FLAT 17% INCOME TAX RATE versus FLAT 30% SALES TAX


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FLAT 17% INCOME TAX:   This is a flat 17% income tax ONLY on income ABOVE the poverty level.
No one pays any tax on income BELOW the poverty level.  All tax loop-holes and deductions are eliminated.  CAPs on Social Security and Medicare are eliminated.  All income (above the poverty level) is taxed the same flat
17%.
   

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FLAT 30% SALES TAX:   This is flat 30% National Sales Tax on all sales.  All Federal income withholding taxes would be eliminated.


FLAT 17% INCOME TAX:   FLAT 30% SALES TAX:
(01)  The Flat 17% Income Tax (click here for details) is a tax that is directly related to income.  Not spending.  It is a NEUTRAL tax system.  Income as a percentage of income remains constant regardless of whether income increases or decreases.   (01)  The Flat 30% Sales Tax (i.e. the FairTax) is a REGRESSIVE tax. It raises taxes from spending. Not income. All sales taxes are REGRESSIVE (meaning: as income decreases, tax as a percentage of income increases. The 30% Sales Tax proponents will try to tell you it is not REGRESSIVE due to a prebate, but it is still REGRESSIVE. The prebate is merely what amounts to a deduction that everyone gets.  As with any deduction, it merely shifts the starting point at which income starts to get taxed. That is, your first $8K of income (for a single person due to a $2400 prebate) or $19.7K (for a family of 4 due to a $5902 prebate) would effectively not be taxed.  That still does not remove the REGRESSIVE nature of any flat sales tax.  Most people consider REGRESSIVE taxes unfair (and rightfully so).  Also, the 23% FairTax.org plan is actually a 30% Sales Tax.  The 23% FairTax.org plan calculates the 23% from a percentage of the tax plus the sale prices (e.g.  23% = [TAX / (TAX + PRICE)]).  For example, under the FairTax.org plan, the tax on a $100 dollar purchase is $30 which is 30% of the $100 price.  The 23% is derived from $30/$130.  This is a bit misleading.  And it fools people. People are used to calculating sales tax as a percentage of the price.  So the FairTax.org plan is actually a whopping 30% sales tax.  Many people prefer the opposite of a REGRESSIVE tax, a PROGRESSIVE tax system in which income tax increases as income increases). 
(02)  The Flat 17% Income Tax is directly related to income. All income (above the poverty level) is taxed at the same percentage rate.  All tax loop holes would be eliminated, so everyone would pay the same percentage.  No one pays any tax on income below the poverty level (not even the rich).   (02)  The Flat 30% Sales Tax raises taxes from spending. Not income. It would hammer the lower income groups that spend most (if not all) of their income on necessities (e.g. food, shelter, transportation, healthcare).  That is what makes it a REGRESSIVE tax.  That is what makes ALL flat sales taxes REGRESSIVE.  Even with a prebate check (e.g. $2400 for a single person), after that prebate check is all spent, all of your income that is spent after your prebate runs out, is still taxed at 30%. That is REGRESSIVE.  Anyone that tries to tell you that is not REGRESSIVE does not know what they are talking about.   Ask yourself who will love this tax system, and why?
(03)  The Flat 17% Income Tax is does not encourage black markets.  17% is lower than the current averages income tax rate because the wealthy would no longer be able to abuse tax loop-holes to avoid paying their fair share of taxes.  Reasonable taxation will create the least tax evasion.   (03)  The Flat 30% Sales Tax would almost guarantee black markets.  A $100 purchase would cost $130 (not even including local sales taxes).  Black markets already exist and such a massive sales tax would make it worse.  Tax evasion will increase.  It will encourage people to buy products from overseas (to avoid the 30% sales tax).  Now add local sales taxes (e.g. 8.5% as Dallas,TX) onto the final price and that is a whopping 38.5% sales tax!
(04)  The Flat 17% Income Tax would make enforcement easier, since there are millions of employers versus billions sales transactions and merchants.  Also, employers have more to lose and more incentive to comply with tax laws than a large number of small merchants that are likely to pocket the 30% of sales tax collected.  Also, there is an employee who has a vested interested in seeing that his income taxes are actually paid.  This provides a built-in double-check.   (04)  The Flat 30% Sales Tax would make enforcement more difficult, since there are billions of sales transactions and merchants, versus millions of employers.  Also, employers have more to lose and more incentive to comply with tax laws than a large number of small merchants that are likely to pocket the 30% of sales tax collected.  Also, there is not an employee associates with the tax who has a vested interested in seeing that his income taxes are actually paid.  There is no built-in double-check.
(05)  The Flat 17% Income Tax does not weight one group more heavily than others (as does a Flat 30% Sales Tax).  Thus, the risk of lost or unpredictable revenues is less with a Flat 17% Income Tax than with a Flat 30% Sales Tax.   (05)  The Flat 30% Sales Tax hits those that spend a larger percentage of their incomes on necessities than those that don't (e.g. the wealthy).  There is no proof that the wealthy spend as much as a percentage of income as do the majority of the population.  This creates a risk of lost or unpredictable revenues since one group is more likely to bear most of the tax burden. Thus, the Flat 30% Sales Tax is unwise because the concentration of taxation amongst a smaller group of taxpayers introduces a higher risk of a more pronounced drop in  tax revenues (e.g. in a recession).
(06)  The Flat 17% Income Tax is the most fair, and will help to decrease class-warfare.  Which would you rather pay?  A 17% income tax, or a 30% sales taxNOTE:  If you spend most of your income, a 30% sales tax equates to a 30% income tax.  If you spend much less than your income (i.e. you are rich), then you will most certainly like a 30% sales tax because the total tax relative to income may be very small. 

The following demonstrates how income above the poverty-level is taxes at an equal (NEUTRAL) 17% , and the effective income tax rate due to no taxes on income below the poverty level is progressive
:

Flat 17% Income Tax Example:


Now, compare the 17% Progressive-to-Neutral Income Tax (above) to the  regressive 30% FairTax.org's National Sales tax (below).  After the prebate runs out, it is nothing more than a regressive sales tax (and all sales taxes are regressive):

FairTax.org's 30% National Sales Tax Example:
  (06)  The Flat 30% Sales Tax will fuel the politics of envy and jealousy, because it is inherently unfair, and therefore, it is immoral.  It will increase class-warfare.  A government which robs Peter to pay Paul can always depend on the support of Paul. 

PROOF that ALL Flat Sales Taxes (with prebate
or not) Are REGRESSIVE
:
Let's say the prebate is $2400 (as in the FairTax.org's example on their web-site for a single person).
That $2400 is essentially the 30% sales tax on $8K, so you could say that the first $8K of income was not taxed.  However, a $2400 prebate does not mean the single recipient has $8K to spend.  That's vastly different than simply not taxing income below the poverty level at all as in the 17% Income Tax Plan in the left column.

However, under the Flat 17% Income Tax, income below the poverty level (e.g. $8K or even higher) also would not be taxed.  So both tax systems essentially do not tax the first $8K of income.

And even under the current tax system (which is ridiculously complex, abused, and REGRESSIVE due to thousands of tax loopholes), the personal deduction is about $3300 ($6600 for a married couple).

So, all three of those tax systems have what amounts to a deduction.

The charts to the left demonstrate how REGRESSIVE the FairTax.org's 30% National Sales Tax plan could be in reality
, in which the income tax rate increases as income decreases.

The ONLY way that any flat sales tax can not be REGRESSIVE is if everyone spends ALL of their income OR  the same percentage of their income.  What are the chances of that actually happening.   Look at the two graphs to the left and ask your self who will love that the FairTax.org's 30% National Sales Tax the most?    Which one do you thing is more fair?   

Also, while the Fair Tax.org's 30% Tax Plan will not collect income taxes, the real costs won’t just disappear from companies’ costs.  In the short run, prices will have to increase, and wages and salaries may not go down, but will stagnate while the economy grows. This may not be a simple adjustment to make.  Also, not all states have sales taxes, and they will have to convert to a sales tax system.   And there are billions of sales transactions per day as compared to hundreds of incomes per year.  Which do you think is easier to implement, track, and enforce?
  • After the prebate of the FairTax.org's 30% Sales Tax Plan runs out, it is nothing more than a sales tax.
  • All sales taxes are REGRESSIVE unless everyone spends ALL of their income OR the same percentage of their income.
  • Taxing sales can NOT tax income equally as a percentage of income.  What do you think will happen if there is suddenly no taxation on capital gains, interest income, investment income, and inheritance?  Who do you think will absolutely love that?  Who do you think will then end up paying the largest share of taxes (as a percentage of their income)?   The middle income group will get hammered.  See the strange bump in the FairTax.org's 30% National Sales Tax Example.  Clever, eh? 
(07)  The Flat 17% Income Tax will increase trust in the government due to the clarity and simplification. Also, it is the most moral and fair system.   (07)  The Flat 30% Sales Tax will increase distrust in the government due to the scenarios above.
(08)  The Flat 17% Income Tax doesn't require such an adjustement.   (08)  The Flat 30% Sales Tax requires incomes to be reduced.  Why?  Because there's no more income tax to withhold.  The money will have to come from somewhere.  Thus, incomes will have to be reduced.  This little detail is conveniently overlooked.
(09)  The Flat 17% Income Tax does not make raise the price for exports due to a 30% sales tax.   (09)  The Flat 30% Sales Tax on exports could hurt exports.
(10)  The Flat 17% Income Tax doesn't require vast changes. Eliminate the tax loop holes and make the income tax rate a flat 17% on all income above the poverty level (i.e. no one pays tax on income below the poverty level).  The collection of taxes from employers is already in place   (10) The Flat 30% Sales Tax requires vast changes.  Sales taxes currently go city, state, and county governments. A completely new system will have to be created to collect federal sales taxes from merchants for all sales.  The number of sales per day dwarfs the total number of employers nation-wide.  That could be an accounting nightmare. So which is easier?  Trying to collect taxes on billions of sales transactions and merchants, or income for millions of workers (which is a system that is already in place)?   Since this is such a major change to taxation and commerce, the U.S. will (for a period of time), be in confusion, wild price fluctuations, and general instability.  Of course, as the market fluctuate too.  We really do not know the path from here to there.
(12)  The Flat 17% Income Tax doesn't require a pre-bate.  Instead, starting January 1st, no one pays taxes on any income below the poverty level.  Employers and the IRS already track this. No changes are required.   (11) The Flat 30% Sales Tax requires a pre-bate. This could be an accounting nightmare and a totally unnecessary step.  Many of these checks would be stolen much like Social Security checks are stolen now. It is too susceptible to fraud and theft.
(12) 

 

 

The Flat 17% Income Tax will increase tax revenues, by simplifying the tax code and removing the many loopholes corporations and the rich currently exploit to pay less tax. For example, the Russian Federation increased real tax revenues from its Flat Personal Income Tax.  Revenues rose by 25.2% in the first year after the Federation introduced the Flat Personal Income Tax.  The real tax revenues increased by  24.6% the second year, and increased by 15.2% the third year. The Laffer curve predicts such an outcome, but also attributes a significant portion of the greater revenues to higher levels of economic growth too.   (12) 

 

The Flat 30% Sales Tax results in lower tax revenues since it lets the higher income brackets pay less tax, since the wealthy are not required to spend all of their income to get by, as the majority of the population does.  There is insufficient proof to show that the Flat 30% Sales Tax will produce adequate revenues.  Spending habits are more variable than incomes.
(13)  The Flat 17% Income Tax will not result in double-taxation.   (13)  The Flat 30% Sales Tax would double-tax people, since income tax already paid on savings would be taxed again when spent.
(14)  The Flat 17% Income Tax will greatly simplify tax calculations since there are no longer any tax loop holes or deductions.   (14)  The Flat 30% Sales Tax may not require a tax return, but it could create an accounting nightmare in trying to enforce tax compliance for billions of sales transactions (versus only millions of incomes for a Flat 17% Income Tax system).
(15)  The Flat 17% Income Tax does not require any change to the 16th Amendment of the Constitution.   (15)  The Flat 30% Sales Tax will require the repeal of the 16th Amendment of the Constitution.  Good Luck with that one.
(16)  The Flat 17% Income Tax does incease total interest on loans in the way a 30% sales tax would.    (16)  The Flat 30% Sales Tax will increase the total interest on loans for purchases, because the 30% Sale Tax increases the total amount of the purchase price (and subsequently, the loan amount too).

Neutral, Progressive, and Regressive Taxes (click here to enlarge chart below):


Compare these tax systems . . . Which tax system do you prefer ?


  See WHO in Congress supports the un-FairTax.org's 30% Sales Tax/Rebate tax system
  Other Abuses (regressive taxes, inflation, illegal immigration, government FOR-SALE, etc.)
  Pressing Problems Facing the U.S.
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