Fair Tax Plan Modifications

Thousands of so called intellectuals in Washington and on TV and all we get regarding serious issues are talking points and political rhetoric. Clearly "Washington" needs reining in and the only way to control the money hungry, egocentric politicians is by controlling their ability to spend, spend, and spend.

The first step is tax reform. Without a simplified tax plan, a balanced budget amendment, and other reforms including term limits and reasonable pensions, our society and democracy is doomed to collapse.

I have outlined a simple, and fair system that benefits every American - Low, middle and upper income levels alike. The outline focuses initially on the revenue side of the equation. Spending cuts will clearly be required and it should all be tied to a balanced budget act so that our representative in Washington are forced into making real decisions. Not the politically motivated spending on what gets them the most votes.

The Fair Tax
or what I'm calling the "Modified Fair Tax" might be the single greatest chance to simplify our system of taxation and save the country from financial failure. The "Modification" nullifies the liberal complaint that the "fair tax" in unfair to lower income classes. The criticism is that lower income people pay a higher percentage of their income out for basic needs; housing, food,healthcare, etc. So, the "Modification" to the fair tax addresses these needs and keeps the "fair tax" fair.

The Plan:

The folowing outline is a proposed starting point – in dollars for illustration – without benefit of CBO scoring so exact numbers would likely vary slightly. The final numbers would be indexed to inflation and modified in the final version to reflect some pre-determined estimate of the cost of necessities like food, shelter, healthcare, etc.

First, we start with the "fair tax" or consumption tax rate. The number widely used is around 23 percent so we will start there. In a fair tax system every pays 23 percent on everything they purchase. Since a person who earns $20,000 spends less that the person earning
$100,000, the higher the income the higher the spending and the more they pay in taxes. That part is plain, simple, and "mostly" fair. The primary criticism is it adds a new significant burden to lower income individuals. Agreed, so let's modify and fix this burden.

The Modifications or Equalizers:

In the modified version of the "fair Tax" lower income individuals and families will see their take home pay rise as we eliminate the "payroll" (social security and Medicare taxes) at the lower income levels, and exempt basic needs like food, shelter, and healthcare for all Americans. Here are the simple and fair details to make that happen:

1st – We raise the start and end points on individual payroll taxes to $25,000 up to $200,000 for individuals as we work to eventually eliminate the payroll and Social Security Tax altogether. That will be covered in the next article – Employers still pay from the first $1.00
earned. The limits on the high end would have to go up to make up for the loss in revenue, but the net is that only those making over $136,000 would see any net increase – about $5,175 for individuals making over $200,000. (A 2.6% tax increase)  Everyone under $136,000 would see a decrease or neutral tax effect. The result is a huge tax break for lower
and Middle income individuals.

2nd Housing expenses would not be taxed – including rental payments - up to $1200/month/individual. A couple would get $2,400 in untaxed housing payments. This effectively saves the mortgage interest credit and extends it to renters at all income levels up to the prescribed limit. Those in upper income levels living with rent or mortgage payments over $2,400/month would pay the fair tax rate on the amount over $2,400 eliminating any technique to shelter taxes by over financing huge estates. Everyone, rich and poor, gets
the benefit of basic housing needs - untaxed. Those who can afford more pay tax above the basic need level. This also maintains some incentive to purchase, since in theory, a mortgage payment will be higher than most rental payments, maximizing the tax free amount. This would apply to the first or primary residence only.

Total untaxed housing income per individual = $14,400 per year. ($1,200
per month x 12 months)

3rd No tax on utilities used to cool/heat a primary residence up to $300. Untaxed basic utility credit - $3,600.

4th No tax on most food items purchased in the grocery store. Snack, convenience, restaurants and other like items would be taxed. Of course this would vary by individual but the "fairness" would again carve out the basic needs for every individual. For example, an individual spending $100 every week on groceries would effectively get another $5,200 per year exempt from the "fair tax". Single parents and young families who spend more would
obviously receive a higher level of fair tax savings.

So far with just basic needs addressed we have $23,200 in income under the modified fair tax that would be exempt from taxation. ($14,400 – Housing, $3,600 – Utilities, $5,200 – Food –per individual)

5th Healthcare, including health insurance premiums would be exempt from the fair tax. Premiums up to $2,500 and all expenses related to healthcare would be exempt from taxation. This provides enough tax exempt premium to provide a high deductible insurance policy for every American. Tangential benefit to society – lower healthcare cost as the number of uninsured Americans is reduced. (See healthcare solutions articles 1, 2,
& 3)

6th Savings and investment would not be taxed. Families struggling to save for retirement or college educations would have more dollars left over to apply to these needs. Those disciplined to maximize this opportunity would benefit greatly. A significant incentive for middle income and working families. Interest, dividends and Capital gains would be taxed like everything else – when it is spent!

I don't see how someone could argue this modified "fair tax" as unfair to anyone. Every individual gets the same basic needs exemption – roughly $25,000/year for everyone. Those smart, creative, or just plain lucky to make larges sums of money will spend it or investment
it. Ultimately paying more taxes, and creating more jobs. The frivolous spenders will have the freedom afforded under the U.S. constitution to spend whatever they earn on whatever they desire.

This plan should solve the liberal complaint of bias at lower income levels. Only this way we do it in a fair a reasonable fashion.
Source:  http://www.articlesbase.com/taxes-articles/the-modified-fair-tax-plan-5770332.html