This Grassroots Corner continues a series on how to deal with hostile questions and comments that people may raise about the FAIRtax. Many of these suggested responses will be good comebacks for you to have in your pocket – or purse – when you need them. You may have heard some of these questions and answers on The FAIRtax Guys podcasts and radio programs. Some stress questions here will be different.
Some of these suggested responses can be too long to insert into an actual conversation. You may want to try to boil them down to where they’ll be more usable when you’re talking face to face with someone who is attacking the FAIRtax.
This week, we take on the criticism that the FAIRtax rate is really 30%, not 23%. Critics accuse us of selling snake oil because we express the FAIRtax rate as a portion of the total price of a product or a service, including the tax (tax-inclusive). Because most sales taxes are expressed as a percentage of the product price alone, not including tax (tax-exclusive), our method makes the rate appear lower.
It’s all just semantics. Expressed tax-inclusively, the FAIRtax rate is 23%. So, a pencil marked for a dollar costs $.77 plus $.23 tax. Expressed tax-exclusively, as most of today’s sales taxes are, the rate is closer to 30% (29.87%). Perhaps a good way to get folks to understand the issue is to cite the difference between mark-up and discount.
So, are we really being as slick as our critics accuse us of being? Consider other inclusively-expressed tax rates, such as:
Corporate income taxes, which top out at 21% for corporations. This rate would be nearly 27% if it were expressed as a percentage of a corporation’s after-tax income rather than a percentage of its gross income. President Biden is proposing to increase the corporate rate to 28%. That would be nearly 39% if expressed tax-exclusively.
The individual income tax rate, which reaches 37% on the portion of taxable incomes that exceed $622,051 for married taxpayers filing jointly. This rate would be nearly 59% if it were expressed as a percentage of what is left over after the tax man gets his cut.
Payroll taxes, which are a flat 15.3% combined (employer and employee). These tax rates would come in at over 18% if expressed tax-exclusively.
Estate, Gift and Generation-Skipping Taxes. The federal estate tax rate is 40% on the portion of estates that exceeds $11.7 million. This rate would be 67% if it were expressed as a percentage of what’s left over after taxes.
You would need to add state taxes to most of these examples, which would make the difference between inclusively and exclusively-expressed tax rates even more glaring. The FAIRtax gives states a mild incentive to replace their equivalent taxes with a state-level FAIRtax.
So, if you say we FAIRtax advocates are selling snake oil, you would need to level the same attack at those who express income tax rates in a tax-inclusive manner.
And whether the FAIRtax rate is expressed inclusively or exclusively, you’ll be paying the same amount of tax that you pay today. The FAIRtax replaces today's federal income taxes and makes everyone’s tax burden glaringly visible. With the FAIRtax, people will see the true cost of the Federal government on every retail receipt.
I would love to hear from you about how to squeeze this explanation into a 20-second soundbite.
Yours In the FAIRtax Movement!
AFFT Grassroots Coordinator & Secretary
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