Archive for the 'fair tax' Category

National Sales Tax is Double Taxation For Some

First of all, I like the idea of a national sales tax.  It will be fantastic for people to go to the stores and realize how much the government consumes.  When money is taken out of the paycheck in chunks, it isn’t to bad.  Lets see, a few percent for social security (that’s a nice program), a few for medicare (on great financial footing), some comes out as income tax.  When all is said and done, the average tax rate for your average  American is about 25% from the paycheck.  This doesn’t include 5 kazillion other little taxes that build up before you can spend your money.  That’s just for the feds.

Fair tax proposals suggest we generate all the revenue from a sales tax to avoid evasion and to avoid having to file our taxes.  The system really sounds pretty slick.  The fact is, to duplicate a 25% tax on a paycheck, you could have to charge closer to 30% sales tax, assuming all of the paycheck was spent.    This is based on 25% of a slightly larger number (total paycheck, which includes taxes) is the same as 30% of a smaller ( cost of an item, which doesn’t include taxes).

Now here is where I really like the plan.  People are going to be paying 30% federal taxes and 10-15% local taxes (state income tax will most probably be rolled into sales tax also.  That will suck.  People will be ticked.  They will be reminded every day that they are paying for inefficient ethanol production, illegal immigrant education, a DMV that treats us like crap.  All the sudden, people will be demanding the government watch where they spend dollars.  We will only need enough nukes to kill everyone in the world 2 times instead of  10.  Maybe we don’t need fifty overlapping bureaucracies.   Maybe the CIA, FBI, and military intel can all work together to streamline information distribution.  Maybe the military can suck it up and make the marines an special type of army unit.  There are two reasons we don’t do that.  The marines interface with the Navy for transport (hey-  Just like the army.  Hmm) and they have so much “We are so much tougher and um Stuff” mentality.  When the taxpayer realizes that maybe we could drop sales tax a percent, they won’t care.    People will look at social security as a menace to financial freedom, and will demand that we reform the system.  Poeple will look at their neighbor on welfare, thinking, “That guy is why I have to pay 40-45% overall sales tax.”  There will be significant peer pressure for people to get their hands out of other’s pockets.  People think these tax rates look high, but they are reality.  The government consumes a huge amount of resources-  An amount they would like to keep hidden.  I’d like everyone to know

So much for why I like it.

When the government comes out with a new program  to help you save money, you always have to look on it warily.  The Roth IRA is great, in my humble opinion.  But I have a question.  What will be the status of the money in a Roth account if the Fair Tax gets passed?   I have been taxed on the money that I put into my Roth account once.  If the fair tax law is passed, I will be taxed on that money again.  The overall rate will be around 90%, if you look at it like a sales tax, or about 48% if you look at it like an income tax.  Either way, it sucks.  Does anyone know of any alternatives?  Anyway, just throwing in my 2% about making the savers pay 90% tax