$1000 to register an electric vehicle ???

[JSH]

Originally Posted by redpoint5

Perhaps regressive from what we have now, but not by the definition of regressive. It would be neutral in that sense, and as I've said, if you don't tax the first x number of dollars for certain necessary expenses such as food, housing, and healthcare, it makes the tax progressive.

I'd take an overhauled income tax over the horrid tax code we've got now though.

The definition of a regressive tax is when lower income people pay a greater percentage of their income than higher income people. Sales taxes are regressive because lower income people spend a greater percentage of their income.

Let's pretend the FairTax was law and we had a 30% sales tax that replaced all other federal taxes.

JSH circa 2000 spends 85% of his income. 85% x 30% = 25.5% effective tax
JSH circa 2018 spends 27% of his income. 27% x 30% = 8.1% effective tax

JSH 2018 makes 5X more than JSH 2000 but pays a much lower tax rate.

The only way not taxing some items would make a sales tax more progressive is if you made those exemptions based on income. Then your sales tax is no longer simple.

Originally Posted by rmay635703

Something like 90% of the IRS $2.5 billion budget is devoted to collect 5% of taxes owed, and 2.5b leaves out ancillary, indirect and cost to society

Taxing The lower 60% of the population is more or less a waste of time

You originally said "collecting personal income tax doesn’t Break even anyway."

That is a very different statement than saying collecting income taxes from the bottom 60% is a waste of time.

The second statement is basically true. The top 50% of households pay 97% of Federal income taxes.

However, the IRS isn't just a tax collection agency. Back in the 80's and early 90's we decided to turn the IRS into a welfare agency as well. This happened when we decided we didn't like giving the poor and lower working class direct welfare payments. Instead we would make them file a tax return and get a big tax "return" once a year. We decided to replace direct welfare payments with refundable tax credits.

NOTE: By "we" I mean the collective nation as a whole.

Again, it doesn't have to be this complicated. Income taxes could still be progressive and not require a tax return for the vast majority of people. The payroll tax has two different rates (it is regressive) and it comes directly out of our paychecks

[Hersbird]

There is no power in simple fair taxing. You also don't get to pit groups against each other. The way we have it now you let groups form and then lobby for a special carve out. Then that group can support raising taxes they don't pay anyway. If it was simple and there were no groups, there would be less reason in electing A over B and no reason to donate money to A over B. This tax is certainly aimed at creating a lever for power. I only hope people see how it sucks when it happens to you and stop pushing for policies that use taxes to influence behavior.

[redpoint5]

Originally Posted by JSH

The definition of a regressive tax is when lower income people pay a greater percentage of their income than higher income people. Sales taxes are regressive because lower income people spend a greater percentage of their income.

The only way not taxing some items would make a sales tax more progressive is if you made those exemptions based on income. Then your sales tax is no longer simple.

Person A makes $15,000
Person A spends 100% of $15,000 in the following way:

$9600 housing - tax free
$2400 staple food - tax free
$2400 healthcare - tax free
$600 discretionary at 20% = $120 tax, or 0.8% of income in taxes

Person B makes $100,000 and spends 80% of it in the following way:

$15,600 housing - 20% tax on 6000 of it - $1200
$2400 staple food - tax free
$2400 eating out/not staple - 20% tax $480
$4800 healthcare - 20% tax on $2,400 - $480
$54,800 discretionary at 20% = $10,960
$13,120 total tax, or 13% of income

As I've said before, investments are eventually cashed out. They will get taxed. This is a progressive structure that scales with spending, which is correlated with income.

[roosterk0031]

Is it safe to say if you are a Citizen of the United States living at or below the poverty level it's OK to not pay any federal tax. The Fairtax Prebate gives every citizen of the US the amount of taxes they would pay if living at the poverty level every month.

After that amount everyone pays the same percentage of money they spend on new goods and services they consume. I'm OK with that. Some years I won't need any large new purchases and pay less tax, other years I will. A Fairtax is only collected on new products, used cars for example wouldn't be taxed.

Elimination of corporate taxes should decrease the price of US made products since all taxes are passed on to the final consumer.

[redpoint5]

There's broad consensus among economists that corporate taxes should be very low. We like to kid ourselves into thinking corporations have limitless money that they acquired unscrupulously to justify taxing them, without realizing that taxing a corporation is a tax on consumers.

That's a big reason why healthcare doesn't care how much they spend to provide care... the cost is shifted to the insurance companies, and insurance companies shift the cost to the insured. Nowhere in the process is there incentive to reduce costs or to compete on price.

[JSH]

Originally Posted by redpoint5

Person A makes $15,000
Person A spends 100% of $15,000 in the following way:

$9600 housing - tax free
$2400 staple food - tax free
$2400 healthcare - tax free
$600 discretionary at 20% = $120 tax, or 0.8% of income in taxes

Person B makes $100,000 and spends 80% of it in the following way:

$15,600 housing - 20% tax on 6000 of it - $1200
$2400 staple food - tax free
$2400 eating out/not staple - 20% tax $480
$4800 healthcare - 20% tax on $2,400 - $480
$54,800 discretionary at 20% = $10,960
$13,120 total tax, or 13% of income

As I've said before, investments are eventually cashed out. They will get taxed. This is a progressive structure that scales with spending, which is correlated with income.

Person C makes $200,000 and spends 50% of it in the following way:

$15,600 housing - 20% tax on 6000 of it - $1200
$2400 staple food - tax free
$2400 eating out/not staple - 20% tax $480
$4800 healthcare - 20% tax on $2,400 - $480
$54,800 discretionary at 20% = $10,960
$20,000 trip to Europe at 0% = $0
$13,120 total tax, or 6.5% of income

EDIT: Also let’s not kid ourselves. Replacing all US Federal taxes will require a 40-50% sale tax.

[redpoint5]

People tend to spend most of their money regardless of income. The 50% saver is an exception, not the rule, and even that saved money will get spent at some point.

I don't know what tax rate would be required, but it would be much less if people felt the impact of the useless "services" the federal government provides and decides we're just fine without them.

[roosterk0031]

So if replacing all taxes would take 40-50% sales tax we are already paying it, 30% out in the open would be a tax cut? Or it would be the same $$ just out in the open. I'd like it to be out in the open.

[JSH]

Originally Posted by redpoint5

People tend to spend most of their money regardless of income. The 50% saver is an exception, not the rule, and even that saved money will get spent at some point.

I must have an odd circle of friends then. I personally know 4 other couples that are going the FIRE route (Financially Independent / Retire Early).

As for people spending everything they make - "The Millionaire Next Door" is an older but excellent book on the subject.

Originally Posted by roosterk0031

So if replacing all taxes would take 40-50% sales tax we are already paying it, 30% out in the open would be a tax cut? Or it would be the same $$ just out in the open. I'd like it to be out in the open.

I'm not following your comment about it being "out in the open"

Yes, a 30% sales tax would be a large cut in federal revenue (taxing the items envisioned by the authors of the "FairTax") With that you would likely be able to cover "mandatory" spending. (Social Security, Medicare, Medicaid, National Debt) Mandatory spending is roughly 70% of the budget.

Discretionary spending (the stuff that needs to be reauthorized every year) is about 30%. That is about equally split between domestic spending and the military budget.

A national sales tax (as envisioned by the authors of the FairTax) shifts the tax burden from those making over $200K to those making less than $200K.

[roosterk0031]

Out in the Open I meant, one number(tax rate 30 or 50) for everyone to see, not the company that sold a part to a company the made another part and sold that part to another company that assemble that part to make a alternator to be sold to GM. Every level taxed and every tax passed on to the final consumer. As much as I hate the idea of a VAT at least it's out in the open.

Over 44% of Americans are not paying federal taxes, I see that as wrong. Above the poverty level pay some taxes.