Wednesday, February 27, 2008


I have read a lot of erroneous comments on my blog and today I am re-running an earlier blog explaining the FairTax and rental housing. I am sure I will have many more erroneous comments as a result of this, but I think the neophytes of the FairTax need to know the truth.

One comment disregards the 23% sales tax and calls it a 40% sales tax and has even pushed it up to 100% tax at times. Now this is an hysterical disregard for the truth as the FairTax is written.

If you don't accept the truth, nothing adds up and it becomes a frustrating attempt to distort the truth. If you don't like the FairTax, fine, but don't distort the facts.

As you know, both owner-occupied and renter-occupied housing is taxable under the FairTax. With owner-occupied housing (new), the tax is collected up front at time of sale. With renter-occupied housing (new or used) the monthly rent is taxed as it is collected by the landlord.

Renter-occupied housing under the present Income tax is paid with after-tax dollars. Renter-occupied housing under the FairTax is paid with pre-tax dollars, plus there will be a pre-bate added to the renters income to stretch his/her dollar further.

Since investment property is not taxed under the FairTax, but the rents are taxed, the rental property will not be subject to double taxation.

An example in the FairTax Research information compared the Income Tax structure with the FairTax structure using $500 in monthly rents. With a 15% income tax bracket, the renter would have to earn $647 in order to pay his income taxes and payroll taxes and have $500 left to pay his rent.

Under the FairTax structure, the $500 rent plus the 23% sales tax amounts to $649, $2 more than the income tax in order to cover his rent. HOWEVER, in comes the pre-bate to the rescue! And that renter has only had to use $2 of his monthly pre-bate to pay his rent, leaving the remainder to pay the taxes on his medical bills, dental bills, groceries, etc.

I hope that answers any questions you might have. If not, go to for more information. Read the FairTax bill (HR25 or S1025) yourself. If you don't like what you read, then continue to mire yourself in the 60,000+ pages of the present income tax system and continue to watch our country rot economically.

1 comment:

MARK said...

No, fairtax just about kills renters.

For one thing, as Ive proven elsewhere, the "fair" tax will be at least 40% -- the 23% is a farce. In fact, studies by an independent group said the rate would be almost 60% - so the 23% is just silly.

And you said the renter is in the 15% tax bracket. Wanna bet? Most renters are NOT in the 15% tax bracket. Most renters pay LESS than 10% tax rate. In fact, many renters don't pay ANY INCOME tax at all.

Many renters in fact get Earned Income Tax credit.

So you would almost destroy any renter who is now getting Earned Income tax credit. Funny as it seems, you could make a lot of renters homeless, and Im not kidding.

First -- the 800 dollar rent could go to 1200 dollars, when you add the fairtax.

Then -- the renter not only didn't pay taxes - they might have GOT 4,000 back in EITC. Well, thats gone, there IS no EITC under fairtax.

Yes, there is prebate supposedly that could replace that EITC -- but that renter will need the prebate for everything else -- like the tax on food, on utilties, on gasoline, on car insurance.

So what happens if that renter can not now afford the 400 dollars increase in rent?

Fairtax might work for some people. I suppose if you already own your house, and don't have medical cost, and make great money, fairtax will be fine. Just don't get cancer or go to a nursing home, or need any expensive medical care, or you will be taxed on it.