A Room with a Viewpoint

“The time has come,” the Walrus said, “To talk of many things: Of shoes—and ships—and sealing wax— Of cabbages—and kings— And why the sea is boiling hot— And whether pigs have wings.” (Lewis Carroll)

Thursday, December 15, 2005

The Fair Tax Act - Initial Impressions

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These are just initial impressions of the proposed Fair Tax Act of 2005 (see previous post). These impressions are based mostly on the very short summary I’ve already posted, though I’ve gone to other sources to try to figure out parts of it.

Delftsman, I’m sorry to be so negative, I know you are looking for something fairer than what we have. But to my mind, this doesn’t look like it—even before I try to figure out how much more in taxes I’ll have to pay—-being the single, middle class, no dependents, no consituency person that I am.

So here goes:

The Title: Fair Tax Act

Titles and soaring statements of purpose in legislation are mostly to be ignored. They’re irrelevant at best, and, at worst, are intended to district you from really understanding what’s happening.

And that word “fair.” Fair to whom? If we need a “fair” tax law, then the current tax law must be “unfair.” That means when “fairness” is achieved, there will be winners and losers. In other words, this will be a tax redistribution law. So I am anxious to dig into this and see if I can figure who gets tax cuts and who gets tax increases.

23% of what?

With taxes, it’s not just the rate. It’s also, and very importantly, the base. It’s one of the ways that politicians have to disguise what they’ve really done. So, I need to look for what’s taxed and what’s not. And if this were to pass, look for special interests to keep pushing for exemptions that will cause the rate to increase even more than scheduled in order to raise the needed revenue.

But the Rate Matters, Too. When does 23% really equal 30%?

The tax is set at 23% of the gross payments (price plus tax). Huh? That means if I buy something for $10.00, I’m not going to pay $10.00 plus $2.30 tax. Heck, I’m not sure what I’m going to pay. Seems that I need a formula here:

Purchase Price [P] + Tax [T] = 1.23 (P + T)

That can’t be. I read on one site that this means there will actually be a 30% tax on the purchase, so that the 23% is of the total. Let’s see if that works:

$10.00 + $3.00 = $13.00
So, what is 23% of $13.00. It’s $2.99.

Geez, if they wanted a 30% sales tax, why didn’t they just say 30%?

And if the federal tax is applied to the state and local sales taxes which in Wisconsin are 5.5%:

$10.55 + $3.16 = $13.71. 23% of $13.71 = $3.15.
So the real federal tax rate on the $10.00 purchase is 30.16%.

I’m always on the lookout for “gotchas” in legislation, and this is a doozy. I have a hard time trusting someone who tries to tell me that 30% is really 23%.

Do You Really Want to Be On the Dole?

A major feature of this tax bill is the rebate. Depending on your family size and income, the government sends you a check at the beginning of each month to cover your expected taxes.

Wow, and we worry about over-dependence on the government!! Nothing like a government check every month to get you used to getting a government check every month.

And what the government giveth, the government can taketh away. Owe back child support? They’ll take it out of the rebate. Behind on your student loans? Kiss the rebate good-bye. Parking tickets? No rebate. Under the current tax system, you can set your withholding rate so that you don’t have a refund to be seized. Maybe it’s good for scofflaws to have their tax refunds seized, but I worry about the next idea and the next one after that.

Automatic Tax Increases

Even the fake 23% is only for 2007.

For all years after 2007, the rate of tax is the combined federal tax rate percentage of the gross payments for the taxable property or services. The combined federal tax rate percentage is the sum of: The general revenue rate, the social security rate, and the hospital insurance rate. The general revenue rate is set at 14.91 percent.
I have no idea what the above paragraph means, except that there is an automatic resetting of the rate each year. So if 23% is really 30%, what will 24% or 25%, or even 22% really be?

I haven't figured out whether the rebate schedule is also adjusted each year. If not, then that's another automatic increase as the rebate schedule fails to keep up with inflation.

And no congressional votes needed.

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And this is all before I start showing my liberal roots by talking about progressive taxation.