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Culture War Roundup for the week of April 10, 2023

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How does the FairTax proposal work?

The FairTax proposal aims to replace the current income and payroll tax system in the United States with a national consumption tax. The idea behind it is that instead of taxing income, it taxes consumption, so people are taxed on what they spend, not on what they earn. This proposal is intended to simplify the tax system, increase economic growth, and promote fairness and transparency. FairTax supposedly works like:

  1. Elimination of income and payroll taxes: FairTax would eliminate all taxes on personal and corporate income, including capital gains, dividends, and payroll taxes. This means that individuals would no longer have to file income tax returns or pay taxes on the money they earned.

  2. Replacement with a national sales tax: To make up for the lost revenue due to the elimination of income and payroll tax, FairTax would implement a national sales tax, which would be levied on all new goods and services at the final point of purchase, meaning that it would apply only to retail sales (business inputs would not be taxed). The proposed tax rate is 23% on a tax-inclusive basis (this translates to approximately 30% on a tax-exclusive basis).

  3. Prebate program: To counter the regressive nature of a sales tax, FairTax includes a "prebate" system, where every household receives a monthly tax rebate based on family size. This prebate would be equal to the amount that a family living at the poverty level would pay in sales taxes. This aims to prevent low-income families from being disproportionately burdened by the sales tax and to, in effect, make the first portion of every citizen's consumption tax-free.

  4. Elimination of corporate taxes: FairTax would eliminate corporate taxes, resulting in a more competitive business environment, both domestically and internationally. This could encourage foreign investment in the United States and reduce the incentive for corporations to move their operations to countries with lower tax rates.

  5. Border adjustment: The FairTax system would impose taxes on imports but not exports, known as "border adjustment" or "destination-based taxation." This means that exported goods would be exempt from US taxes, while imported goods would be subject to the FairTax, thereby leveling the playing field for domestic producers.

  6. Simplification of the tax code: By eliminating income and payroll taxes and establishing a single sales tax, the FairTax system would simplify the tax code, potentially reducing compliance costs and tax evasion.

  7. Encouragement of savings and investment: By taxing consumption rather than income, FairTax would encourage people to save and invest more because savings and investments would no longer be subject to taxation. This could lead to higher economic growth and prosperity.

Proponents of the FairTax argue that the system would lead to increased transparency, economic growth, investment, and job creation, while reducing the power of special interest groups and eliminating loopholes in the current complex tax code. Critics contend that FairTax might disproportionately burden lower-income citizens, fail to generate sufficient tax revenue, or even unintentionally incentivize a thriving black market.

At any rate, the simplification of the US tax alone system seems worth it, regardless of the other benefits!

Isn’t this tax extremely regressive? As in the poor would be taxed a vast majority more % on their taxes than the wealthy?

That issue was addressed in item 3 of the comment to which you replied. Likewise, the official FAQ says:

How does the FAIRtax protect low-income families and individuals and retirees on fixed incomes?

Under the FairTax Plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent — a rate much lower than the income and payroll tax burden they bear today.

Used buildings don’t get the FairTax, new buildings/developments do. I haven’t examined the details of this aspect further yet.

The FairTax will be on new structures only, or on construction materials and services for refurbishment of a used building. Speculation remains part of the price, unlike Georgeism, but it also means the owner is truly the owner.

This is gonna cause a lot of house of Theseus situations. If a new building gets mega taxed and a refurbished old warehouse gets 0 tax, then every extant structure when the law passes will be upcycled forever. Wherever the line gets drawn on what a "new" house is, people will stop just short of it. If the point of refurbishment is where the taxation happens, people will make small incremental improvements that don't warrant a tax audit or what have you. Also what about land? just not taxed anymore? Not much new land being sold in the US.

Also this hugely incentivizes people to just try and fix/improve stuff themselves, when they really shouldn't. If i'm building my own new gazebo would i get taxed on the input materials i buy? What if it's a business gazebo, for hosting business lunches?