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The FairTax actually does the opposite. It taxes the wealthy at just under 23% without deductions and the poor at zero or negative. http://i.imgur.com/hAJ8G.j

The FairTax actually does the opposite. It taxes the wealthy at just under 23% without deductions and the poor at zero or negative. http://i.imgur.com/hAJ8G.jpg http://i.imgur.com/hAJ8G.jpg shows the tax rates based for a married couple based on the number of children. All rates approach 23% as income/consumption rises. It also taxes income/spending earned from dividends and interest the same as if they were earned from an employer which is how people like Warren Buffet pay less % of tax than I do. Herman Cain's failure was not adding the prebate into his 999 plan (which was just a stepping stone to the FairTax). Without the prebate, yes much of the tax regression is gone, and the poor end up paying nearly the same rate as the rich until the FairTax is fully implemented. With that adjustment, it could make sense.

scarmig 15y ago
It doesn't tax the wealthy at just under 23%. It taxes consumption at 23% and offers a rebate. Wealthy individuals would end up being taxed substantially less than people whose income is labor based, unless they spend every cent of their incomes every year.
- deleted 15y ago
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- TomatoTomato 15y ago
  Please give me an example. As above, focusing on the $ spent, it is a more regressive tax system than today. Our current system encourages the wealthy to put their money in tax shelters and use interest and dividends to consume getting about a 20% tax savings. Good luck earning 20% in the market year after year. Low earners do not have this luxury and tend to pay higher rates rel. to true wages. With the FairTax, if you are using ($tax spent / $wage earned). Then yes, this could be low for a high earner. Ex. a 200k earner saving 75% of their income would be paying an effective tax rate of 12% of consumption or 3% of wages vs 20% if they spent everything. Seems like a nice incentive to invest doesn't it? But eventually all savings get spent. If it's spent by their kids as an inheritance, then they will pay a higher effective rate of consumption than to their labor wage reversing the difference. Now if it's spent by the couple in retirement, the tax to wage calculation makes absolutely no sense because it is INFINITE % taxes to (zero) wages. Whereas focusing on consumption would be 10% tax rate if they keep the same lifestyle under the FairTax. See why focusing on the percent of consumption is important? Either way, the earned dollar will eventually be taxed. One caveat... There is a disincentive to consume primary goods or first run items and buy used. This IMO is a good thing frankly as our natural resources continue to decline with no end in sight. For the wealthy, marginal increases are low but effective tax is high. So there is a much greater incentive to consume than to save for high earners than they have today (increasing market velocity) and a greater incentive to save for low earners. This will also shift investment power from richest of the rich to be more democratic as more small investors enter the market.
mikeash 15y ago
According to that graphic, the FairTax taxes consumption, not income. A broad consumption tax is regressive pretty much by design, since poor people spend far more of their income, percentage-wise, on taxed goods than rich people do. I don't see the prebate making a significant dent in this. Yes, it will help to an extent, but you'll still have middle-class people paying far more taxes, as a percentage of their income, than wealthy people. Cain's failure was basing so much of his plan on sales tax, which is basically impossible to make progressive.
- TomatoTomato 15y ago
  The prebate absolutely makes a dent in the regression. And greater the prebate, the less regressive. The FairTax currently uses the prebate based on poverty rate. A simple change (or compromise) of changing this to say double the poverty rate, and to remain tax neutral the 23% might need to go to 24-25%. This would change the graphic to look even more regressive. How about triple the poverty rate? Whatever this number is, below it, one receives more prebate $ than they spend in federal taxes. As i mentioned below, looking at the % (tax paid / wages) in the FairTax system doesn't make sense. You must focus on the consumption. Studies have shown, most wealthy people will pay more tax in $ than they do today under the FairTax, and the poor will pay less tax $ than they do today. This is essentially the definition of a more regressive tax system. Not to even mention the other benefits like the time value of money and the international labor competition.
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  - mikeash 15y ago
    You appear to be using the word "regressive" to indicate both tax regimes where the poor pay more, proportionally, than the rich (which is what the word means in this context) and tax regimes where the poor pay less than the rich (which is called progressive). This is making it extremely difficult to understand what you're trying to say. Why doesn't looking at tax / wages make sense in this system? The correct metric used to evaluate the fairness of a system doesn't depend on the system. It makes little sense to me that I would get net money from the government if I made $10 million in a year but managed to only spend $2,000 of it on taxable items (perhaps while spending the rest on non-taxed items like used houses and such).

scarmig 15y ago

It doesn't tax the wealthy at just under 23%. It taxes consumption at 23% and offers a rebate. Wealthy individuals would end up being taxed substantially less than people whose income is labor based, unless they spend every cent of their incomes every year.

deleted 15y ago
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TomatoTomato 15y ago
Please give me an example. As above, focusing on the $ spent, it is a more regressive tax system than today. Our current system encourages the wealthy to put their money in tax shelters and use interest and dividends to consume getting about a 20% tax savings. Good luck earning 20% in the market year after year. Low earners do not have this luxury and tend to pay higher rates rel. to true wages. With the FairTax, if you are using ($tax spent / $wage earned). Then yes, this could be low for a high earner. Ex. a 200k earner saving 75% of their income would be paying an effective tax rate of 12% of consumption or 3% of wages vs 20% if they spent everything. Seems like a nice incentive to invest doesn't it? But eventually all savings get spent. If it's spent by their kids as an inheritance, then they will pay a higher effective rate of consumption than to their labor wage reversing the difference. Now if it's spent by the couple in retirement, the tax to wage calculation makes absolutely no sense because it is INFINITE % taxes to (zero) wages. Whereas focusing on consumption would be 10% tax rate if they keep the same lifestyle under the FairTax. See why focusing on the percent of consumption is important? Either way, the earned dollar will eventually be taxed. One caveat... There is a disincentive to consume primary goods or first run items and buy used. This IMO is a good thing frankly as our natural resources continue to decline with no end in sight. For the wealthy, marginal increases are low but effective tax is high. So there is a much greater incentive to consume than to save for high earners than they have today (increasing market velocity) and a greater incentive to save for low earners. This will also shift investment power from richest of the rich to be more democratic as more small investors enter the market.

mikeash 15y ago

According to that graphic, the FairTax taxes consumption, not income. A broad consumption tax is regressive pretty much by design, since poor people spend far more of their income, percentage-wise, on taxed goods than rich people do. I don't see the prebate making a significant dent in this. Yes, it will help to an extent, but you'll still have middle-class people paying far more taxes, as a percentage of their income, than wealthy people. Cain's failure was basing so much of his plan on sales tax, which is basically impossible to make progressive.

TomatoTomato 15y ago
The prebate absolutely makes a dent in the regression. And greater the prebate, the less regressive. The FairTax currently uses the prebate based on poverty rate. A simple change (or compromise) of changing this to say double the poverty rate, and to remain tax neutral the 23% might need to go to 24-25%. This would change the graphic to look even more regressive. How about triple the poverty rate? Whatever this number is, below it, one receives more prebate $ than they spend in federal taxes. As i mentioned below, looking at the % (tax paid / wages) in the FairTax system doesn't make sense. You must focus on the consumption. Studies have shown, most wealthy people will pay more tax in $ than they do today under the FairTax, and the poor will pay less tax $ than they do today. This is essentially the definition of a more regressive tax system. Not to even mention the other benefits like the time value of money and the international labor competition.
- deleted 15y ago
  [deleted]
- mikeash 15y ago
  You appear to be using the word "regressive" to indicate both tax regimes where the poor pay more, proportionally, than the rich (which is what the word means in this context) and tax regimes where the poor pay less than the rich (which is called progressive). This is making it extremely difficult to understand what you're trying to say. Why doesn't looking at tax / wages make sense in this system? The correct metric used to evaluate the fairness of a system doesn't depend on the system. It makes little sense to me that I would get net money from the government if I made $10 million in a year but managed to only spend $2,000 of it on taxable items (perhaps while spending the rest on non-taxed items like used houses and such).