View Full Version : The Fair Tax
Thoughts/comments? I'm in favor of it and press my representatives and those who wish to become my representatives for their position on it.
What about you?
w5klb
05-10-2006, 05:10 PM
2G,
You gotta be a little more specific on this, OM. Give us your definition of a "Fair Tax".
KF0RT
05-10-2006, 05:13 PM
Is this what you're talking about?:
Linky (http://www.fairtax.org/)
73, Rob
w0aew
05-10-2006, 07:10 PM
So would a corporation have to pay taxes on all the resources it uses to produce products---say, an auto manufacturer? Dunno if they'd sell many cars overseas (not that they do now anyway).
The link was correct...and the answer about the automobile manufacturer is no. That would actually be a form of a value-added tax, which is definitely not what the Fair Tax is. In fact, the calculated cost of embedded taxes (the income and payroll taxes paid by the various suppliers in the supply chain of both products and services) is, on average, 22% of the retail price.
It varies by industry.
Therefore, an automobile that retails currently for $20,000 would likely retail for $15,600 after the implementation of The Fair Tax. This would of course make it more competitive on the world-wide market.
Now, when you or I purchase that car we would pay a 23% consumption tax levied on the new retail sales only. This would actually produce a retail price of $19,188, and, you would have your entire paycheck (no Federal or Payroll taxes) available to make the purchase.
Value-Added-Taxes add to the price of production along the way, and in fact are imposed on our automobiles once they hit those foreign shores, making them even less competitive.
But I'm glad I got some responses!
Art
I think two things off the bat.
1. It robs the government of one of its most cherished abilities - social engineering through taxation.
2. If this happens, bartering/trading will be real attractive.
Edited to add: It's interesting that the graphs on that page say "Annual income=annual spending." #That probably only applies for the lower income earners. #Making that qualifier when dealing with huge wage earners does not make much sense if you're trying to convince people that government spending can stay at the same level.
I don't think this will work they way they say it will.
N4AUD
05-10-2006, 07:29 PM
I've read the book.
I am in favor of the Fair Tax, and hope it will be given some cosideration by Congress. I think if they looked at it, and if the American people took an unbiased look at it as well, it would have a chance at being enacted. It is a very interesting approach to taxes and tax collection. CPA's and tax preparation companies like H&R Block will fight it tooth and nail, but I would like to see it pass.
K8ERV
05-10-2006, 07:36 PM
Companies only have the money they get from stockholders and customers, so any added costs must be passed on somehow. I just don't like such indirect and hidden taxes (and fees). I think if there were no hidden taxes and all would be collected directly from the people, heads would roll.
TOM K8ERV #Montrose Colo
Quote[/b] ]It robs the government of one of its most cherished abilities - social engineering through taxation.
Which the government never should have been allowed to do. I'd like to see an end to the double taxation of stockholders and the inheritance tax.
Quote[/b] (AC0H @ May 10 2006,13:39)]Quote[/b] ]It robs the government of one of its most cherished abilities - social engineering through taxation.
Which the government never should have been allowed to do. #I'd like to see an end to the double taxation of stockholders and the inheritance tax.
I agree, but this is one reason ideas like this won't ever come to fruition. #We gave up those reigns long ago. #Don't see how we'll get them back.
And I don't think this particular plan's pitch makes enough sense to even have a chance.
The government is making tons of money off corporate taxes and taxing _all_ of the rich's incomes. #If that goes away, this tax becomes huge and probably regressive to make up for the shortfall. #And that won't fly.
Quote[/b] ]The government is making tons of money off corporate taxes and taxing _all_ of the rich's incomes. If that goes away, this tax becomes huge and probably regressive to make up for the shortfall. And that won't fly.
All that means is the government will be forced to prioritize. Instead of saying yes to everything, somebody will actually have to sit down and think about just what it is that government spends it's money on. Kinda like the rest of us do every day.
The website says it's supposed to be "revenue neutral" for the first year, meaning the govt won't get any more or less money. I don't see how that is possible. I think this proposal is disingenuous.
kf6rdn
05-11-2006, 12:33 AM
Seems fair, but what would it do to buying a big dollar item, such as a car? In theory the car would be cheaper becasue the company isn't paying all the "in between" taxes. But how would the transition happen, for things that are manufactured while the new tax laws were still in transition? Would sales tax be waived on such an item?
Admittedly I didn't read it all. I do like things like flat taxes, taxes fair to business AND people.
A few quick notes...
As far as barter, I agree that it would encourage bartering, but at the same time the vast majority of purchases (and therefore consumption taxes) will be made at the likes of Wal-Mart, Kroger's, Home Depot, etc. These people will not play along and not collect the tax.
Second, while the underground economy thrives today (and the underground economy is estimated at around a trillion dollars annually) and would continue to thrive, many of the purchases made by the people who use this economy would then be subject to the consumption tax.
That drug dealer wants to buy a new $500,000 power yacht? Pay the tax.
As far as being regressive, the monthly prebate would keep that from happening. Already about 48% of wage earners pay no income tax. What the prebate does is send a check for 23% of the spending based on 120% of the poverty level on a monthly basis to each household. So the working poor...will no longer even pay social security or medicare taxes, never mind income taxes, so his/her net pay will go up considerably. Since so many states base their income tax on the federal tax, a number of governors have already come out and said that if the Fair Tax is enacted, their state would follow suit. Therefore the wage earner would be taking home 100% of his/her gross pay, or close to it (deductions for insurance, etc, still being there). On top of that there would be the prebate to cover the taxes paid on necessities that I mentioned above, so no, it would not be regressive.
It is projected that interest rates would fall as the U.S. became a better haven for capital, as well.
And yes, in the law is an adjustment in the first year to account for the sale of inventory produced before the change in the tax structure.
By the way, one of the execs at "one of the largest, if not the largest" retailers in the nation has made it clear that if the Fair Tax is passed and slated to become effective Jan 1, 2010, it will begin adds 90 days before announcing that on that date is is lowering all prices 23%. Its economists believe the numbers.
If it lowers the prices, its competitors will too.
Consider a few years ago when congress failed to renew a certain airline ticket tax. Airlines are not fat cats and are in a cutthroat industry. For a few days all the airlines held their prices, meaning they charged more for their flights (the tax was eliminated, the fare for the flight increased by the same amount). Within a few days first one airline lowered its prices to increase market share, and within a day or two, all the airlines had lowered their prices by the amount of the tax. Competition really does work.
A couple other items. The CBO estimates that corporations spend between $400 and $500 billion ANNUALLY just on tax compliance! These costs would be eliminated, meaning prices could fall or investment increased.
Also, remember the tax is on new goods at the retail level only. Buy a new car? Pay the tax. Buy a used car, the tax has already been paid.
OK, off my soapbox!
W8EFA
05-11-2006, 02:28 AM
Quote[/b] (KC2G @ May 10 2006,15:17)]The link was correct...and the answer about the automobile manufacturer is no. #That would actually be a form of a value-added tax, which is definitely not what the Fair Tax is. #In fact, the calculated cost of embedded taxes (the income and payroll taxes paid by the various suppliers in the supply chain of both products and services) is, on average, 22% of the retail price.
It varies by industry.
Therefore, an automobile that retails currently for $20,000 would likely retail for $15,600 after the implementation of The Fair Tax. #This would of course make it more competitive on the world-wide market.
Now, when you or I purchase that car we would pay a 23% consumption tax levied on the new retail sales only. #This would actually produce a retail price of $19,188, and, you would have your entire paycheck (no Federal or Payroll taxes) available to make the purchase.
Value-Added-Taxes add to the price of production along the way, and in fact are imposed on our automobiles once they hit those foreign shores, making them even less competitive.
But I'm glad I got some responses!
Art
Your claim that there will no longer be an IRS doesn't make sense. #You will still need a federal #central information-sharing repository to track payments and sales. While the IRS may cease to be the IRS, it will be replaced by another agency to do this.
Also your example of a 20k Car costing less doesn't make sense. #You certainly don't take the 23% Consumer tax and deduct it from the car. Since the FairTax removes income, capital gains, and payroll taxes, the pre-FairTax prices of these goods and services will probably fall. #Exactly how much prices fall #will depend on the free market. #
Bottom Line, no Country has ever repealed its income tax and replaced it with a Tax system like this. Just too many problems.
W8EFA
05-11-2006, 02:42 AM
What is wrong with the Fair Tax System
Quote[/b] ]Problem #3: The FairTax is an income redistribution scheme. Boortz calls the Earned Income Tax Credit "a prime conduit for income redistribution from high-income earners to the poor and middle class." Why, then, would he promote a FairTax Plan with a prebate that in essence allows the majority of citizens to not only pay no taxes, but in many cases gives them money over and above that which they paid in sales tax? What's fair about making "the rich" subsidize the poor and the middle class? Boortz calls Social Security an "income redistribution and welfare program." But under the FairTax Plan, Social Security is even worse. At least now it is funded by payroll tax contributions that are independent of deductions for federal income tax. Thanks to the prebate, many people will receive a free retirement program via Social Security who never contributed a dime towards their retirement, or as Boortz says: "All benefit and no burden."
Review of The FairTax Book, by Neal Boortz and John Linder (Regan Books, 2005). (http://www.mises.org/story/1975)
wa6ccw
05-11-2006, 02:42 AM
Quote[/b] (KC2G @ May 11 2006,00:04)]Thoughts/comments? #I'm in favor of it and press my representatives and those who wish to become my representatives for their position on it.
What about you?
http://a1204.g.akamai.net/7/1204/1401/06030611011/images.barnesandnoble.com/images/10860000/10865348.jpg
My recommendation to all would be to get your hands on a copy of this book, ASAP (I couldn't put it down).
This is an idea who's time has come.
Quote[/b] ]Also your example of a 20k Car costing less doesn't make sense. You certainly don't take the 23% Consumer tax and deduct it from the car. Since the FairTax removes income, capital gains, and payroll taxes, the pre-FairTax prices of these goods and services will probably fall. Exactly how much prices fall will depend on the free market.
I believe the embedded taxes in the automobile industry are closer to 25%. This really has nothing to do with the 23% consumption tax; it is simply a carefully researched figure of the cost of the embedded taxes that are found in the final price of a U.S. made automobile. Notice I did not say "fact" as I am sure there can be some argument as to the exact figure.
You are right: the auto industry would not have to lower its prices by that 25%, or 23%, or whatever the number happens to be. It could choose to maintain the current prices and simply earn more on each vehicle (this would not help the dealer, just the manufacturer).
However, if one manufacturer dropped the price on even one of its models by some level, another manufacturer would follow suit, as in the example of what happened in the airline industry. Dropping the price on one model would also skew the price tiering found within one brand's models.
So either we have collusion and cartel, or DaimlerChrysler decides, "We can pull market share away from GM by dropping our prices." Will GM not respond?
FYI, there is within the law a credit against collecting the tax equal to the value of retail inventory on hand the day before the tax were to go into effect.
If an auto dealer had $20 million in inventory Dec 31, then on the first $20 million in sales it would not collect (or remit) the tax. Is this the government foregoing that revenue and giving the dealer (or consumer, really) a break? NOT AT ALL. Why not? Because the price the dealer paid for that inventory still had the embedded taxes built into it; the government had already collected its share.
Is there still income redistribution in it? You bet. However, by removing the taxes on capital, investment decisions can be made with simple regard to maximizing the rate of return, without succumbing to modeling based on tax consequences. This will result in a more efficient use of capital.
It will increase the tax base.
It will make American goods more competitive abroad.
It will slash (tax) compliance costs.
Will there still be an IRS? There will be some agency that collects the taxes and sends out the prebate checks.
However, today's IRS can ignore the fourth amendment, for one: there is no unreasonable search or seizure, nor is there a presumption of innocence, when the IRS decides to audit. Your personal finances will remain your PERSONAL finances. At least to me, that is worth something right there.
There can be an immediate redirection of some 300 to 500 billion that is currently spent on tax compliance.
Somebody said it can't happen because of "all those problems." What problems? It was also mentioned that no other country has done this. Two things to consider: no other country raises most of its money through income and payroll taxes as we do; and the 10th and 15th largest economies in the world (Florida, and, I believe, Texas) already fund their state governments through this mechanism.
Could you imagine never having to save one receipt or record one business meal or expense, other than for your own records as to whether you were profitable or not? But not having any worry about being audited, whether for payroll or income tax compliance? The poor accountants and attorneys who would have to find some other way to make a living.
Income and payroll taxes are confiscated. A consumption tax is paid, and if there is a prebate equivalent to the spending for the most basic standard of living, then it is paid voluntarily.
I'm still for it, and the more I research it, the more I am for it.
W8EFA
05-11-2006, 03:55 AM
Quote[/b] ]I'm still for it, and the more I research it, the more I am for it.
Did you read the link I provided? #First of all Boortz is an idiot talk show host and a lawyer, not an economist. #Second he uses the 23% figure throughout the book until he gets to real world examples and then sneaks in a 30% figure. #Comparing a state taxation system to the US economy with Social security, military spending, etc. is an apples and oranges comparison.
Quote[/b] (AK7V @ May 10 2006,12:29)]1. It robs the government of one of its most cherished abilities - social engineering through taxation.
True Republicrats and Demopublicans live to control others. If you have a new tax system that increases government power, they will support you.
N4AUD
05-11-2006, 01:16 PM
Quote[/b] (W8EFA @ May 09 2006,21:55)]Quote[/b] ]I'm still for it, and the more I research it, the more I am for it.
Did you read the link I provided? First of all Boortz is an idiot talk show host and a lawyer, not an economist. Second he uses the 23% figure throughout the book until he gets to real world examples and then sneaks in a 30% figure. Comparing a state taxation system to the US economy with Social security, military spending, etc. is an apples and oranges comparison.
It's NOT about Boortz. It's not his idea. Don't mix up the idea of the Fair Tax with someone who is promoting it. Not liking Boortz is no reason to dismiss this out of hand.
That's why I said it has a chance if the American people look at it with an UNBIASED viewpoint.
Can someone explain the "annual income=annual expense" stipulation on all of the figures? This is fantasy land. The tax will have to be 50% or more to make up for all the lost revenue at first.
Look, I'm fine with cash-starving the government and making them re-prioritize, which this plan will undoubtedly do at the rates presented, but they say it won't. They call it "revenue neutral" for the first year, but then "prove" it with fantasy graphs. I'd rather they be honest than try to sucker people -- even people I disagree with.
To AK7V:
Currently consumption is very nearly equal to income. How can I say that and keep a straight face? Look at national savings rates...a rate that has at time been negative over the past decade or more, and barely positive when positive at all.
OK, if it's not being saved, what is being done with it? I doubt if we're simply burning it.
On top of that, this assumption actually raises the impact of the Fair Tax on the individual when making these comparisons. If one were to assume that consumption is 70% of income, then the tax (relative to income) is lower than if one makes this consumption = income assumption.
I had about 1,000 words written in response before, and wiped it out. I just had carpal tunnel surgery and my hand is thickly bandaged; I hit the "back" button on my trackball and POOF, it was gone. So I am re-writing in Word. Too bad my steam level is down from then.
Quote[/b] (KC2G @ May 11 2006,08:45)]To AK7V:
Currently consumption is very nearly equal to income. #How can I say that and keep a straight face? #Look at national savings rates...a rate that has at time been negative over the past decade or more, and barely positive when positive at all.
I'd like to see some figures on this, corellated with income. #I know that my expenses are almost equal to my income, but I don't make much money. #Someone making high six-figures plus is not spending near that amount on taxable items. #I could be wrong, but I'd need proof. #You can only use so many cars and ipods and food. #There's a limit to what people can consume. #There is little limit on income, and therefore a huge tax base for the gov't as the system is now.
Anyway, the 0% (or less) savings rate is certainly not something to encourage. #This tax plan would give the government an incentive to discourage savings. #Government and industry would both be in the same business -- convincing us to consume ravenously.
Quote[/b] ]
OK, if it's not being saved, what is being done with it? #I doubt if we're simply burning it.
No, it's theoretically being invested and strengthening the economy - which is great and what I would want. #But it is not directly filling government coffers. #So the claim that it can be revenue-neutral at a reasonable rate strikes me as false. #
I don't want a "revenue-neutral" tax plan, so this plan is appealing in that regard. #
I think they're trying to attract everyone with this tax plan. #Like it's some sort of panacea that can satisfy the big government liberals and the small government people. #It can't and it won't. #There is no such thing.
Quote[/b] ]
On top of that, this assumption actually raises the impact of the Fair Tax on the individual when making these comparisons. #If one were to assume that consumption is 70% of income, then the tax (relative to income) is lower than if one makes this consumption = income assumption.
I'm not talking about the impact on the individual. #It's clear that this will lower the tax burden on the individual, especially those who spend way less than they make. #I'm talking about the claim that somehow, the government will get as much money as it gets now during the first year. #I don't see how that is possible at these rates.
Quote[/b] ]
I had about 1,000 words written in response before, and wiped it out. #I just had carpal tunnel surgery and my hand is thickly bandaged; I hit the "back" button on my trackball and POOF, it was gone. #So I am re-writing in Word. #Too bad my steam level is down from then.
Ouch. #Don't worry about it. #I haven't given it too much thought, this is just my primary reaction to the idea.
AK7V...
Good thoughts...though when the savings rate is computed by the government, investment is included in savings. What has happened is many people over these last years borrowing against their houses and thereby spending more than they earn, though the repayment is "over time."
So...a savings rate of zero means a net investment rate of zero.
You are right that the government would want to encourage consumption under this, but it already does as consumer activity makes up about 2/3 of the economy now. But right now our system encourages spending and discourages savings/investment.
Investments and savings are usually taxed. Long term gains are still taxed high...what is it? 15%? It used to be 28%. The reason this is wrong is that the gain should be indexed to inflation over the period the investment is held.
Buy a building for $200,000 and sell it for $500,000: $300,000 taxable gain, even if it is at 15%.
But if during the time you held it prices had doubled due to inflation, then $200,000 of the gain is just inflation...you didn't get ahead of that at all. Only $100,000 should be taxed...whether at the current 15% or even a 28% marginal rate.
What does the government subsidize? Purchases, at least if you borrow against your house for them.
Under the Fair Tax only consumption is taxed. So regardless of what the government might want, the policy is actually rewarding saving/investment and "punishing" consumption.
Quote[/b] ]The website says it's supposed to be "revenue neutral" for the first year, meaning the govt won't get any more or less money. #I don't see how that is possible. #I think this proposal is disingenuous.
Easy to state; how do you back up your claim?
Quote[/b] ]Also your example of a 20k Car costing less doesn't make sense. #You certainly don't take the 23% Consumer tax and deduct it from the car. Since the FairTax removes income, capital gains, and payroll taxes, the pre-FairTax prices of these goods and services will probably fall. #Exactly how much prices fall #will depend on the free market.
No, one doesn’t take the 23% tax off; it is a function of what the embedded taxes in the automobile industry are. #Interestingly the studies show that embedded taxes in government purchasing are actually higher…around 28%. #The range among industries is from about 20% to 28%, with a weighted average of 23%. #Yes, it is up to the market to work, but consider the experience with airlines earlier cited, or with one auto manufacturer following another in the “employee pricing” campaigns. #Will they collude not to lower their prices? #Or will they seek to expand market share?
Quote[/b] ]Bottom Line, no Country has ever repealed its income tax and replaced it with a Tax system like this. #Just too many problems.
So no country has ever done this before. #Big deal. #I’m sure that is a sound reason to believe that it would be bad for the U.S. people or economy. #Are other governments more concerned about their citizens? #Also, no other country raises the majority of its revenue through a combination of income and payroll taxes as the United States does. #By your reasoning, is that not reason enough to abandon our current system? #By the way, can you elaborate those “too many problems?” #What studies have you done or thoroughly examined?
Quote[/b] ]Did you read the link I provided? #
Yes, I did, and I am responding to it point by point below. #Have you read the Fair Tax book, or any of the studies that led to this proposal?
Quote[/b] ]First of all Boortz is an idiot talk show host and a lawyer, not an economist. #
And your Ph.D. in economics was taken where?
Quote[/b] ]Second he uses the 23% figure throughout the book until he gets to real world examples and then sneaks in a 30% figure.
Nowhere is this point not made clear in the book. Further, by your reasoning one should not consider the FICA tax rate at 7.65%; it would be 8.28%. #The 28% marginal tax bracket should be called 38.9%. #Specious argument at best, Old Man.
Quote[/b] ]The government is making tons of money off corporate taxes and taxing _all_ of the rich's incomes. #If that goes away, this tax becomes huge and probably regressive to make up for the shortfall. #And that won't fly.
First of all, corporate taxes (as a portion of all income taxes) have dropped from a high of about 35% of tax revenues to about 10%. #Second, as some have herein acknowledged, corporate taxes are merely a pass-along tax from consumers and individuals. #Second, “all_of the rich’s incomes” are not taxed. #The cap on Soc. Sec. tax is at about $94,000; above that it is not taxed. #If the rich are not wage earners but live off dividends/interest, they may pay no payroll taxes. #Further, it is the rich who have the most incentive to engage in tax avoidance or evasion, and have greater available resources to do so. #The tax (as noted by W8EFA) may be less regressive, as people earning and spending at poverty levels would pay no taxes and contribute nothing to social security/medicare, yet would benefit from them.
NOW ONTO THE LINK
Quote[/b] ]The FairTax will "double the size of the economy in the first fifteen years."
This is listed as a sign that the Fair Tax is making wild claims. #But wait…doubling in 15 years…rule of 72…aha, 4.8% annual real GDP growth. #We’re not that far off that mark now; a relatively small bump in growth will achieve that.
Quote[/b] ]Everything will nearly be a wash, declares Boortz the economist. But not only does this ignore the basic laws of supply and demand, it is based on the fallacy that the costs of inputs in the production of a good determine the price of the output they produce. #
Boortz does not claim to be an economist; neither does Linder. #Apart from that it does not ignore those laws. #Yes, the price elasticity of demand can certainly affect what happens, and the availability and desirability of substitutes impacts the price elasticity of demand. #Those doing the research assumed that. #Thinking of buying a Ford but now a comparably equipped Buick is lower in price? #Thinking of selling that Ford, delighted in greater margins (due to the elimination of the embedded taxes) but see the Buicks dropping their prices? #Yes, if the product has no substitute there will still be no reason to reduce the selling price. #On the other hand, if there were no substitutes, then why isn’t the price of this good or service much higher already, so that the return on investment for the producer is already as high as it would be with the Fair Tax enacted? #In other words, a widget costs $1,000 to produce and because there are no substitutes it sells for $5,000. #Why isn’t it selling for more than $5,000? #Because even with no readily available substitutes, other than doing without, this is what the market will bear. #Prices increase to the point where reductions in sales result in lower gross profit. #This is macroeconomics 101. #If increasing my profit margin 10% causes a 15% reduction in sales, that’s probably a bad idea. #If raising my profit margin causes sales to drop by 8%, this is probably a good move. #The costs of inputs do in fact factor into the selling price as they impact the capital necessary and the ROI; if the ROI is too low because inputs have gone up in price and selling prices cannot be raised, capital leaves that market and goes someplace where it deems the risk/reward equation more appropriate…as long as capital movement is not distorted by unnecessary tax consequences.
Quote[/b] ]Lie #1: taxes would be voluntary under the FairTax.
One could choose not to consume above the level of basic minima. #In that case there would be no tax paid (due to the prebate). #It is a choice to consume more than this. #This is certainly less coercive than the current system where money is taken from your check before you get it, and the government allows you to keep part of your check. #The author then raises the asinine comment that if one refuses to pay the tax (once incurring it) one would be fined and arrested. #DUH! #It is still a choice whether to incur it or not. #Want to live off the land and make your own clothes, use a wind-turbine for power and enjoy your commune? #Go for it.
Quote[/b] ]Lie #2: The FairTax rate would be 23%
This was already dealt with above. #By this argument the 28% marginal tax rate is actually about 39%. #Just looking for ANYTHING to complain about.
Quote[/b] ]Lie #3: The FairTax would abolish the IRS.
This may be the best criticism this man makes. #It would not abolish all taxing authority. #However, it would remove much of the power of the IRS to invade our lives and put us into a position of presumed guilt that must be disproved. #It would keep the IRS from examining how many business lunches we had, or whether we used our home office exclusively for work or also had a transceiver in the corner. #It would prevent politicos from being tempted to use the powers of the IRS to intimidate or bother rivals or those deemed to be pests.
Quote[/b] ]Problem #1: The FairTax hides the amount of sales tax being paid.
This may be the most disingenuous claim by this man, if not an outright lie. #A receipt would show a good or services net price and the Fair Tax applied. #This is hidden HOW? #Today when one buys a $30,000 automobile there are embedded taxes of about $7,000 built into that retail price. #Is there a line for that on the invoice? #Heck no. #So, which method hides the tax? #This claim was ridiculous.
Quote[/b] ]Problem #2:The FairTax is progressive.
It is, and the developers of the study (as reported by the authors) admit this. #They state up-front that it was, in their view, absolutely necessary to “protect” the poor and lower middle class or there was no way in Hades the bill would become law. #The criticism comes from a institution that believes that no taxes should ever be progressive, and that government should be reduced to the most basic function of preserving order and private property rights. #They have their own agenda that is probably not shared by most Americans.
Quote[/b] ]Problem #3: The FairTax is an income redistribution scheme.
This is a restatement of “Problem 2.” #Income redistribution of any kind just galls these von Mises folks. #It does redistribute some income. #Nobody hides that fact. #It is a VALUE JUDGMENT of the critic that this is bad.
Quote[/b] ]Problem #4:The FairTax creates new tax collectors.
This is another value judgment. #Is it bad or good that lawyers, hospitals and doctors will now be collecting and remitting a tax? #Consider the fact they will be relieved from income tax compliance and payment, and payroll tax compliance and payment. #Consider that the collectors will, for the first time, be COMPENSATED. #The economists…real ones…who came up with the rates included one-quarter of one-percent of the tax collected to be paid to the retailer, as compensation, and one-quarter of one-percent of the tax collected to be paid to the States that are conduits of the tax. #This is not an unfounded mandate. #Apparently it offends the critic’s values to have more “tax collectors.” #Perhaps he’s a Pharisee.
Quote[/b] ]Problem #5: The FairTax creates new taxes.
Another VALUE judgment. #It also eliminates other taxes with far greater compliance costs and complexities. #Well, this critic apparently likes complexities that can reduce tax compliance if craftily exploited. #I read some more of their work and they’re like people who applaud a clever thief when they see someone find a new, creative way to avoid taxes. #He nowhere offers a cogent argument WHY this is a problem. #He assumes it is; frankly most of his “problems” are based on assumptions that he does not offer to support.
Quote[/b] ]Problem #6: The FairTax creates new taxpayers.
OK, the problem before was that it is progressive. #Now the problem is that it creates new taxpayers, such as schools, hospitals, and even governmental units. #Do see a pattern or contradiction here? #Or a pattern of contradiction? #Wouldn’t you love it if your Federal representatives participated in Social Security and a 401(K), and not the sweet retirement package only they have? #Of course you would. #Making government participate in the taxation process is not that dissimilar. #So churches would pay taxes on purchases. #GREAT. #COOL. #It’s about time the government stopped this unfair treatment, AND, the retail prices would be about what they are now because the embedded taxes would be removed. #This just keeps the “non-profits” from reaping a windfall.
Quote[/b] ]Problem #7: The FairTax makes it easier for the federal government to raise taxes. All Congress has to do is slightly increase the initial 23 percent rate.
This one is ridiculous on its face and its substance. #Corporate income taxes are pass-throughs; raising some corporate tax, whether overtly, or by changing a depreciation schedule, etc., is far less likely to be noticed by Joe Citizen than raising the one tax rate that focuses all our attention. #When a bill comes up to raise that rate, do you think the newspapers and talk radio and television news will be quiet about it? #What’s easier? #To raise an embedded tax, the origin of which the consumer is ignorant? #Or an overt consumption tax printed on our sales receipts?
Quote[/b] ]Since the federal budget goes up every year, and the FairTax is supposed to be "revenue neutral," the FairTax rate will have to go up right along with the federal budget. Now we see either the idiocy or dishonesty of this critic in full view. #He is assuming that the economy, and therefore the tax base, does not grow. #He is assuming that tax compliance does not go up, and that none of the underground economy is affected by this consumption tax. #Want to buy that new Escalade, THE symbol of bling today? #Fine, but you’ll pay the consumption tax on it, even if you made the money for it selling drugs.
Quote[/b] ]Furthermore, since Social Security and Medicare would be funded out of general revenues the FairTax rate would also have to go up to fund the ever-increasing cost of these programs….And if the amount of the prebate "is updated every year to keep up with inflation," the FairTax rate will have to be raised in like manner.
Once again the same fallacy is applied by the critic. #OK, I’ll offer that it is the same assumption. #If more capital formation and business expansion occurs in the U.S., and there is more job creation, there will be more spending.
Quote[/b] ]How can Boortz recognize that "there is absolutely no limit to the government's desire for your money" and then express hope that the FairTax rate "will go down in the future" if "Congress can keep government spending down"?
The authors are clear that the ultimate responsibility for keeping government growth in check, or reversing it, will lie with the voters, not with a tax law. #Sorry, but no tax law is going to relieve us of our responsibility to be diligent and vote the bums out. #Again, it will be easier to see a bill to increases the consumption tax rate than to see a change in a business depreciation schedule that increases costs.
This one “problem” had so much disinformation it required this lengthier response. #Sorry.
Quote[/b] ]Problem #8: The FairTax makes it easier for state governments to raise taxes.
Once again there is not supporting evidence. #If a state goes to a Fair Tax it will be eliminating income and payroll taxes…embedded taxes. #Which is easier to monitor? #Your state’s varied income tax laws, or one consumption tax rate? #Do we really believe that the states would extend the consumption tax to services and be able to maintain the same rate that is applied only to goods currently? #One state already did its study and showed that it would be able to cut its state sales tax from something like 7% to 1.5% if it taxed all goods and services. #Do you think no politician will think her future would be enhanced by being a champion of the people and exposing a move to raise taxes drastically? #Come on, it’s like competition selling those cars…somebody’s gonna do it, and the watchdog groups will be supplying the studies on it.
Quote[/b] ]Problem #9: The FairTax has unknown and potentially huge transition costs.
Our critic then goes on to show none of them. #OK, he brings up the issue of a business’ fiscal year not coinciding with the tax year, and the fact that the Federal government’s fiscal year begins in October. #So businesses will have to make a mid-stream change. #So what? #They already deal with their Federal Taxes on a Jan 1 – Dec 31 basis regardless of how they state their earnings in their financial reports. #They have to take into account accrued and deferred liabilities and assets now, and during the transition year will still have to do that. #After that first year it won’t matter what the business’ fiscal year is since it won’t be paying income tax.
Quote[/b] ]Problem #10:The FairTax makes certain exceptions while supposedly having none.
The authors are explicit that education is exempted. #Frankly I don’t understand why, unless they believe that the fees charged by education systems are not elastic and will not drop even if the embedded taxes are removed; or because the authors (not Boortz or Linder but the economists) are making a value judgment that more affordable education is a “good thing.” #I admit its social engineering and it might be there to “sell the deal.” #It does detract from the pureness of the model, but it is not hidden. # Boortz and Linder do not state that internet access would be exempt; they state they are in agreement with a current policy of not taxing internet access. #The critic mischaracterizes their position.
Crap, seven more “problems” to go.
Quote[/b] ]Problem #11: The FairTax has great potential for fraud.
I think one needs to consider the current potential for fraud today, or simple miscalculation. #Illegal activities are not taxed today. #New retail purchases made with illegal money would be taxed. #Today it takes only one person to cheat on taxes; it will generally take two people next time, the buyer and the seller. #Will sellers be so ready to risk heavy fines or imprisonment to make a little extra and avoid the tax? #Some will, but the FairTax is most likely less open to fraud than the current convoluted system.
Quote[/b] ]Problem #12: The FairTax has the potential to turn thousands of law-abiding Americans into criminals.
The examples given are the kids mowing lawns and babysitters. #Are these kids criminals already for not reporting this income? #Are many of us unwitting criminals because we get wrong advice, even from the IRS, on how a ruling applies? #At least when that kid buys some soda and fries with some of that money, the consumption tax will be paid. #I think this is a straw man argument.
Quote[/b] ]Problem #13: The FairTax does not repeal the Sixteenth Amendment.
The FairTax bill does suspend those parts of the IRS code that imposes the various taxes this is set to replace; it does not take a separate bill to do so. #Yes I’d like to repeal the 16th amendment and will work for that. #I don’t think it’s fatal that the FairTax doesn’t, and I believe that once people see the FairTax works better than the income tax, etc., repealing the 16th amendment will be far easier.
Quote[/b] ]Problem #14: The FairTax does not eliminate all federal taxes.
Again, the view that this is a problem further reflects the VALUES of the von Mises Institute. #It does eliminate the taxes that do most to harm our economy and which have the greatest monetary compliance burdens. #One doesn’t fill out forms and seek deductions and credits while computing one’s Federal fuel taxes! #Sure I’d rather abolish all other taxes, and we may get there someday. #We can safely and wisely start here.
Quote[/b] ]Problem #15: The FairTax is not at all about lowering the amount of taxes the government collects.
Again, this is the bias of the critic. #Do you want to cut taxes? #Sure. #Then reform government. #Do you want to increase savings, investment, and productivity? #Pass the FairTax. #Two separate issues. #Many people will agree on a simplified, more efficient tax system who cannot agree on changes in our government to lower government expenditures. #So pass the tax reform and then continue the work to reform and reduce government. #Nowhere do the authors claim this is some panacea.
Quote[/b] ]Problem #16: The FairTax doesn't even begin to address the root of the problem.
Once again, this is the personal agenda of the critic. #The critic sees a fundamental flaw in all taxation, as it is a coercive effort to confiscate private wealth or income and thus wrong. #I don’t necessarily disagree, but what we are arguing for is not something as fundamental and philosophical as eliminating all taxes, or all taxes beyond securing our borders and internal peace. #We are saying, “Let’s get rid of the waste and loss of our current system and its drag on our productivity. #Let’s save more, produce more, export more and yes, most likely consume more.”
If the FairTax were law I would already have my Heights 88’ tower, Alpha 87 (yes, used, no FairTax but I prefer the PIN DIODE QSK to vacuum relay) and Orion II. #The tower and Orion II would cost about as much as they do now…maybe a bit more, maybe a bit less; but my paycheck I use to purchase them would be much larger. #And the problem is?
Quote[/b] ]Problem #17: The FairTax makes welfare universal.
You know, welfare could be called universal by these standards anyway. #Corporations receive “welfare” in the form of being treated differently perhaps than a competitor is for tax purposes, or getting a tax credit for hiring released convicts. #We all get at least the standard tax deduction. #This is as much welfare, by this critic’s definition, as the prebate is. #I think this argument is not a practical argument; it’s really not relevant.
Quote[/b] ]The antidote to the fraud of the FairTax is a good dose of the wisdom of Murray Rothbard: "There can be no such thing as 'fairness in taxation.' Taxation is nothing but organized theft, and the concept of a 'fair tax' is therefore every bit as absurd as that of 'fair theft.'" #Boortz believes that the abolition of the income tax will make the bad day of April 15 "just another beautiful spring day." With its unsubstantiated claims, ridiculous lies, and numerous problems, the FairTax will ensure that everyday is a bad day, not just April 15.
With this close the critic overlooks his own unsubstantiated claims and ridiculous lies. #Oh, he makes himself sound all-knowing (he’s a professor, of course) but he is either ignorant or intentionally making false statements. #He also shows his agenda, staking his position on the view that taxation is nothing but organized theft. #We may feel that way, but I’d rather have the theft be a sum I readily see and know about than a thousand embedded, invisible and easily changeable taxes along the way.
So yes, I read the critique. #I think I’d rather have no taxes…BUT…then I say, “I like a lot of my government services, though not all of them. #I’ll contribute even to things I do not like in order to receive the services I value.”
Welcome to a society, folks.
So again…what if $350 to $500 billion in annual tax compliance costs were eliminated and paid as dividends or pumped into expansion?
What if you didn’t have to fear an abusive and intrusive IRS audit, ever?
What if the spending that comes from the trillion dollar underground economy were taxed, so you in your honest profession don’t have to make that deficit up?
What if savings and investment rates increased, lowering interest rates and increasing economic growth?
What if factories relocated to the United States, and corporate headquarters did the same?
What if, with the exception perhaps of what you pay for insurance, your take-home pay were equal to your gross pay? #Would that be so horrible?
No, the FairTax is not perfect and it is not a panacea. #In fact it truly may be the worst of all methods of financing the public sector…except for all the others.
73,
Art
http://www.qrz.com/iB_html/non-cgi/emoticons/cool.gif
Quote[/b] (KC2G @ May 11 2006,13:50)]Quote[/b] ]The website says it's supposed to be "revenue neutral" for the first year, meaning the govt won't get any more or less money. #I don't see how that is possible. #I think this proposal is disingenuous.
Easy to state; how do you back up your claim?
It's pretty much intuitional at this point. #I'd like to read the rest of your post closely, but there's a heck of a racket here now and I can barely think.
But let's say you make $500k next year and I make $50k. #Also, you spend ten times what I do. #(you buy a lot of stuff, yet this is still less than "earnings=spendings". #If you only spent $100k per year, my point will be even stronger).
If the fair-tax isn't established, you will pay a heck of a lot more money in taxes than I do. #Let's say you pay $200k and I pay $20k (for the sake of simplicity). #The government gets $220k. #(If the tax rate is 30%, the total for the gov't is $165k.)
Now if the fair tax is established, I pay 30% of the $40k I spend ($12k) and you pay 30% of the $400k you spend ($120k). #That gives the government $132k. #That's a far cry from $220k. #If you only spend $100k, the government gets $42k! #If I were rich and this came to be law, I just wouldn't buy anything expensive for a year and the government would go belly up.
So the government won't collect as much. #So it's not revenue-neutral. #So they shouldn't say it is. #It would have to be a higher percentage rate, and that percentage rate would vary depending on the savings rate of wealthy individuals, if the government were to keep a steady revenue. #And when the savings rate is high, the "fair tax" rate has to go up. #And when the "fair tax" rate goes up, those who spend the higher proportion of their income (me, in this example) feel it most.
There are better and more forthright ways to bankrupt the federal government.
W8EFA
05-11-2006, 09:32 PM
Wow that may be the longest thread ever. #I was going to go through point by point in answer to your defense of the Fair Tax but I don't have an hour.
Suffice to say there are many "yeah he's right, but IMO that is not a big deal. #All it takes is one major issue to make the Fair Tax a bad idea. #There are multiple bad idea candidates such as the Wealth Redistribution problem. #See RGR's synopsis in The Republican Ideas Thread.
There are also probably 10 you claim are wrong because they are #the authors VALUE judgment. #Yes and your opposing view is the same - a VALUE judgment.
Another statement that I truly believe is
"The real issue is total spending by government, not tax reform." #
Can the Tax code be adjusted? #Absolutely, but we don't need to go to an untried system like this that could completely collapse the economy. #The Problem is not how they collect it. They need to be more efficient and spend less.
After all, with the Flat tax if the Government overspends, they will just raise the Fair Tax Rate because they will have to!
I'll go look at RGR's thread! I actually pointed to only five of the points as being value judgments, and agree with you, my acceptance of this being OK is also a value judgment.
My willingness to accept these items as OK does not touch on the workability of the plan, nor does his rejection of them mean the plan will not work. It just means it will use means with which he does not agree, and have some consequences with which he disagrees.
I agree with you that the problem, the big problem, is government spending. I've already made my thoughts on that known. I still think that a more transparent tax system, and yes, a more efficient one, is better for us, and that it will be more difficult to raise the rate when it's an issue of changing the one tax figure to which we all pay attention.
We'll see what happens, and I hope the REAL authors of the Fair Tax (as opposed to the spokespersons) are right, because I'll be doing what I can to bring others to this point of view.
73,
Art
AK7V...
In some ways it's worse than what you say. Of the $40,000 you spend the government would not get 30%, or $12,000, but 23%, or $8,600. Now, $8,600 is about 30% of your net purchases (price minus tax, or $31,400).
http://www.qrz.com/iB_html/non-cgi/emoticons/tounge.gif
I'm just saying that the 23% (or even 30%) figure is too low. #To equal a 30% income tax, with me spending $40k and you $400k, the "fair tax" will have to be be 37.5%
If you only spend $100k, the "fair tax" rate will have to be 118%. #Otherwise, less $$ for the gov. #Hence, it's not revenue neutral by any reasonable stretch.
AK7V....
I think if what you say is true, this wouldn't have gotten as far as it has. Really.
But I'll dig for source studies.
I've had years where due to deductions for mortgage interest, work expenses (unreimbursed) and charitable giving, as well as exemptions for children, my effective tax rate has been under 10%, though my gross income was in between the $50,000 and $200,000 examples you gave...though closer to the $50,000 http://www.qrz.com/iB_html/non-cgi/emoticons/biggrin.gif .
And upon reading RGR's post, maybe I'm foolish, but I think I detect a hint of sarcasm.
Maybe not.
However, his last comments about our aristocracy lead me to believe he was using that literary form.
AK7V..
By the way, on $50,000 income, filing single, one exemption (you), and the standard deduction (worst case scenario), the federal income tax will be $6945, a bit under14% (not the 40% in the example you provided). Do you get an exemption for yourself if you're not blind or under 65? I forget...but I think so...I think you don't get the exemption if you qualify as somebody else's exemption.
So throw in marriage, two kids and bump the family income to $90,000...and the tax is $9740, or 9.74%.
If you spend $75,000 of that $90,000, the tax is $17,250.
This doesn't tell the whole story, but it's time to forget about this for a while.
Art
W2ILP
05-12-2006, 04:19 AM
The only fair tax is the tax you pay when you go to the fair.
w2ilp (IRS Likes Payments)
What an amazing thing this Ham Radio is. Posts from pure idiots about burping to pure genius in high powered economics, in about every subject!
Something I didn't see addressed too much is people with (many) figure incomes may tend to invest some of their income into things (like starting businesses or investing in businesses) that put more people to work. And they can have more money to invest (which puts more people to work), with lower taxes.
I tell people paying taxes is a good thing. If you don't make enough money to have to pay any taxes, life is not much fun. If you make enough to have to pay taxes, means you make enough to buy food and water and have shelter of some kind.
W2ILP
05-12-2006, 05:49 AM
NY2S
I agree with your economic opiniuons...BUT...
Most of the people with the multi figure incomes put people to work in China.
I wouldn't mind paying taxes if the folks who make a lot more than me would pay a lot more than me. #I don't make enough for it to pay for me to pay a tax expert who could find loopholes in tax laws that lets me pay less than the rich who can shield all of their money in foundations without paying any real estate tax. #If I bought real estate and it wound up to be under water they would charge me real estate tax to send the fish to school.
w2ilp (IRA Loopholes Persist) if you can prove that your investments are a loss to the iRS without loosing them there will be a loss to the iRS.
W2ILP
I loved your comment about sending the fish to school...but depending on the species, they may already be in school(s). But let's not carp about that. It's really a bass subject. Maybe a few of them would take an advanced degree for the halibut.
Do you use an antenna tuna?
OK, I can see my XYL slapping me.
However...if the studies are correct...and U.S. productivity goes up, and the price of U.S. exports goes down (because this Fair Tax would only be paid in the U.S.), then more industries may stay in the U.S., be started in the U.S., or relocate to the U.S.
Do a little digging on the economic miracle that is Ireland to see how a tax code can improve growth and the standard of living for all.
Now if you were an ultra-liberal, I might call you W2 Income Leveling Proposal.
A libertarian? W2 Immediately Legalize Pot
A republican? W2 Illegally Laundering Profits
A conservative? W2 I Love Phreedom.
W2ILP
05-13-2006, 04:48 AM
I read the economic policies of John Maynard Keynes and also Galbraith #(not sure of spelling). #Galbraith died recently. #Their economic philosophy was used by FDR to get the U.S. out of the great depression. #Most historians agree that it was a good economic plan at the time...Others say that only the expense of WWII got us out of the depression. #The trouble started due to, not only the stock market crash of 1929, which might have been caused by stampeding investors who lost faith in the economy all at once, but also the dust bowl situation which was a disaster to America's recently mechanizing agricultural community. #Anyway the theory of Keynes as used by FDR was to have the government put people to work on government projects in order to get the economy rolling. # #This is because the heads of private industry do not keep investing in the U.S. during bad times....Nope...They take their big money out of the U.S. productive markets and wait to see which way things will go before they put it back in. #Smart capitalists can't be forced to make bad investments....even when the government gives them tax advantages. #True it is also hard to get much tax paid when the big capitalists are in the standby mode. #This mode only makes accounting easier for their CPAs.
I read in the news that Whirlpool and #Maytag are merging and laying off over 3,000 American workers. #The largest steel washing machine parts are now being made in China and the machines are only assembled in the U.S. # Heck we once got Chinese Americans to do our laundry here by hand.. #Now we get Chinese workers to make machines in China so we can do it ourselves using our own over priced electric power. #
In short the new GLOBAL ECONOMY is doing little to encourage those who hold the big bucks to invest them here or to continuously provide work for Americans...NO MATTER WHAT THE TAX INCENTIVES OR LOWER TAXES can encourage. #Maybe Big Gates' Microsoft is a good example of leadership that prefers to stay in the U.S. #Yet many guys knock him for being too big and a monopoly. #I wish we had a lot more CEOs like Gates.
I have read a book called "The World is Flat" #and to me it means that the average American will eventually be flat broke. #The global economy will eventually lead to the average Chinese person of China sharing his poverty with the average American. Then the global economy will be flat! #I admit that nothing may be done about it...unless the U.S. government goes back to the economic socialism of Keynes....and also taxes the rich a lot more than it taxes the middle working class.
w2ilp (Industrialists Launder Profits) ...In China but not in Chinatown, NY.