How does the fair tax work
What is the Definition of Fair?
Fair means free from favoritism or self-interest or bias or deception. Fair can also mean equal or proportional to. A fair tax, if there were such a thing, would have everyone in agreement that they are all paying their fair share, that the money being paid was truly needed, and each was getting their money's worth out of the tax.
Another way of looking at the issue is to ask, "How much should each of us pay for government?" In a market economy, everyone is charged essentially the same price for the same basic model and higher prices for heavy-duty or luxury items. This means the amount we pay for most goods and services is in proportion to how much we use or the quality we want. If you want a particular item or service then you pay for that particular item or service. No one would argue with that.
To be we should pay only for the amount of "government" we actually use. To be we should pay proportionally for the wear and tear we cause to American lands and American resources. Maybe working poor people shouldn't be forced to spend money on defense, paying off the debt for past wars, or government contracts to rebuild Iraq, or security for airports, or bailing out bankrupt airlines, or bailing out bankrupt S&L's, or taking over failed pension funds from corrupt businesses, the FTC, the FCC, the prison system, etc. After all, the poor aren't the target of terrorists - the rich are. Maybe the rich shouldn't be forced to spend money on Medicare, social security, public television, or education. We should ponder these questions.
Fair is Not Simple
& describe taxes; not morals or political opinion. In a. the more you earn, the higher your tax rate. In a regressive tax, the less you earn, the higher your tax rate. The classical progressive tax is income tax. The classical is sales tax. generally favor the poor, s generally favor the rich.
is the amount of an individual's total income left after taxes. This income is available to be "disposed of" as either spending or saving.
is equal to disposable income minus the cost of the fixed expenses of life (such as rent/mortgage, food, car payments, insurance, etc.) This is what is left over after you pay all your bills.
The working poor have no. They buy the cheapest products available and there is no latitude in quality of goods purchased or services used. They usually live paycheck to paycheck with no savings. They pay 100 percent of their income just to earn a basic living but they don't pay much in taxes. That isn't fair but that's life.
Middle class people have some. If they live very cheaply, buy used products, and save, they can save. They can buy things they wanted rather than just what they needed (better quality, larger, more expensive goods and services). The middle class pays 80 to 100 percent of their incomes for necessities plus they pay a modest amount of taxes. That isn't fair but that's life.
Wealthy people usually have much more than they need, and most of what they want, and are not suffering any kind of financial burdens. While it is possible for a billionaire to spend all his income on food and shelter, the top one percent of rich people spend only 5 to 10 percent of their incomes on living expenses. This leaves 90 to 95 percent of their money free for whatever purpose they can think of. They also pay a higher amount of taxes. That's not fair but that's life.
The clever but dishonest presentations of the FairTax Book never tell the reader that there are two tax rates that the FairTax is proposing. Under the old income tax, your individual tax rate varied but covered everyone's income (100 percent) minus deductions. Under the FairTax we have two tax rates: 1. A sales tax rate of 30 percent for everyone. 2. An income tax rate that depends entirely on how much you consume.
The fact is that the FairTax is a huge burden for the working poor (who are much above poverty but living paycheck to paycheck). Because they are living paycheck to paycheck, they consume 100 percent of what they earn to survive and have no money left over for tax-free investments so they are literally in the 100% tax bracket. Because all of their earnings are used to pay bills (consumption) they are taxed by the FairTax at 100 percent. However the FairTax is a huge burden for the middle-class because they spend 80 percent of what they make in consumption (and have about 20 percent or less for tax-free investing), so they are literally in the 80 percent tax bracket. As you might have guessed, the FairTax is only a nuisance for the top one percent. Since they save and invest most of what they get, and can invest all of it tax-free under the FairTax, and also transfer wealth tax-free under the FairTax, they are literally in the 5% tax bracket.
Virtually all mainstream economists will tell you that consumption taxes are the most regressive taxes and hurt the working poor and the middle classes.
Notice that we didn't bring up the whole prebate thing. We are talking about what percentage of consumption is taxed, not individual dollar amounts. We are concerned with what percentage is left over and can be tax free. We are not going to distort this moment of clarity. The working poor, the middle class and the rich all get exactly $187 as a prebate so they all cancel each other out in this comparison. Maybe if we use dollar amounts and the prebate. this unfairness can be illustrated with sparkling clarity.
BREAKDOWN OF FAIRTAX RATES INCLUDING PREBATE
1. Working poor person - earns $30,000 a year - works paycheck to paycheck - spends it all on necessities - has 0% to invest tax-free under FairTax.
2. Middle class person - earns $70,000 a year - spends 80 percent on necessities - has 20% to invest tax-free under FairTax.
3. Rich person - earns $10,000,000 a year - spends 5 percent on necessities - has 95% to invest tax-free under FairTax.
(INCOME plus PREBATE X 12 minus NECESSITIES ) divided by INCOME mult by 100 equals PERCENT LEFT TAX RATE
1. ($30,000 + 187 x 12 - $30,000) / 30,000 X 100 = 7.5 92.5% working poor
2. ($70,000 + 187 X 12 - $56,000) / 70,000 X 100 = 23 77% middle
3. ($10M + 187 X 12 - $500,000) / 10M X 100 = 95 5% rich
But how can that be? I thought the tax rate was 23% (inclusive) for everyone. This is the little trick that the fair tax writers use to confuse you.
The generic exclusive tax rate is 30% on all consumption (sales tax) under the FairTax. The sales tax is the tax agent - not the income tax rate. The rate of consumption is vastly different among the working poor (100%), middle class (80%), and rich (5%). The FairTax proponents would have you believe that, in the above example, the tax was only 30% of $30,000 consumption ($9000) for the working poor person, and 30% of $500,000 consumption ($150000) and that's perfectly fair in their opinion. Even if you look at it like this the tax rate is 1% of the INCOME for the rich and the max (30%) of the INCOME for the working poor. They try to further blur the situation by subtracting (not adding like they should) prebates for monster sized families. That's why we kept it to one individual and not a large family. Mathematically speaking: The tax on a working poor person is "30 percent of 100 percent of their income." The tax on the rich is "30 percent of just 5 percent of their income." There isn't anything remotely equal or fair about that.
Even if you don't understand the entire concept presented, just take away one simple thing: The working poor spend everything they earn to live so they are taxed on everything they earn under the FairTax (and most would say "everything they earn" means 100 percent). The rich spend only a fraction of their income on consumption so that are taxed on very little of what they earn. In other words, under the FairTax the poor will pay taxes on 100 percent and the rich are taxed on only 5 percent (or less). Interpret that however you wish to.
Like the title of this section says, "Fair is Not Simple." One can clearly see, even with the deception and diversion of a so-called prebate, the tax shift to the working poor and middle class is crystal clear. Even worse, because the FairTax cuts the estate taxes, gift taxes, and capital gains taxes the $700 BILLION that will be lost to the treasury will still have to be made up. This can be done by borrowing, raising taxes, cutting social programs, cutting social security, or cutting the military. Since the amount is so huge, there will probably have to be a tax on top of the FairTax to fix things.
Don't be confused by Fair Tax supporters who use logic like this:
A poor family making $12,000 a year with seven kids VS a "rich" family making $75,000 a year with two kids. They both spend 30 percent on necessities. So in the end, with the prebates, the poor family with a bunch of kids actually pays less taxes. Here's what is wrong with that logic. Now if a family making $12,000 a year spent just 30% on necessities that means they spent just $3600 per year or $300 per month for all necessities. Will $300 per month cover rent + heat + electricity + phone + food + clothes + transportation for any family? Not only NO, but HELL NO. Many examples listed on pro-FairTax web sites completely neglect to tell you that the family of 4 living on $20,000 a year was also getting $15,000 in welfare payments. They arbitrarily set the poverty level too low because they fail to take into account that no person on earth can live at that level and still eat, pay rent, buy clothes, and go to the doctor, and they fail to take into account that the majority of people at the poverty level are on some kind of government assistance.
Here's the above example in real life: A poor family making $12,000 a year with seven kids. The poor person is living on welfare, getting food stamps, heating credits, free diapers and formula, free healthcare for the kids, and paying only $100 per month on rent in a low rent apartment complex. The person spends the entire $12,000 on consumption and pays (12,000 X 30 percent = 3600 in taxes). They receive a prebate for $3600 which the government immediately confiscates to offset the welfare payments. So in effect, they got no tax money back from their $12,000 and paid at the 100% tax level.
Here's an example of the No-Tax Plan that we propose: A poor person making $30,000 a year VS a middle class person making $75,000 per year VS a billionaire making $500,000,000 per year. The poor person pays zero in tax his whole life, The middle class person pays zero in tax his whole life. The billionaire pays zero in tax his whole life. Simple isn't it. Then when they die the poor person's heirs pay a 50 percent tax on what they inherit, the middle class person's heirs pay a 50 percent tax on what they inherit, and the billionaire's heirs pay a 50 percent tax on what they inherit. Fair and simple. Much better than the FairTax.
TIP: Be suspicious of any example the FairTax people give where the family is unusually poor and the circumstances don't fit with reality. Use an income like $30,000 where a working poor family is not accepting welfare or supplementing their income illegally to show the real effects of the FairTax. Also, $75,000 is not rich by any means. To really illustrate the nature of this horrible tax bill compare a middle class person to a billionaire to see how un-fair it actually is.
Why should the rich pay more?
As I said before, to be fair we should pay only for the amount of "government" we actually use. By far the primary users of the and are the rich. There isn't a terrorist in the world who would be interested in going after poor people or their assets. Cattle Ranchers feed their cattle off of public land for free. Timber companies harvest trees from public land for free. Oil companies extract oil from under American land for free. Miners dig minerals and ore from Americas mountains for free. Businessmen are allowed the privilege of owning a corporation and protection from liability as a free gift from the American people. Most people don't realize that corporations (as a form of business) are not a right - they are a privilege - and can be taken away. Power companies pollute our air. Paper companies pollute our water. Developers destroy the environment and wipe out the homes of many species. Factories pump carbon dioxide into the air and warm the planet. Other factories dump CFC's into the air and destroy the ozone in the atmosphere. Some companies have dumped and buried hazardous waste in the ground polluting the groundwater. Private cable companies string their lines over private property, private phone companies put their poles on private land and trim trees they don't own.
Is this all bad? Not entirely. It puts people to work, makes products cheaper, and helps the economy. No sane person would deny this. But it very clearly illustrates that the wealthy use a lot more than their fair share of Earth's resources, and should pay a proportional share for the wear and tear on America's land and resources. That translates into a higher share of taxes.
Wealth does have it's privileges too. Wealthy people have better representation in congress, better legal representation (how many rich people are in prison?), better access to the media, better access to health care, better access to opportunity, better access to education, perks from government (non-bid contracts, huge government contracts), perks from private industry (golden parachutes, wages 85 times higher than working class), use of public land, use of public airwaves, use of American natural resources. They can take advantage of tax-free investments that most Americans can't afford the minimum investment required.
There is implied power too. People that hire employees in America have an enormous amount of power compared to business owners in other advanced countries. In America, and a select few third world countries, employers are allowed to legally hire and fire for no reason, drug test, strip search, tap phones, and spy on employees. In America, there is nothing wrong [legally] with promoting someone for having sex with you, or firing someone because they are fat or have different political views. This kind of power and privilege doesn't exist in other advanced countries.
There are two types of wealth - new money and old money. New money comes from hard working entrepreneurs with great new ideas. They start businesses and put people to work. They earned their money with hard work and deserve to spend everything they make without any taxes. They are the true Americans - the leaders - the patriots.
Old money is money that has been passed on to the idle descendants of self-made people. This is free money. This is money the spoiled heirs didn't work for, didn't earn, didn't take risks for, didn't sacrifice for, and don't deserve. But because of some quirk in the law, they are allowed to simply "take over" these massive fortunes much like winning the lottery. Much of the really big fortunes that have been passed from generation to generation were created through slavery on huge plantations, or from the industrial robber barons who controlled giant monopolies and used their power, violence, deception, and dishonesty to manipulate markets and amass huge fortunes. This legacy of "blood money" and dishonesty is one force behind the crooked political push to eliminate the Estate Tax.
New money rich people will come out ahead no matter what tax system they happen to be under. It's because of how they think. They solve problems, they provide services, the fill needs. Self-made people will be rich no matter how progressive the tax system is. Old money rich people will lose under progressive tax systems. Those old-money idle rich who have no jobs and have been drawing money from bank accounts since they were very young will inevitably fail under anything but a protectionist (communist) system where the ruling class gets free money without paying taxes. America is not here to shore up the old money freeloaders and estate welfare queens. They need to get off their butts and work instead of spending all their time protecting their fortunes. The hard workers and big thinkers deserve to prosper, not the lazy whiners who spend their lives kissing ass so they get their chunk of money when their parents die.
How does one justify passing power, property and fortunes like an aristocracy of nobles? It's obviously anti-capitalistic and eliminates the free hand of competition. It also creates a societal problem of entitlement and greed. The people think they are entitled to money and power that someone else earned. They think that the world not only owes them a living, but that everyone owes them respect; respect that they didn't earn. These are the same whiners that call into conservative talk radio and whine about how the government is robbing them of something they didn't work for. These are the same little bastards that inherit a company from daddy and walk around with their noses in the air like they had something to do with the creation of the business. The look down at the intelligent poor who didn't have rich daddies and whine about taxes as if they are really hurting. We have no sympathy for their ilk.
When you tax the working poor you are hurting their ability to feed and clothe themselves. When you tax the middle class you are hurting their ability to educate and medicate themselves. When you tax the rich it just slows down their plans.
When you tax new goods and make used goods tax-free you hurt the economy. Why? Because big ticket used goods like houses, yachts, land, buildings, show cars, machinery, and equipment have very very long life spans. Houses can be used and viable for 200 years. Prime used land is viable forever. These big ticket items (owned mostly by the wealthy) will never be taxed again leaving a huge hole in the governments revenue.
Who Really Pays the Most Taxes. OR The Great Boortz, Hannity, and Limbaugh Mega-Lie.
Rush Limbaugh started the lie on his radio program many years ago and many hate radio disc jockeys have joined in since. What is this huge lie that seems to propagate on hate radio without any critical discussion or analysis? - Answer: It's the lie that the rich pay their fair share.
From time to time a caller to one of the right wing talk radio shows will make the observation that the rich don't pay their fair share or that the rich are getting richer while the poor are getting poorer. This usually results in the host pulling a chart of statistics and reading them like a script and then verbally abusing the person who called for making such a sacrilegious statement in the first place. A few ditto-heads will call in immediately following this and confirm that the host is right and that anybody that questions him is obviously a moron. There has never been a serious discussion of this topic on any show - radio or television. If you're lucky you'll hear the name of the chart - "US Individual Income Taxes Paid from Wages, Tips and Other Compensation " followed by the year. It was part of a series of propaganda charts ordered by the Bush administration in 2001 to justify his tax cuts to the wealthy. He has since ordered the Office of Budget and Management to publish these charts every year so that the conservative talk show hosts and his cronies will have something to point to when they make ridiculous claims about who pays their fair share.
This US government chart displays taxes paid on income from wages, salaries, and tips. It does NOT show interest income or taxes paid on interest income, trusts, and other major sources of wealth. Since the rich typically live off all-interest incomes, they don't even show up on the chart. With this information put into proper context, the chart clearly shows that the upper middle class, not the rich, pay the most taxes.
To add to the confusion, other charts (Bush's own OMB charts, charts from think tanks like the conservative Heritage Foundation or right-wing CATO Institute) break down the taxpayer into groups of quintiles based on income taxes paid (but not by the percentage of total income paid). This is like taking 100 people making 25,000 a year (each paying $5000 in taxes) and comparing them to 20 people making a million dollars a year (each paying $100,000 in taxes). See chart at left. If you add up what the poor people paid in taxes you get (100 x 5000) = $500,000. If you add up what the rich paid you get (20 x 100000) = $2,000.000. Added together they make a total of $2,500,000. So Hannity and Limbaugh will say that the top 16 percent (20 out of 120) pay 80 percent of all the tax money that was received ($2,000,000 out of $2,500,000)! Wholly Moses! The poor people are really getting away with something. However, if you look at the income tax rate paid there is a different story. The poor person pays $5000 out of a total income of $25,000 so his tax rate is 20 PERCENT!. The rich guys pay 100,000 out of a total income of $1,000,000 making the rich persons tax rate only 10 PERCENT!!. THIS IS HOW THE RICH DON'T PAY THEIR FAIR SHARE!
The real measure of fairness and "fair share" is the percentage that they pay of their income - not the
percentage of everyone's taxes all rolled into a bunch. In this example the poor pay twice as much as a percentage of their income but the rich can still say they pay a higher percentage of the total of all taxes rolled together. So what does that statistic say in real life?
In real life, the tiny handful of MEGA-RICH pay a larger total amount when added all together - BUT they pay a much smaller percentage of their income and that is unfair. The rich typically pay between 5-11 percent of their income in taxes and the middle class and poor pay 15-35 percent (mainly because the rich have tax free investments, tax attorneys, tax lawyers, trusts, and tax shelters and the poor don't). The only thing that statistic shows is the huge difference between the rich and poor. If just one percent of the population paying only 10 percent of their income still eclipses all the other taxpayers combined, this just means the rich are getting ungodly rich and the poor are becoming miserably poor. You could easily demonstrate this at Walmart - all the taxes paid on all the paychecks of all the store workers of all the Walmart stores didn't add up to the taxes paid by Sam Walton (when he was alive) because he made so much more then they did all added together - even though he paid about 10 percent of his income in taxes. (Sam was in the top 1 percent of Income in America).
The only real statistic: The larger the difference in the total taxes paid by the top few percent and everyone else, the larger the difference between the haves and the have-nots. The poor are still paying a larger share of their meager incomes than the rich, but the difference in income is so unbelievably inconceivably huge that even small taxes on the still rich add up to more money than large taxes on the poor.
You can see how confusing it can be to determine who is paying what when you see chart like the one on the left that show all taxpayers contributions as a percentage of the whole without regard to what each is actually paying as a percentage of their income. On the left is a familiar chart put out by the Bush administration that lumps all income into selected groups as a percentage of the whole. On the right is the same chart with the incomes taken out to $500,000,000 dollars that shows the current system in blue and the FairTax in red. While all the money the rich pay in taxes added together make an impressive pot, they still pay a lot less under the FairTax. (Chart assumes a maximum tax rate of 35 percent for current system and is very conservative on how much the FairTax will really cost to make up for the gigantic losses in estate tax and capital gains taxes and what the actual tax rate will be to fully fund the government.)
Proportional Tax / Proportional Justice
Let's do a little thought experiment and assume that everyone should pay an equal percentage for everything. So in this hypothetical world the poor, the middle class and the rich all pay the same 23 percent sales tax. However, to be fair, other things have to be adjusted too. If a poor man gets a and it costs him a weeks salary (say $150), then the same speeding ticket should cost a rich man the same percentage (say $15,000). If tickets to a ball game cost the poor man a day's wages then the rich man should pay accordingly (just to be fair). If an unexpected surgery costs a poor man 90 percent of his wealth (sell off his home etc) then the rich man who needs an operation should pay the same percentage. -IT'S ONLY FAIR! So be very careful when you talk about a percentage being the only fair way to tax people. This in Europe and it's great.
Maybe justice should be made proportional to the number of people you hurt or damaged. Would that mean that all the Enron management should be publicly beheaded because of the massive suffering they caused thousands of people? Maybe the management of publicly held corporations should be made answerable to each person that lost a job if they screwed up and had to lay off people. There are countless recent examples of corporate officers raiding pension funds.
What did the Rich do with all Those Massive Tax Breaks from Reagan, Bush Sr. and Bush Jr.?
Did they invest the money in building American jobs for a better tomorrow? Did they make America a better place to live? Did they modernize existing factories to compete with foreigners? NOPE! They did exactly what Ross Perot said they would do. The took the money and ran to other countries. They used the money to move the factories and jobs to Mexico, China, and India where they could get prison labor and third-world wages totaling mere cents per hour for hard work which no American could work for. Ross Perot was dead-on about the "great sucking sound." in America. Nothing but a bunch of lousy traitors left America for the almighty buck.
Why did they go? Was it because of unfair taxes? NOPE. They left because labor was drastically cheaper - simple and straight to the point. You don't fix that with a sales tax like the FairTax. You fix that by taxing wealth (real property in America that can't be picked up and moved to a foreign country) and by creating (positive AND negative) incentives not to move businesses to foreign countries.
said it best in his in watchblog.com. You can see the bias towards capital up front in HR25 Section 2, Congressional Findings, where it lists reasons for the new bill. In addition to the usual fairness, raising standard of living and other innocuous reasons, it lists:
* will promote savings and investment
* will promote economic growth
* will increase investment
* will enhance productivity and international competitiveness
Nowhere does it say anything about workers. You'll notice, however, that "investment" is mentioned twice. This means capital. Economic growth, productivity and competitiveness are all related to capital, as well. So the purpose of the legislation is to enhance "capital formation," which corporate lobbyists have been promoting for years. They say that capital formation will lead to wage increases. Not necessarily. The more capital you have, the more automation you may buy to replace workers. The more capital you have, the more plants you may establish and downgrade employee benefits. The more capital you have, the more deals you may make with foreign countries to outsource your labor.
What about the generous rich / benefactors?
Yes, there are generous rich people that give large sums of money. The most generous Philanthropists in the world - are () Bill Gates, Gordon and Betty Moore, and George Sorros. In fact, the top fifty list of the most generous philanthropists is full of people that are self made millionaires but the list is surprisingly short of people with inherited wealth. Warren Buffet wasn't mentioned but he was a great philanthropist also.
According to the the most generous states are New York, Utah, California, Connecticut, Maryland, New Jersey, Georgia, Massachusetts, Hawaii and South Carolina. There you have it - pretty much split among the red and blue states. The most generous philanthropists all have something in common - a sense that money has responsibility and a love for their fellow man.
The love of money, which the bible calls the root of all evil, is exactly why bad people try to manipulate the law so that more money goes to rich people who don't need it and less money goes to the poor who actually need it. There is nothing wrong with working hard and being rich. There is something terribly wrong with getting free welfare money via inheritance or gifts and manipulating the laws to keep that money in the family. There is also something terribly wrong with pseudo-philanthropy. That is, if you didn't earn it, you are not being generous when you give small amounts of money away. To be generous, a heir should be willing to part with a substantial portion of his ill gotten gains. It's too bad that most will not.
When a wealthy person offers a scholarship to a poor kid, a blind kid, or disabled person they are being generous. When a wealthy person offers a scholarship under a condition of taking a certain curriculum, or belonging to a specific group they are not generous. When a man gives money to a college to have his name on a building, that is not generosity. When a group of people give food to starving Africans in exchange for them converting to a particular religion, that is not charity. True philanthropy requires no quid pro quo.
Isn't this just a bunch of "rich envy"?
We have anticipated that some right-wing, bible-thumping, NASCAR-watching Boortz conservative right out of the movie "Deliverance" would make that statement. That's why we are going to break it down just for them into nice easy chunks.
Question: Should a person who has a good idea, starts a company, puts people to work, works hard, and makes a lot of money be able to keep it and pay no taxes?
Answer: Hell Yes.
Now pay close attention to the next question.
Question: Should the spoiled, pampered offspring of a self-made man be allowed to get his parent's money and property, totally tax free without ever working for it or earning it just because he was ripped out of the right crotch at birth? (and maybe even run for president some day?)
Answer: Hell NO.
It never ceases to amaze how many right wing sheep equate anything that has to do with providing money for the common good with communism. These mindless drones parrot this talking point without thinking and after years of conditioning by right wing media. If things like public healthcare, social security, public roads, etc. are all under the banner of "communism" because they pool public funds to support the public good, then the biggest "communist" organization in America is the US military. Following this same logic, all public corporations are "communist" because citizens give up the right to go after personal assets for the public good. No, the real "communism" is giving people control of property, businesses, and money not because they worked for it, but because they fell out of the right crotch at birth.
It's not about playing Robin Hood and taking from the rich and giving to the poor. It's not about redistributing the wealth, communism, jealously, or any other reason only greedy people can understand. This movement and the NO TAX PLAN is all about justice. It is about social and economic justice. It's about righting wrongs, and halting mindless traditions that do not make economic sense. What is the purpose of keeping America as a country? Answer: To do justice to the potential of all of it's citizens. This justice may take the form of correcting past misdeeds, creating an America where people get the freedom to use everything they earn on their own potentials rather than working to protect the foreign assets of those who would repress them, and creating an America that says to those who would promote violence and war, you must now pay for it from your own pocket.
As you will see in our Tax Alternatives section. It's not fair to tax money that is earned and worked hard for (like the FairTax does). But it is absolutely fair to tax money that isn't earned and isn't worked for.
The Myth of the Death Tax
The term "Death Tax" is a slogan born in the halls of the conservative think tanks. A better name might be "" or "Unearned Free Money Tax" or even "Billionaire Tax". It's unfortunate that so many in the conservative media are using the term "death tax" as a clever distortion to the true nature of the Estate Tax. The tax is actually paid by less than 12 thousand millionaires and billionaires out of over 300 million hard working Americans. It accounts for approximately $750 billion dollars in revenue annually. I guess death is a scary term and the Conservatives are good at scaring people.
A few anti-estate-tax dimwits insist that a tax has already been paid and that the recently deceased is being taxed twice. The flaw in this argument is obvious - the person receiving the thing of value is being taxed - not the giver. The anti-estate-tax fanatics are implying that there is some kind of liability for the giver. The estate tax is no different than having to pay taxes on prizes or lottery winnings. Having to pay taxes on a car you won on a game show is not the equivalent of double taxation on the TV show producers. Sorry, there's no taxation without respiration .
The estate tax does not "take money from the dead" nor does it "take money from young children". It simply makes older adult heirs pay a small amount of taxes on large windfalls of money they are getting as a free gift. An estate has to be gigantic for the estate tax to even kick in. This money that the estate provides is income ; this is an indisputable fact. Some wealthy people think they shouldn't have to pay income taxes like the working poor do. Who do these people think they are --. No matter where the money comes from it is still income and it should be taxed. The estate tax is 35% for amounts over 2.2 million.
Another common myth about the. Many a conservative pundit has been called on the carpet for uttering this myth. The first response is usually "name a farmer that lost his farm to the estate tax." None have ever been able to. The image that they want to portray is the one made famous in the PBS documentary "The Farmers Wife" where a farmer had almost lost his farm, almost lost his marriage, and had to sell most of his farm equipment because of crop failure and bad markets. Luckily, they lived happily ever after. The fact is that the vast majority of us small farmers don't buy $100,000 equipment - they rent it during planting and harvesting. Anyone who can afford a $100,000 combine is definitely NOT a small farmer. A small farmer by the most common definition is one who farms under 300 acres. Only large scale corporations own farms larger than that.
. When anti-estate-tax lobbyists talk about "Mom and Pop" business they usually mean large family held corporations like Coors Beer, Mars candy, Fidelity investments, Gulf Oil, Warner Music, etc. These companies are passed from generation to generation and have no resemblance to a "Mom and Pop" shop.
The Myth of the Underground Economy
The so-called Underground Economy where cash transactions take place will not be cured by the FairTax Plan. The thinking becomes muddled when you don't look at the big picture. It's a fact that drug dealers, prostitutes, and other assorted criminal types do a lot of cash-based transactions, but contrary to popular belief, this does not take place in a vacuum. When a criminal eats at McDonalds he still pay sales taxes. When a gang-banger wants some new bling or the latest shoes he pays taxes. When a prostitute rents an apartment she pays a portion of the property taxes. Is this going to change under the fair tax? No. The drug lord will still buy a Lexus and the shady car dealer will still pay the FairTax for him (or not collect it). If the drug lord buys a used Caddy then the point is moot because there is no tax on used goods. Money for cocaine will still be redirected out of the country and laundered through American banks. Nothing changes.
The Myth of Revenue Neutral Taxing
The FairTax supporters will always point to the FairTax Book and tell you that all the facts, figures, arguments, evidence, and financial data needed to make the FairTax viable were all worked out in a $23 million dollar study done by respected economists, and college professors, and this information is as plain as the nose on your face. However, none of these studies have been published. Considering the right-wing think tanks and other hand selected professors that supposedly did these studies are very biased to begin with, then where the hell is the data to say this plan will work? It should have been fairly easy to come up with volumes of data with everyone in the room agreeing with each other. For $23 million there should be millions of pages of data but they refuse to show their work. Most people on the other side of the FairTax believe that either the studies were never done or the methodologies and reasoning wouldn't stand up to unbiased review. In fact, the US government's own study of retail sales taxes says national sales taxes don't work and would have to be nearly 50% to make up for our current system. One has to pick and choose what facts to believe.
Ask yourself the following:
1. Who came up with the idea? Three greedy billionaires wanting to cancel all taxes on wealth - inheritance, gifts, capital gains.
2. Who promoted the idea and wrote the book? A right-wing disc jockey - part of hate radio.
3. Who came up with the bill? A conservative bigoted congressman.
4. Who came up with the details? Right-wing think tanks.
5. Where's the proof it will work? Supposedly in a secret unpublished study.
6. What is the only thing we know for sure? It won't cut taxes and it's extremely regressive..
7. How is the 700 billion in estate, gift, and capital gains taxes going to be made up? The middle class.
8. What if people just keep buying used? Taxes will have to go up.
The FairTax supporters, without the aid of a published study or evidence to back them up, have said that the Federal Government collected $1.6 trillion in tax revenue in 2003 from the income tax. So, in order to be revenue neutral, the FairTax would simply have to raise $1.6 trillion. Given that, what should the FairTax tax rate be? According to FairTax proponents, the US economy produced goods and services equivalent to $11 Trillion that year, and consumption was $9.5 trillion. So, in order to get the revenue neutral amount, simply divide the $1.6 trillion by the $9.5 trillion. You will come up with 0.175, or 17.6%. You factor in the rebate, and the tax rate is 23%.
What's wrong with that thinking? In 2003 we had a deficit of around $375 billion, the highest in history up to that time. Saying that we could match revenue for that year by using a 23% rate means that by definition the rate is too low to fund the government and would result in another $375 billion in borrowing. The deficit for 2004 was $477 billion, and the deficit for 2005 was as high as. The FairTax doesn't address the huge debt spending or the prospect of actually paying off some of the federal debt. To be revenue neutral as a replacement for the current system it would have to include the normal debt spending. The FairTax is not real tax reform. Real tax reform must start with a balanced budget.
The FairTax as written would only lead to a huge budget deficit. This can only be dismissed by cutting benefits, borrowing, printing money, or raising taxes.
The Myth of Big Government
Another claim of the FairTax proponents is that the FairTax plan will somehow end Big Government. Conveniently however, they fail to define exactly what "big government" is, what makes it big, and exactly what's wrong with being big.
As far as federal workforce is concerned, the US government is at a fifty year low in the number of full time federal employees. It is, however, at an all time high for government contractors. After the cold war ended the government started massive privatization of any function that wasn’t inherently governmental, awarding private contracts for everything from janitorial services to security guards, to computer programmers, to contracting out security clearance investigation services. The number of federal workers has shrunk and the average age of a federal employee as of 2006 is 49 years old. The number of contractors is way up at nearly fifty percent of the workforce. Since politicians only count federal employees, they are implying that the government has shrunk by half since the mid eighties and take credit for it at every opportunity.
Is big government bad? It depends on who you talk to. Good big government inspects our meat, our water, our medicine so that we aren’t harmed by businesses that want to cut corners. Good big government defends us, and allows us to settle our grievances with each other via a legal system rather than shooting it out in the street.
Does the government (big or little) rob the average American? Yes. Bad government robs us through subsidies, mandates, targeted tax breaks, prohibitions, eminent domain takings, bailouts, loans and loan forgiveness, as well as regulations. It robs us of our freedom and liberty when we are forced to endure anti-terrorism restrictions, body searches, loss of privacy, and wire-tapping, for an event that has less chance of happening that an asteroid hitting the Earth. It robs us of our core American values and identity as peace-loving, freedom-loving people when our own government kidnaps and tortures innocent human beings. And each time it happens, we all sacrifice a little bit of our freedom.
The FairTax Plan does nothing to cure any of this robbing of liberty, freedom, and income. In fact, The FairTax encourages give-backs to the wealthiest and corporate welfare. What is wrong with corporate welfare, exactly? To begin with, corporate welfare allocates resources according to political favor, while free markets allocate resources according to individual choice. Second, corporate welfare creates power for politicians, giving them control over our liberty and property makes them targets for bribery. The FairTax firmly hands over power and money to the wealthiest creating a permanent ruling class a permanent poverty among the poorest.Source: fairtaxfraud.com