Sunday, November 30, 2008

My Tax Plan

My tax plan is simple. Many of you may have heard about it by now, and one Republican candidate actually ran with it as a plan he would push for. He was the only candidate on either side offering something legitimately different than the status quo i.e. "tax cuts" or "raising taxes on the wealthy." It is the Fair Tax. I will do my best to summarize here but you can read up on it in more detail at There are a few changes I would like to make to it, but it's a good starting foundation for now.

Basically speaking, it eliminates the income and payroll taxes and replaces them with a national sales tax. There are states now, like Texas and Florida, that utilize this general philosophy on the state level to collect and manage their general revenue. They don't collect income taxes in addition to property and sales tax. What this means at the national level is that you only pay taxes when you consume. You get to keep 100% of your paycheck!! It also means that people that don't pay income taxes now would pay taxes when they consume in our country. This includes illegal aliens, tourists, anyone paid in cash now that doesn't file income taxes.

This is a solution that is beneficial to everyone as it takes care of social security, Medicare, Medicaid, and other popular welfare programs that everyone doesn't want to see go away, but no one wants them to bankrupt the country either. The Fair Tax solves this problem since it increases the pool of people paying taxes.

There is one other benefit to the Fair Tax so that basics needs are met by all. All families will receive a prebate each month based on the number of people in your house hold for the amount of tax for the basic necessities of the household regardless of income. Anyone who can't afford more than the basic necessities will in essence pay no taxes unless they consume above and beyond your basic needs. Sorry Christmas presents don't count as basic needs, but with more spending power created from not paying taxes on your needs, Christmas presents might not be so difficult to swing each year.

Oh and there's a bonus, it eliminates the need for IRS (not the need to keep collecting on back owed taxes). But April 15 will no longer be the dreaded tax day, it will be just another day. And before you worry about all those government employees out of work, think of all the jobs that are now shipped overseas to countries considered more of a tax haven than the U.S. is now. With no income and payroll taxes, companies will be bring operations back here and/or move operations over here. So there will be plenty of jobs for them to get, as well as for all the other people who are unemployed.

While free market competiton takes care of the price of goods, one other thing I should mention is that only new goods are taxed. If you buy a used home or a used car, no taxes. If you buy used clothes, furniture, or anything else not new, no federal sales tax. You may still be subject to state taxes, but who cares if you understand this concept, you can make decisions based on this knowledge of when and how much you'll be taxed.

Again for more detailed information, check out It's a valuable source of information. There is also a link on there that tells you which of your Senators and Representatives support it or not.
Once you make up your mind that it's a good thing for our country, write your Senators and Representatives and let them know your thoughts on it even if they support it, but especially if they don't. The more voices they hear on this subject, the more they are likely to take a closer look at it. This isn't a partisan solution in my opinion, it's a win win solution for everyone, except for purist who are opposed to all taxation. It's better than a flat tax as it taxes consumption. So all those rich people buying cars and mansions and clothes and whatever else they buy will now be taxed on their consumption, not their earnings or capital gains as much of it sits in. You basically get to choose when you want to pay taxes or not based on the consumption decisions you make.


jan said...

I have heard of this before but not so clearly explained. Why are dogs so much more clear in writing than humans?

Lola said...

Because we are simple and get right to the point. And we are so cute, that it's impossible for us to not be clearly convincing. :)

Dutchman3 said...

I hate to kick the dog, but he/she is dead wrong about prices. You can't possibly expect to keep your whole paycheck and have prices remain about the same! You see, two thirds of those embedded costs of the income tax are employee payroll and income tax withholding. No one expects you will give up your gross pay by the withholding amount in the hopes that the retailers will lower their prices. So, the smart money says that retailers will be able to lower their costs by a max of 10%, including compliance costs, and prices will rise by a minimum of 17%. However, as the recent estimates for what the real revenue neutral rate would have to be turn out to be more like 39%, retail prices could rise by 25%. And some economists expect there will be full monetary accomodation and prices will rise by the exclusive tax rate amount. The long and short of it is, your purchasing power should remain about the same when including the prebate as income, but don't expect to wind up with any excess cash!

Lola said...

Did you consider the fact that corporate taxes as well as everything related to every employee's salary and benefits are already included in the cost of goods sold? (In effect, the federal Corporate tax rate drops to 0% from 35%). That is because people in the form of customers of that business or corporation pay taxes, not the corporation. Any money retained in that business can then be reinvested in their business in the form of possibly higher wages, more jobs, more benefits, lower prices etc.

Free market competition takes care of the price of goods and services, so I may have misspoke about that. Thanks for pointing that out. I'll find a way to rephrase that. However again, how corporations choose to reinvest that tax money they are no longer sending on to the federal government could result in lower prices depending on how the forces of supply and demand affect them.

The point is to be revenue neutral and collect the taxes on the back end rather than the front end. That way everyone that consumes pays taxes, not just the select few who go to work on a daily basis. Choose not to buy new, don't pay taxes.

I realize there is dissenting information out there about the what the rate would need to be. Check this out for response to some of the faulty math out there.

Or this for more responses to questions..

The Fair Tax rate also depends on not going haywire in government spending beyond growth. Here's a thought. Cut government spending, cut the fair tax rate. See more money in your pocket! This is what I would work for. Cutting the fat out of government and put more money back in the pockets of the citizens.

Oh and I didn't know Lola was such a gender confusing name.

Dutchman3 said...

Thanks for Lola's very cordial response. A male hound might have simply flamed me, and I've been flamed by experts!?

Expanding on the price issue, there has never been a Fairtax price study done by any of the recognized economic experts. However, Dale Jorgenson did a study back in 1998 for AFFT which concluded that there is an average 22% embedded cost due to the income/payroll taxes. This 22% has been used and abused by Fairtax advocates, most notably with statements such as the 22% will be removed and a 23% sales tax added for very little change in retail prices. This is absurd! Two thirds of Jorgenson's 22% consist of employee payroll and income tax withholding amounts which belong to the employee. For fairness and contractual reasons, those funds won't be used by businesses to reduce costs. That leaves around 7.5% in business costs plus a generous 2.5% in compliance costs (not addressed by Jorgenson) for use as you mentioned for cost reductions, pay raises, increases in shareholder payments, business expansion, etc. etc. A key point is that the retail business has to add the exclusive tax rate to their cost plus profit to arrive at the retail price at the cash register. This point isn't well understood, but can be confirmed by reading the fourth from the last FAQ on the Fairtax website.

Bottom line is that if businesses can reduce their costs 10% and the rate really turns out to be 30%, prices have to rise by 17% on average. (1.00 x .9 x 1.30 = 1.17). And even higher prices will result if the rate turns out to be higher.

I am in violent agreement with your final thought. Frankly, I think we are working the wrong problem! How we collect federal revenue isn't as important as how much revenue is spent. I'd like to see a "10th Amendment Commission", similar to the Base Closing Commission, charged with reducing the size (and cost) of the federal government by 10% within two years. Not my original thought because Neal Boortz wrote about it in one of his books, and I heard the Fed Chairman recommend a similar action recently. With an up or down vote in Congress with no amendments allowed to the Commission recommendations, we might actually get a handle on the bloated federal government?

Lola said...

well a lady such as myself knows flamming people accomplishes nothing. Cordial, open-minded discussion creates better results for all, even if only to provoke thought and agreement to disagree. But hopefully open-minded people will find a point of aggreement to work from.

While it's not a perfect solution, regardless of the system we use, spending is out of control. I actually think 10% cuts is too little, but it's a start and I agree that it would get us on track to getting the bloated federal government under control.

I still prefer a system of tax collection based on consumption rather than income since it taxes even people utilizing government assistance and people that successfully evade paying income taxes now. Like I said, there are some things I would change about the fair tax.

Social Security for instance. I'd privatize completely once the current fiasco is caught up and everyone gets the money they put in back to their own private accounts(with interest). People could choose to have the government manage it if they want, but the government wouldn't be allowed to borrow against it for other things. The problem with this is that when Bush suggested even 1% being privatize, the country went haywire freaked out. 'don't make be be responsible for it, I wouldn't know what to do with it' Which is why I'd allow government management of it as an option. That amount would still come out of your check every month and automatically go where ever you directed it to go. But each individual would own their account. If they die the entire amount is retained by the estate.

Adam said...

Dogs can't type, they don't have fingers. Sorry...

hitch writer said...

nice site

Lola said...

I have an extra large keyboard. Sometimes I use my tongue when I'm looking for a challenge :)

Thanks to all of you for stopping by!!

Maybe the tiger could be my Secretary of State, or Secretary of Defense.

The Prince of Centraxis said...

The real point is that governments tax far more than half their citizens' incomes in real terms! This is worse than the treatment meted out to medieval serfs!
For that sort of money, no government should be elected unless it can guarantee an adequate welfare safety net for all, free health care (yes - including dental), free education, roads water and most utilities!
Anything less means that a lot of wealthy and connected people have their hands in the cookie jar.

We have a GST (goods and services tax) in Oz which is very similar to the proposal for a national sales tax. The only problem is that such a tax is utterly retrogressive - the poor are hit hard and the rich don't notice it; they also have loopholes by which they can avoid paying it at all, unlike working people. It's been a huge boon for governments - who promise to compensate the poor and then fail to keep doing so once the smoke has settled.

Tax reform is absolutely necessary - but we need to ask why we put up with the incredible range of taxes that so few people seem aware of! They are a drain on efficiency, and like most beaurocratic efforts at redistribution only manage to redistribute it upwards.

Viva la revolucion - but true reform would be far better!


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