Letters to the Web Editor

David Nelson · Joined: 12 May 2008 12:27 pm Posts: 27

Karen, you wrote:

I went back to see what a married couple below the poverty line at, say, $18,000 a year get in your "prebate" check. It's about $391 a month. That is more than they pay in social security, which is about $135 or so. But, run through their budget for a month, rent, gas, water, power, food, phone, etc, and figure 30% more for all those things and see where they come out. the increase in prices far outstrips the check you're sending them, even after you subtract what SS and Medicare cost them.

The family consumption allowance or prebate will be calculated by multiplying the rate times a figure that is basically two times the single poverty rate (technically higher than the poverty rate for a couple, but using double the single person rate eliminates any �marriage penalty� and treats all two-adult households the same regardless of marital status). Google �FairTax prebate chart� to see 2007 rates. You must use the same figure when calculating what they will pay in taxes that you use in calculating the prebate.
I will use the inclusive rate of 23% and assume first that this couple spends every dime on new goods and services. Their exact budget is irrelevant; the total is what matters.
--If a couple lives on $18,000/year, that means they spend $1500 per month of their own money.
--To that figure, the federal treasury will add $399 for a total of $1899 available to spend each month.
--As they spend $1899, they pay $437 in tax as they get $1462 worth of �stuff�.
--Since we gave them $399 to mitigate their burden, their total tax was $38 per month.
--Their effective tax rate will be 2.5%, far less than the $115 (7.6%) they pay in payroll taxes now.

What if they own their home and bought a home that was previously used? Their house payment will be almost completely without tax consequence (a couple bucks a month will be considered tax on the service the mortgage company is providing). If their house payment is $500, the numbers now change to:

--Our couple now spends $1000 per month of their own money on taxable goods.
--To that figure, the federal treasury will add $399 for a total of $1399 available to spend each month.
--As they spend $1399, they pay $322 in tax as they get $1077 worth of �stuff�.
--Since we gave them $399 to mitigate their burden, their total tax was $-77 per month.
--Their effective tax rate will be negative, even further less than the $115 (7.6%) they pay in payroll taxes now.

Do you see what happens if they buy used furniture, a used car and/or used clothing?

You have the misperception that this family will be struggling far worse off under the FairTax and that simply is not true. This scenario, by the way, doesn�t address any drop in prices due to embedded taxes and costs. Any drop at all (every economist who looks at it agrees there will be some drop) further increases this couple�s real purchasing power.

DavidFL10

karen gray · Joined: 12 May 2008 08:57 am Posts: 18

Here's your problem, and it's one you never seem to want to answer. It goes back to the macro issues in our economy. We have a budget deficit even with a 3.1 trillion dollar budget request from the President. We are over 9 trillion dollars in debt. We need to reinforce SS and Medicare to answer the needs of future generations. We have a shameless off-budget war going on, and Bush is asking for more off-budget as we speak.

You on the other hand are exempting any used goods from taxation. What impact does that have on the 13 trillion dollar GDP available to tax under your plan? You are giving back sums to those deserving of a rebate. Has anyone used current IRS figures to determine the impact of that on your overall take?

I just visited your website, and yes, it is your website, and under FAQ's you have the gall to say "Most Americans fall under the 15% tax bracket and all wage earners pay the 7.6% in payroll taxes. That's 23% right there!" Luckily you were inadvertently honest enough to include an "Effective tax rate" chart...in other words what folks actually pay. Of course, since you don't say how many folks fall into each income bracket, you neglect to point out that 80-90 of taxpayers will pay close to 15% for all taxes, payroll included. Tax brackets versus actual taxes paid are always misleading, and purposefully so.

It's a sham and totally shameless. Look, it is obvious we have a couple of lobbyists/spokespersons in this discussion and it is your job to generate some sort of "astroturf" grass roots support. But the problem you have is that thanks to the Google boys, all the info needed to see through this is easily available.

But frankly, this whole thing has become circular and pointless. You never answer the big questions about the country's financial needs and our debt load. So we'll just wrap it up and say thanks for a fun joust.

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