Seems the supporters of H.R. 25 are unable to defend their socialist friendly proposal against the wisdom of our Founder’s original tax plan. They continue to avoid an HONEST COMPARISONbetween H.R. 25 and our Constitution’s original tax plan.

The only tax reform we need is to have the following words added to our Constitution:

The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay “any“ tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money

Regards,
JWK

[url=http://usafoundingfathers.blogspot.com/2006/03/founding-fathers-original-tax-plan.html][b][CONSTITUTION‘S ORIGINAL TAX PLAN[/b][/url]

It is likely, via competition, that new home construction prices would slightly decrease to compete with existing homes. This would mitigate the tax. In addition, all of the supplies and labor should decrease, since the embedded taxes are all gone, meaning that the cost should drop by about 20%, anyway. Further, I doubt you would have to pay sales tax on the property itself, as it is pre-existing, but only on the home and any related improvements.

Independent George,

You must also consider that the Fair Tax would replace all Federal revenue, which includes Social Security, which is hyper-regressive. And then, there is always the prebate for cost of living. Overall, the Fair Tax is certainly not regressive, based on these figures. Beyond that, since it is consumption based, you choose to pay taxes by consuming. So, when you save, you do not pay taxes, which lets all saved monies operate like tax deferred funds in 401(k), IRA, and capital appreciation.

In regards to the mortgage, you must also consider that the prebate that is for the basic costs of living includes housing, so at a basic level, you are not paying taxes on 100% of the purchase of a new home, anyway, just because of the prebate.

1. The regressivity argument is the strongest one against a consumption tax, but I think there’s a lot of room to play around with keeping a consumption tax progressive. Most proposals I’ve seen provide a monthly tax rebate to cover living expenses; the formula can be adjusted as needed, and there’s nothing to stop us from additional supplements like an expanded EITC (which seems to be something that everybody loves). The consumption tax can still be progressive quite easily – it all depends on the actual implementation.

2. I think the issue with Roth IRAs is not for future contributions, but past ones. Eliminating income/capital gains taxes effectively turns every savings/checking/brokerage account into a Roth IRA going forward. Previous Roth IRA contributions, however, were made with after-tax earnings, with the expectation that no taxes would be paid on withdrawal. A consumption tax would effectively tax existing contributions twice. I haven’t read the book, but this doesn’t strike me as unmanageable; since each account presumably has records on each year’s contribution, it wouldn’t be too hard to offer a one-time tax refund for existing Roth IRA holders. You can take 15% of each year’s contribution; or to be more accurate, you can use the marginal tax rate on the individual’s income tax return for the year each contribution was made. Additionally, we could also add interest based on historical market rates.

This would definitely be a significant one-time expense, but seems like a reasonable transition cost. As someone who’s maxed out his Roth contributions since 2002, I can’t say that I’d really be all that upset even if no compensation were offered. Sure, I’d have been better off making regular IRA contributions instead of the Roth, but I’m not actually any worse off than if I’d spent that money, or put it into a savings account. It’s a bit unfair, but not exactly a rip-off.

3. I haven’t run the numbers, but how much difference does it really make in the cost of a house? On the surface, it seems to me that you are worse off if, over the life of the mortgage, your average income tax rate would have been below 23%, but better off if it would have been above it. Of course, this does not factor in the loss of the mortgage interest deduction, appreciation of property, embedded taxes, opportunity costs, etc., but, on the whole, I would expect that most homeowners would actually benefit over the course of a 30-year mortgage. Of course, this really depends on how the taxes are implemented/collected, which I’m admittedly fuzzy on. There’s a certain amount of sticker shock in paying an extra $50k on a house,

4. With a consumption tax in place, I would completely support cutting capital gains taxes, even if the primary beneficiaries are the wealthy (which wouldn’t necessarily be the case – see below). Remember, eliminating cap gains taxes effectively turns everybody’s checking, savings, and brokerage accounts into Roth IRAs. The wealthy have more in those accounts, and get a bigger immediate benefit, but that disappears entirely with a consumption tax (as opposed to a flat income tax), as they would be taxed the moment they spent that money – and at 23%, instead of 5%/15%. The only way the rich truly benefit is if they stopped buying yachts and instead saved/reinvested their capital gains – which would actually provide a huge macro benefit for everybody.

5. As a tax accountant, my job would disappear roughly one week after it goes into effect. That sucks for me, but, in the long run, it benefits society as a whole. Right now, I work with a lot of smart, educated people don’t actually produce anything. Tax compliance is essentially a negative value added industry; after a short-run dislocation, the country as a whole would benefit from having us actually create wealth, as opposed to figuring out how much should be taken away.

However, in today’s day and age where everything boils down to the monthly payment, would it mean that I would have to get a loan of an additional $57,500 (23% sales tax) for a house with a purchase value of $250,000?

There would be no “double taxation” on the Roth IRA. Remember, you would no longer be paying an income tax. For example, if your gross income is currently $100k per year, under the Fair Tax plan, your bring home pay would be $100k per year.

The Roth does lose some of it’s appeal since you would now be taxed on your spending, but there is no double taxation.

On a side note, if my memory serves me correctly, there isn’t a tax on used goods. Only new items.

The Fair Tax is for Federal revenue only, so it does not replace state or local taxation, at all.

jack straun,

If you look at it from the proper perspective, everything except for your personal income taxes (which does not include the special taxes you have to pay for having a farm and retail business) are embedded taxes. You see, it would be foolish for any business owner to not include taxes into the costs of operating a business. If you were able to make a 10% profit before considering taxes, and then you had to fork it over because of that, you wouldn’t be in business very long. So, you include it as a business expense and then pass the cost along to your customers. There is absolutely nothing wrong with that, in fact, there would be something wrong with not doing that (given our current tax code). With the Fair Tax, you would be paying any of those taxes, but you would be charging your retail customers the sales tax and remitting it to the government. You would be paying your taxes whenever you consumed goods yourself.

Simple, clean, effective.