My Take…

What is the proposal?

The Republican House is set to vote on a national sales tax of 23%. This Tax would abolish the current income tax and eliminate the IRS as we now know it. You can read the full FairTax Act.

To soften the regressive nature of a sales tax each household would receive a “prebate” or a monthly payment for the amount of tax a household spending a poverty level-income would pay. Full implementation of this would repeal the 16th Amendment which authorizes taxes based on income.

How will the tax be implemented.

As provided in the article you will hear proponents quote a 23% tax rate. Opponents will quote a 30% tax rate. Both are accurate, in that the price quoted at the store will include the 23% tax. So on a $100 item. the federal government will receive $23 or 23% of the price. But the price without the tax is $77, so by adding a $23 to the $77 item you are increasing the price by 29.8% or roughly 30%.

Remember there are 2 types of statistics. “Lies, and Dam Lies”. Because the statistics don’t match it doesn’t mean that anyone is really lying, they may just be looking at it from different perspectives. Either way the statistic isn’t important. The effect is.

To put in context, the recent rise in gas price increase. The national gas tax currently is 18.4 cents a gallon When the price at the pump went from $2 to $4. Under the proposed sales tax the price, the starting price would be 2.36. (Calculated by subtracting the current 18 cent gas tax and multiplying 29.8% to the result.. The addition of $2 by the gas industry would result in a final price at the pump of $4.95. Increases in prices and inflation will accelerate based on the tax.

What gets taxed.

Everything bought and sold. A Barter agreement between an electrician and a plumber, both building their own homes. The plumber agrees to do all the plumbing work on the electrician’s home in exchange for the electrician performing the electrical services on the plumber’s home. Both pay sales taxes on the services provided.

Spending.

The “prebate” will not hurt those in the lower income levels. There should be limits to “prebate” spending. Certainly a family of four living below the poverty level, shouldn’t be spending “prebate” money on lottery tickets or luxury items such as a sports car.

Administration.

The stated goal of the national sales tax is reduce the size of our tax department. Part of this is by sharing the collection between the state and federal government. I find this to be a dubious claim. Individuals and businesses will report monthly to determine the taxes owed. It is difficult to believe that monthly reporting will reduce the size of the tax department.

Even default “prebates” require monthly payments to every family in the country. Recent coronavirus rebates sometimes took months to occur. Now the federal government would need to make payments on a monthly basis. This process will not be cheap.

Another goal is to be less intrusive. Monthly reporting is not less intrusive but more.

Greed…

Greed defines capitalism. Whether we have a sales tax or an income tax, the wealthy will have access to means beyond most of us. Purchases outside of the US will not be levied a tax. Return to the country will require adding sales taxes for purchases made and returned to the country. Those who can travel abroad will be able to avoid taxes by leaving the purchases behind.

Businesses are exempt from paying a tax on purchases. So the case of Donald Trump’s corporation, recently tried in New York. Businesses buy perks for senior executives and using said property to pay employees, might fall into a dark category.

What is certain, is that high priced lawyers will find loopholes in any system. The rich will find ways to avoid taxes. It might be as simple as to not spend, but hoard money.

So Let’s Start Talking About How to Close Loopholes.

And not create a whole new set of problems.