No income taxes owed and EIC..

[unrepentant_spendthrift]

I finally sort of get why so many people are on here foaming at the mouth about our tax code. I never actuallly understood the whole "50% pay no income taxes" arguement or why many are so against the EITC.

I just did my taxes last night. Simplest return possible, single, renter, no kids, standard dedustions... I was deployed most of last year so only had one month of taxable income. My total withholding for the year? $712. Now I find out that I'm getting a $1500 refund....how is that even possible? I'm getting back more than was taken out.

I always owe about $100-200 every year...am I missing something here?? How come my refund is higher than my withholding?? Apparently I qualify for EIC even without kids?? I always thought that wasto encourage breeders?

[973beachbum]

Apparently I qualify for EIC even without kids?? I always thought that wasto encourage breeders?

No it is to subsidize the working poor. Since most of your income is tax exempt you appear poorer than you actually are. I have know some people who were unemployed a year, or most of one, and because unemployement insurance isnt' considered earned income they didn't qualify for the EIC. They actualy did have very low income that year.

Isn't our tax code wonderful?

[unrepentant_spendthrift]

"Isn't our tax code wonderful?"

I've been reading up on the fair tax this morning....I've heard it mentioned on conservative talk radio, which I listen to alot for entertainment value, but because of my unashamedly liberal values I never bothered to loook up. I gotta say, it doesn't sound half bad... Is there a good arguement gainst it? It seems to make a lot of sense, but then again I'm no financial or tax expert

[tea4me]

I am single and I own a house. I did my taxes and I get $1200 back from federal (paid in $2472). For shits and giggles I entered two dependents and my refund would be $6699.

[Clever Username]

The good arguements against the Fair Tax are that becuase poor people spend all that they earn (ie savings and investmenting are not taxed) they are taxed a larger % of their income.

The bad arguements against it (ie the reasons they'll never vote for it even if they won't say so) is that pandering to voters through selective taxation wins votes.

[Savoir Faire-Demogague in NJ]

The good arguements against the Fair Tax are that becuase poor people spend all that they earn (ie savings and investmenting are not taxed) they are taxed a larger % of their income.

Numerous variations of this type of tax plan will exempt most, if not all itmes "the poor" need to spend money on, such as food for example. Another could be clothing, utilities(electric, heat), etc. "The poor" would pay little if any tax under the typical Fair Tax scenario.

[unrepentant_spendthrift]

Sounds like maybe i should get myself a couple of dependants....

[973beachbum]

Feb 15, 2011 10:20:03 GMT -5 Savoir Faire-Demogague in NJ said:

The good arguements against the Fair Tax are that becuase poor people spend all that they earn (ie savings and investmenting are not taxed) they are taxed a larger % of their income.

Numerous variations of this type of tax plan will exempt most, if not all itmes "the poor" need to spend money on, such as food for example. Another could be clothing, utilities(electric, heat), etc. "The poor" would pay little if any tax under the typical Fair Tax scenario.

Then how would states and municpalities function? Taxes on things like clothes and utilities and such make up a large part of the moeny that they use for things like running the gov and infastructure.

Anyone who doesn't believe me just look at your phone or electric bill.

[Savoir Faire-Demogague in NJ]

Then how would states and municpalities function? Taxes on things like clothes and utilities and such make up a large part of the moeny that they use for things like running the gov and infastructure.

We are discussing federal taxes, not state tax revenue schemes.

[Gardening Grandma]

Feb 15, 2011 10:22:05 GMT -5 unrepentant_spendthrift said:

Sounds like maybe i should get myself a couple of dependants....

We're paying $1500 (in addition to what has already been withheld) and believe me, I'd rather pay $1500 more than get a couple of dependents. Been there. Done that.

[cronewitch]

Fair tax is unfair to people who already saved post tax money. We have sums of money in taxable investments, rental property, residental property, ROTH IRA and other investments because we spent decades living below our means. Now the Fair Tax people want to tax it when we spend it when we already paid income tax on it. This would mean for example if they had a 25% fair sales tax we would need to save about 25% more to retire since every cent of our retirement savings would be taxed again.

Take just my ROTH, I have over 200K I already paid tax on when I earned it our converted it. I could expect 8K a year in income from it but when I took the income to spend I would pay 2K of fair tax.

[stats45]

There are a couple either problems or misleading things about the FairTax:

First, most people who support the FairTax or another consumption tax support 'prebates'. These are checks given to households by the government to make sure that (for example) a family of three who earn around $20,000 a year doesn't pay an effective 23% tax rate. The government would send the family a $5,000 check (for example), and this would cover the 23% penalty. If the family does not spend all of their income, they still have a negative tax liability. I've never seen any serious national sales tax proposal that doesn't have a negative income tax element to it. There would still be a large amount of people who receive a net positive check from the government each year.

Second, that means that you don't get to 'do away with the IRS'. Instead of the IRS dealing with income tax forms, they would just now be responsible for the prebate checks, sales tax compliance, etc. There is a tax code and enforcement, it would just be different. People can still lie about their household size, age, whatever to try and receive a larger 'prebate'.

Third, the 23% rate the FairTax presents is a little confusing, and it works like this. They figure the 23% rate like this. A good that costs $77 now would cost $100 under the new system. Because 23% of the purchase price was tax, the tax rate is 23%. Most people think of tax as the percent of the purchase price added to the product. The national sales tax would be closer to 30% given the way we are used to calculating it. This just confuses people.

Finally, there is no guarantee that a large national sales tax would replace the income tax code in the long-run or not be subject to the same maze of exemptions. Remember that every purchase would be taxed including the purchase of a home, medical expenses, etc. How long until there would be exemptions or partial exemptions for certain purchases? Supporters say that the 'prebates' would cover this, but I don't trust the political system to make difficult decisions.

That said, I support consumption based taxation over income or coporate taxation. I don't know that the 'FairTax' is the best way to do this.

[973beachbum]

Feb 15, 2011 10:24:48 GMT -5 Savoir Faire-Demogague in NJ said:

Then how would states and municpalities function? Taxes on things like clothes and utilities and such make up a large part of the moeny that they use for things like running the gov and infastructure.

We are discussing federal taxes, not state tax revenue schemes.

Aren't there also Fed taxes like this? I thought my cell bill has fed taxes on it. Somethings like fuel for your car have a Fed excise tax on it built into the price. then some states have sales taxes on top. This would be in addition to those taxes? That is paying a %tax on top of a %tax on top on a tax. At what point do we just stop pretending that we are doing anything other than paying a tax?

[Savoir Faire-Demogague in NJ]

Fair tax is unfair to people who already saved post tax money. We have sums of money in taxable investments, rental property, residental property, ROTH IRA and other investments because we spent decades living below our means. Now the Fair Tax people want to tax it when we spend it when we already paid income tax on it. This would mean for example if they had a 25% fair sales tax we would need to save about 25% more to retire since every cent of our retirement savings would be taxed again.

Frankly, what Cron points out is of more concern to me, than if a Fair Tax somehow inconveniences "the poor".

[haapai]

I'm confused too. The maximum EITC without a qualifying child is $457. You had $712 withheld. Apparently you qualified for another refundable tax credit that doesn't bother you nearly as much. That's odd considering that it's pretty much the same size.

[stats45]

The FairTax does not exempt purchases but provides these prebates. Other consumption taxes might exempt purchases instead.

Also, under 'FairTax' states and localities would add a sales tax to the national sales tax if that is how they wished to collect revenue. I haven't seen any consumption tax legislation that would limit how state and local governments could collect tax. States would still be allowed to collect income and property taxes if they required, for example.

Retirement savings would be a problem as Crone mentioned for those paid income taxes on the amount saved but now have to pay sales taxes on the withdrawl amount. I haven't seen any real answer for this problem, besides the economy will be so great that it won't matter, blah, blah

[Savoir Faire-Demogague in NJ]

Aren't there also Fed taxes like this? I thought my cell bill has fed taxes on it. Somethings like fuel for your car have a Fed excise tax on it built into the price. then some states have sales taxes on top. This would be in addition to those taxes. That is paying a %tax on top of a %tax on top on a tax. At what point do we just stop pretending that we are doing anything other than paying a tax?

The fair tax schemes I have heard of will eliminate all fed taxes, fees, excise, etc. The federal govt will raise revenue through a national sales tax.
The methods states and localities use to generate revenue are a difference discussion. At least that is my understanding.

[Savoir Faire-Demogague in NJ]

The FairTax does not exempt purchases but provides these prebates.

That is the troubling part. What is a prebate. Who determines the prebate. Is the prebate subject to political whims.

[whoisjohngalt]

May be a bit off topic, but at least in your case it's going to someone who has been SERVING OUR COUNTRY, so first of all, THANK YOU and second of all, use it wisely.

I get all hot and bothered when it goes to people who sit on their lazy assess bc they figure out that working the bare minimum is more profitable than working more.

Lena

[stats45]

I agree SF. The prebate would basically be the federal poverty line multiplied by the FairTax rate.

This is about how the government sets the levels for the EITC. They take the poverty rate for a particular household type, adjust it slightly, and subtract your year's income. This is how they determine the EITC levels.

It is nearly the same thing, and a large portion of the country would still have an effective negative income tax.

[unrepentant_spendthrift]

You're right, haapai and I'm not really bothered by qualifying for the credits. The contrary, in fact, is true..
I just couldn't get past the getting back more than I paid in thing...which I've heard happens, just never to me before. I'll take it, believe me, but it just seems wrong that that happens...

[Savoir Faire-Demogague in NJ]

I agree SF. The prebate would basically be the federal poverty line multiplied by the FairTax rate.


So, theoretically, a Fair Tax revenue scheme really changes nothing. The demographic most at risk is still the middle class.

[sil]

Can someone sum up how Fair Tax advocates would deal with the issue of home prices? Would home sales be exempt from the Fair Tax?

Issue: if home sales are suddenly taxed at 23% (effective tax - 30%) demand would plummet until home prices are drastically reduced. So if most of your wealth is wrapped up in your home, your net worth would drop by 23% due to tax policy

[Deleted]

The making working pay tax credit was also a refundable tax credit, meaning you could get back more than you paid in, so that would be the the other $400.

[sil]

What effect would a sudden 23% federal tax (in addition to state and local taxes) have on your purchasing decisions?

I suspect malls and car lots would be jam packed the day before this tax went into effect, but as soon as the Fair Tax was enacted, these business areas would become ghost towns.

If we passed a Fair tax, we'd cut back on our non-essential spending, which would hurt business, who would need to respond by laying off workers. Laid off workers would spend even less, creating a viscious cycle. And of course, less spending would equal less tax revenue going to our government to pay for these prebates which would be increasingly essential for the growing ranks of the unemployed.

If we penalize consumer spending thru a Fair Tax, we'd be rolling out the red carpet for the Economic Dark Ages.

[unrepentant_spendthrift]

Yeah, Archie...that making work pay credit was what brought it up to $1500...again, not complaining...just trying to understand it.

sil's last point against the fair tax is the most coherent one I've heard so far. That and crone's point about double taxation...i guess its back to more research for me. Interesting topic, I'm surprised I haven't heard much discussion of the merits/demerits of this tax. I must be hanging out in the wrong circles..

[phil5185]

but because of my unashamedly liberal values I never bothered to loook up.

A big factor in Fair Tax is the name. Like so many programs, a nifty name is what sells it - if you called it "huge national sales tax" it wouldn't be nearly as well liked.
But as others said, other than the initial deduction, it is not progressive. So it is odd that you (a liberal) would like it. I'm a conservative and high income - but I believe in the progressive tax system. To me, it makes sense that struggling young families should pay a low tax while I should pay a higher rate to support our country.

[Gardening Grandma]

I'm a conservative and high income - but I believe in the progressive tax system. To me, it makes sense that struggling young families should pay a low tax while I should pay a higher rate to support our country.

karma for that, Phil!

[Cookies Galore]

Feb 15, 2011 11:57:01 GMT -5 phil5185 said:

but because of my unashamedly liberal values I never bothered to loook up.

A big factor in Fair Tax is the name. Like so many programs, a nifty name is what sells it - if you called it "huge national sales tax" it wouldn't be nearly as well liked.
But as others said, other than the initial deduction, it is not progressive. So it is odd that you (a liberal) would like it. I'm a conservative and high income - but I believe in the progressive tax system. To me, it makes sense that struggling young families should pay a low tax while I should pay a higher rate to support our country.

Thumbs up! (the thumbs up icon doesn't show at work)


OP, I figure since you were deployed consider it a bonus for putting your neck on the line. If it happens to sit wrong with you for getting the refund, donate it to your favorite veterans charity.

[resolution]

If we passed a Fair tax, we'd cut back on our non-essential spending, which would hurt business, who would need to respond by laying off workers. Laid off workers would spend even less, creating a viscious cycle. And of course, less spending would equal less tax revenue going to our government to pay for these prebates which would be increasingly essential for the growing ranks of the unemployed.
________________________________________

Probably a lot of YM'ers would respond like that, but most of my friends would see a bigger amount in their pay check (no taxes deducted) and rush to the mall to spend it regardless of price. They would probably substitute the prebate for whatever they currently do with their tax refunds.