The FairTax: Retired Drug Dealer Scenario

sengsational · Joined: 14 Feb 2008 Posts: 6

So the dealer is 55 and survived. He's got 2,000,000 in laundered
cash in safe deposit boxes and lives on $2400/mo (should last him
'till he's 90 or 95 if inflation doesn't go too wild). He doesn't
make any money, so he's not paying any income tax (zero income tax).
The taxes he's paying include 1) state sales tax, 2) embedded taxes on
the goods and services he buys, and 3) inflation.

Under the CURRENT INCOME TAX scenario, annually he pays:

1a) Regular State Sales Tax: 0.06 * 800 * 12 = $576
1b) Food State Sales Tax: 0.03 * 800 * 12 = $288
1c) Rent and other no sales tax items: 0.00 * 800 * 12 = $0

2) Embedded taxes on goods & services: 0.20 * 2,400 = $480

3) Inflation: 0.03 * 2,400 * 12 = $864
(he's figured out to keep the same standard of living, he will
increase
the number of dollars, to just sustain his standard of living, so in
future years the dollar count will be higher, but he's not so dim as
to just spend $2M divided by 40 and expect it to last).

So he's paying 1a, 1b, 2, and 3, for a total of $2,208 in taxes.

Under the PROPOSED FAIR TAX scenario, annual he pays:

1a) Same: $576
1b) Same: $288
2) Zilch!: $0
3) Same: $864
4) FairTax goods: 0.30 * 1600 * 12 = $5,760

So our drug dealer would go from paying $2,208 annually to paying
$7,488 - a 240% increase in total tax, and over 1000% increase in
federal taxes (since before, all he paid was the embedded taxes in the
goods he bought).

We all want this guy to pay more taxes, of course. And it looks like
he will. Under the proposed FairTax, this guy will pay more
taxes....is this right? If not, what specific adjustments need to be
made to the calculations to make it correct?

--Dale--

Archived from group: misc>taxes

P. Maffia · Joined: 10 Nov 2007 Posts: 117

Duh, he operated in the criminal world., So with the introduction of the
misnamed Fair Tax, he is going to operate in the non-criminal world and buy
everything he needs from legal operations.
If you believe that, I have a bridge I would like to sell you.

"sengsational" wrote in message @e10g2000prf.googlegroups.com...
> So the dealer is 55 and survived. He's got 2,000,000 in laundered
> cash in safe deposit boxes and lives on $2400/mo (should last him
> 'till he's 90 or 95 if inflation doesn't go too wild). He doesn't
> make any money, so he's not paying any income tax (zero income tax).
> The taxes he's paying include 1) state sales tax, 2) embedded taxes on
> the goods and services he buys, and 3) inflation.
>
> Under the CURRENT INCOME TAX scenario, annually he pays:
>
> 1a) Regular State Sales Tax: 0.06 * 800 * 12 = $576
> 1b) Food State Sales Tax: 0.03 * 800 * 12 = $288
> 1c) Rent and other no sales tax items: 0.00 * 800 * 12 = $0
>
> 2) Embedded taxes on goods & services: 0.20 * 2,400 = $480
>
> 3) Inflation: 0.03 * 2,400 * 12 = $864
> (he's figured out to keep the same standard of living, he will
> increase
> the number of dollars, to just sustain his standard of living, so in
> future years the dollar count will be higher, but he's not so dim as
> to just spend $2M divided by 40 and expect it to last).
>
> So he's paying 1a, 1b, 2, and 3, for a total of $2,208 in taxes.
>
> Under the PROPOSED FAIR TAX scenario, annual he pays:
>
> 1a) Same: $576
> 1b) Same: $288
> 2) Zilch!: $0
> 3) Same: $864
> 4) FairTax goods: 0.30 * 1600 * 12 = $5,760
>
> So our drug dealer would go from paying $2,208 annually to paying
> $7,488 - a 240% increase in total tax, and over 1000% increase in
> federal taxes (since before, all he paid was the embedded taxes in the
> goods he bought).
>
> We all want this guy to pay more taxes, of course. And it looks like
> he will. Under the proposed FairTax, this guy will pay more
> taxes....is this right? If not, what specific adjustments need to be
> made to the calculations to make it correct?
>
> --Dale--
>

ed · Joined: 25 Aug 2007 Posts: 95

On Feb 13, 7:43 pm, "P. Maffia" wrote:
> Duh, he operated in the criminal world., So with the introduction of the
> misnamed Fair Tax, he is going to operate in the non-criminal world and buy
> everything he needs from legal operations.
> If you believe that, I have a bridge I would like to sell you.
>
> "sengsational" wrote in message
>
> @e10g2000prf.googlegroups.com...
>
>
>
> > So the dealer is 55 and survived. He's got 2,000,000 in laundered
> > cash in safe deposit boxes and lives on $2400/mo (should last him
> > 'till he's 90 or 95 if inflation doesn't go too wild). He doesn't
> > make any money, so he's not paying any income tax (zero income tax).
> > The taxes he's paying include 1) state sales tax, 2) embedded taxes on
> > the goods and services he buys, and 3) inflation.
>
> > Under the CURRENT INCOME TAX scenario, annually he pays:
>
> > 1a) Regular State Sales Tax: 0.06 * 800 * 12 = $576
> > 1b) Food State Sales Tax: 0.03 * 800 * 12 = $288
> > 1c) Rent and other no sales tax items: 0.00 * 800 * 12 = $0
>
> > 2) Embedded taxes on goods & services: 0.20 * 2,400 = $480
>
> > 3) Inflation: 0.03 * 2,400 * 12 = $864
> > (he's figured out to keep the same standard of living, he will
> > increase
> > the number of dollars, to just sustain his standard of living, so in
> > future years the dollar count will be higher, but he's not so dim as
> > to just spend $2M divided by 40 and expect it to last).
>
> > So he's paying 1a, 1b, 2, and 3, for a total of $2,208 in taxes.
>
> > Under the PROPOSED FAIR TAX scenario, annual he pays:
>
> > 1a) Same: $576
> > 1b) Same: $288
> > 2) Zilch!: $0
> > 3) Same: $864
> > 4) FairTax goods: 0.30 * 1600 * 12 = $5,760
>
> > So our drug dealer would go from paying $2,208 annually to paying
> > $7,488 - a 240% increase in total tax, and over 1000% increase in
> > federal taxes (since before, all he paid was the embedded taxes in the
> > goods he bought).
>
> > We all want this guy to pay more taxes, of course. And it looks like
> > he will. Under the proposed FairTax, this guy will pay more
> > taxes....is this right? If not, what specific adjustments need to be
> > made to the calculations to make it correct?
>
> > --Dale--- Hide quoted text -
>
> - Show quoted text -

Neither the OP or the reply has any real function regarding the Fair
Tax. It is immaterial whather he buys his next caddy from a dealer or
steals it. We know we can't control the black market or illegals,
but legitimate transactions will create the necessary tax income.
Abolishing all the urrent taxes will drop the cost of everything by
more than the 23% ( or 33%, however,you want to calculate it) add on
Fair Tax.

It 's really kind of dumb that we would have to do this to solve the
current income tax mess, ( since it's really a wash for normal
people) but it's about time someone realized the inherent advantages
and stop nit-picking it to death over imagined problems.

ed .

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"ed" wrote
> Neither the OP or the reply has any real
> function regarding the Fair Tax.

There's no tax that is "fair" except the tax that someone else has to pay.

> It is immaterial whather he buys his next caddy from
> a dealer or steals it.

I bet the guy he steals it from thinks it's material.

> We know we can't control the black market or
> illegals, but legitimate transactions will create
> the necessary tax income.

As it does now.

> Abolishing all the urrent taxes will drop the cost
> of everything by more than the 23% ( or 33%,
> however,you want to calculate it) add on Fair Tax.

It's extremely unclear why anyone believes this.

> It 's really kind of dumb that we would have to do
> this to solve the current income tax mess, ( since
> it's really a wash for normal people)

But it's not "really a wash" is it.

> but it's about time someone realized the inherent
> advantages and stop nit-picking it to death over
> imagined problems.

There are not any inherent advantages, but there are plenty of imagined
advantages.

There are - inherent problems - with a national sales tax, and the pro-sales
taxers don't like to talk about them - at all.

--
If electricity comes from electrons, does morality come from morons?
----------------
Paul A. Thomas, CPA
Athens, Georgia

rick++ · Joined: 25 Aug 2007 Posts: 328

Under Fair Tax there will be a National Sales Tax Board probably with
similar enforcement
powers to the IRS to collect delinquent national sales taxes. This
burden would fall on
businesses whether they are big companies or individuals.

Yes, they could be use in Capone-type operations to capture people
selling illegal
substances or services. The IRS was a co-prosecuter is a bust of an
upscale
"house of ill repute" in my town earlier this month. They didnt pay
taxes on their
income.

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"rick++" wrote
> Under Fair Tax there will be a National Sales Tax Board
> probably with similar enforcement powers to the IRS to
> collect delinquent national sales taxes. This burden
> would fall on businesses whether they are big
> companies or individuals.

The most recent bill imposes the tax on the individual buyer. The business
(seller) is just the intermediary collector. How much imposition on the
individual will there be to prove that everything they have they paid a tax
on?

When you come back from that trip to Europe, Asia, or the Carribean, what
will you have to show as proof that you paid tax on the luggage, clothing,
camera, jewelery, etc and so on........

Most importantly, if you believe that the tax is not imposed on business
purchases, what does the lowley business person have to show the pimply
faced clerk behind the counter to have that buisness meal, business gas,
business lodgding, business supplies, business.....whatever....purchase
exempt from the sales tax.

What records does the business have to keep to prove why that sale was
exempt from tax?

If business purchases are exempt from the sales tax, what would keep a
business from buying a car (lets say), use it for a few days, and sell it to
someone - as being used it avoids the sales tax. That's a pretty big
loophole that you can drive truckloads of cash through all day long.

And on and on and on........

--
"For those who believe, no explanation is necessary. For
those who do not, none will suffice." - Joseph Dunniger

Paul A. Thomas, CPA
Athens, Georgia

sengsational · Joined: 14 Feb 2008 Posts: 6

On Feb 13, 8:43 pm, "P. Maffia" wrote:
> Duh, he operated in the criminal world., So with the introduction of the
> misnamed Fair Tax, he is going to operate in the non-criminal world and buy
> everything he needs from legal operations.
> If you believe that, I have a bridge I would like to sell you.

It's my scenario, and whether you think it's likely or not is not
relevant. I say the guy is like any other guy, except that he's
living off a wad of cash, and that was only to make the math clear
(zero income tax currently paid). He goes to the grocery store, Wal-
Mart, and Circuit City, like the rest of us.

--Dale--

sengsational · Joined: 14 Feb 2008 Posts: 6

On Feb 13, 11:24 pm, ed wrote:
> Neither the OP or the reply has any real function regarding the Fair
> Tax.

The scenario is a guy who is not paying income tax because he doesn't
have any income. In my scenario, he's spending $2400/mo the way the
rest of us do. He's a zero income, high wealth individual, and I've
proposed how I think that the proposed fair tax would impact him, and
asking for specifics as to where my numbers do not agree with the
current or proposed taxation scheme. I think that's "real function".

> Abolishing all the urrent taxes will drop the cost of everything by
> more than the 23% ( or 33%, however,you want to calculate it) add on
> Fair Tax.

So in my calculations, I said that only 20% of the cost of the goods
makes-up the embedded taxes, or that the cost of "everything" would
drop by 20%. So you would have me change that to something more than
23%. Okay, I could make it 30% instead, it wouldn't change the
overall effect. I'm looking for errors in my scenario and numbers
that would make a significant change in the more than double total tax
and ten-fold increase in federal tax paid.

--Dale--

sengsational · Joined: 14 Feb 2008 Posts: 6

On Feb 14, 12:09 pm, "Paul Thomas, CPA"
wrote:
>
> And on and on and on........
>
Yes, I agree with your points, and maybe you'll be out of a job too!
(sorry, couldn't resist) Implementation details of the proposed
scheme, if the scheme ever got off the ground, would be a nightmare, I
agree.

Speculation that it will or won't work, as fun as that might be to
argue, wasn't what I was after, though. As a CPA you should be a good
one to spot any glaring issues with the numbers in the original post.
I'm not saying the scenario is likely, but if you just take it at face
value, does it basically hang together?

--Dale--

P. Maffia · Joined: 10 Nov 2007 Posts: 117

"ed" wrote in message @s12g2000prg.googlegroups.com...

> Neither the OP or the reply has any real function regarding the Fair
Tax.

Living in the state of denial is so much fun.

> It is immaterial whather he buys his next caddy from a dealer or
steals it. We know we can't control the black market or illegals,
but legitimate transactions will create the necessary tax income.
Abolishing all the urrent taxes will drop the cost of everything by
more than the 23% ( or 33%, however,you want to calculate it) add on
Fair Tax.

Hey dufass, if the Fair Tax is levied at the proposed rate (which it can't
be and accomplish everything claimed for it as far as being revenue neutral
and allow for a rebate to everyone) the tax load on the economy IS STILL
23%. Nothing will cost less.

Even assumning the moronic assumption that the cost of everthing hitting the
shelves will cost less, when the tax is added the ultimarte cost to the
buyer is the same. The taxpayer is no better off. Why is that so hard for
you morons to understand?

Good bad or indifferent, the complaint of most Americans is that the "rich
don't pay their fair share." If this plan is adoipted, the share of taxes
paid by the lower and middle income households will increase while the share
of the taxes paid by the "rich" will decrease.

And you are in a complete dream worls if you think that the incidence of tax
avoidance under this plan will be no more than in the current system so that
it is, as you proclaim, not an issue.

As anyone who has had any responsibility for collecting sales taxes will
tell you, it is the easiest tax to avoid and cheat on.

> It 's really kind of dumb that we would have to do this to solve the
current income tax mess, ( since it's really a wash for normal
people) but it's about time someone realized the inherent advantages
and stop nit-picking it to death over imagined problems.

It wiull not be a wash for normal people. Your normal people will pay more
inn taxes thann they do now.

P. Maffia · Joined: 10 Nov 2007 Posts: 117

"rick++" wrote in message @e23g2000prf.googlegroups.com...
> Under Fair Tax there will be a National Sales Tax Board probably with
> similar enforcement
> powers to the IRS to collect delinquent national sales taxes. This
> burden would fall on
> businesses whether they are big companies or individuals.

Isn't that funny. The tax is the buyers responsibility. The seller is merely
the tax collector. Ultimately, it is the responsibility for the individual,
noit the business to pay the tax and if challenged, must be in a position to
prove they paid.

> Yes, they could be use in Capone-type operations to capture people
> selling illegal
> substances or services. The IRS was a co-prosecuter is a bust of an
> upscale
> "house of ill repute" in my town earlier this month. They didnt pay
> taxes on their
> income.

Which proves what?

P. Maffia · Joined: 10 Nov 2007 Posts: 117

There is no need to speculate how it will work. All one needs to do is look
at how it works in the states (which happens to be a large majority of them)
which have them. Then you must add the complexity (with the resulting
bureaucracy and complexity of rules with intrusiveness) of the rebate
program. You create a worse nightmare than we currently have.

"sengsational" wrote in message @i12g2000prf.googlegroups.com...
On Feb 14, 12:09 pm, "Paul Thomas, CPA"
wrote:
>
> And on and on and on........
>
Yes, I agree with your points, and maybe you'll be out of a job too!
(sorry, couldn't resist) Implementation details of the proposed
scheme, if the scheme ever got off the ground, would be a nightmare, I
agree.

Speculation that it will or won't work, as fun as that might be to
argue, wasn't what I was after, though. As a CPA you should be a good
one to spot any glaring issues with the numbers in the original post.
I'm not saying the scenario is likely, but if you just take it at face
value, does it basically hang together?

--Dale--

P. Maffia · Joined: 10 Nov 2007 Posts: 117

"sengsational" wrote in message @s12g2000prg.googlegroups.com...
On Feb 13, 8:43 pm, "P. Maffia" wrote:
> Duh, he operated in the criminal world., So with the introduction of the
> misnamed Fair Tax, he is going to operate in the non-criminal world and
> buy
> everything he needs from legal operations.
> If you believe that, I have a bridge I would like to sell you.

> It's my scenario, and whether you think it's likely or not is not
relevant.

Just dismiss reality so your idea can work. Nice universe you live in.

> I say the guy is like any other guy, except that he's
living off a wad of cash, and that was only to make the math clear
(zero income tax currently paid). He goes to the grocery store, Wal-
Mart, and Circuit City, like the rest of us.

Except he would not be buying from those places. Really honest people will
remain honest under any tax plan. The easier you make it to cheat, the more
people who are not really honest will cheat. That's reality, son.

sengsational · Joined: 14 Feb 2008 Posts: 6

On Feb 14, 1:08 pm, "P. Maffia" wrote:
> > I say the guy is like any other guy, except that he's
> > living off a wad of cash, and that was only to make the math clear
> > (zero income tax currently paid). He goes to the grocery store, Wal-
> > Mart, and Circuit City, like the rest of us.
>
> Except he would not be buying from those places. Really honest people will
> remain honest under any tax plan. The easier you make it to cheat, the more
> people who are not really honest will cheat. That's reality, son.

Again, the scenario's likelihood is not the point. I make no
claim as to it's likelihood, but it is the scenario I would like to
explore (and that you, apparently, would not like to explore).
It could well have been a person who had a rich Dad, has an irrational
fear of banks, and keeps his money in a mattress.

--Dale--

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"sengsational" wrote
> It's my scenario, and whether you think it's likely or not
> is not relevant. I say the guy is like any other guy,
> except that he's living off a wad of cash, and that was
> only to make the math clear (zero income tax currently
> paid). He goes to the grocery store, Wal-Mart, and
> Circuit City, like the rest of us.

Let's make it realistic then. Let's make the person a retired senior
citizen, who scrimped and saved his whole life, paying taxes on his income,
paying taxes on the income his savings generated, making wise decisions on
investing, etc and so on.

He takes his after-income-taxed savings and buys medicines, adult diapers,
and food to eat. He'll pay 30+% sales tax on cash he's already paid 30+%
income tax on.

The national sales tax is a tax on life.

Here's how it works:
Your born, the doctor slaps your ass - there's a tax on that.
Baby food, diapers, clothes - there's a tax on that.
Daycare so mamma and pappa can work - there's a tax on that.
You go to school so you can learn what a great country we live in - there's
a tax on that.
Toys to play with, a bicycle to ride - there's a tax on that.
First date (flowers, dinner, movie, condoms) - there's a tax on that.
You need a suit to wear on that interview - there's a tax on that.
You get up in the morning to get ready for work, jump in the shower -
there's a tax on that.
Brush your teeth, shave, take your vitamins - there's a tax on that.
Stop to buy some gas for the car - there's a tax on that.
Lunch with the office crowd - there's a tax on that.
Drinks after work - there's a tax on that.
Chinese takeout, pizza delivered, or you make a sandwich at home - there's a
tax on that.
The power, water, gas, phone, cable - there's a tax on that.
You go see the doctor for some ailment or another - there's a tax on that.
You need to have the oil changed in your car - there's a tax on that.
You get old and move into a nursing home - there's a tax on that.
You die and need to be buried - there's a tax on that.
The coffin, flowers, and services of the minister - there's a tax on that.

Let's see what's tax free. Breathing and farting.

--
"Under certain circumstances profanity
provides a relief denied by prayer"
Mark Twain
---------------------------------------------
Paul A. Thomas, CPA
Athens, Georgia

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