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

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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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