FairTax: Problems with the FairTax and is it the 1st step to a VAT Tax?

The FairTax tax rate:

Hr25 Sec.101 ” `SEC. 101. IMPOSITION OF SALES TAX. `(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services. `(b) Rate- `(1) FOR 2011- In the calendar year 2011, the rate of tax is 23 percent of the gross payments for the taxable property or service. `(2) FOR YEARS AFTER 2011- For years after the calendar year 2011, the rate of tax is the combined Federal tax rate percentage (as defined in paragraph (3)) of the gross payments for the taxable property or service. `(3) COMBINED FEDERAL TAX RATE PERCENTAGE- The combined Federal tax rate percentage is the sum of– `(A) the general revenue rate (as defined in paragraph (4), `(B) the old-age, survivors and disability insurance rate, and `(C) the hospital insurance rate. `(4) GENERAL REVENUE RATE- The general revenue rate shall be 14.91 percent.

Problems, I see with the FairTax

FairTax gross rate of 23% = 30% + 7.75% NC sales tax = 37.75% or 38 cents out of your pocket, for each dollar you spend.

As Gross margin is figured: $250,000 x 30% = $325,000. A 23% gross margin off the selling price then would be $75,000. $325,000 less $75,000 = $250,000. Will make customers think twice about a purchase when they see the 38 cents added in to the cost for each 77 cents. It is a 38% increase in the cost of an item. Most likely it will reduce sales. Less sales, less jobs, less merchandise sold, and around and around we go. FairTax states why punish the producer? Well it does, with less sales there are less items to be produced. Less items produced the less jobs, etc.

Why the Prebate check? The Prebate makes the FairTax more complicated then is needed.. Lower the tax rate. Delete the Prebate. Plus, where’s the government getting the money to pay the prebate, if its mailed before they collect tax? What about the cost of figuring, processing and mailing of the prebate checks?

Something to think about if, the FairTax applies to new houses, new cars and other high ticket items: Purchase a new house and then 33.8% (30% plus the new 3.8% Fed. Home Tax) really hits you. Say you purchase a house for $250,000 the tax added on to the cost would be at least $75,000 with just the 30% tax. Then the Fed’s jump in with their 3.8% sales tax and you add $9,500 making the total $334,700. That’s $84,700.00 more. Then add the cost of financing over a 30 year period. Sounds like a great buy doesn’t? Will the banks finance the $84,700 in taxes along with the house loan? I don’t think so. Now, figure the FairTax on a new car with the state tax figured in – think, you may think twice before you buy?

The FairTax would hurt sales of new homes because of the size of the tax. Which in turn would hurt contractors, painters, cement companies, lumber companies, etc.. Plus, it could cause people to purchase used homes, driving the availability down and the cost up. The same problem with vehicles and other high priced items.

Because of the problems, caused with homes new and used, stated above, more people may rent. Causing a shortage problem and higher rental prices of Apartments.

Is this the first “Small” step toward a VAT tax? Is that the “REAL PLAN”? What’s to stop the government from changing the FairTax into a VAT tax by charging the 23% gross tax at the manufacturing and distributor level? Once the consumer gets use to the tax. Note: a VAT tax is not a value added tax. Tax does not add value. VAT taxes the market value of a product or the material added at each step of manufacture or distribution. It’s a CAT, a cost added tax. All taxes add to the cost of whatever it taxes.

Most (99%) of the people in business I ask how they feel about the FairTax, state they don’t like it, mostly for the above reasons. The number one reason is they feel it would drive sales down and hurt the economy. And keep it down.

Does not abolish the IRS, as the IRS or United States Department of Revenue, or whatever they will call it, will be needed to collect the taxes collected by the States. The States will also need to be audited. The States will need to audit the merchants who collect the FairTax from their customers. The are also moving the balk of the cost of collecting the tax to the States. See processing of prebate checks above, as the IRS will be needed to process the prebate checks.

Been introduced each year in Congress for the last 10 years. And still no go. Why?

My conclusion the FairTax is an economy-killer.

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