Angel!
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Post by Angel! on Jul 21, 2011 10:04:37 GMT -5
The fairtax details how the prebate is calculated it is not left up to a czar "The monthly prebate check is calculated by multiplying the annual poverty level spending published each year by the Department of Health and Human Services times the FairTax rate and dividing by twelve. Poverty level spending represents what it costs families of varying household size and composition to buy their necessities." Everybody gets the same amount (at least in the current version, I suspect that the prebate mechanism would eventually be used to pass on welfare) so, that is like, 2% of federal poverty rate? so that is like...$200? wtf is that? some kind of sick joke? is that REALLY all they are offering? The prebate gives people the amount of tax that is spent up to poverty level. A family of 4 has a poverty level of $29,140. Tax on the $29,140 would be $6,702, which means they get a prebate of $559/month. Thus the first $29,140 of spending each year is essentially tax-free.
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Angel!
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Post by Angel! on Jul 21, 2011 10:12:26 GMT -5
However, if there was no capital gains tax... hmmm... ya know, I might just go ahead and take my profit... Apple computers seems to be doing pretty good.... yeah, that's the ticket... I'll sell my Microsoft and buy Apple. Ya know, I really ought to reward myself for making such a good investment. I think I'll buy a nice big plasma TV. Yep, always wanted one. It costs, $3000? Cool! I'll buy it. And reinvest the $22,000 in Apple stock. You said wealthy people were going to cash out & buy stuff, thus stimulating the economy & creating jobs. But, really, except for the 3K you are just moving money around in the stock market, not spending it or stimulating the economy or creating revenue. And the 3K you spent would have had less tax had you just paid the 15% capital gains vs. a 30% sales tax. So really, this tax just helps rich people move their money around tax-free & doesn't actually encourage them to spend it on new stuff at all. EITC has been around since 1975, although the program was much smaller then. If you are referring to me specifically, I have never once qualified for EITC.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 10:47:18 GMT -5
Sorry, Angel, it sounded like in your posts you did take the EITC.
You missed the point. Right now, with the capital gains tax, the government get NO tax revenue from me. Nothing. NANA. Zip. Zero.
Because I am unwilling to make the transaction to trigger the tax.
But, if I had no capital gains tax, the government would get $600 or so.
Which is more? Zero? Or $600?
And to your comment about me moving my money around in the stock market, and that not helping anyone...
It takes capital to create businesses. Some take less than others, some require huge amounts of capital. Something like Facebook didn't require much of an investment. Something like a public utilty takes huge sums of money to build the powerplants and distribution system.
The stock market allows small investors the ability to pool their money and invest in large businesses. These large businesses hire people (read: Create jobs) and produce goods and services that we all need and use. If there were no stock market, there would be no efficient way for small investors like myself to supply capital to these companies. There would be fewer companies, only those that could be financed by families and such. This would mean fewer jobs.
This whole concept of "greedy corporations" is just ignorant. The corporations are owned by the stockholders. Ordinary people. If anyone thinks corporations have excessive profits, there is nothing to prevent them from sharing in those excessive profits! Just go and buy some stock!
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Angel!
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Post by Angel! on Jul 21, 2011 11:13:21 GMT -5
Sorry, Angel, it sounded like in your posts you did take the EITC. No problem I just found out you are a full time landlord. So let me pose the question to you that I posed to PBP & he couldn't answer: Rents are now going to be taxed at the fairtax rate. So do you lower your rents 23% in order to keep the price the same for your tenants? If so, how does that affect your bottom line. Obviously the amount you take in would be less, but how does it compare when you take into account what you use to pay in taxes. Was last years effective tax rate for you more than 23% when you consider FICA & federal taxes vs. all your income (not just your AGI)?
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djAdvocate
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Post by djAdvocate on Jul 21, 2011 11:55:30 GMT -5
so, that is like, 2% of federal poverty rate? so that is like...$200? wtf is that? some kind of sick joke? is that REALLY all they are offering? The prebate gives people the amount of tax that is spent up to poverty level. A family of 4 has a poverty level of $29,140. Tax on the $29,140 would be $6,702, which means they get a prebate of $559/month. Thus the first $29,140 of spending each year is essentially tax-free. ok, the original statement said to divide the taxes by 12. i assumed that was ANNUAL = $559/YEAR. it is MONTHLY?
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Angel!
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Post by Angel! on Jul 21, 2011 11:58:11 GMT -5
The prebate gives people the amount of tax that is spent up to poverty level. A family of 4 has a poverty level of $29,140. Tax on the $29,140 would be $6,702, which means they get a prebate of $559/month. Thus the first $29,140 of spending each year is essentially tax-free. ok, the original statement said to divide the taxes by 12. i assumed that was ANNUAL = $559/YEAR. it is MONTHLY? Yeah, it is a monthly check. They were just explaining you divide by 12 to find the monthly amount. That would be pretty pitiful if that were the yearly sum.
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djAdvocate
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Post by djAdvocate on Jul 21, 2011 12:02:00 GMT -5
ok, the original statement said to divide the taxes by 12. i assumed that was ANNUAL = $559/YEAR. it is MONTHLY? Yeah, it is a monthly check. They were just explaining you divide by 12 to find the monthly amount. That would be pretty pitiful if that were the yearly sum. ok. i work with annual numbers better. easier to see the relationships. thanks. and yes. it would be an f-ing joke. i have a feeling, looking at this, that granting a $29k exemption would not generate very much revenue. has anyone done an analysis on how the revenue of a flat tax would compare to current?
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Angel!
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Post by Angel! on Jul 21, 2011 12:30:24 GMT -5
There have been studies done & supposedly the 23% rate will bring the same revenue as the current tax system. Although a few studies have determined this number needs to be much higher, like in the range of 31-34% - which would equivalent to a 44-53% sales tax.
I haven't seen anything to indicate that lower than 23% would be acceptable, so I am guessing that is on the low end of what might actually create revenue neutrality. If they start at 23%, then the tax rate might be raised over the next several years if the revenue isn't what was anticipated.
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mmhmm
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Post by mmhmm on Jul 21, 2011 12:32:27 GMT -5
This thread has been fascinating for me so far. I'll admit, I'm not a number cruncher. Numbers give me hives. Still, something has to give with the system of taxation we use at present, and it's great to see other ideas well explained for the math dummies like myself. Thanks, folks! ;D
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skweet
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Post by skweet on Jul 21, 2011 12:35:06 GMT -5
[You said wealthy people were going to cash out & buy stuff, thus stimulating the economy & creating jobs. But, really, except for the 3K you are just moving money around in the stock market, not spending it or stimulating the economy or creating revenue.
And the 3K you spent would have had less tax had you just paid the 15% capital gains vs. a 30% sales tax. So really, this tax just helps rich people move their money around tax-free & doesn't actually encourage them to spend it on new stuff at all.]
Here is a win-win situation. Currently the IRS is entitled to $3,000 capital gains tax, but they aren't going to get it because the poster isn't going to sell. The poster wants a big screen TV (and Joe's TV sales, INC wants to sell them one), that they aren't going to get under the current tax system. Under a FT the IRS gets a windfall 23% of $3k, the poster gets a TV, Joe's gets a sale with $2,310 revenue to invest or spend how it see's fit, and an investor trying to sell $22k in stock in a different company gets a buyer (what will that seller spend his $22k on, this could get good). The poster has found a way to move $25k that would otherwise remain idle.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 12:38:59 GMT -5
Actually,Angel, I hadn't really thought about it. Maybe the creation of this post will help me think it through..
On my rental houses, I have no employees, so I don't pay any employee FICA. I report them on my Schedule E. I do have depreciation, I do have expenses (taxes, maintenance, some office expenses, some adverizing - For Rent signs, etc, but I own 'em free and clear, so I don't have mortgages on them.)
So, while depreciation is the only "paper tax expense" that I could lower my "cost" to my tenants by, all other costs are real costs. The depreciation didn't really affect the price I would use to set rents, anyway.
So, I have no "embedded taxes" to eliminate from my costs.
I rent my 3/2 house today for $750. Under the fairtax, I will have to charge $974. I will then have to send $224 to the Feds.
But please remember, I rent my houses for the most I can get. The cost doesn't really matter. If I paid $10,000 for the house, or whether I paid $100,000 for the house, if the maximum renters are willing to pay is $750/month, that's all I can get. If I set my price at $800, the house will likely sit vacant, and I receive no rent. If I set it at $700, it will stay rented, but I am not maximizing my profit potential.
If, after the fairtax is implemented, and I tell my tenants that their rents are now $974, and they all move out, I will be forced to lower rents!
Frankly, I do not know the answer to what would happen. I personally don't like the fact that I would have to collect tax for the Feds, but I so believe in the benefits of the fairtax that I would do it.
Under the fairtax, I would probably end up paying more in taxes than I currently do under the current system. And that's not even including the fairtax that my tenants would pay that I would have to pass along.
I just like the system better. Doing my income taxes every year is a royal pain. I have to keep track of every receipt I pay for the rental houses and flips I do, I have to track the mileage on my vehicles and determine which miles I drive for the rentals, and which are personal, I have to keep records of every stock trade, doing 1031 tax free exchages if I sell one rental and buy another, figuring out depreciation...it's just awful.
Multiplying my rent receipts by .23 and mailing in a check is child's play in contrast!
An ordinary employee would never have to fill out a 1040 form again. April 15 will be just another day. CPAs will go from having their primary jobs of being tax preparers to financial analysts and help businesses run better. (Really, the manhours spent doing tax returns is a tax on the productivity of America. We get no real economic benefit from preparing tax returns.)
I am not advocating the FairTax because I think it will lesson my tax burden in dollars! No! I likely will pay more! But, it will be easier for society, it will collect taxes from those who today are not (illegals, and those who do not file taxes), it will be easier to understand, and MOST IMPORTANTLY of all, it will remove the incentive from Congress to play games with the tax code to buy votes.
For example, Obama was to mess with the tax code to punish businesses who buy and operate business jets. Why? Because it plays well with the poor that the "Fat Cats" will be punished for flying in private planes. What will it do? Kill the domestic business jet industry. The welders, painters, upholsterers, electricians, who make the planes will be let go. The private pilots who fly the planes will be let go. The people who work at the hangers who refuel, repair, the planes will be let go.
So, the Fat Cats take a domestic flight instead. They don't suffer much. Not as much as the "little people" who lost their jobs instead.
Installing the FairTax will remove the politicians power to play these games for political gain. All while still providing the same revenue for the government to run.
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skweet
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Post by skweet on Jul 21, 2011 12:59:34 GMT -5
I, also, have rentals, and buy and sell real estate. I pay approximately 20% of my income in income and capital gains taxes to the Feds. After the fair tax is implemented, I will pay the 23% rental tax out of the current rents, collect my prebate, and come out even, without raising rents a nickel. If there are more investors like you, then I will move to the market price with a greater net income, if their are more like me, then rents will stay the same.
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Angel!
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Post by Angel! on Jul 21, 2011 13:11:08 GMT -5
I am not advocating the FairTax because I think it will lesson my tax burden in dollars! No! I likely will pay more! But, it will be easier for society, it will collect taxes from those who today are not (illegals, and those who do not file taxes), it will be easier to understand, and MOST IMPORTANTLY of all, it will remove the incentive from Congress to play games with the tax code to buy votes. Karma for taking the time to think it through & answer. Nothing wrong with wanting a simpler system. It may not come across, but I'm not necessarily against fairtax, I think it is a fascinating idea. I am mostly posting to be devil's advocate & to mess with PBP . But, I do think there are issues with the idea & especially the transistion. For example, I think people with ROTHs get screwed on the whole deal. Another question that just came to mind - the fairtax website implies that prices will remain unchanged because all the hidden taxes = the new sales tax & we all already pay these taxes when we buy products, we just can't see it. Well, if that is the case, then don't illegals already pay all these taxes also & if so, then what is the big deal about passing this law so illlegals pay their fair share? Most probably wouldn't owe any federal taxes anyway because they are likely low income & have a few kids. One of my biggest complaints is the fairtax website, I feel it really manipulates the data & gives run-around answers. For example, when talking about how fairtax will change the income tax we pay it says: "The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes. That’s 23 percent right there, without taking into account the 7.65 percent employer matching!", but shortly after it goes on to explain with the prebate you won't be taxed on much of your spending so your actual tax rate will be much lower than 23%. To me that is completely manipulating the facts by completely ignoring the fact that even people in the 15% tax bracket don't actually pay 15% on ALL their income, nor do most people pay payroll taxes on ALL their income. So they aren't really comparing apples to apples at all.
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mwcpa
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Post by mwcpa on Jul 21, 2011 13:13:10 GMT -5
"The stock market allows small investors the ability to pool their money and invest in large businesses. These large businesses hire people (read: Create jobs) and produce goods and services that we all need and use. If there were no stock market, there would be no efficient way for small investors like myself to supply capital to these companies"
you do not really beleive that when you buy ABC public company on the open market that ABC public company gets any of that money do you?
the only time a public company gets money is from the IPO or other offerings of new securities and debt.... if I buy GE for 100 GE does not get a nickel....
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safeharbor37
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Post by safeharbor37 on Jul 21, 2011 13:14:02 GMT -5
That's a pretty good summary 2kids10horses. I think it's a mistake to try to compare what would be collected under different systems ~ the rates would obviously have to be adjusted to the realities of government expense. The point I think is most important is that current government tax policy distorts business decisions and therefore makes our private economy less efficient. If taxes were consistent, businesses [including individuals] could make decisions based on maximum efficiency rather than on government policy. Deductions like corporate jets, etc. are examples of how government tax policy distorts business decisions ~ decisions made on tax policy rather than on good business practice. If you can't afford business jets without tax deductions [government subsidy] then you can't afford business jets. This and similar maneuvers are examples of how the "rich" enjoy ill gotten gains from government policy rather than from efficient production. The grand poobahs of business enjoy the luxury of corporate jets while not only not being taxed on the benefits, but actually getting government subsidy. That is, in general, how government rewards it friends [or punishes its enemies, relatively] while leaving its more ambitious citizens who've yet to achieve privileged status to carry the burden for those blessed by government largess. The most important thing that US tax policy needs, that it currently lacks, is transparency. If special subsidy, credit, deductions, etc. were eliminated, the "tax rate" could be reduced while still generating sufficient income to support legitimate government functions. It would however, remove some of the power of the Federal Government to micromanage our lives.
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djAdvocate
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Post by djAdvocate on Jul 21, 2011 13:16:38 GMT -5
There have been studies done & supposedly the 23% rate will bring the same revenue as the current tax system. Although a few studies have determined this number needs to be much higher, like in the range of 31-34% - which would equivalent to a 44-53% sales tax. I haven't seen anything to indicate that lower than 23% would be acceptable, so I am guessing that is on the low end of what might actually create revenue neutrality. If they start at 23%, then the tax rate might be raised over the next several years if the revenue isn't what was anticipated. it should be pretty easy to analyze it based on consumption statistics, which are among the most readily available out there. one can simply add the sales tax revenues from all (50) states and multiply by 0.23, then add in all of the stuff that the consumption tax covers that sales taxes don't and multiply that by 0.23
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mmhmm
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Post by mmhmm on Jul 21, 2011 13:27:53 GMT -5
I hear you! These are things that have to be considered when we start thinking about cutting and slashing, which we MUST DO. However, we also have to consider those who have been living and working for many years (some close to retirement) who are counting on the decisions they've made to provide for them in their old age. That goes for things like ROTHs, Social Security, Medicare, and other such long-time staples. While younger people will have time to adjust and find new ways to support themselves when they can no longer work, those close to retirement and those retired will not. That's a very vulnerable part of our society and to just throw them out as though they don't matter (even though many have worked productively for over 50 years) is anathema to me.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 13:28:13 GMT -5
swkeet,
We are saying the same thing... you are saying that you will charge market rent. So would I. Neither of us knows what will happen. I am sure that if the FairTax were to be implemented, there would be tons of publicity, and discussion about what would happen.
I forgot about my personal income taxes! (I was focused on the Cost of providing the rentals.) Yeah, I could see that the combo of the prebate and no income tax would allow me to not have to raise rates, and I'd be pretty much the same as before.
I think it might cost me a little more under the FairTax than the current system, but it would be worth it to me!
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Angel!
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Post by Angel! on Jul 21, 2011 13:33:23 GMT -5
There have been studies done & supposedly the 23% rate will bring the same revenue as the current tax system. Although a few studies have determined this number needs to be much higher, like in the range of 31-34% - which would equivalent to a 44-53% sales tax. I haven't seen anything to indicate that lower than 23% would be acceptable, so I am guessing that is on the low end of what might actually create revenue neutrality. If they start at 23%, then the tax rate might be raised over the next several years if the revenue isn't what was anticipated. it should be pretty easy to analyze it based on consumption statistics, which are among the most readily available out there. one can simply add the sales tax revenues from all (50) states and multiply by 0.23, then add in all of the stuff that the consumption tax covers that sales taxes don't and multiply that by 0.23 I think some of the differences come down to the expected level of tax evasion. I think the 23% assumes absolutely 0 tax evasion & every sale/service that should be taxed will be taxed & collected. That seems to be a pipe dream to me. I see it being not uncommon to ask someone like a plumber for a 15% discount in exchange for cash.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 13:50:59 GMT -5
mwcpa,
No, I don't think that GE gets anything if I buy their stock! Only at the IPO or other times they sell stock from treasury stock does GE get anything. But, the fact is, without the stock market - a place I can sell my shares of GE that I DID buy at the IPO - why would I ever buy shares in the first place? The stock market is an efficient way to provide liquidity for the capital markets. It there is no stock market, I'd have to go find a buyer for my shares of GE when I wanted to sell them. And of course, the only reason I would ever buy them in the first place is because I expect to have some financial return in the form of dividends and/or increase in the market value of the shares themselves.
And why would the value of the shares themselves increase? The value of a stock, any stock, is the discounted net present value of the expected stream of revenue that the stock would pay to it's owner. In other words, the net present value of the stream of dividends. Even those stocks that don't pay dividends now, are expected to pay them at some point in the future. So, the investor buys a stock, hoping it will be profitable so that he can either receive his dividends, or sell his right to future dividends (ie: sell the stock) for a profit.
The stock market brings the liquidity to the marketplace to make the creation of large corporations possible. If there were no stock market, we would still be eeking out a living on the family farm.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 14:02:23 GMT -5
Yes, the ROTH account is adversely affected, in that the amounts contributed have already been taxed once. The earnings, however, have not.
However, may I say that owners of corporate stock get screwed today. The dividends get taxed by the Fed when Individuals pay their personal income tax. But the corporations have already paid tax on their profits prior to paying the dividends. Corporate dividends are double taxed.
Which is why many corporations choose not to pay dividends! If I receive a dividend, I have to pay the income tax. I get a 1099div, and I have to include this on my tax return. Instead, if the corporation just keeps the dividends and holds them for me, the value of the stock goes up. (All other things being equal.) If I need money, I can sell some stock and cash in. But I don't have to. It's MY choice. Meanwhile the cash piles up in the corporate coffers.
Now, who's to say what would happen if the "double taxation" of dividends go away. Under the fairtax, it would vanish. Corporations would no longer have an incentive to hold on to cash unnecessarily, they could pay it out as dividends and let the stockholders figure out what to do with it. The stockholders could reinvest it back into the market, buy real estate, or spend it. Who knows? But one thing is for certain, the cash would be "unlocked", cash held overseas would be repatriated, and business would soar as this new cash put to use.
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2kids10horses
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Post by 2kids10horses on Jul 21, 2011 14:09:56 GMT -5
Angel, the tax evaders exist now. If I pay a day laborer cash, do I know if he reports it on his 1099? But if he goes to McDonalds to buy a burger, he will have to pay the Feds something then. Right now, he doesn't.
If he's illegal, he won't get a prebate, so his retail spending would make him contribute something towards his "right" to live here.
Will there be black markets? You betcha. IRS agents will be reassigned to track those down.
Look, our existng tax code is just too complicated for anyone. Even Charlie Rangle was caught up in misreporting stuff, and I think he's the person in Congress that was supposed to be the expert!
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safeharbor37
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Post by safeharbor37 on Jul 21, 2011 14:12:37 GMT -5
The above assumes a static economy. We can't simply multiply some figure and expect the economy to to return accordingly. By removing government policy from economic decisions, the economy will generate tax revenues not necessarily proportional to current economic activity. This reflects the typical misunderstanding of those who don't distinguish between tax rates applied and tax revenues collected. Everything else being equal, a more efficient tax system should return greater revenues than the current system.
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Angel!
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Post by Angel! on Jul 21, 2011 14:13:26 GMT -5
Yes, the ROTH account is adversely affected, in that the amounts contributed have already been taxed once. The earnings, however, have not. True, but they were never supposed to be taxed either. So because the current system screws some people, it is ok to replace it with a system that screws other people. That seems fair. The new system dispropotionately helps the wealthy & businesses at the expense of the lower & middle classes. Did you know that in HR 25, retail business were to be given a 23% tax credit on all the inventory they held for sales at the time of transition. That prevents them from being double taxed on the merchandise. Why are people with roths or post-tax savings accounts not given the same tax credit? They will suffer from double taxation also. Seems like the bill was really written to help businesses, not individuals.
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Angel!
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Post by Angel! on Jul 21, 2011 14:18:01 GMT -5
If he's illegal, he won't get a prebate, so his retail spending would make him contribute something towards his "right" to live here. What about all those hidden taxes I keep hearing about. He already contributes to those & supposedly those currently make up 23% of the purchase price of everything today. The way I see it he won't get the prebate, just like he doesn't get EITC or the child tax credit today. I don't think he will really be paying more into the system than he does today, unless the hidden taxes are completely overstated to try to sell us on fairtax (which I think they are, but that is another issue). My point is - if we all supposedly pay this 23% now in everything we buy, then so is the illegal & nothing changes. I fail to see both these claims can be selling points, they can't both be true. Either the illegal pays his share of the hidden taxes like the rest of us, or these hidden taxes don't really exist to the extent fairtax folks are claiming.
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fairlycrazy23
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Post by fairlycrazy23 on Jul 21, 2011 14:26:32 GMT -5
Yes, the ROTH account is adversely affected, in that the amounts contributed have already been taxed once. The earnings, however, have not. True, but they were never supposed to be taxed either. So because the current system screws some people, it is ok to replace it with a system that screws other people. That seems fair. The new system dispropotionately helps the wealthy & businesses at the expense of the lower & middle classes. Did you know that in HR 25, retail business were to be given a 23% tax credit on all the inventory they held for sales at the time of transition. That prevents them from being double taxed on the merchandise. Why are people with roths or post-tax savings accounts not given the same tax credit? They will suffer from double taxation also. Seems like the bill was really written to help businesses, not individuals. I don't know all the details, I'm sure it could be tweaked. I just think that a national consumption/sales tax along the lines of the fair tax would be immensely superior to our current tax code. Not all businesses are retail sales, so that section was specifically written to offset the embedded taxes they already paid on the inventory of retail items that would be sold. This would likely benefit the business as well as its customers. Giving everybody a %23 tax credit on savings is probably a good idea, but understand it is going to most likely benefit the so called rich much more than the poor.
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djAdvocate
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Post by djAdvocate on Jul 21, 2011 14:32:38 GMT -5
The above assumes a static economy. We can't simply multiply some figure and expect the economy to to return accordingly. By removing government policy from economic decisions, the economy will generate tax revenues not necessarily proportional to current economic activity. This reflects the typical misunderstanding of those who don't distinguish between tax rates applied and tax revenues collected. Everything else being equal, a more efficient tax system should return greater revenues than the current system. i don't understand how changing the collection mechanism makes a system more efficient, at all. moreover, i don't see how one can draw a basis of comparison without assuming that they are equal. maybe that is the point. you simply say "this is better", and then when someone comes along and say "prove it" you say "well, we have to try it, first". sorry. but that is not going to fly with me. i want basis.
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2kids10horses
Senior Member
Joined: Dec 20, 2010 20:15:09 GMT -5
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Post by 2kids10horses on Jul 21, 2011 15:09:10 GMT -5
Angel,
Your question about my receiving rents got me to thinking...
and then tsweeter (or whoever) made me think some more...
Martket rent will probably remain about the same after FairTax as before. If I sell the house to the tenant instead of rent it, there would be no FairTax because I'm not selling new houses. All my rentals were pre-owned. I just looked and interest over the amount of the Fed Funds rate would be subject to FairTax. I don't know, but I think the Fed Funds rate is about 1% and since the payment of the early years of a mortgage is mostly interest, most of the money I would be receiving would be subject to fairtax.
So....
What if I decided to sell him the house at 0% interest, for the same amount per month as he is currently paying as rent, $750, with every dollar he pays me going to pay off the balance. Principal only. He agrees to pay me $270,000 in 360 equal monthly installments over the next 30 years.
I'd do it!
So, what if he wants to sell to someone else in a couple of years? And let's say the market value of the house is what it is today, $125,000. I suppose I could "discount" the future paments back to what an amorization table would say the princpal would be under a normal loan would be!
These were just random thoughts. Not sure if what I just describe would be classified as "tax avoidance" or "Tax evasion". Frankly, I think it's leaning towards "evasion", so I doubt I would do it.
But, hey! Those of us who don't like to pay taxes will try to find ways to avoid paying taxes whether they're "fair" or not! LOL!!!
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safeharbor37
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Joined: Dec 20, 2010 23:18:19 GMT -5
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Post by safeharbor37 on Jul 21, 2011 15:23:51 GMT -5
It doesn't. Change can be either for the better or the worse. However, there is more to tax policy than the "collection mechanism." It is the belief of many that the government uses tax policy to control. reward and punish those they choose. It is also their belief that that is not an appropriate government function. It is their belief that the private sector can more effectively create wealth if the government stops interfering with their operations and concentrates on performing legitimate government functions. I repeat; transparency is the major criterion of an improved tax policy.
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Angel!
Senior Associate
Politics Admin
Joined: Dec 20, 2010 11:44:08 GMT -5
Posts: 10,722
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Post by Angel! on Jul 21, 2011 15:25:32 GMT -5
I just looked and interest over the amount of the Fed Funds rate would be subject to FairTax. I don't know, but I think the Fed Funds rate is about 1% and since the payment of the early years of a mortgage is mostly interest, most of the money I would be receiving would be subject to fairtax. I'm glad you found this, I couldn't figure out how much of mortgage interest was taxed. This brings up another question in my mind - this seems like it would hurt homeowners & the landlords that make little or no profit. My mortgage payment would suddenly increase by ~$130/month & I have a low mortgage/low interest rate. People with big mortgages & higher interest rates now not only lose their mortgage interest deduction, but they have to pay a 30% tax on a good portion of their mortgage payment. Then consider the landlords that are making barely any profit. Now they will likely have to lower their rents to keep with market prices, but they will have their expenses rise - unless 2nd home mortgage interest isn't taxed, which is a possibility. But, even if the mortgage remains constant if they were barely taking in enough to cover the mortgage previously, they will be running short now. With so many going into foreclosure already, do we really want to put more pressure on homeowners? I think one of the problems here is most of these studies & the basics of the bill were put together the last time this was considered by congress - I think 2007. Things have changed a lot since them & the 23% rate may not be accurate anymore & I would think things like taxing mortgage interest could help put more foreclosures into the market.
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