Debunking the FairTax
Chuck Norris may like the FairTax, but the recent debate about the FairTax has deified the fair but regressive tax that ignores one's ability to pay, forcing those who make little shell out as much as those who are rollin' in it. Since demonizing the IRS and lowering taxes make for appealing sound bites, the FairTax, traditionally favored by fringe conservatives, has caught on with some, but others are warning of its dangers.
Atlanta Journal Constitution [12/28/07]
Fair Tax advocates say instituting a 23 percent national sales tax would provide the same revenue to the government as income taxes do, but give back to taxpayers more of their own income.The New Republic [12/13/07]
Buckley, a tax attorney and accountant from Smyrna who self-published his own book deriding the Fair Tax, said government studies have already shown that the tax would have to be at least double what advocates propose to deliver its promised benefits.
“Our people need to know how hard a … Fair Tax would hit retirees and the middle class,” Buckley said in a statement Friday. “While the current tax system is a complex mess, the Fair Tax proposal is not the answer.
Unlike every other sales tax in the world, the FairTax actually applies to everything--every pencil, every tank--the government buys. Unfortunately, the FairTax proposal doesn't take into account this increase in government spending. Thus, it will either provoke a massive cut in federal spending or a massive increase in taxes.
And what about the poor who bare the brunt of this highly regressive tax? The FairTax would track every household's monthly income and then cut checks to minimize the pain, a logistical challenge that will ultimately resemble some welfare state nightmare. What's more, this would cost gobs of money, forcing further cuts in spending.
While the economic effect of a flat national sales tax is unclear, it's unlikely that the regressive tax would be a "magic wand releasing us from pain and unfairness" as one recent Iowa lovechild contends.
Check out "Doing Better: Progressive tax reform for the American South" (free to download) for ways your state can improve its tax code.
posted by Sam Spence @ 5:48 PM
12 comments
12 Comments:
They feel they must lie to sway opinion against this fine system, why?
The only people who can attack the Fair Tax are those who have not read the entire wording of the 'plan'.
It will not cause undue hardship on the poor or the retirees (of which I am one).
What it will do is charge a sales tax on NEW items purchased. Buying a used car will not have any 'national sales taxes' applied.
As a side effect, the folks that are out there buying new toys from illegal activities, will pay the full amount of tax due. They have never filed income tax returns to declare their illegal income. They just spend it on expensive homes, cars, boats and other luxury items that most of us can't afford.
For the poor, they will pay no taxes. Food, medications, and other necessities will not carry a tax.
This is not just a 'National Sales Tax', it is a FAIR TAX for all Americans.
I find myself absolutely stunned when people try to knock the FairTax without researching it themselves. If they are so opposed to the Fairtax, please just once, I'd like these same people to defend the current tax code. Of course I don't need the comments of those with a vested interest in the present code, or those who are hell bent on socialism for this country.
Economist Dale Jorgensen, Harvard University, was commissioned to find out what portion of current prices were represented by costs for complying with the federal income tax code (i.e., embedded tax costs). He concluded that 22% (average) of every retail dollar, spent by consumers, constituted a price-embedded tax. Thus, in addition to individual income tax and FICA withholding, individuals are unwittingly paying these unseen, embedded business tax costs with every purchase of a new product, or service.
Under FairTax, prices would fall, due to removal of embedded business tax-related costs. Concurrently, wages may rise due to a mix of factors, including reversion of withheld pay (or some portion thereof) to employees, advancement opportunities due to business expansion resulting from retained earnings, and/or increased demand for labor accompanying increased competition (from that expansion). Where profits (or wages) appear lucrative, competition will move into the market space, driving out excesses (immediately present after FairTax is enacted), arriving at new "market-adjusted" prices.
For FairTax to constitute 23% of new transaction cost (i.e., "market-adjusted" price plus FairTax), a mark-up of 29.9% (tax exclusive rate) on the new "market-adjusted" price is necessary. (Before balking, consider what we're paying now if income tax rates are converted to tax-exclusive sales tax rates on net income instead of percentage of gross income. The following figures can be compared to the 29.9% FairTax mark-up: Fifteen pct bracket = 17.6%, twenty-five pct bracket = 33.3%, twenty-eight pct bracket = 38.9% (! really), and thirty-five pct bracket = 53.8% (! that's how bad it is).
In order to make FairTax a progressive consumption tax (such as that recently called for by Warren Buffett), all citizen-families are simply sent a monthly consumption [tax] allowance, called a "prebate." This prebate is intended to reimburse taxes on necessities for every citizen family without need for record-keeping or reporting. Moreover, the direct payment bypasses the creation of a tax code specifying exempted products and services around which a lobbyist industry could grow. The amount is variable, based on family size, and is equal to the FairTax rate on poverty-level spending, as defined by the Dept. of Commerce. At present, a family of one would receive ~$200/month, a family of four, ~$500/month. Thus, the "effective" FairTax rate paid by citizens, will *never* equal the full 23%. Of course, U.S. visitors (legal, and illegal) will pay the full FairTax when they purchase anything new, at retail (used are not taxed again). Under FairTax, working families will have their whole paychecks (minus any state or local income tax withholding) plus their monthly family prebate.
Additionally, citizens will no longer have to spend the average 50 hours per year preparing their federal tax returns. Having more monthly income may result in using credit less, and saving more. Larger savings will make it easier to purchase a home, at a lower interest rate and monthly payment. (Thus, mortgage deductions are no longer applicable when income is not the basis for taxation).
But is FairTax actually fairer? To provide substantive answers, Prof.'s Kotlikoff and Rapson (10/06) have concluded,
"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.
"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."
Further, per Jokischa and Kotlikoff (2005) ...
"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."
The current income-based tax system is also more expensive to run, because of the manner in which the tax code is gamed by politicians and lobbyists. Politicians realize great power, and attract constituencies for support, by granting tax favors (i.e., credits, deductions, exemptions) through lobbyists. Fully, fifty-three percent of Washington lobbyists are there because of the tax code! The tax code is continually changing, making it more complex - more difficult to understand. And, the salaries and costs of tax lawyers and lobbyists end up in higher prices of the products and services we buy. Additionally, the time and money required to keep records, file returns, report for audits, retain accounting and legal help, pay IRS penalties and interest, is time and money lost for other productive, or recreational, activities. Depriving us of the use of withheld wages increases our expenses through zero-interest withholding, inflation, return preparation time, and interest paid on credit cards and loans that otherwise may not have been necessary. Summed up, the cost of tax compliance, nationally, has been estimated to range anywhere from $265 billion to twice that amount, depending on the extent to which tax-avoidance consultation is sought and utilized. These expenses constitute a substantial hidden tax which is incomprehensible to the average working American. And the FairTax gets rid of all of it for most Americans, and most of it for business owners.
We, as FairTax advocates, believe that government should serve We, the People, with a fair tax system that will not enable politicians to pit poor against rich (creating barriers to achieve wealth, adding tax penalty to the sacrifices made for personal success). Nor do we want politicians to continue using business as a tool to hide taxes from consumers, often villifying business, which discourages entrepreneuship, personal achievement, economic growth. Liberty and happiness depends on restoring the fruits of labor to those who produce them. We believe that the tax function should align with economic growth, not against it, that government should be paid for in the same manner as working Americans - when, and because, something is sold!
As things stand at present, the system primarily benefits politicans who cater to special interests through lobbyists who game the tax code. The politician seeks to capture them as constituent voting blocks, dependent on continued syphoning of taxpayer dollars to their members' benefit. This is increasingly repugnant to the average working American who often finds it difficult to meet the needs of his, or her, own family in an environment where federal and state business income taxes substantially contribute to trade inequities resulting in the loss of American jobs! Thus, the Sovereign are continually degraded by features of Congress's income tax policy. The most rapidly-growing needs-based "special interest" group has become the Citizens! You see? Congress has nearly all the power; and We, the People, have become We, the Serfs, robbed and enslaved. Getting the federal government's hands out of our family paychecks is the single most important reason to replace the income tax with a consumption tax, the FairTax.
Many of us have joined FairTax.org in order to build a national movement to free ourselves, our family pocketbooks, and our businesses from confiscation of income, and punishment of productivity. And this we say to our federal representatives,
"Either scrap the code and enact the FairTax, or we intend on replacing you with someone who will."
(May reproduce in whole or part. - Ian)
Tkrop...it is perfectly possible to realize that the Fair Tax lacks the ability to fairly generate the revenues needed to support the investments desired by the American people while also recognizing that the national tax system (and those in most states) need reform. It is not an either/or choice.
jq
Thanks for your comment.
The ability to raise enough revenue under the FairTax was the first item of priority to be incorporated into the FairTax to remain revenue neutral. Eleven years of research went into development of the plan. Congess's spending of course has to be roped in. You seemed to be concerned. Please log onto www.fairtax.org. This will help you form any educated opinion you like.
Good Luck
Strange how all the of the Fair Tax complaints seem to sound like the current system is working efficiently. 66,000 pages of regulations-that's easy to understand I suppose, except not one person in the world can explain the entire thing.
Fairtax is a crock -- its a farce. Its bullshit, and its leaders know it.
Fairtax pretends the GOVERNMENT will pay a major portion OF ITS OWN TAXES. This is insane nonsense, bullshit, too stupid for words.
Neal Boortz wrote page 148 "The federal government itself will become a MAJOR taxpayer."
No it won't Neal you idiot. The governmetn CANT FUTTING PAY ITSELF you moron. It has to WRITE the checks you idiot TO itself.
Neal -- go write yourself a check for 10,000 each day, do that for a month. If you are 300,000 dollars richer, then Fairtax works just fine.
But thats not the only bullshit about Fairtax.
This would be the HIGHEST sales tax ON THE FUTTING planet.
And it would be the ONLY tax plan on FUTTING earth that would tax cancer surgery, and nursing home patients, and the parents of a child with luekemia.
If you dare to spend 100 or 200,000 dollars staying alive -- these Fairtax morons are going to tax you 60,00- 100,000.
This same lunatic super-high tax would be on all insurance premiums --meaning your car insurance, life insurance, health insurance.
You think gasoline is high now you idiot? Wait till Fairtax puts a 40-60% sales tax on it.
ANd on food.
And on rent.
And on utilities.
And on everything/
No one can explain the Fairtax.
It makes our code look simple.
For example, how will a 200 month "prebate" be enough to "completely untax the poor" and "make sure NO american EVER has to pay a sales tax on the basic necessities of life"
Try to explain that. Try to explain how 200 a month covers a 30% sales tax on cancer surgery AND rent AND food AND utiltiies AND gasoline AND car insurance - you have to pay sales tax on your CAR insurance/
How does 200 dollars cover that.
YOu explain that one, and its easy to explain the current tax code by comparison./
I think the grammtar used by these gentlemen who so viciously advocate against the Fair Tax indicates how poor their understanding taxation truly is. tsk tsk
The funniest thing about the Fair Tax is the number of Fair Tax supporters who obviously don't understand anything about it.
Just for grins, let see how many of the Fair Taxers can correctly answer these two questions.
1) If the Fair Tax is passed and withholding on employee wages are eliminated, what will employees be paid assuming current wages before withholdings are $100 and after $80?
2) Given your answer, to question #1 what will happen to product prices those employee have to pay for products, will they go up, down, or stay constant?
No ridiculous discussion of the prebate is necessary. I have more to purchase than basics thank you.
I am a liberal...but I have long though a flat sales tax would be more fair than the current mega-tangle of tax code.
I am not saying I favor everything in this bill as is. For one thing I don't see any indication that the Federal Excise tax is repealed. Add a new sales tax to transportation fuels and tires along with the existing excise tax will increase the cost of goods shipped and the cost to commute to work.
I have downloaded the full bill (131 pages) and intend to read it before passing judgment. I want to see how it affects purchase of necessities and health care.
Contrary to what some say re. New vs Old I did not yet see any distinction.
One area I see this simplifying is the inter state sales of goods online. With a flat tax rate nationwide paid into your home state, would resolve many issues with current plans to tax sales between states.
Are the states prohibited from tacking on additional sales taxes? Do they keep a portion of the federal sales tax they collect or do they send it all to DC to be divvied up later?
Is there a mandated ceiling on the maximum total amount of the sales taxes regardless of the taxing authority?
http://www.joethevoter.org
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