Fair Tax was first introduced in the House in the 90s, and since then, there have a been a pile of books written for and against it, many large-scale studies, and lots of grassroots organizing around it. Fair Tax was invented right in my backyard, in Houston. The benefit of all this history is that Fair Tax has most, if not all, of the gaps attacked and filled in.
Fair Tax is pretty much a 28% national sales tax on the stuff you currently pay sales tax on, including things your state might exempt, like medical services, legal services, basic food staples. It's on everything.
At the beginning of the month, you get a "prebate" for the amount of the taxes you would spend if you were spending at the poverty level. The idea is that this makes the poorest pay almost no taxes, as long as their consumption is low. Even if they spend at several times the poverty rate, the tax burden is still low.
Fair Tax is awesome for me because I buy things that aren't taxed! That includes savings, investments, and donating to charity. And there's no minimum deduction to meet! Hooray! And I am really tired of 15% of my income going to Social Security alone. According to Wikipedia, the original Fair Tax book had mortgage interest as tax free. According to the current non-profit's position, your whole house payment is tax free. SWEET! Now, this is a huge difference, and I can't tell which side Huckabee is on. I'll assume that only your interest has no taxes.
This is pretty fantastic for me. It's also pretty fantastic for anyone who spends (well, consumes) a lot less than they make. Frugal people intuitivly know that a consumption tax will cost them less. It will cost them a LOT less.
I made this neat chart for the frugal bloggers out there to show you how great Fair Tax is for you. I assume a married couple with one kid. This couple and their kid would get a $5,497 prebate, distributed monthly. The prebate increases with family size or if you live in Hawaii or Alaska. Each kid gets about $800/year in prebate.
I'll admit this chart is not exact. This chart is missing deductions like 401(k)s, which would be just from income in Fair Tax, but it also omits the HUGE amount of payroll tax your employer pays that would be eliminated in Fair Tax.
The chart does show the general trend. You can see that when you live on half your income, your taxes go down, way down! That might exclude your house payment even!
The best thing about Fair Tax is that I was able to generate the 12 Fair Tax entries in this chart in half the time it took me to get the 4 rough, inaccurate estimates for today's incredibly complicated tax code. Taxes are way, way too hard. Fair Tax is easy. To avoid taxes, spend less!
2 comments:
Hey I got click happy and found your blog. Read through some of your past stuff and can relate to your situation.
Regarding the FAIR Tax system, I really like it because it only taxes consumption not income. The real issue is though if something like this could actually replace the IRS. Some people are scared of a new system and a lot of people out there, CPAs, accountants, lawyers, that have built careers off of IRS taxes and tax issues. Mike Huckabee is the only one advocating this at a national level being a presidential candidate. We'll have to see how that plays out in the future. By the way it's only a 23 cent tax on every $1 spent.
I agree with a lot of things you say regarding this being a good thing. For individuals that spend a lot, they will pay more in taxes. If you only spend money on the stuff you would normally spend money on like a mortgage, food, etc and save more, it's better in the end.
How is this Fair when it taxes my rent while my next door neighbor's homeownership is mostly untaxed?
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