20% was calculated on your gross pay of $1,000 – not the $800 that you actually have to spend. That same 20% within all of your pay, would be 25% on your take-home pay.

This can make a huge difference in what rates that are quoted. Everybody is used to the old (current) way of doing things: income taxes that are taken out of our paycheck. The advocates for the FairTax are trying to compare apples to apples when they are quoting 23%. A 23% tax-inclusive sales tax is comparable to a 23% tax-inclusive income tax in this case.

It would be fine and rather true to quote the FairTax rate as a 30% rate. However, what does that say in your mind? As an example, to someone who is in the 28% marginal income tax bracket, this would seem like a bad deal. Not so, just by comparing these simple rates, alone, the FairTax is actually a better deal. Because, if you compare your income tax rate as a tax-exclusive rate similar to the 30% sales tax, the rate is 28% marginal rate is actually 38.89%. In addition, the 38.89% does not even include the payroll taxes (Social Security and Medicare) that are taken out of the paycheck. For this income bracket, that rate would be an additional 4.67% (tax-exclusive). Tack on the other 4.67% that your employer is paying to the government (instead of giving you a raise). Oh, and don’t forget about that 28.21% (tax-exclusive) in average embedded corporate taxes and compliance costs. Voila: 76.44%! No, ladies and gentlemen, this absolutely is not an exaggeration. Believe it, because it is true: some of us pay 76% to the government. With the FairTax, that 76.44% will be reduced to 30% (At the VERY MAXIMUM).

Here’s a breakdown of the marginal tax rates for the current income tax compared to the 30% FairTax rate:

7.65% payroll taxes = 8.28% plus another 8.28% that your employer pays
10% = 11.11%
15% = 17.65%
23% = 30.00%
25% = 33.33%
28% = 38.89%
33% = 49.25%
35% = 53.85%

So, what it all boils down to, for all of the Conspiracy Theorists, is that you can say that the rate is 23% compared to the tax rate that you pay now in the current system (tax divided by net pay). On the other hand, you can list all the higher tax-exclusive income tax rates and compare them to the 30% that you want to quote.

There is also one minor thing in this. When the FairTax is enacted, purchasers will not have to calculate an item based upon its retail price plus the tax. They will want to know the whole price at the register. Nobody will have to figure out what the tax is on that $7.21 item. They will go to the register already seeing on the price tag, a price of $9.37. The 23% tax equals $2.16 divided by $9.37. Since $9.37 will be on the price tag, wouldn’t the 23% rate be the relevant rate anyway.

What it all boils down to is that if you disagree with the FairTax, it is not due to a deceptive tax rate. It is something else, so mention that, but not the rate.

8 Comments:

Anonymous Anonymous said...

You must think all Americans are dumb and lazy. The fair Tax is good theory for idealist, but it is not practical and the information in the book they made so much money on is really way off. Think about the effects of the "Fair Tax". ex. Lower quality used goods, lower quality american products, an enormous black market, no more merit based system that treats responsible spenders fairly, every broke bum crackhead in the country gets a $500 debit card?? - they ain't buying shampoo with it, i can promise you. The liars and cheaters who abuse the system will find a way to get around the sales tax too. and then what?? A lot less money going to the government means the government has a lot less money to spend. That is obvious. The military will suffer, schools, roads, etc.
Once again, it is a good theory in a bubble, and may be acheived gradually and with a lot different percentages and practical and enforcement applications, but the only thing that has really happened since the book was published is that Mr. Boortz and company have gotten rich and famous.

Monday, July 23, 2007 10:00:00 AM

 
Anonymous dragon said...

If you would like to pose an argument, I'd be happy to refute it. But, on your assertion that Boortz made a lot of money? Well, it went to his wife's charity, not into his pocket.

Monday, December 10, 2007 12:52:00 PM

 
Blogger Mark said...

Dont worry about it. The shock to millions wouldnt be the prebate, or 23 vs 35%.

The shock would be the huge sales tax on people with cacner, people who need surgery, people in nursing homes.

Nursing home patients -- second opinions -- lab tests -- hip replacements, radiation - ER visits - dental work -- rehab - all subject to very high "sales" tax.

The parents of a child leukemia vicitim could easily have 40,000 in sales taxes. A nursing hope patient in private room could have 25,000 dollars a year - in sales taxes.

Insurance wont pay for these taxes. Insurance cap out, or only pays a certain amount. In fact, insurance premiums themselves will be taxed ( a little known fact).

SO if a cancer patients gets their insurance to pay 100,000 dollars, the 23,000 would be the new copay.

And its not like the hospital or doctor CAN waive this fee. Its not the doctor fee. Its the government tax.

There are other really problematic issues with fair tax. I dont see the numbers even coming close to adding up.

In fact, I think it could be so absurd, it would be almost comic, until the country could change it back.

Yes, we have a terrible horrible income tax system. But the fairtax doesnt add up.



Imagine you wake up one morning, and the Fairtax is now law.


Imagine your rent just went up 400 dollars, cause fairtax taxes your rent.

Imagine if you heat your house -- cause fairtax taxes your utilities.

Imainge if you need an operation -- cause fairtax taxes people's medical cost.

Imagine if your dad or mom were in a nursing home -- cause they would be taxed on their total cost to stay in nursing care.

Imainge if you pay insurance premiums for cars, your house, or health -- cause fairtax taxes people's insurance premiums

Imaigine if you work in the auto industry -- because people buying new cars will have a 30-50% sales tax.

Saturday, February 09, 2008 8:30:00 AM

 
Blogger Mark said...

I know about the fairtax, I've been studying it for a couple years now, and its a wonderful sounding theory.

Too bad its based on two major farces. Farce 1) That fairtax can possibly make the government pay itself 10 cents in taxes, much less 500 billion. As crazy as it sounds, Fairtax depends on the government itself paying 400-600 billion to ITSELF in taxes.

Fairtax would have the GOVERNMENT pay sales tax TO ITSELF on everything from submarines to MRE meals to aircraft carriers.

I got news for ya -- that's baloney. Thats a king with no clothes.

So thats 500 billion or so fairtax can't collect, and that alone makes the real rate more like 35% -- if there are no other mistakes or farces.

Oh, but there are more farces. Here is one more.

Fairtax pretends to be able to get 460 billion by taxing people on their health care cost. If patients could possibly pay this tax, it would be the biggest source of revenue for the government. Not even the high tax on gas and oil would be greater than the tax on medical cost.

Can the government really collect 40,000 from a cancer patient on their sugery and chemo? Can the government really collect 100,000 in sales tax from the parents of a leukemia victim? Can the government really collect 30,000 in tax from an 80 year old stroke victim in a nursing home?

No. So the 460 billion the fairtax pretends to be able to get, it wont be able to get.

There goes that 35% tax rate to 45-50.

With a 45% tax rate on new homes - will people just buy used homes instead? Yes. So that's another market fairtax won't get the revenue from. Now the tax rate is 55%.

Will a 55% sales tax on gasoline and utlities have an effect on people?

What will a 55% sales tax on food and rent do?

Better think again about this fairtax./

Tuesday, February 19, 2008 7:39:00 AM

 
Blogger MARK said...

Notice how the whacked out Fairtax calculator doesnt even ask you about things you will be taxed on, that arent taxed now?

Like your rent -- yes you will be taxed on your rent. At least 40%

Like your car insurance -- yes you will be taxed on your car insurance, at least 40%.

Like your medical cills -- yes you will have to pay a sales tax of 40% or more on your medical bills.

No wonder Fairtax calculator doesn't as those questions.

I could have a tax calculator show anything I wanted, if I didn't include anything in it either.

Fairtax is a crock, I'm sorry, it is. Its absolute farce, and most of the leaders know it. They are fooling a lot of gullible souls.

Oh -- you said you get to keep your whole paycheck -- wrong. They have already backpeddled on that. Now the line is -- that money you THINK you would save on your paycheck, will go to your employer, so he can lower his prices.

Surprise.

Sunday, March 09, 2008 2:08:00 PM

 
Anonymous Anonymous said...

What it boils down to -- is you are a gullible idiot.

You play with those idiot fairtax numbers like idiots play with balls of shit.

Those numbers are a crock you moron, the rate would have to be 60-90% or higher -- depending on how long it took us to undo it (if we passed it, which we wont).

Find out why your idiot fairtax is a crock. You are a gullible fool to believe that crap.

Tuesday, March 11, 2008 11:59:00 AM

 
Blogger MARK said...

LOWER taxes???

For who?

Fairtax means absurdly HIGHER taxes for millions of people, most of them poor and struggling.

For example -- if you get cancer, or any other disease -- you will have to pay THE HIGEST SALES TAX ON EARTH on your surgery and chemo and hospital stay.

No other country on EARTH even taxes surgery -- Fairtax does.

Another example -- renters. Renters will instantly have the highest sales tax ON EARTH - on their RENT.

Won't they be surprised.

Oh yeah - supposedly their landlord will SAVE so much, he will LOWER their rent. UTTTER NONSENSE.

This idea is bullship too. Your landlord is going to lower your rent 30% -- WHY? Cause he saves corporate income tax?

Here is a clue -- he doesnt pay corporate income tax anyway in most cases. His FICA taxes are very small, relative to his gross income.

Fairtax is an utter farce and the people who are trying to sell you this crap are either stupid or liars or fools.

Take your pick.

Tuesday, April 08, 2008 12:14:00 PM

 
Anonymous Anonymous said...

SO if a cancer patients gets their insurance to pay 100,000 dollars, the 23,000 would be the new copay.

"Under the FairTax plan, purchases of health care services made directly by an individual are subject to sales tax just as they generally must be paid from after-tax dollars today. Health insurance premiums are subject to tax.11 Reimbursements to the insured person are eligible for a tax credit (in effect refunding the tax paid when the individual paid for the medical services directly).12 If the insurance company pays a doctor or hospital directly, the transaction is not subject to tax (since the tax on those medical services is paid by taxing the entire insurance premium that funded the purchase of the services).13
Of course, the most fundamental change is that all participants in the health care industry whether hospitals, pharmaceutical companies, insurance companies, doctors, nurses or other workers pay neither individual income taxes, corporate income taxes nor payroll taxes (including Social Security and Medicare payroll taxes)."

http://tinyurl.com/6duk5m

There are many, many misconceptions about the FairTax.

Tuesday, April 08, 2008 6:55:00 PM

 

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