Ron Paul and the FairTax

I have been a fan of Rep. Ron Paul (R-TX) for quite some time. I have also been a fan of the FairTax proposal for the last couple of years. I never knew where Rep. Paul stood on the FairTax so I asked him. This was the email I just received from him:

Dear Mr. Burton:

Thank you for contacting my office regarding the FAIR TAX. I agree with you that massive tax reform is needed in this country. More specifically, I agree with the provisions of the FAIR TAX which repeal income, payroll, and estate taxes.

As you may know, it’s not easy for me to advocate any new tax! However, I certainly think a sales tax is better than an income tax- PROVIDED the income tax is truly eliminated. I would hate to see America end up with both a national sales tax and an income tax, much like socialist European countries.

However, the real key to tax reform is dramatically reduced spending by the federal government. Until the government spends far less, taxes (in whatever form) will remain too high. While I certainly support eliminating the income tax, I do not want to see it replaced with a high national sales tax which attempts to collect the same amount of revenue. Spending is the real problem.

Please understand that we share wide areas of agreement on tax issues. I will continue to consider the Americans for Fair Taxation plan. Proponents of real tax reform (whether they support a national sales tax, flat tax, or other plan) must unite in their efforts to eliminate the present unworkable income tax structure.

Sincerely,

Ron Paul

I’m pleasantly pleased. Rep. Paul is not a resounding supporter of the FairTax but he is inclined to support it as long as certain guarantees are in place and, of course, he believes the only true tax reform will come from reducing government spending, his trademark cause.

42 thoughts on “Ron Paul and the FairTax

  1. Larry D. Burton

    Bruce, while you may never buy a Boeing plane there is a good chance you will purchase a ticket to ride on one. You pay the taxes for Boeing with every airplane ticket you purchase. You and I are paying the taxes for businesses with every purchase we make at the retail level. Drop the tax off of business and you will reduce prices to consumers. This savings can then be turned into a tax, a FairTax. Actually, a tax on lifestyle.

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  2. Bruce Barnes

    Larry Burton,

    Do you understand that I will never buy a Boeing plane and I do not want to pay their taxes? The retail sales tax forces everyone to pay corporation taxes whether they want to or not. The retail consumer does not always wind up paying all corporate taxes. You have been misinformed. Why should my taxes go up 28 % to pay corporation taxes? I don’t buy that much. If corporations have the same privileges as people, shouldn’t they be taxed like people?

    Are you saying “it takes money to make money”? It doesn’t have to take my money to make someone else’s money.

    I found this comment on http://www.lcurve.org regarding economic issues. I hope people find this as educational as I do!

    “Quoting from a recently-published book by political philosopher David Schweickart,
    If we divided the income of the US into thirds, we find that the top ten percent of the population gets a third, the next thirty percent gets another third, and the bottom sixty percent get the last third. If we divide the wealth of the US into thirds, we find that the top one percent own a third, the next nine percent own another third, and the bottom ninety percent claim the rest. (Actually, these percentages, true a decade ago, are now out of date. The top one percent are now estimated to own between forty and fifty percent of the nation’s wealth, more than the combined wealth of the bottom 95 %.)

    There is a growing class of billionaires that collectively holds a substantial fraction of the wealth of the country. [In March 2006 Forbes reported 793 billionaires in the US with combined net worth of $2.6 trillion. In March 2007 Forbes reported 946 billionaires in the US with combined net worth of $3.5 trillion. That is a 1-year increase of 19% in the number of billionaires and an increase of $35% in their net worth during a time of increasing poverty. Severe poverty is at its highest point in three decades.]”

    I do not have any problem with successful, wealthy, and/or well educated people, nor do I envy them. In fact I have great respect for Mr. Gates Sr., Mr. Buffet, and Dr. Robert Reich.

    What I have a problem with is the attitudes in this country about the poor and the wealthy. Since President Ronald Reagan, people seem to have lost respect for poor and unfortunate people and detest giving a helping hand and the wealthy and businesses can do no wrong. That attitude degrades our morals, principles, and government policies. The biggest injustice is the tax system. Mr. Gates Sr. has talked about estate taxes. Mr. Buffet has talked about the percent of tax paid. Dr. Reich has talked about the widening inequality of income and wealth and other things.

    While I have nothing against billionaires, I do wish you would let them pay their own taxes. When a poor person is taxed on 50 % of his net worth and a wealthy person is taxed on much less than 1 % on his net worth and a business is not taxed, that is not fair! The supporters of the consumption tax are trying to convince you to vote for the well being of the wealthy and businesses.

    Let’s level the playing field for business by taxing every business out there the same. The only fair way to do that is a net worth tax. Should a single mother of 3 making minimum wage be forced to pay for part of a company jet? What are your morals? What is fair to you?

    What should taxes be based on? Would you call someone making $50,000 a millionaire? If he has a net worth of $10 million, would you call him a millionaire? If someone has a net worth of $1,000.00, should he be required to pay $1 million in taxes?

    By definition the term millionaire is based on net worth, not income. Therefore, if someone has a net worth of $1 million or more, yet only has an income of $50,000 per annum he is still a millionaire. Income is not a measure of being rich, net worth is. Taxes should be based on ones ability to pay and that measure is net worth.

    You said “A tax on net worth would eventually transfer all wealth to the government.” That is not true. In fact it is impossible. The Net Worth Tax is the only fair way to tax the people in any country. The net worth tax system has the broadest base of all. $115 trillion, more than 8 times the GDP of $14 trillion, a stack $100 bills that go around the moon and back: twice. Three percent of which is over $3 trillion. That is more than our national budget is.

    We live in representative democratic society. That means that “we the people” vote for people to represent us to conduct the business of government for the people. Businesses can’t vote and the wealthy that control the businesses are too small in number to elect the representatives. So what do they do? They have money to influence government to their advantage legally. The tobacco companies spent billions to influence public opinion and therefore government regulations to make even more money and kill people. The oil companies spent billions to fight the fact that burning fossil fuels accelerates global warming. Why? Short term profits. Will they make money? Yes. Will they destroy the planet? Maybe. Will people die? Yes. The examples go on and on. Increasing copyright laws from the original 14 years to 70 +, chemical company clean-ups, strip mining, saving and loan, Enron, and so on.

    The point is that wealthy people hire lobbyist, think tanks, government employees, and yes our representatives to persuade people that our representatives are voting in the best interest of people instead of allowing the wealthy to steal from society. The fair tax system is funded by millionaires and companies. The “fair tax” system benefits the wealthy and companies. Shouldn’t you take a critical look at their claims to see how the tax system will benefit you and society?

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  3. Larry D. Burton

    Bruce, you are arguing that corporations need to pay more in taxes. You do understand that the money they get to pay their taxes comes from the sale of their product. Don’t you? The retail consumer winds up paying every expense that a business pays to produce a product or a service.

    You are wanting to tax wealth. That is not a good thing for the economy. Wealth is used to produce more wealth. A tax on retail sales is a tax on lifestyle. People who spend more for a more extravagant lifestyle pay more of the tax than those that live a more frugal lifestyle. People living a more frugal lifestyle put their wealth to work by providing capital needed to run our economy.

    The FairTax levels the playing field for business by removing taxes from every business out there. The current system is made up of laws that exempt certain sectors from some taxes and even specific businesses from some taxes. How can two competing sectors compete when one sector is being given tax breaks the other doesn’t get?

    A tax on net worth would eventually transfer all wealth to the government. That’s not a good idea. The FairTax is the only fair way to tax the people of this country.

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  4. FAIRTAXBILL

    Go Huckabee! Go FairTax! Both would be great for all Americans and the American economy! If not Huckabee, then Ron Paul and his take on taxes!

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  5. Bruce Barnes

    Reasons for a Net Worth Tax System

    America should adopt a tax system based on net worth for the following reasons.

    A tax on net worth has the largest tax base. The net worth of this country is larger than the income system, about $9 trillion, and the consumption system, less than the gross domestic product, (GDP) about $14 trillion. The individual assets of $55 trillion and business assets of about $60 trillion is over 8 times larger than the consumption system.
    Income is not a measure of being rich, net worth is. George Will has said that the wealthiest 1-percent of households have more assets than the lowest 90%, $16 trillion. Since the total individual assets are $55 trillion. The wealthiest 10% own about 73% of the net worth in the USA. The biggest 1-percent of corporations own 80 % of the business net worth.
    Taxes should be based on ones ability to pay. A tax on net worth is the fairest tax to all. Net Worth is the measure of ones ability to pay.
    Taxes on net worth have the lowest percentage. America’s budget is about $3 trillion. A consumption system requires a sales tax of over 21%. A net worth tax would be less than 3%.
    A tax on net worth is the most versatile. Besides a flat tax of 3% for individuals and businesses, there are other possibilities. Some people say we have double taxation. We could tax only people at 6% or only businesses at 6%. Since businesses can’t vote and they pass there cost on to their customers, that is the best way to go. Next is the progressive path. The first $1 million could be tax-free and increase by 0.1 % for each $1 million up to 5% after $50 million.
    A tax on net worth is the simplest to file. Take what you own minus what you owe. Our present tax system is 63,000 pages of loopholes. Example: a person leases a car. The lessee does not own the car, so no tax. The leasing company owns the $25,000 car, but has a $10,000 loan. The company is taxed on $15,000. ($25,000 minus $10,000) The loan entity has $10,000 of assets so it pays tax on $10,000.
    A tax on net worth is the easiest to enforce. Since this is a property rights country, all assets are traceable. Taxing only the most prosperous 10 % of businesses and people is the most efficient tax system.
    Like the consumption tax, all of our present taxes could be replaced, Individual income tax, corporation income tax, employment taxes, gift tax, and estate tax. Plus the excise tax.
    Guarantees funding for all budget items like social security and Medicare by eliminating use taxes. User fees or tolls are another way for the wealthy and businesses to avoid paying taxes. Budget items come out of general funds.
    A tax on net worth promotes transparency. When a company shows an annual report with a book value of $1 billion and only $10 million in taxes, they aren’t paying their full taxes.
    A tax on net worth promotes free trade. Money, inventory, buildings, etc. are all assets so everyone can move assets around for the best effect.
    Eliminate inflation. Dr. Milton Friedman said to end inflation, stop printing money. By increasing the tax rate 1%, the national debt of $9 trillion could be paid off in 10 years.
    We start collecting 100 percent of our earnings in every paycheck. We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
    Reducing taxes on the poorest 90% will raise revenue. When people have more money to spend, they buy more goods, which means more profit for businesses and the wealthiest 10%. Money flows up, water trickles down.
    A tax on net worth promotes jobs. Employees cost companies less since the employment taxes are repealed and therefore employees become more competitive in the global market.
    A progressive tax on net worth levels the playing field. Small companies that create the most jobs become more competitive with large companies.
    A tax on net worth removes some incentive to move plants overseas. Taxes are based on assets no matter where they are located. What you own minus what you owe.

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  6. Bruce Barnes

    “FairTax” Scorecard
    FairTax.org has a presidential and congressional scorecard that shows 5 GOP and one democratic presidential candidate would sign a fair tax bill. On the congressional side, in the house 76 republican and 4 democrats and in the senate 9 republicans support the fair tax bill. These people that support the consumption tax have not shown good judgment for the greater good of all our citizens. The fair tax is a misguided attempt to benefit business and the wealthy. This just goes to show you that you can fool some of the people all of the time but you can’t fool all of the people all of the time.

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  7. Bruce Barnes

    The Fair Tax Act of 2007 – HR 25/S 1025
    For FY 2006, the IRS reports collections of 44.7% of Individual Income tax and 13.8% of Corporation income tax for the budget of $2.76 trillion. When employment taxes are included, individuals contribute 60 % to the budget while corporations only pay 28.5%. Income is not a measure of being rich, net worth is. Taxes should be based on ones ability to pay. Individuals have assets of $55 trillion and corporations have over $60 trillion. If corporations were paying their fair share, we would not have a budget deficit of 9%.

    The wealthiest 10 % own 80% of all stock and 73% of all individual assets. Shouldn’t the wealthiest 10 % be paying 73 % of the individual income taxes? The wealthiest 1-percent make 25% of all individual income and the wealthiest 0.5 % make more than the lowest 50%. Does anyone really think that the poorest 50 % of taxpayers should or could finance 50% of the income tax budget? Our present tax system is not doing a good job.

    America should not adopt this tax system, HR 25/S 1025, that is based on all retail sales for personal consumption of new goods and services, for the following reasons.

    The tax base is not much more than the present system. The base is less than the Gross Domestic Product, (GDP) $14 trillion. A tax on net worth is 8 times more, $115 trillion.
    The consumption tax will increase the tax on people about 28.5 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. In FY 2006, corporation income tax was 13.8 % of the federal budget and corporate employment taxes were 14.7 %. Under the “Fairtax plan,” businesses do not pay taxes. Corporations enjoy all of the privileges of persons except the vote. They benefit from infrastructure, employee public education, law enforcement and limited liability. If corporations do not pay taxes, their privileges should be revoked.
    A sales tax is regressive. In a study of Texas sales tax, those who earn less than $22,000 a year pay 14.2 percent in state and local taxes, those who earn more than $60,000 wind up paying about 5 percent. Even with the rebate, wealthier people and older people that have already purchased most of their needs will pay less than 23% of their income.
    Taxable property is what most of the people have. Intangible property which is not taxable is what the wealthiest people have the most of. Taxable property – any property (including a leasehold of any term or rents for such property), but excluding intangible property and used property. Intangible property – an asset that is not physical and not real property. It includes copyrights, trademarks, patents, goodwill, financial instruments, securities, commercial paper, debts, notes, and bonds. Taxable property or services purchased from a seller for a business purpose in an active trade or business, or for export from the United States for use or consumption outside the United States are not taxed. Purchases by consumers are taxed. Investments (property purchased exclusively for purposes of appreciation of income or the production of income) are not taxed. Used property – defined as property on which the federal sales tax has been collected already, and property that was held for other than a business purpose on December 31, 2008 (the day before the sales tax became effective). The term “used” relates to whether or not the sales tax has been paid previously, and not just to whether or not the item has been sold previously. It appears that almost everything will be taxed for the first few years.
    Insurance will cost 23% more. All types of insurance: Life, health, property and casualty, liability, marine, fire, accident, disability, and long-term care will be taxed.
    The consumption tax is not fair. When a company has a dispute with a customer, they may find themselves in a court that only the customer has funded and to add insult to injury, the customer has to pay his lawyer 23 % more than the company does.
    Everyone will start their own business. If a business pays Fair Tax on items for business use, the owner can get that FairTax back. Investments (property purchased exclusively for purposes of appreciation of income or the production of income) are not taxed.
    The FairTax Act will phase out appropriations for the Internal Revenue Service and then spend billions recreating bureaus to administer the Fair Tax. The IRS is uniquely qualified to administer the Fair Tax with people, computers, and facilities in every state and major city. The fair Tax Act will pay retailers to collect taxes and keep records for six years and pay states to collect from retailers. An administering state enters into a cooperative agreement with the U.S. Treasury Department governing the administration of the FairTax by such state. The Social Security Administration sends out the monthly rebates. The Secretary of the Treasury is given the authority to promulgate regulations, to provide guidelines, to assist states in administering the FairTax, to provide for uniformity in the administration of the tax, and to provide guidance to the general public. The Secretary of the Treasury is required to establish an Office of Revenue Allocation to arbitrate any disputes between states regarding the destination of sales for purposes of allocating sales tax revenue among the states. The Secretary of the Treasury and each state sales tax administering authority may employ persons as necessary for the administration of the FairTax and may delegate to employees the authority to conduct hearings, prescribe rules and regulations, and perform other such duties. Following due process of law, the tax administering authority can seize property, garnish wages, and file liens to collect FairTax amounts due. Each sales tax administering authority must establish, maintain, and adequately staff an effective, independent Problem Resolution Office to protect citizens from abusive administration. The sales tax administering authority must establish and maintain an appeals process that provides a full and fair hearing of any dispute regarding tax liability. The Treasury Department may use FairTax data in preparing economic or financial forecasts, projections, analyses, or estimates. The fair Tax Act establishes an Excise Tax Bureau within the Treasury Department to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms. It also establishes a Sales Tax Bureau to administer the national sales tax in those states where the federal government directly administers the tax and to discharge other federal duties and powers relating to the FairTax. Does a rose by any other name still smell as sweet?
    More information on the fair tax act can be found at “Americans for Fair Taxation http://www.fairtax.org/.”

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  8. Ian from Ann Arbor

    Linda, I have managed a business over 20 years. Believe me, FairTax would be a Godsend. No more penalties for staffing your operation. Sales and use tax is infinitely less intensive than complying with federal claims to business income / payroll (a hidden tax in higher prices to the consumer – direct, or indirect).

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  9. Larry D. Burton

    You would not be unpaid, according to H.R.25.

    `SEC. 204. ADMINISTRATION CREDIT.

    `(a) In General- Every person filing a timely monthly report (with regard to extensions) in compliance with section 501 shall be entitled to a taxpayer administrative credit equal to the greater of–

    `(1) $200, or

    `(2) one-quarter of 1 percent of the tax remitted.

    `(b) Limitation- The credit allowed under this section shall not exceed 20 percent of the tax due to be remitted prior to the application of any credit or credits permitted by section 201.

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  10. Linda Carter

    Nobody seems to consider the hundreds of thousands, and maybe millions of small business owners in the U.S. who would become unpaid, forced slave laborers to do the work of the IRS. Yes, you who own a lemonade stand, a dry cleaners, a housecleaning business, will have to collect a huge amount for the IRS with every single sale or transaction, then accurately record and store it, then do all the paperwork, probably monthly; and then send in having kept darn good records, or else. Make one mistake and you will be hauled in front of IRS court, where you are guilty unless you prove yourself innocent, subject to fines, jail, and perpetual harassment. ANYONE THINKING OF US PEOPLE, THE SMALL (AS WELL AS LARGE) BUSINESS OWNERS OF AMERICA? We already have to do this for the state, which is a big pain in the neck, and I have been through all the above scenarios with the measly 6% tax. How about a 23% tax on top of that to keep track of, now also to the IRS as well as to the state?????????

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  11. ron paul money bomb

    I do enjoy getting schooled on taxes. I think some of the issues we have however is feeling as though we do not have control anymore.

    Taxes among many other issues I hope will get fixed well before the collapse of our economy.

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  12. Larry D. Burton

    Ray, the way HR25 is written goods and services are only taxed at the retail level and all goods and services at the retail level are taxed the same. This will have a natural incentive for people to purchase more fuel efficient cars in that those will require you to purchase less gas at the retail level and therefore pay less taxes. There is no provision in the bill to allow any exemption for any item or service purchased at the retail level.

    Since the tax is only on purchases at the retail level I don’t see how this would increase the cost of manufactured goods. It looks to me like it would decrease their costs because the embedded tax would be removed from each item purchased to manufacture a product makeing the cost of materials cheaper. I don’t know any manufacturers that purchase the materials for their products at retail.

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  13. ray

    Thanks, I read on a website outlining pros and cons that one of the pros would be the government could incentivize purchasing of fuel efficient cars, etc thru this plan. That sounds great unless they’re deincentivizing me to buy something i like or need for that matter.

    As for price dropping equally with the cost in doing business, I found another counterbalance to that. Anything that requires materials to produce will cost more via the tax, thus further offsetting the savings. I’d still argue, as a decision maker in a business, we don’t necessarily drop price when a particular cost goes down. Now this is different as the customer is fully aware costs are dropping but like I said, if I have to purchase goods to produce my product, I’m paying more now to produce my product.

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  14. Larry D. Burton

    Ray, everything would be taxed at the same rate.

    And concerning prices dropping by the same amount as expenses dropping, yes they will. Markets drive prices to the least they can be to make a profit and the most they can be and people still buy them. If there is no competition for an item then the price for that item will be as much as people will pay. If there is competition the price will be the least it can be and still turn a profit. Supply and demand are a part of this also.

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  15. ray

    Please excuse my ignorance on this topic, I am new to the idea and digging for info. In current proposals, are all products taxed equally? More specifically, could the government tax steak more than chicken, candy more than fruit, etc.? I would want to carefully look at to what level the federal government can in effect control what I buy. Again, I am very new to the concept, this may be a non issue.

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  16. ray

    Everyone seems to be assuming that the whatever the decrease in cost of doing business will be equally reflected in the cost of goods. Of course prices will have to drop somewhat to remain competitive but I think it’s a stretch to think it will be a 1:1 relationship.

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  17. Larry D. Burton

    Hank, these were studies pointed to on one of the FairTax forums over a year ago. I really questioned what I was hearing about after the embedded taxes being removed and the FairTax added it would be a wash. It was in those forums that I found that there was some hype being used in promoting the FairTax. What I found was that in reality I could expect to se a 12% to 14% rise in prices.

    That doesn’t bother me much because I can expect to see a 12% to 15% rise in my take home pay.

    I’ll look and see if I can find pointers to those studies again. When I do I’ll post them as an entry in this weblog.

    As far as taxing retirement income twice goes, I’m 52 years old and looking at retiring in some form before too long. I’ll pay it just to see our country move to a more reasonable form of taxation for my children and grandchildren.

    Besides, I have paid no taxes on my 401K but will have to pay them when I pull the money out. I’d rather not pay taxes on the money until I spend it and I’d rather have the option of keeping that money in my investments until I want to withdraw it, not when the government decides I need to withdraw it because I’ve reached some arbitrary age.

    The FairTax is a tax on lifestyle. The more extravagant the lifestyle the heavier the tax. The FairTax treats all businesses equally and removes the biggest source for corporate welfare. The FairTax will rejuvenate the economy by making our goods and services more attractive overseas and luring more overseas manufacturing investments to our country. The FairTax is a green tax in that it will encourage recycling of items rather than sending them to the landfill. The FairTax will encourage saving and investment.

    Is the FairTax perfect? No, but it still seems a far sight better than what we have now and better than the other alternatives being discussed. Again, I’ll look at some of the things you have brought up that I haven’t considered but for now I’m remaining a supporter of the FairTax. I hope you will consider some of what I’ve said and perhaps reconsider supporting it yourself.

    Larry

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  18. Dutchman3

    Ian, With all due respect, what the heck do you mean by “the current cost of compliance …remains an average 22% penalty on consumption”? I don’t get it. Compliance costs are around 2.5% of business costs for the 20 million businesses. Please elaborate.

    Regards, Hank

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  19. Dutchman3

    Larry, thanks for even considering my concerns. Sometimes I feel like I’m “shouting down a rain barrel”

    First, I’m confused over your math. If pretax costs fall 12%, then retail prices will rise by 14% (1.00 x .88 x 1.3 = 1.14). Next, if costs fall by 14%, then retail prices will increase by 11.8%. (1.00 x .86 x 1.3 = 1.118). And, by the way, if costs could fall 22% as Fairtax advocates erroneously seem to believe, then prices would still rise by 1.4%. I guess that’s close enough to say that prices would remain about the same? Except it isn’t going to happen. Is it really a good idea to alienate all the unions over existing contracts?

    Where have you seen a study that calculates just what business costs drop might be possible? I’ve seen none, so did my own based on available data regarding business tax and compliance costs. Came up with an optimistic 10%, but would love to see any other studies.

    Income tax refunds are not entitlements! They are simply refunds of overpayments made by folks that don’t seem to mind giving the federal government an interest free loan. The Fairtax prebate will appear in the federal budget as a cash grant entitlement–income tax refunds cannot be found anywhere in the federal budget. The argument that the prebate is like an income tax refund is just plain wrong. You can think of the prebate as anything you wish, but it’s still an entitlement. And, you really ought to be concerned over the growth of entitlements as a share of the federal budget. There is a budget train wreck coming, perhaps in my lifetime. In my opinion. the Fairtax is working the wrong problem. How about reducing federal spending as a priority?

    Finally, no one seems to consider the Fairtax from the retired perspective. Remember, I don’t pay any payroll taxes, so your rationalization about the whole thing being a wash doesn’t necessarily hold true for me. And there are a lot of seniors out there that tend to vote their pocketbooks!

    I look forward to any furthur comments or questions you may have.

    Regards,

    Hank

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  20. Ian from Ann Arbor

    The fact remains, gentlemen, that the current cost of compliance for goods *and* services remains as an average 22% penalty on consumption.

    Additionally, the exorbitant cost of compliance 0.25 – 0.5 trillion dollars is lost.

    Prices, under FairTax, will ultimately seek the price levels they will – however, the tax function will then align with economic growth, and not punish productivity.

    These are the salient, important points.

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  21. Larry D. Burton

    Dutchman, thanks for the comment. The one problem I have with most FairTax advocates is that they make it sound like prices will fall by about the same amount as the FairTax which will make it a wash.

    Studies I’ve seen show that under the FairTax prices will fall by around 12% to 14%, not the 22% Boortz wants us to believe. That equates to a 12% to 15% rise in the price we will pay for things. I figure by removing the income tax, social security and medicare from my paycheck I’ll see a 12% to 15% rise in my income so I figure this to be a wash.

    I don’t see the FairTax saving me a dime but I do see it making my life better. I see it as a way to improve the economic climate in this country and to make our products more competitive overseas. I see the FairTax as increasing overseas investment into manufacturing in this country and creating more jobs.

    I also see the FairTax removing a lot of corportate welfare which comes in the form of tax breaks for specific industries and, sometimes, for specific business entities.

    I’m not very concerned about the “$600 billion annual cash grant entitlement” that you say the prebate will create. After all, right now we are refunding over $280 billion a year and most people view this as a government entitlement. What’s another $420 billion when you are going to be collecting that much more than you collect now.

    You brought up a number of other concerns. Some I’ve looked at and dismissed, some that I haven’t considered yet and will take me a little time to check out. I appreciate your sharing these concerns with us.

    I’m still a strong supporter of the FairTax but I believe that we still need to be looking real hard at it to make sure it is what we think it is. The current system is none to my liking at all and the FairTax isn’t a perfect replacement for it. Still it’s the best one I’ve seen offered yet.

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  22. Dutchman3

    Well, since you asked,there is so much wrong with the Fairtax plan, it’s hard to know where to start. For openers, the previous blog is shot full of errors which the author continues to spread, even knowing that the facts rebut his voluminous claims.
    Prices will not remain “about the same” unless he qualifies that untruth by adding that everyones current net pay will become their future gross pay–a sizeable pay cut which he doesn’t want to talk about. Jorgensons 1995 study did indeed conclude that there is an average of 22% in embedded costs of the income tax system in producer prices, but he has long ago confirmed that the 22% includes employee payroll and income tax withholding amounts. Two thirds of the 22% are employee costs, and it’s very unlikely that there will be a massive pay/pension cut due to fairness and contractual reasons. So, the best one can expect business costs to fall is around 10%, and after adding the 30% sales tax, prices at the cash register will be up 17%. (1.00 x .9 x 1.3 = 1.17)
    Contrary to Fairtax advocates assertions, the prebate does not make the Fairtax “progressive”. Sales taxes are by rigid definition regressive, and the prebate simply moves the point of regression from zero to the poverty level.
    The prebate is an estimated $600 billion annual cash grant entitlement which the nations current budget mess can ill afford. Adding the prebate to the mandatory spending side of the budget accelerates the coming federal budget train wreck as entitlements squeeze out discretionary spending including National Defense.
    As for all of the very nice sounding professional studies that Fairtax advocates like to quote, please understand that the studies didn’t include any evaluation of current retirees, didn’t include the 17% price increase, and didn’t assess the 30% increase in state/local taxes. Yes, state and local taxes will rise by 30% in order to pay the federal sales tax on state/local operations. And that, my friends, will be found to be unconstitutional under the doctrine of intergovernmental tax immunity. One sovereign power (federal) can’t tax the other sovereign power (states) under our republican form of government. (The government consumption improperly in the Fairtax consumption base reduces the Fairtax rate by around 6%.)

    What else is wrong? Well, did you know that all retirees, after paying into the Social Security trust funds for all their working years, and now receiving pensions and healthcare benefits as promised, will have to resume paying into the trust funds with their sales tax dollars? Is that fair?
    Did you know that the prebate feature will create a class of an estimated 30 million workers that may never pay any net federal tax, yet will still receive their full SS benefits? Is that the kind of socialist government we want?
    Did you know that effective tax rates for many Americans would be lower under current law? And did you know the purchasing power for many Americans would be higher under current law?
    Do you understand that all after tax savings, including Roth IRA’s, will essentially be double taxed?
    Are you aware that Fairtax claims of “Transparency” is a myth? How can it be a simple, transparent tax plan when 25% of the cost to fund the federal government is hidden in higher state and local taxes?
    Have you looked at your budget to see just how much “used” purchases might save you? There are no used services, which make up half of everyones consumption budget. No used groceries, no used gas or heating oil, no used restaurant meals, nothing used in Wal-Mart, etc. etc. The opportunity to buy used is limited basically to houses, cars, boats, and other infrequent purchases. And, while you won’t be sending any revenue off to the federal government when buying used, don’t expect to save any money over the current benefit of buying used. The “embedded cost of the Fairtax” will be included in any resale transaction. Basically, you will be helping the original buyer offset some of the sales tax. There is no “free lunch”!
    There is lots more to criticize, but this post is already too long. I’d be glad to back up any of my criticisms with study data if desired. As Boortz says, don’t believe anything you read or hear! Do your own homework and make up your own mind. In other words, “Don’t drink the Kool-Aide!”

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  23. Ian from Ann Arbor

    Prices AFTER FairTax would look SIMILAR to prices BEFORE FairTax – NOT 30% HIGHER. This is because FairTax removes the cost of business income and payroll taxes currently embedded in prices. Economist Dale Jorgensen, Harvard University, was commissioned to find out what portion of prices were represented by costs for complying with the federal tax code. The figure he came up with, on average, was 22% at the retail level – a “hidden consumption tax,” on top of income tax and FICA.

    The FairTax rate on new items would be 29.9% on prices – declining 20% to 30% – or 23% of the “tax inclusive” price tag (comparable to how INCOME tax is figured, i.e., parts of a total dollar earned). Eliminating income and payroll taxes on business, as FairTax does ( http://snipr.com/irsgone ), reduces the cost of doing business and attracts competition to the market space – driving out excess profit.

    In order to make FairTax a progressive consumption tax (such as that called for, recently, by Warren Buffett), citizen families are simply sent monthly “consumption tax allowance,” called a “prebate.” This prebate is intended to reimburse taxes on necessities 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 (legally, and illegally) will pay the FairTax when they purchase anything new, at retail (used goods do not carry the tax). 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. They will tend to use credit less, and they’ll save more. Saving more will make it easier to purchase a home, at a lower interest rate and monthly payment – thereby offsetting the mortgage deduction under the former income-based system.

    But is FairTax “fairer”? To provide substantive answers, Prof.’s Kotlikoff and Rapson (10/06) have concluded ( from http://snipurl.com/kotcomparetaxrates ),

    “…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 (circa 2006? http://snipurl.com/kotftmacromicro ),

    “…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.”

    As well as being less-equitably supported, the current income-based tax system is 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 (that’s 53%!) of Washington lobbyists are there because of the tax code! This changes the tax code, continually, and makes it more difficult to understand. And, the salaries and costs of tax lawyers and lobbyists end up in the 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 recreation, activities. Depriving us of the use of withheld wages increases our expenses through zero-interest holding, 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 depending on the extent to which tax-avoid11:26 PM 12/2/2007ance 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 MOST of it for non-business-owning, wage-earning Americans.

    Many of us have joined together to form FairTax.org ( http://snipr.com/becomeamember ) in order to build a national movement to free ourselves, our family pocketbooks, and our businesses by ending confiscation of income, and punishing productivity, choosing rather to pay for government in the same manner that working Americans are – when, and because, something is sold. This aligns the tax function with economic growth, not against it.

    And this we say to our federal representatives, “Either scrap the code ( http://snipr.com/scrapthecode ), and enact the FairTax, or we intend on replacing you with someone who will.”

    It is our belief 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 penalties to personal sacrifices). Nor do we want politicians to pit individuals against business so as to encourage entrepreneuship and reward.

    Now, tell me, where is the downside?

    (Permission is granted to reproduce in whole or part. – Ian)

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  24. Mitch Aydlette

    What are the perceived weaknesses of the Fair Tax in the eyes of its opponents? I do not see a downside. What about its effect on the housing market and on the market value of houses that are owned now? How about the effect on interest and real estate taxes?

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