The Fair Tax Act, Part LVII
Section 903 details how your Social Security benefits will be calculated after the FairTax is implemented:
`SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.
`(a) In General- Employers shall submit such information to the Social Security Administration as is required by the Social Security Administration to calculate Social Security benefits under title II of the Social Security Act, including wages paid, in a form prescribed by the Secretary. A copy of the employer submission to the Social Security Administration relating to each employee shall be provided to each employee by the employer.
`(b) Wages- For purposes of this section, the term `wages’ means all cash remuneration for employment (including tips to an employee by third parties provided that the employer or employee maintains records documenting such tips) including self-employment income; except that such term shall not include–
`(1) any insurance benefits received (including death benefits);
`(2) pension or annuity benefits received;
`(3) tips received by an employee over $5,000 per year; and
`(4) benefits received under a government entitlement program (including Social Security benefits and unemployment compensation benefits).
`(c) Self-Employment Income- For purposes of subsection (b), the term `self-employment income’ means gross payments received for taxable property or services minus the sum of–
`(1) gross payments made for taxable property or services (without regard to whether tax was paid pursuant to section 101 on such taxable property or services), and
`(2) wages paid by the self-employed person to employees of the self-employed person.
So basically many of the existing rules used to calculate your income for Social Security benefit purposes are mirrored here. Your employer has to report your income, although the details aren’t covered specifically (left up to the Treasury for later I guess).
While I see that there is a need to avoid the “third rail” of politics by maintaining the status quo as regards Social Security benefits (SSB), but seeing that SSB would be funded from the new sales taxes, might not there be an opt out option for younger workers entering the workforce (or those such as I that are willing to forgo all SSB) in order that one would not need to report private financial data to the federal government?
If this would kill the prospects for the Fair Tax, what would be an alternate solution to get around the reporting requirements that we see here in sec. 903?
All of the benefits of social security will be paid through sales tax revenues. An individual wont be able to avoid paying the fair tax just because they choose to forgo collecting any benefits. The only benefit to opting out would be that the Social Security Administration wouldn’t know how much money that you legally earned through salaries and wages. Of course, those that opt out wont ever be eligible for benefits.
I suppose a self employed individual could easily opt out by not reporting money earned. He wouldn’t get a benefit but he wouldn’t have to report how much he earned to SSA. Most people aren’t going to choose that route because they would be giving up huge future benefits for refusing to file these simple quarterly reports. If they end up destitute and disabled or injured, I suppose there would still be welfare to pay for basic necessities and medical care.
Illegal immigrants with false or no social security numbers operate in this way today. They will not be able to draw benefits from SSA because there wont be a record of their earnings. Even if amounts are withheld from their wages and remitted properly by their employers, they wont be able to collect benefits. People who work for cash and don’t report all of their earned income are reducing the base that determines future benefits. Indirectly. many people are opting out today.
I think this is another area where the FairTax is open to fraud. What’s to prevent a person from overstating their earnings to get larger SS benefits? Since they won’t be paying taxes on there earnings, their is no negative to overstating them. Who would even investigate this?
Fred - Overstating these reports would constitute fraud and subject the filer to penalties if caught. How much benefit would a person get from increasing the stated income? Would have to do this for several years to make a difference in benefits received. What is the present value of the increased benefits to start in 20 years and then be spread over another 20 years? Would each individual overstatement be little more than petty theft?
If the person filed the reports based on zero earned income, there would be significant future benefit. But this would be relatively easy to detect by a look at the supporting records. Now someone who ran a small business could fail to record some expenses thereby increasing his net earnings and future credits. This would be hard to detect if done cleverly. But, are these accountants were talking about or people who probably can’t balance their own checkbooks?
It would be interesting to be able to analyze the data along with having the knowledge of how benefits are calculated based on reported income. There might not be as big a payback for the effort as some of us might think.
Okay, I’m looking at the chart shown over at Wikipedia (http://en.wikipedia.org/wiki/Image:FTRebate.png) that shows a sample of what a person on Social Security can expect to receive under this plan. A single person with no children earns a whopping.....$196 a month.
Can YOU live on only $196 a month?
That can’t even pay for ANYTHING. Not enough for rent, no food for the month. Nothing.
And that’s even before 23% is added onto it to make that expense even larger?
This tax plan INCREASES the costs of any item or service, and leaves people with less ability to pay for it. It’s a one-two punch that will condemn millions of Americans to a level of poverty seen only in third world African countries.
This is beyond cruelty! People on Soc Sec are barely able to make ends meet as it is, and you want to grotesquely SLASH what little they got to a suffocating fraction of that?
Sorry, you just made a sworn enemy of this “fair” tax scam, imo.
M H
What you are looking at is the Fair Tax “prebate”. This goes to every american each month that has a legal social security number. It is meant to pay the 23% fair tax on all spending up to the poverty level. No one pays any federal taxes on the necessities of life.
Everyone that gets social security today will continue to get the same amount as they do today. Social scurity will continue in the future with benefits determined just as they are today; based on salaries and wages received during your lifetime. In addition no one will pay income taxes or have payroll taxes (7.65%) withheld from their paychecks. The self employed will not pay 15.3% taxes for social security and medicare. No one will levy estate taxes on the assets you leave behind when you die. Businesses will also not pay income taxes or the employer share of payroll taxes. These costs are currently passed on to every consumer in the cost of everything he buys. Prices will initially be reduced by about 9% before the Fair Tax as the result of eliminating these costs from products you buy. In future years, prices will probably come down even more.
No one will have to keep records and file federal tax forms or worry about an IRS audit. The IRS will be eliminated.
There are many more benefits that you can learn about from Fairtax.org.
“No one pays any federal taxes on the necessities of life.”
Well, food is a necessity, and that will have a 23% tax smacked onto it. That there is already a horribly burden on people living on Social Security, who are already burdened.
And please, prices will NEVER be reduced to adjust! If you allow free-market forces to have their way, they will only increase the costs to make up for reduced consumption.
MH
There are two ways to untax necessities. The first is to mark out categories of purchases that will not be taxed. One might decide for example not to tax food. The second is to say ‘the poverty level for a family of your size is x, here’s all the money you would spend in tax on consumption up to that level’.
The FairTax choses the second approach. The reason it choses the second approach is because untaxing categories of things rapidly devolves into madness.
For example, food is a necessity. I agree. Filet Minot and cavier are food. Are Filet Minot and Cavier a necessity? What about lobster? In the part of the world I live in, lobster is a luxury item, surely not a necessity. But in parts of NH and Maine, lobster can be had a very low prices from tanks in gas stations, making it a reasonably priced protein source. There really is no good way of splitting this gordion knot.
Another great example of the untaxing of necessities is an example that comes from a friend of mine in Australia. She was complaining that condoms are untaxed, but tampons are not. Do we really want a government board making these sorts of decisions?
Isn’t it just simpler to let individuals decide for themselves what is or is not necessary to their lives through the prebate?
I am self-employed and sell something to a largely European market. As exports, these sales will not be taxed, so my Social Security benefits would be based solely on profits from taxable domestic sales?