Reforming Our Tax System

A summary of the hidden truths about the so-called "Fair Tax" being proposed at both federal level and also in some States.

People are frustrated by America's tax system. This may well be the time that we the peope can make significant changes. 

The so-called "Fair Tax" has been proposed for years. As a retired "Wall St." tax lawyer/CPA,  I studied it extensively. Please find my 2 page Executive Summary pdf uploaded with this blog. 

The subject has come up again in that several States are considering a State version of th Fair Tax. While it is conceivable that a State Fair Tax might work, we must understand how the federal Fair Tax works in order to understand how it might affect the operation of a State fair Tax.

One cannot understand how the federal Fair Tax works by listening to a few sales talks - it is a complete tax system with deep implications intended to replace the Individual and Cororate Income Taxes, the Payroll Taxes and the Estate & Gift tax (target revenue, about $2.3T)- my Executive Summary is a good place to start

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Oconee Man February 09, 2013 at 02:00 PM
Well, where is the PDF file?
Stephen C. Eldridge February 09, 2013 at 02:14 PM
Sharon Swanepoel February 09, 2013 at 03:42 PM
OK Steve, PDF up. Hopefully product support will be able to help us with the profile photo. Thanks for your patience.
Stephen C. Eldridge February 09, 2013 at 03:54 PM
Sharon, Thank you so much. We could not live in today's world without folks like you you.
Stephen C. Eldridge February 09, 2013 at 03:54 PM
Sharon, Thank you so much. We could not live in today's world without folks like you you.
Stephen C. Eldridge February 09, 2013 at 04:26 PM
For some reson, this comment I made on Mike Lowry's blog "FairTax -Myth of Inequality"" are stil showing as Pending Approval. The are in reply to his comment of Oct 26. 1) It is Socialist propaganda that it is unfair to tax the poor. Our Republic cannot survive when 1/2 the people pay no tax, while they are allowed to vote. 2) the poor would not only pay no FT, an enlarged class of "poor"would receive even more tax welfare than they do today (i.e.RTC's -$125B, Prebate - $500B, even though a small portion is paid to the non-poor).The amount of this overpayment is grossly artifically exacerbated. I can explain with further details of the Prebate and its unerlying poverty tables. 3) The FT itself has a number of hidden taxes in addition to the 30% (not 23%) add-on sales tax; a) more State taxes as the States must pay FT, b) more federal tax as the fed must pay FT, c) more federal tax to pay for the FT's guaranteed SS COLA, d) more fed/State tax due to built-in "cascading".
Stephen C. Eldridge February 09, 2013 at 04:31 PM
Here are responses to Jack S for his 2 comments on that same Mike Lowry blog on Oct> If you study the Prebate and its underlying tables and the materials underlying those tables, you will learn that the Prebate goes way beyond making the poor whole for any FT they would pay. By several means, the Prebate artificially, grossly overpays any FT they might pay, resulting in a greatly exacerbated welfare check ($500B v today's $125B RTC's). I can explain the detils that support my claim. This may be fine with Marxists, but not for some of us. With all due respect, those of us who has spent a lot of time researching and analyzing the FT, believe Boortz's books to be "comic books". They are nothing but hge pies of hot air ans sales malarky. It would take several volumes to explain the falacy of each pijnt Boortz trie to make. In the end, al that hot air cannot hide the FT's fatal flaws from diligent preofessional analysis. I am trying to post a 2 page Executive summary on this site.
thcooper69 February 09, 2013 at 10:15 PM
hang it up guys it will nev pass ! theres to many obama voters on dat gubament cheese ,the welfare system as many needy and your taz money is needed to support the lazy . the taxation system will never change and the ebt system proped the obama voter up . soon more and more will be born and socialism will abound .the only change that will occur is more of THEMB on tha gubament cheese and the gubament reachin further deeper into ur pockets for your SPARECHANGE
Stephen C. Eldridge February 09, 2013 at 10:32 PM
If you read the pdf we uploaded, then you must understand that the very point you make is one of the reasons, for which I explain that the "fair Tax" should be abandoned. Albeit that reason is subordinate to the larger fatal flaw which is that the "Fair Tax" is an economic/fiinancal SCAM that would destroy our 70%-retail-sales-sensitive economy.
Stephen C. Eldridge February 10, 2013 at 04:30 PM
TO: Matthewm Dirks re your comments of 2/9 on the other blog.I must respond in segments due to length restrictions. First, you fail to understand my chart. I show the $30 (30%) FT in addition to THE PRICE BEFORE FT so that people will understand how it works.. I think the price on the shelf will be pre-FT prices. The TOTAL price you pay will include the FT, but yoou will get a receiot that shows: 1) price before tax $100 2) FT 30 3) Total 130 4) FT Rate 23% i.e. 3/4 (a deceptived view IMHO) Next, you confuse the issue with your price reduction conversation - that is a separate conversation and not pertinent to the point I am making here. To be clear, the pre-FT price is the new pre-FT price which MAY be 0-10% lower than the old price, but MAYBE NOT - my chart does not purport to get into the discusion of whether there wil be any price reduction. It focuses on adding 30% TO THE PRE-FT PRICE. . You must add 30% onto the new pre-FT tax price. In any event, people will be outraged by a 30% (minimum, maybe 60%) + State sales tax) in-your-face high rate and will rebel. More in the next comment.
Stephen C. Eldridge February 10, 2013 at 05:06 PM
Matthew Your misunderstanding of the poverty tables (my chart) is all to common. You truly need t undertand what is behind the numers. In my illustration Jones earns $13,000 - that's all he earns - I am not responsible for how mch he earns or does not earn.many poor "earn" NOTHING. You must differentiate what he earns from what he a) SPENDS and b) spends WITH HIS OWN CASH, so that he wold PAY FT (as opposed to "spending" withot paying FT via receiving in-kind welfare). Jones may e said to "spend" more than $13,000 but he dos not do so by paying WITH HIS OWN CASH - he "spends" by receiving in-kind welfare. He pays nothing for medical services (Medicaid) and nothing for food (food stamps) ND nothing for housing (public housing), etc. Thus, he 'spends" more but DOES NOT PAY FT). This failure of the PREBATE to consider how much of Jones' "assumed" spending occurs in in-kind welfare is only the major reasons that the PREBATE overcompensates the poor - there arec others. The PREBATE is also overgenerous to the poor in that it provides an incorrest correcion of a nonexistent "marriage penalty" (i.e., the underlyning HHS table does not distinguish between aduts and children - only between 1st person and additional people) - the PREBATE adds incorrect spending and $1,417 in PREBATE benefis. Also, the PREATE's definition of household allows for more generous welfare payments to the poor. See full Paper noted in Exec Summary. I also have slides if you ike.
Chris P February 10, 2013 at 05:39 PM
Stephen, in your opinion, how should the current tax code be reformed? Would a fixed rate be better? My tax return should be fairly simple to do yet I have to hire a tax preparer every year just to be sure that I'm getting every deduction I qualify for. This year was a good case in point as I was made aware of items I could deduct that i had not previously considered. I'm curious to see what you would propose as an alternative.
Stephen C. Eldridge February 10, 2013 at 07:10 PM
Matthew, Further re: the Prebate's welfare. Now that you have an idea of how the Prbbate overpays Jones to begin with, addd on the fact that Jones cn pay a MAXIMUM of $3,000 in FT WITH HIS OWN MONEY. If he spends 1/2 of that in the black market, he will pay only $1.500 in FT. In sum, most FT sellers will admit that the Prebate greatly increases welfare, but claim that we MUST pay that price to achieve FT "paradise". I would pay that penalty if the FT cured Cancer, Heart Disease, Autism, Alzheimers, etc., etc/, etc. If you read the 2nd page of my 2 page Exec Summary, you will read a synopsis of my explanation of why EVEN WITH NO PREBATE, the FT is a financial scam that would destroy our 70%-retail-sales-sensitive economy.
Stephen C. Eldridge February 10, 2013 at 07:26 PM
Chris, Thank you for your question. I do not want to etract from this discussion of FT. I may later set u additional blogs to discuss 2 other sets of tax reform proposals. First, note that if you don't like my idea better than you like the FT, that does not men that we MUST adopt FT (a frequent FT claim). It means we must keep looking for a better alternative than TODAY's INCOME TAX. SS/Meedicare should be separately funded and privatized over time. "Business" Income Tax: Eliminate all income taxes on production, etc in whatever form conducted (Iindividual or corporate). Tax income from services (even incorporated services e.g., legal corp.) Individual Income Taxes: 1 rate - 10% NO DEDUCTIONS, NO EXEMPTIONS, NO REFUNDABLE OR OTHER TAX CREDITS. Everyoy pays from dollar1. I would make many other simplifcations. This is not my ideal tax, but it is the least IM-practical step we can tak, IMHO. I may later set up a blog to discuss this Flat Income Tax as well as Sen. Shelby's new one S. 173 which should be available any day now. I may also do one on my and one other more dramatic proposals.
Stephen C. Eldridge February 10, 2013 at 07:29 PM
Chris, Sorry I did not post my answer here - see it below. Does this mean you understand why the FT should be discarded?
Chris P February 10, 2013 at 07:39 PM
Stephen I am not an accountant so i did have some trouble following your explanation. That does not mean I disagree only that I didn't quite understand it. At this point all options should be discussed both pros and cons and then we go from there. Flat Tax certainly sounds simple enough and sometimes simple can be best. I do believe everyone should be paying something, even if it is only a token amount. I will go back and review your examples and do look forward to a blog discussion on Flat Tax.
Stephen C. Eldridge February 10, 2013 at 07:54 PM
Chris, I would be glad to expand on and explain any point you had difficulty following (remember, its hard to explain all that is needed in a mere 2 page Exec Sumary). Please let me know which point you would like me to eplain further. I will adapt my slide presentation to GA and can send it to you. The problem I see with most Flat Tax proposals is that they all exempt something like $40,00 for a family of 4 - thus here we go again; 1/2 the people pay no tax but can vote. EVERYONE must pay into the pot (and the pot should NOT be REDISTRIBUTED - that is the job of the PRIVATE SECTOR). I will post a blog discussing my and Sen, Shelby's Flat Income Tax as soon as it becomes available and i can study it.I still want to keeep discussions of FT & Flat Tax seprate to avoud confusion. Each should be considered on their own. I will also try to do a 3rd blog on more dramatic proposals.
Stephen C. Eldridge February 10, 2013 at 08:43 PM
Matthew, Correction: The incorrect and overgenerous Prebate overpayment for the "marriage penalty" and for each extra "adult" is $1,718 (not the $1,418 i noted incorrectly above). The Prebate's incorect "marriage penalty" derives from the fact that Prebate falsely assumes that the underlying HHS table shows that the 1st person "spends" $7,470 (x 23% = $1,718) more than the 2nd famiy member (presumably because the 1st person pays the "rent") and a lesser amount odf spending for each additional person in the hosehold ($11,490 for the 1st person and $4,020 for each additiona person- those figures x 23% = the Prebate). However, the HHS tables do not display the 1st person as an adult and the rest as children - in the HHS those figures are the same for either adults or children. Also, the FT definition of "household" permits a greater number of households in 1 physical residence and thus many more $1,718 over-generous adds-ons.
Hank Van Gieson February 14, 2013 at 12:35 AM
"Also, the FT definition of "household" permits a greater number of households in 1 physical residence and thus many more $1,718 over-generous adds-ons." Stephen, I don't think so. There is no such definition of "households" in HR25, in fact the word household doesn't appear in the legislation anywhere that I can find. The family consumption allowance is based on members of a family who reside at the same address. One family, one prebate. The idea that several families can form one "household" is just not accurate. And a money loser since the head of the family gets a larger amount of prebate, and everyone else a lesser but equal amount. Makes no sense to triple up, does it?
Stephen C. Eldridge February 14, 2013 at 01:51 AM
Hank, Thank you. The point I am trying to make (obviousy I am failing to do so to date) is this. The HHS table show a higher spending amount $11, 490 for the 1st "person" and a a lesser amount $4,020 for the 2nd "person". The FT generously (and incorrectly) chnges that to "adult" & "Child" and then allow for a 2 "adult household with the $1,718 added Prebate check. The reason the 1st person needs to spend more is to cover the rent and so the Prebate pays BOTH for the rent.. Next, the Prebate's limied definition of "household" allows for for adults living under 1 roof and thus sharing the rent, while each of them gets a Prebate that compensates them all for a full rent. To ilustrate, asume 2 sisters live with their husbands in a single apartment. Under HHS rules, they are deemed to spend $23,550 - under the Prebate they are deemed to spend $45,960, reulting in an HHS prebate of $5,417 and a FT Prebate of $10,571.


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