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[–] Eyevory ago 

In theory I like the idea of a consumption tax, but there are several major problems. First, anyone with any level of savings has already paid taxes on that money, so a conversion over to a taxation system based upon consumption would require double taxation. This leaves those with savings at a huge disadvantage. Think of the 65 year old man who has worked for the last 45 years to build his nest egg and has paid income taxes on all of it. Now suddenly everything is 20% more expensive to him which means his retirement savings is basically worth 20% less. I know there are clever ways to offer rebates and adjustments in an attempt to get around this issue, but none of them are very clean.

Second, when you add taxes to some items you are promoting the idea of saving rather than spending. For example, if I knew I had to pay a 10 - 15 or 20% tax on a new car... I would be more likely to purchase a car and drive it until it died and I was forced to replace it. Plus, if consumption taxes are only on NEW items rather than used as has been suggested in the past by the Fair Tax people, then nobody would ever want to buy new cards or new appliances or new televisions. The prices in the used market would rise to compensate, but the net effect is people would hold on to their items longer and wouldn't buy as much new stuff. That is great for the environment, but horrible for the economy.

The Fair Tax people had a fancy way around real estate, but again imagine having to pay 15 or 20% tax on a new home. Who would ever move knowing the huge penalty for doing so? Land and real estate wouldn't change hands as often which means people are less mobile which means a slow down on growth. Again there are ways around this issue, but none of them are clean.

I think Fair Tax works great on paper, but in practice is not much better than a traditional income tax system.

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[–] zambeezy 0 points 1 point (+1|-0) ago 

You raise some good points. For your first point you touched on the solution: rebates and adjustments post-change. That will fix the problem in the cleanest way possible. No matter what we do someone will be at a disadvantage for some amount of time because they have been planning for the current tax situation. Any change to that will alter their plans. It's just how it is and isn't a logical reason not to change it. If the majority benefit from a change, a change should occur.

As for the second point, dealers of new merchandise would have to lower their prices to compensate for the higher tax on new goods. This will benefit the consumer. The used product market will be fine and prices will not rise exorbitantly, as they will find an equilibrium to satisfy both supply of the product and the demand on that product. There are still many, many goods that cannot be bought used. Food is an example of this.

For the third point you misunderstand the Fair Tax system. You're already paying for your home with after-tax dollars. With the Fair Tax you get your whole paycheck all the time so the increase in consumption tax is offset by the fact that you have a larger amount of dollars in your pocket. Additionally, you would not have to pay yearly taxes on the property that you purchased (rented, more like...because if you don't pay your taxes they'll take your house), so the "true cost" of owning property decreases under the Fair Tax.

The Fair Tax is great both on paper and in practice. The problem is everyone is afraid to change the status quo. That's terrible.

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[–] Eyevory ago 

Regarding the real estate issue, there are several issues with the idea of a fair tax though. I read recently that the average homeowner stays in their home only about 5-7 years before selling and buying something else. Is the consumption tax on real estate somehow pro-rated so a purchaser doesn't have to pay the full taxable amount each and every time they buy a new home even if they just sold their old home? If not, do you really think people will want to buy new homes? If I knew I had to pay 15% tax on a new home I doubt I would be as willing to move because that is a huge loss. Imagine paying $30,000 tax on a $200,000 home and four years later wanting to move into a $300,000 home.... that isn't realistic because the burden of paying the taxes would impact equity to the point many purchasers wouldn't have the necessary funds for a down payment. Anyone who bought and sold within a few years would essentially be taking a huge financial hit. Then there is the question about whether real estate is only taxable after the first purchase, or during each subsequent purchase? If products are taxed more than once, it again offers and incentive to keep what you have and not buy new which hurts the economy.

Also, regarding property taxes, it is important to realize there are benefits to collecting property taxes annually. First, if there is no annual cost to property, people may allow a property to go into disrepair and just ignore it because it doesn't cost anything to them. If they have an empty lot or a few acres they might just sit on the land while development occurs around them which leads to urban sprawl. At least when people pay taxes on their property they have some skin in the game and if they aren't utilizing the property or see a benefit to retaining it, they are more willing to sell it to someone who will.

Also, many local school districts and fire departments get their funding from property taxes. If you take that funding away their budgets would be reliant upon whatever portion of the fair tax / consumption tax they receive. This is fine when things are going well, but if your economy tanks and people stop buying things... where do the schools and fire departments get their revenue? There are a lot of flaws and a lot of unanswered questions.

The Fair Tax proponents claim it is so much simpler, but it took them two books to explain the system and even then there are a lot of gaps and unanswered questions that remain. So I really don't think it is any better than a simplified progressive income tax system if we could just eliminate some of the loopholes and deductions. That said I agree something should be done because clearly what we have now doesn't work well for most Americans. There is always room for improvement, but until we start electing leaders that actually represent us instead of their own self interests I doubt this will change.