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What if you've saved a lot of money?

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Initial post: Dec 23, 2005 6:52:59 PM PST
Last edited by the author on Dec 23, 2005 6:55:38 PM PST
I make a modest upper middle-class income. I've saved a nice little nest egg. I haven't read this book, but I wonder how Boortz proposes to protect me from paying tax on my income twice?

For instance, to use simple and round numbers - let's say I saved $50,000.00 over the years.

I've already paid a fairly hefty tax on the money as I earned it. Now, with this new sales tax, won't I be taxed heavily on this money AGAIN when I go to spend it?

How is that fair?

In reply to an earlier post on Dec 29, 2005 7:16:07 AM PST
Andy C. says:
I just finished reading this book last night (in one sitting!) and if I understand it correctly, yes, you will be effectively taxed twice on the $50,000 when you go to spend it on new items (used items are exempt).

The theory is that with the overall reduction of tax-related costs to businesses that the prices will readjust lower and you will pay about the same as you would have paid without the national sales tax. Going forward you'd be able to save even more of your paycheck, since no federal tax, Social Security, or Medicare tax would be taken out. And since your employer doesn't have to pay matching amounts of taxes (which is a hidden tax on your salary), you should get a raise!

Check out the brochure on the FairTax website, it contains a lot of the info that's in the book. The website is slow, probably due to the volume of traffic!

In reply to an earlier post on Jan 1, 2006 6:10:17 PM PST
Last edited by the author on Jan 1, 2006 6:12:28 PM PST
A Carleton,

Thanks for your reply. I guess my question then would be, "Why not a flat tax instead?" That wouldn't penalize me on previous savings and it would offer a fair tax on my income in the future.

Another question comes to mind with the used exemption. This should radically change car sales. Used cars already enjoy some tax advantages, but nothing like what this would propose.

I also wonder how this would affect states and municipalities that currently use(abuse?) the sales tax system.

Enjoy the discussion.

In reply to an earlier post on Feb 15, 2006 3:51:12 PM PST
Will says:
There are two points I would like to make:
1) Under our current system you will be paying approximately 23% in embedded taxes for every dollar you spend. Under the fair tax you will pay 23% in taxes for every dollar you spend, so switching to the fair tax will not cause you to loose any more than you would under our current system. In other words you are already being taxed twice. Also please note that 23% embedded taxes is not a fixed value. For example leather goods have an embedded tax slightly less than 23%, I think somewhere around 21% so if you bought $50,000 worth of leather goods you would loose about $1,000. On the other hand houses have an embedded tax of about 26% so if you bought a house for $50,000 you would gain about $1,500. Overall most Americans will loose and gain about the same amount since 23% is the average amount paid in embedded taxes.
2) Please know that even if you did loose slightly by buying more "leather" goods you are still not having anything taken from your pay check and you will be getting a prebate for the taxes you pay up to the poverty level for the area you live in and the size of your family. Thus you are going to benefit more in the long run. It is very rare for someone to loose in the long run by switching to the fair tax. I have yet to find an instance where this could happened.

In reply to an earlier post on Mar 13, 2007 8:55:04 AM PDT
P Breakfield IV,

You're not truly being penalized on your savings...

Essentially, you are already taxed twice by the amount of taxes hidden in the cost of the items you already buy. The cost of items (including tax) will change very little. The only real change is that you would get to keep more of your paychecks.

In reply to an earlier post on May 7, 2007 8:39:35 AM PDT
[Deleted by the author on May 7, 2007 8:39:47 AM PDT]

In reply to an earlier post on Nov 17, 2007 9:20:24 PM PST
P. Breakfield IV,

A flat tax still carries a lot of the difficulties and penalties of our current system. We'd still be sending in a tax return every April, we'd still be taxed on income, dividends, interest, gifts and capital gains, the IRS would still be ruining many people's lives, the lower class would bear more of a tax burden (if exceptions weren't made) and the rich would get the break of a lifetime.

The FairTax isn't just about fairness it's about simplifying federal taxation. The loopholes and obfuscation of our current tax code need to be sorted out one way or another.

In reply to an earlier post on Jan 14, 2008 11:22:25 AM PST
Thank you all for responding. It seems like that it all depends on whether or not the fair tax program accurately reflects the price reductions that we will see as a result of the switchover to fair tax. If this is in error, and prices only fall 10%-15% as I have seen some proponents of the plan admit, then we will be penalized for our savings.

I want to like this plan because I like the idea of getting EVERYONE (well, except for the prebate, it isn't overly progressive) on board and paying taxes. In theory this plan would include get money that is not being fully taxed now, like earnings from criminal activities (when the criminal spends the money on legitimate items like tvs and such) and also illegal workers - in the same way, to some degree.

But I still think there is a lot of "hope we were right" on the numbers that are being come up with, and also I think there is a huge speed bump at the time of the switchover. I've given an example of a scenario that illustrates the problem...

Suppose you wanted a new $2,850.00 LCD flat screen TV. Your state sales tax is 5% and that means the TV costs about $3,000 total. You have saved up $3,000.00 and this is money you have already paid income tax on. In fact, you probably earned $4,000 before taxes to save for that TV.

A few days before you go to buy the TV, the fair tax is implemented. Now the federal government is no longer taxing your income. Sounds good so far, right?

So you head off to the local Best Buy or Circuit City to buy your TV. When you get to the store, sure enough - the TV is there and it costs $2,850.00. So you have them take your new flatscreen LCD TV to the counter and ring it up.

The price comes up and it is $2,850.00 + your state sales tax of $142.50 + the new fair tax of $690.00. Your total is $3,682.50. But wait, you only have $3,000.00. If you had purchased the tv a few days ago, it would have cost only $2,992.50, but now it costs $3,682.50.

What happens in this interim period as products are on the shelves that have the full tax built into them? Do the retailers take a huge hit because in a few weeks products will be in stores that weren't taxed along the way?

Also, what about imported goods? A huge amount of what we buy is imported. There are fairly STRONG odds that the TV in the above example was imported from an Asian country. (Toshiba, Pioneer, LG, Sony, Samsung, etc...) and while there may be SOME decrease in taxation along the way, will those products get the full 23% decrease? I don't see how. Nowadays, a huge amount of what we purchase is imported.

I also wonder how loans will work. If I have borrowed $100,000.00 on my home, and I make $5,000 a month but only keep $3,000.00 of that after taxes (round numbers for ease) then suddenly under fair tax, I have $5,000 a month coming in to my bank account. It is much easier for me to pay off the loan, and I will not be taxed on that because it isn't buying something - it is paying it back. However, the person/bank that loaned me the money is sitting on $100,000.00 that is now worth about 78,000.00 in buying power - unless (and until) we see these 23% price reductions. I cannot believe that this would not have tremendous effects on the economy.

I like the idea of a fairer tax system. I like the idea of not wondering if Turbotax suggested an overly aggressive deduction that is going to have the IRS knocking on my door. I like a lot of things about the fair tax plan, but there still seem to be a lot of things that aren't worked out or guaranteed.

In reply to an earlier post on Dec 17, 2012 2:47:01 PM PST
That points out one of the flaws in their proposal. When you buy anything today you pay for the actual item, NOT the average price of: pants, shirts, coats, TVs, cars, homes, etc.
If I buy cotton socks should I pay the "average" price of socks, which would include cashmere socks?
Boortz is a radio announcer, he says what he is paid to say. Trusting advertising for anything is foolish.
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Discussion in:  The FairTax Book forum
Participants:  7
Total posts:  9
Initial post:  Dec 23, 2005
Latest post:  Dec 17, 2012

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The FairTax Book
The FairTax Book by Neal Boortz (Hardcover - August 2, 2005)
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