I subscribe to RealTown but I rarely if ever post anything there. Today one of the readers asked about something he had heard from former Minnesota Governor, Jesse, Ventura, about eliminating the IRS and establishing a national sales tax. Very clearly, a few of the people who responded had no idea of how the "Fair Tax would work. I am no expert but here is my response.
I mostly lurk, and rarely comment here on Real Town, but you have brought me out of the woodwork!
I believe that you and Jesse are talking about what is most often called "The Fair Tax".
I am no expert on the fair tax but I think that I have a decent understanding of it. It appears that some of the people commenting do not have a clue so I wanted to clarify as best as I can.
Before I even go into answering questions I want to make a point. Businesses don't pay taxes. Oh sure they write checks to the IRS but it is a cost of business, jut like labor, rent, or utilities. The cost of that expense comes from one of two places. The business can cut overhead or pass it on in the price of the product or service. Imagine how many new businesses (and jobs) we would attract to this country if the business itself paid no taxes and could pass the lower cost product on to consumers? Ireland has proven this by lowereing their corporate tax rate to 12.5% and they have attracted a ton of new businesses and jobs.
Under the Fair Tax all embedded taxes will be removed from the cost of goods and services. Think about it. A farmer grows a tomato and sells it. He pays taxes on his profit. A truck driver carries it to market. He pays taxes on his profit. The grocer sells the tomato and pays taxes on his profit. So along the whole path there are embedded (hidden) taxes. These are all removed.
When all of those embedded taxes are removed the price of the item will be reduced. The proposed tax as it is most often dicussed is 23%. Every American family will recieve a "prebate' check each month to offset the cost of the tax on baseline necessity items. Therefore it is not regressive as mentioned in one of the other comments.
Illegal immigrants, drug dealers, cash and tip incomes, and others who are currently flying under the radar of the current tax system will now be tax payers instead of tax avoiders. That is a lot of tax revenue that can be made up from current non payers and the end result should be that people who are currently paying taxes will pay less in the long run.
I do have an unanswered question as to how the Fair tax would affect the housing market. The last major tax reform that we saw was TEFRA in 1986. The result was a devaluation in institutional type investments such as shopping centers, apartment complexes, etc. since the tax component was part of the investment strategy. I'm sure the answer is out there but I dont know it.
How about our commissions? I might be wrong here and if I am I apologize in advance. From what I understand there would be no tax on resale homes. The taxes have already been paid under our current tax system. On new homes there would be no embedded tax, so the fair tax would be added. The final cost of the new home shold remain the same. So we can do one of two things. Take a 23% cut on the commission or get paid on the total selling price (which should be a comparable price to current values). Remember that commissions are negotiable so charge whatever you want and whatever the market will bear.
Another point- for the last several years Americans have been saving at a negative rate. Individuals have been putting little or nothing aside for our future. The fair tax encourages savings. For every dollar we save we automatically do not pay the the 23% tax.
So who does not benefit from the Fair Tax? Tax preparers and IRS employess. Oh yeah, and politicians who wont be able to use the tax system to buy votes.
Bob Southard, e-Pro, Realtor ®, Solid Source Realty, Inc. Buy a home, Sell a home, in Powder Springs, Marietta, Kennesaw, Acworth, Dallas, Hiram,and Cobb, Paulding, Douglas, North Fulton, South Cherokee, County, Ga
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