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Letter to Derry Brownfield concerning the 'fair tax'

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Soapweed

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Hi Derry,

I always enjoy listening to your show. Quite a bit of the time we agree on issues, and sometimes we don't, but always it is entertaining.

A couple days ago you had a guest on who was advocating a new "fair tax" system. At first it sounds good, but there are sure concerns that need to be addressed. The beginning percentage of the tax, as I understand it, would be a flat 23% on anything new. You can rest assured that even though 23% is the beginning tax, it would never after that ever go down. Undoubtedly it would go up.

The "fair tax" or "consumption tax" would distort values. A potential buyer could afford to pay more for a "slightly used" tractor than he could for a brand new tractor, because he could save 23% right off the top. There would be no tax on the used tractor.

To my way of thinking, the sales of anything brand new would almost come to a complete standstill if this proposal was ever enacted. Every potential buyer would buy something used or learn to get along without.

Spending should be encouraged to keep the economy in full swing. If consumers are spending money, manufacturers are making money, and laborers are earning an income. This all works for the best interests of everyone.

A feeder buying a potload of steer calves would have to pay an additional 23% added right on to the purchase price of the calves. Don't think that wouldn't be hard to get used to doing. As an example, for awhile in Nebraska a sales tax was added onto the value of a saddle horse (fortunately that law has been rescinded). I have bought and traded horses for fun all my life, but when that law was in effect, I pretty much curtailed my horse buying and just got along with the horses we already had on our ranch.

Anyhoooo, sometimes we're better off not getting what we wish for. I think this "fair tax" might turn into a big heavy iron white elephant hung on a log chain around our necks. As the song goes, sometimes God's greatest gifts are unanswered prayers.

Take care,
Soapweed
 

Jason

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Hey Soap from those pics this summer it looks like it's been a long time since you bought a new tractor tax or no tax :lol:
 

Soapweed

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Jason said:
Hey Soap from those pics this summer it looks like it's been a long time since you bought a new tractor tax or no tax :lol:

You are right, Jason, as most of the old ones are still going strong. :)

There is always a flurry of activity about this time of year, if calf prices have been good, with ranchers updating some of their equipment. Trying to get in under the New Year's wire to save income taxes on this year's business is the incentive. Last year, I bought a new pickup with this in mind. It is a plain-jane Dodge single cab 3/4 ton 4x4, and I didn't trade in anything on it. It cost $24,600, but I saved right at $8000 on income tax by buying it. It was a 2005 model, so 0% financing also came into play. Think it has about 8500 miles on it at this point, and I just made the first payment on it a couple weeks ago.

The reason for buying the pickup was to save on income taxes. However, if there was no tax incentive to buy the pickup and instead there would be 23% more added on, I'd have gotten by without the pickup. The $24,600 pickup (which I "justified" buying because I "saved" $8000, making it only cost $16,600) would have instead cost $30,258, and I would have gotten by without it, even if it meant putting more miles on our team of Belgians. :wink:
 

Juan

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Soap -------Have you read the book?I don't think you should make a judgement untill you do.It could answer a lot of your questions.There is also a web site you can go to with your questions.
 

Soapweed

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You are right, Juan. I should study the deal out before spouting off. All I know is that ranchers spend a lot of money, but much of it is deductable. Without the deductions, the 23% transaction tax could amount to way more than what income taxes presently do.
 

Mike

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Soapweed said:
You are right, Juan. I should study the deal out before spouting off. All I know is that ranchers spend a lot of money, but much of it is deductable. Without the deductions, the 23% transaction tax could amount to way more than what income taxes presently do.

Soap, PM me your address and I'll send you the book. I've got an extra.
 

Jason

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I know you guys aren't tax lawyers, but I was under the impression that leasing was more popular for tax reasons in the States. Someone told me that the value of the machinery was somehow counted against (for) their yearend.

New taxes usually cost more even if they say they will be cheaper.
 

Mike

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Jason said:
I know you guys aren't tax lawyers, but I was under the impression that leasing was more popular for tax reasons in the States. Someone told me that the value of the machinery was somehow counted against (for) their yearend.

New taxes usually cost more even if they say they will be cheaper.

With a lease, the entire amount paid that year can be deducted.

With a purchase, a depreciation schedule it set and the purchase amount is depreciated over a period of time.

Sometimes one is beneficial over the other.
 

TimH

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This thread reminds me of a little "fair(consumption/sales) tax deal that happened to me.It falls under the "jaw swinging,believe it or not" category. I'll try to give the condensed version.....

In 2000, I moved from Alberta(where I had lived for 20 years) back to Manitoba where I was born and raised. Manitoba has a 7% sales tax(on pretty much everything) and Alberta has 0% sales tax.
Rather than rent U-Hauls or whatever to move all of our stuff I bought 2 trailers just before we moved(in Ab).
After the move I went to switch the registration and insurance on these trailers from Ab. to Mb. They asked me when I had purchased these trailers. I asked them whay they were asking me that. They said that if it had been less than 90 days since I had bought them that I would have to pay 7% of what I paid for them(the sales tax) to the Mb. gov't before I could register them!!! :???:
I couldn't friggin' believe it!!!
I just parked them for 90 days, and then registered them.If they hadn't been unloaded already I probably would have turned around and headed back to Ab.
There is nothing like a "fair tax" to discourage economic activity and growth!!!
End of rant!!! :D
 

Red Robin

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I guess I have always been for a flat tax to get away from so much record keeping effort. You guys make some good points . What tax method would you think would be better than the current system which in my mind sure needs improvement.
 

Juan

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One thing about a flat tax is you see exactly how much tax you are paying!So much of our taxes are hidden.
Think about what would happen if we had a flat tax and all the lady shoppers could see when congress tried to raise it to pay for some of their pet projects. :mad: :mad: :mad:
 

Kate/wy

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One could buy a pickup slightly used, say 5,000 miles on it, pay no tax and advoid the yearly income tax on all those calves and yearlings, Soapweed takes pictures of and posts. I also like it for the reason it stops us (US) from being a disposable society. Since many large Corp's don't pay taxes, just pass them on to the consumer, and many of them have main offices off shore or overseas, to advoid taxes, it would bring many of these back home.

It takes awhile after reading the book to asorb the info, because it is such a novel idea. I recommend that everyone, buy and read this book. Thanks
 

Juan

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Will corporations get a windfall with the abolition of the corporate tax? Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes. Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors. The idea that taxing a corporation reduces taxes on, say the working poor, is a cruel hoax. A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement. Under the FairTax plan, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. This is the most honest, fair, productive tax system possible. Free market competition will do the rest.

Back to FAQ Index


Does the FairTax burden the retail industry? All businesses are tax collectors today. They withhold income and payroll taxes from their employees. Moreover, the vast majority of retail businesses operating in states with a sales tax (45 states currently use a sales tax) are already sales tax collectors. Under the FairTax, retailers are paid a fee equal to one-quarter of one percent of federal sales tax they collect and remit. In addition, of course, retailers no longer bear the cost of complying with the income tax, including the uniform capitalization requirements, the various depreciation schemes, and the various employee benefit and pension rules. Finally, because of the economic growth resulting from the aggregate, beneficial effects of dramatically lower income tax compliance costs and no payroll or income taxes, customers will have substantially more money - the greatest influence on retail sales - and a reasonable fee for collecting the FairTax, all ensure that retailers will do quite well
 

Mike

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The lawyers and accountants are the ones fighting the "Fair Tax" idea.


What burns me up about the present tax system is the "progressiveness" in the tax scale. The more you make, the higher percentage you pay, and you are penalized for having a good year.

The top 5% wage earners pay the majority of Federal Income Tax. Those in the bottom brackets get money back even though they paid none in. :???: This is simply a redistribution program by the guvment.

The "Flat Tax" might be OK, but what would be deductible? That's where the trickery would come in.
 

Faster horses

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Mike, I really don't think the people who pay nothing in, get anything back. I worked with a divorced woman who was very upset when President Bush refunded taxes and she did not get anything. We had a hard time making her understand that it was because she did not PAY anything to get refunded.
 

Jason

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The other unfair statement is that corps don't pay tax.

Any corp that makes money pays tax. If they have employees they pay tax.

Some companies choose to report nil earnings and the owners of the business are responsible for the taxes as they have to record income from the corp for the corp to report a nil balance. (Unless the corp is unprofitable, then it won't be a corp much longer anyway)

The lease vs depreciation rules are similar to Canada. The lease is 100% deductable. Interest on farm machinery is deductable, and depreciation at a set rate is deductable. I am not a fan of leasing as there is no equity built...I have seen very few times where a lease would actually save money in the long run... but I am sure there are some.

The increase in tax rate as your income climbs does seem to stifle a person wanting to do better, but it is really hard to be fair to all in society when human nature is what it is.
 

Mike

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Faster horses said:
Mike, I really don't think the people who pay nothing in, get anything back. I worked with a divorced woman who was very upset when President Bush refunded taxes and she did not get anything. We had a hard time making her understand that it was because she did not PAY anything to get refunded.

It's called Earned Income Credit (EITC). To qualify, you must be head of household and make under a certain amount. In many instances you can get money back that was NOT paid in.
 

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