RE: The Fair Tax – A National Sales Tax That Increases Tax Burdens for Middle-Class Families

Whitehouse Official Response to FairTax.org Petition

This blog is in response to the above posted Official Whitehouse statement which is in response to the recent FairTax Petition filed with WH.org by FairTax.org. If you haven’t read it yet, please take a minute to do so.

First, this WH response is an obvious attempt to knock down a better plan for one that they believe will make the POTUS look better, by implementing his own plan. Had the POTUS come up with the FairTax, he would be doing the same thing with any other plan presented to him. That just seems like the type of guy he is. Should we have expected any more from him or his administration? Say, something as much AS ACTUALLY READING THE BILL?? (HR-25 is right here!)

Second, the response is full of holes and myths that were busted years ago. The primary myth being that the FairTax “Increases Tax Burdens for Middle-Class Families“, but I’ll get to that in a little bit. The first and most important hole in their response is that the FairTax “would apply to virtually all expenditures on goods and services, including tuition, medical care, and new homes, all typical family purchases that are not usually subject to taxation by States today

Problems with that statement alone:

  1. ONLY NEW goods and services. Used goods are not taxed (which helps the poor, lower- and middle-class)
  2. According to HR-25. Tuition along with any other educational services are not taxed.

    EDUCATION SEC. 2. DEFINITIONS. (a) (4) EDUCATION AND TRAINING- The term `education and training’ means tuition for primary, secondary, or postsecondary level education, and job-related training courses. Such term does not include room, board, sports activities, recreational activities, hobbies, games, arts or crafts or cultural activities.

    SEC. 2. DEFINITIONS.(a) (8) (D) EDUCATION AND TRAINING- Education and training shall be treated as services used to produce, provide, render, or sell taxable property or services.

    SEC. 102. INTERMEDIATE AND EXPORT SALES

    • (a) In General- For purposes of this subtitle–

    • `(1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for a business purpose in a trade or business.

    • `(2) INVESTMENT PURPOSE- No tax shall be imposed under section 101 on any taxable property or service purchased for an investment purpose and held exclusively for an investment purpose.

    • `(3) STATE GOVERNMENT FUNCTIONS- No tax shall be imposed under section 101 on State government functions that do not constitute the final consumption of property or services.

    • `(b) Business Purposes- For purposes of this section, the term `purchased for a business purpose in a trade or business’ means purchased by a person engaged in a trade or business and used in that trade or business–

    • `(1) for resale,

    • `(2) to produce, provide, render, or sell taxable property or services, or

    • `(3) in furtherance of other bona fide business purposes.

    • `(c) Investment Purposes- For purposes of this section, the term `purchased for an investment purpose’ means property purchased exclusively for purposes of appreciation or the production of income but not entailing more than minor personal efforts.

    References of pertinent language:
    Sec. 2. (a) (4), Sec. 2. (a) (8), Sec. 102 (a) (1) Sec. 102 (b) (2)

  3. Yes, medical care services will be taxed – just like any other service. But what you may not realize is that you’re paying embedded taxes on those services now, because the physicians and hospitals have to pay taxes on the items they purchase and the employees they hire. Once the FairTax is enacted, those embedded taxes will diminish.
  4. The same goes for new homes. There are taxes being embedded in the goods and services that go into making each home. After the FairTax those embedded taxes will no longer be.
  5. And “all typical family purchases that are not usually subject to taxation by States today“. DUH!! The FairTax is a replacement tax. That is what it is designed to do. But what the fool who wrote that response doesn’t think you will understand is that once your personal and/or corporate income taxes, payroll taxes, and any other gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes are gone, you will have the money to pay taxes on what you ACTUALLY purchase, not what you “can” purchase like you do now.

Now, back on to that thing about how the FairTax “Increases Tax Burdens for Middle-Class Families”. I’ve been running some numbers based on what anyone might spend in a year (or a month), what they would pay out in FairTaxes, and what they would be reimbursed on a monthly basis, all based on your family’s composition. Check them out here:

FairTax-Effective-Tax-Rate-S03

FairTax-Effective-Tax-Rate-M03

For instance:

  • A Married couple with 1 child spending $25,000/yr will have an effective tax rate of -0.5680%.
  • A Married couple with 2 children spending $30,000/yr will have an effective tax rate of 0.4400%
  • A Married couple with 2 children spending $40,000/yr will have an effective tax rate of 6.0800%
  • A Married couple with 2 children spending $50,000/yr will have an effective tax rate of 9.4640%

The tax rates you’re paying now are likely way above those. See fairtax.org/facts for rate information on the FairTax impact on the middle class, fairtax.org/education for tax free tuition information and fairtax.org/taxpanel for a rebuttal to the tax panel that didn’t even examine the FairTax as written.

Don’t let corrupt politicians lie to you any more. Stand up and show them where they are wrong and that you want results. Contact your congressman (or woman) today and demand the FairTax.

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Staunch FairTax Supporter

Posted in Congress, FairTax, FairTax Act of 2011, HR-25, Income Tax, Myth, Tax Reform
9 comments on “RE: The Fair Tax – A National Sales Tax That Increases Tax Burdens for Middle-Class Families
  1. FTFrank says:

    Linda, Can you explain why you think that is true? Not being retired, I’m not sure why that would happen. Please elaborate.

  2. For Hank, because I know he is watching, this was written to refute your ridiculous claims that the FairTax hurts retirees.

    The FairTax Benefits Retirees Who Depend Mostly on Social Security
    http://wp.me/p1zWhf-dU

  3. Alisa Griffis says:

    I’ve been a FairTax fan and avid supporter for years, but I’ve just started worrying about absolutely 100% necessary-and-expensive medical surgeries. What if someone needs a surgery that costs $100,000???

    Will they pay tax on the 100,000 if their insurance company pays for it?

    What if they do NOT have insurance and they have to borrow the money for the surgery? Then they have to pay the interest on the money borrowed AND tax on the huge medically necessary surgery?

    Paying 30% (I know we advertise the rate at 23%, but the bottom line is that the amount of money out of pocket would be an additional $30,000) could ruin an otherwise responsible person financially.

    How will FairTax address medical insurance/legitimate medical expenses?

    • Alisa, I’m not sure I can answer your question without doing a little more research on this particular area. But let me see if I can get someone here who can. If not, I will look this up and post the information for you as soon as possible.

    • Alisa, I hope this will help.

      Under the present system, employer-provided health insurance and the benefits received are not taxable to the employee as income. But, if you or I were to purchase health insurance for ourselves, we must purchase it with after-tax dollars. So you can see, there is a large tax advantage to employer-provided health insurance as opposed to either employee-purchased insurance or cash compensation.

      Under the FairTax, purchases of health care services made directly by you or I are subject to sales tax just as they generally must be paid from after-tax dollars today. Health insurance premiums are subject to tax. Reimbursements to the insured person are eligible for a tax credit (in effect refunding the tax paid when the individual paid for the medical services directly). If the insurance company pays a doctor or hospital directly, the transaction is not subject to tax (since the tax on those medical services is paid by taxing the entire insurance premium that funded the purchase of the services).

      And, of course, the most fundamental change is that all participants in the health care industry whether hospitals, pharmaceutical companies, insurance companies, doctors, nurses or other workers pay neither individual income taxes, corporate income taxes nor payroll taxes (including Social Security and Medicare payroll taxes).

      To answer your question directly: Yes, the FairTax would have to be paid on the surgery. But, a credit would be given to the individual for the tax paid.

      Again, I hope this helps. If you want more information on this subject, you can read “The Impact of the FairTax on Health Care”
      http://www.fairtax.org/PDF/TheImpactOfTheFairTaxOnHealthCare.pdf

  4. Aaron says:

    The language the WH chose is interesting. The ‘states’ don’t tax medical service now but there is no 100% write off on income taxes for medical care. The same goes for the regressive payroll taxes Americans pay at higher levels than income taxes.

    Then you add embedded taxes on top of that and its laughable to say the feds don’t tax medical services under our current tax system.

  5. I personally believe that the US should implement the FairTax. I believe that it would be much better for the American taxpayer in the long run because it would force those who “slip through the cracks” when it comes to paying taxes, to pay their fair share.

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