I am changing my mind about the FairTax (or UnFairTax)

[hfojvt]

I was adamantly opposed to what I characterize as Reaganomics on steroids
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=1690043&mesg_id=1695544

But I was recently at a 3rd Saturday breakfast in Wyandotte County and somebody was handing out sheets on the UnFairTax which was being proposed in Missouri

http://www.ksdk.com/news/local/story.aspx?storyid=173102

"The Missouri Fair Tax Act, which passed through the State House last week, is based on consumption. It would eliminate the state's individual corporate income taxes, impose a flat tax of 5.11 percent on goods and services, phase out tax credits, and provide rebates to low-income families based on the poverty line."

Somebody at my table said, 'yes, let them try it in one state to show that it can work.' Or maybe that was written on the flier.

Which made me think the opposite. Yes, let them try it in one state to prove that it will fail. Here's some calculations that I started to do to campaign against it.

First, that Missouri in 2008 collected about $6.727 billion in income tax, corporate tax and estate tax. They also collected about $2 billion in sales taxes with a rate of 4.225%. If the UnFairTax has the same exclusions as the other sales tax, then they would need a rate of 14.2% to replace the income tax revenue, and not 5.11%.

Of course, the UnFairTax is supposed to have no exclusions, except stocks and bonds, and thus have a larger base. But that may require some new collections people too.

Then, by my calculations they need to collect another $1.87 billion to pay for the pre-bate of the UnFairTax which would add another 4% to the UnFairTax rate

Which would, of course, add another $1.43 billion to the pre-bate since that is based on the UnFairTax rate. Wait does this ever end? Doesn't that add another 3% to the UnFairTax rate which then adds another 1.073 billion to the pre-bate?

Am I doing something wrong? The pre-bate is sent to all households and it is equal to the poverty income multiplied by the UnFairTax rate. Well there are two million plus households in Missouri, about 600,000 of them with one person and 745,763 with two people and 355,321 with three people and so on up to 22,557 of them with six or more. Multiplying the number of households times the poverty rate times the UFT rate. The sum of that is $1.827 billion which must also be made up in lost revenue in order for Missouri to be able to send out the pre-bate checks.

So that part does not work, unless I am doing it wrong. By the time they finish paying for the pre-bate, their UnFairTax rate will be over 15% by the time they finish paying for the pre-bate.

It won't really be regressive since the pre-bate eliminates taxes for people below the poverty level. Except that once they hit a shortfall they are likely to raise the rate without raising the pre-bate.

Anyway, this will be a good chance to let it fail in one state to kill it once and for all. The best part (from my perspective) is that it is bound to have a positive effect on the economy of eastern Kansas. Aren't Missourians going to make a short drive into Kansas in order to avoid a 19% sales tax? I think they will, especially the millions who live in the KCMO metro area. You only need to spend $50 to make $6 worth of gasoline expenses pay for itself.

So knock yourself out Missourians for the FairTax. Here's ten feet of rope.

[depakid]

1. Should be a real boost to tourism, too

[hfojvt]

4. yeah, in Kansas, Arkansas, Illinois, Iowa, Nebraska, and Oklahoma

Many Kansans will stop buying their gas there and taking advantage of their lower gas taxes. Gas is about 5 to ten cents a gallon cheaper in Missouri than Kansas now. Has been as long as I have been here (since 2001). Conveniently, there is a gas station is Missouri about half a mile from the border (and otherwise in the middle of nowhere). They get lots of Kansas business.

[TreasonousBastard]

2. There's another wrinkle that's recently popped up...

many states have noticed reduced sales tax revenue due to the recession. Here in NY the state, NYC, and my county have been hit pretty hard. Even my town has a budget crisis partly because it's not getting the revenue sharing it once got from state and county sales taxes.

Admittedly, the same result can come from reduced income taxes during a recession, but sales tend to fall faster than income. And, big ticket items are the first to go south-- each new car not sold is at least 800 bucks lost to the taxman.

So, whaddaya do when you eliminated the income tax but the tax that replaced it isn't working the way you thought it would-- and it's really embarassing when incomes haven't fallen as much as sales, with the big boys often making even more money.

[johnaries]

3. Actually, I support the Sales Tax here in TN.

But that's only because we have such a huge tourist industry: Memphis, Nashville, Chattanooga, and Knoxville and all the other towns around the Great Smoky Mountains National Park (the most visited park in the nation). Not to mention the out-of-state business to all of our State Parks.

So, I love having people from other states help pay our taxes! :evilgrin:

[hfojvt]

5. but the key is that Tn sales taxes are about the same

as what the tourists would pay in their own state. Throw another 10% on it and see how fast it dries up.

[haleymills]

6. you missed something

You mentioned, but failed to calculate the additional revenue from the 150-odd tax exemptions that would no longer be claimed without an income tax to claim against. These exemptions range from boats to legal fees. This expanded base is what keeps the rate low.

[redqueen]

7. Hi haleymills...

welcome to DU!

[haleymills]

8. Thanks!

Happy to be here!