Aftermath of the Fair Tax
Disclosure: I like the simplicity of the Fair Tax. I think our tax system is broken and needs to be fixed. I am not an advocate for the 16th Amendment, but I want further educated discussion on all aspects of the Fair Tax. Gov. Mike Huckabee is promoting this. I prefer Romney’s fix the inefficiencies verses throwing out the baby with the bathwater.
Most of us agree that the problem with invading Iraq was that we did not plan or think deeply about the aftermath especially planning for all the potential down sides. I think this is what is happening with the Fair Tax movement. There is an easy to follow reaction to throwing away an inefficient and complicated system for a new simple solution. The problem is that if we do not pursue all avenues of preparation and thought of the inherent weaknesses of a new system, then we are bound to hit most of the potholes in the new path we’ve chosen, we could do to our tax system what we did to Iraq if we’re not careful, prepared and take the time to come up with solutions to the problems such a simple system may produce.
I will not discuss all the pros of the Fair Tax as those have been addressed many times and in many forums. I’d like to bring up several of the cons to the Fair Tax and seed a discussion which may help us be more prepared if we choose to go down such a path. These are the issues I’d like to start with:
1. Where does the motivation go?
2. Burden of enforcement
3. How do we fix it?
4. Short term inflation
5. Services taxation
6. Internet taxation
Where does the motivation go?
Never loose sight of the motivations of demand. We tax what we want to reduce and deregulate what we want to increase. Gov. Mike Huckabee says,
We will have the Fair Tax, a simple tax based on wealth…. The tax will apply only to new goods, so we can reduce our taxes further by buying a used car or computer…. Our current progressive tax system penalizes us for our success…. The Fair Tax is also progressive, but it doesn’t punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards them.
These comments concern me because they seem wrong or misguided. The Fair Tax is not a tax based on wealth, our current system does that. The Fair Tax is a tax on purchases of new products. I could be a Millionaire and buy the same level of new products as a middle class person. The current system does penalize success, but so does the Fair Tax. I hold fiscal success as a measure of what is my standard of living. If I choose to increase my standard of living whether by income or by loans, the Fair Tax is there to penalize it.
The Fair Tax does reward thrift and that is part of the problem. Each new product will have 23% tax added to the cost the consumer pays. Remember to add in the 5 – 7% local sales tax, and we’re at roughly 30% taxation on new products. This penalizes the consumer. Why do Fair Tax folks think demand for new products would be maintained at a 30% increase in price? Oh that’s easy, because there is more money to throw at the new products. Wrong, and that is the problem. The motivation of the consumer is to get the best bang for the buck and now the motivation is to buy 30% cheaper used products than new products. Would that mean that no new products are sold? No, but if the Fair Tax becomes law, I’m laying out some serious cash for EBay stock.
The demands for used products are pushed up by a 30% motivation and the demands for new products are reduced. This will cause manufacturing and retail of new products to be reduced also. By how much? We don’t know, but don’t be surprised by the layoffs. This punishes our new product economy for a used product economy and increases the motivation to thrift and savings which takes money out of the market.
Burden of enforcement
What burden of enforcement is there for the Fair Tax since retailers are already paying local sales tax? When you analyze the risk for fraud always follow the money. Let’s imagine the economy stays strong with the Fair Tax and demand for new products is the same as today. In that scenario, you’ve just put 23% more revenue into the registers of all retailers. That’s 23% more money that needs to be tracked, accounted for and reported to the Federal Government. If the money is there, the motivation is too. I have heard that Europe has been using a flat tax for 8 years now. I’ve also heard that the estimated loss of revenue to fraud is currently at $250 billion dollars with a B.
If a shop owner wants, it is very easy to keep 1 out of 10 sales off the books and pocket the full revenue including tax. This is exacerbated by cash sales. Hiding 10% of product sales and pocketing the cash is a strong motivation to do what MP3’s did to CD’s. So who would make sure the retailers are keeping honest with the sales figures? Just ask Gov. Huckabee. Oh wait! He fired all the IRS auditors. Without them, there’s no one to watch the store receipts. Now no one is enforcing honesty in the new system. I don’t think it will be too long before we can’t afford to not have the STP (Sales Tax Police). The ironic thing is with the Income Tax system you have Income reported through companies and through the employee’s Tax Return filing which acts as an accounting check and balance in the system. The Fair Tax only has the filings from the retailer which increases the risk for fraud as there would be no check or balance to those figures.
How do we fix it?
Any simple system is always cheaper to maintain than a complex one. Let’s imagine that my concerns for fraud are unfounded. That we wouldn’t soon realize that we need the STP to audit and watch the retailers to maintain honesty and that the cost for such would be more than the IRS because there are no checks and balances in the Fair Tax system. With those concerns aside, how do we fix it if it fails or starts to fail to raise enough revenue for our needs? What if we’re attacked by Iran and N. Korea, how do we produce enough revenue for the efforts our defense would require? Would we lower the 23% to stimulate the economy like the supply siders would do? Would the government raise the rate to pay for our needs? Either one has problems. If you lower the rate from 23% to 22% then the GDP must increase by 5% to break even in revenues generated! That’s an astounding level of production increase even for our country. What if you raise the rate from 23% to 24% to raise additional funds? This will reduce demand and slow the economy. But the US economy can slow up to 4% before you break even in total revenues. Thus, I believe there is a high motivation to raise the overall rate and risk slowing the overall economy over lowering the rate and hoping for massive GDP increases to raise government revenue. That is a scary motivational risk especially with Democrats in control of Congress.
Short term inflation
I wrote about implementing a Flat Tax for a high school assignment and the one thing I kept coming across as a negative was the short-term inflation that occurs when such a system is implemented. Not only are the prices 23% more expensive, but there is uncertainty in the market. The retailer is uncertain how much cost it will be for them to implement the new transactional tracking system in hardware and labor. That uncertainty causes the retailer to raise their base level price for a product until they have a good feel for the exact cost in system implementation and transactional tracking. The raising of prices occurs across the board so the fluidity in pricing causes an increase in inflation that the Fed will have no control over. This should subside after a year, but the damage is done by then, the economy will have slowed because of it. Add to this the slowing of purchases as discussed in the motivation of demand and more consumers will seek out the used products which will result in layoffs of manufacturing and retailers of new products. I will hold off on discussing the added motivation for retailers to spend marketing dollars on their products abroad and export them since it’s 23% cheaper minus any tariffs, but needless to say the Marketing Industry in the U.S. may be affected.
Services taxation
According to the Fair Tax Folks:
Service providers are not exempt from the income tax today, and should not be exempt from the FairTax. Services now account for well over one-half of the gross domestic product (GDP). Neither consumption of services nor consumption of goods should be tax preferred. And it is economically foolish not to tax the fastest growing segment of our economy.
This is not a simple issue to be glossed over. Not only are all new products taxed, but Gov. Huckabee fails to disclose that all services are taxed too! This means if a company does a service for another company, called B2B (Business to Business). Then the Business purchasing the service must pay the 23% tax too. People may think that the Corporate Income tax dissolving is a magic bullet for pricing, but I’d argue the taxation of B2B services will push those prices right up there for some products that require services from multiple companies, especially if it’s a stove pipe tier of services that feed into a product’s cost.
The Fair Tax folks say it’s not VAT. But I’m curious where do you draw the line? Do we tax the Geeks Squad for providing computer help and not tax Deloitte & Touche for bookkeeping work? From the statement above verses their statement of no complicated exceptions, I don’t see how this can not turn into a Value Added Tax (VAT).
Internet taxation
By any other name the Fair Tax is the back door for the government to implement Internet taxation. The congress is weighing the policies in regards to Internet taxation, and I urge you to contact your congressmen about this important issue. The Fair Tax not only opens the door to taxing products sold over the Internet, but it may also provide the means for Local Sales tax advocates to jump on the system. This is something they have been fighting for and wanting for over six years now. Not only do you have to pay for the new item, it’s shipping, but tack on the 23% and possibly soon to be added local sales tax to items you currently do not pay any taxes on now. But don’t worry; you have more money without Income Tax being levied. But what if I’m currently in a 15% tax bracket? Then that 23% sales tax minus poverty level reimbursement sure feels like a middle income tax hike to me unless that reimbursement is equal to or more than the equivalent of 8% of the sales price and that’s if I do not take any deductions on my Tax Return.
Conclusion
Is it worth it for the simplicity of a new tax system and the destruction of the IRS for the pros associated with the Fair Tax? Maybe, but I haven’t even begun to hear an educated discussion on the cons of it. I know there are plenty more concerns than just those I’ve raised here. The Fair Tax is esteemed as a great idea now, but so was invading Iraq in 2003. Maybe the Fair Tax can become a solid solution with thought, planning and adjusting for life, because as we know, life isn’t fair.
May 30th, 2007 at 3:41 pm
“Why do Fair Tax folks think demand for new products would be maintained at a 30% increase in price?”
There will not be a 30% increase in price because of the embedded taxes already included in prices. These embedded taxes on retail goods adds up to approximately 22%; this 22% price hike is caused by business tax-code compliance costs. So the price will remain roughly the same as it is now (23% - 22%). And since the amount of money consumers have will go up, so will consumer spending on new products.
“you’ve just put 23% more revenue into the registers of all retailers”
Same thing, with embedded costs removed, the price remains the same.
“That’s 23% more money that needs to be tracked, accounted for and reported to the Federal Government.”
A) Businesses making more money is not a bad thing.
B) Fraud is always possible. However, with a tax code as large as it is now, there are many more loopholes and thus possibilities for fraud. Fraud will decrease because the tax is calculated simply by a cash register, not by an complicated elaborate process.
“He fired all the IRS auditors. Without them, there’s no one to watch the store receipts.”
Yes. The IRS will be gone. However, there is already a system in place in most states to collect sales tax. The state’s sales taxing authority will collect the tax from those retail businesses and retain a ¼ of 1% of all taxes collected as their administration fee. With less than 16 million businesses to collect from, the states would have an easy time policing tax collection as they already have the agencies in place for that purpose.
May 30th, 2007 at 5:09 pm
“Would we lower the 23% to stimulate the economy like the supply siders would do? Would the government raise the rate to pay for our needs? Either one has problems.”
That’s exactly the same as now. Raising or lowering taxes has effects, that is true. Because of this, we put Congress in charge to decide our tax rate. Except under the FairTax, the rate is completely transparent. Consumers know exactly how much more or less they are paying at the register because it shows them on the receipt. Prices won’t be effected by embedded taxes and taxes won’t be escapable with as many loopholes.
“All services are taxed too! This means if a company does a service for another company, called B2B (Business to Business). ”
While this sentence is a fragment, I assume you are trying to say that business to business services are taxable. They are not taxable under the FairTax. In the same way businesses don’t pay taxes on raw materials with which they make their goods, businesses do not pay taxes on services used to produce the goods. This avoids the embedded taxes that raise the prices of all of our goods under our current tax system.
“the Fair Tax is the back door for the government to implement Internet taxation.”
While it is true that the FairTax does implement Internet taxation, that should not be seen as a bad thing. All new goods are taxed; why should the method of purchase matter? Internet taxation would not reduce Internet spending at all. The reason consumers shop online is the convenience. Consumers are able to shop at their leisure on their property whenever they have free time. They aren’t dependent on store hours and don’t have to spend money on gas to get there. The product also ships right to their door. In addition, as I said before, prices online will not rise because their embedded taxes will be removed, reducing the before tax price.
“Is it worth it for the simplicity of a new tax system and the destruction of the IRS for the pros associated with the Fair Tax?”
Those are both pros for the FairTax! The economy boom that will result after the implementation of the FairTax is definitely worth a change in our tax strategy. More money in my pocket and everyone’s pocket will make our nation more prosperous and a better place to live.
“Maybe the Fair Tax can become a solid solution with thought, planning and adjusting for life, because as we know, life isn’t fair.”
Life is most certainly not fair now with the tax code as it is. We should strive to make life as fair as we can; one economically-proven way to do so is to pass the FairTax.
May 30th, 2007 at 8:26 pm
Under services above, you state that B2B services will be taxed and thus lead to a VAT-like tax on a tax. That is factually incorrect. B2B services are not taxed.
May 30th, 2007 at 8:43 pm
Hi DavidFL10,
Forgive me for my confusion in regards to services. Can you explain to us what the exception to the rule is? The rule is that services will be tax. This is stated on the Fair Tax website. If I provide a service then who is taxed and who isn’t? This can get confusing. Is the rule that only retailers of services tax their services and services provided to businesses are not? Then what is there to stop any Tom, Dick or Harry to setup a Business License ($10 in my county) and hire Geeks Squad to do IT work for them and not be charged the 23% tax?
May 30th, 2007 at 8:50 pm
David,
For that matter if no services or products are taxed when sold to businesses like in a VAT tax system, then why can’t I buy everything with my newly form business and bypass the 23% tax? I’d never have to pay the 23% tax since I unethically justify that those purchases are going into my business. Who would enforce these rules as Gov. Huckabee promotes dissolving the IRS? Now along with my existing concerns for fraud, I’m concerned about relatively uncreative folks skirting around the 23% tax.
May 30th, 2007 at 9:22 pm
Nathan,
You’re trying to discuss compliance as an issue when it comes to the FairTax?
Have you looked at the BASIC numbers?
1.) The Income Tax has 140 million tax filers. The FairTax would have 20 million assuming all business are retail operations. That in itself is roughly a 90% decrease in the number of tax collection points to police.
2.) From linderfairtax.house.gov: “The Department of Commerce reports in its most recent Economic Census that just 688 retailers (0.03%) in the U.S. make 48.6% of all the sales. Just 3.6% of retailers collectively make 85.7% of all U.S. sales. Fewer points of collection will mean higher compliance with the FairTax than with today’s complex system.” Most of the revenue would come from a small concentrated sector of retail. According to these numbers, you could basically have 96.4% non-compliance and still raise 85.7% of the revenue it intends to collect.
3.) Do you realize that the last tax gap on the Income Tax was $350 Billion?
4.) Do you realize that our punishing tax code has caused approximately $9 Trillion to be stored in off-shore financial centers to escape the tax code?! I think that number might actually be $11 Trillion, but good God somewher in the neighborhood of $10 Trillion in OFC’s?!?! Isn’t that what the size of our GDP is?
5.) Do you realize that $500 Billion in our economy is wasted simply to COMPLY with a 70,000 page tax code?! The Bible is only 1500 pages. $500 Billion is equivalent to the GMP of New York City.
6.) Do you realize that it takes 6 billion man hours to comply with the Income Tax code? This is a full-time work force of nearly 3 million people wasted in one year to comply with the tax code.
7.) Do you realize what the IRS actually does and what they cost us?!
Have you even read the FairTax Book?
Forget about Huckabee. I’m voting for a candidate who is already BEYOND the FairTax and that man is none other than the only Constitutionalist running for office, RON PAUL.
May 30th, 2007 at 9:49 pm
The FairTax does tax all goods and services once, when final consumption takes place; that is when the good or service is sold to the end user, the consumer. Business to business sales are not final consumption. They are intermediate consumption. What the business buys to produce the good or service it sells to the consumer is not taxable because its cost will be built into the retail price charged to the consumer which is taxed. Taxing business purchases would cause tax pyramiding or cascading – levying tax on a tax. Most state sales taxes do this which is a bad thing which is harmful to small businesses because they have to purchase many more services that large businesses who have someone on staff to do it.
In regard to the second point about scam businesses, the FairTax has several features that make it difficult and very risky for persons to have a scam business in order to purchase items tax-free. First, in order for any person to purchase items tax-free for business purposes, the business has to be a registered business and possess a registered business certificate issued by the state sales tax authority. Registered businesses will be expected to file monthly or quarterly sales tax returns with the state if retail sales are made. The registered business certificate will enable the business to purchase tax-free from wholesale vendors, but the wholesale vendor must retain a copy of the registration certificate to justify not having collected tax on the sale. When a business purchases items for business use from a retail vendor, it will have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return. If the business has no retail sales it will receive a cash refund. The business must keep invoices/receipts to document what it purchased, the amount of the purchase, and the business purpose.
Also, registered businesses will be subject to the possibility of being audited by the state sales tax authority. During such an audit they will have to produce the invoices for all the “business purchases” that they did not pay sales tax on, and will have to be able to show that they were bona fide business expenses. If they cannot prove this, then they will have to pay the taxes that should have been paid when the items were purchased, plus interest, and penalties. The probability of being audited will be much greater than it is under the current system with its over 140 million tax filers. Under the FairTax, there will be less than 20 million businesses who will be filing sales tax returns and thus subject to the possibility of being audited. Thus the probability of tax cheats getting caught will be much greater than it is today, making tax evasion riskier than it is today. Additionally, while the FairTax has much stronger taxpayer rights than does the current tax system, the FairTax legislation provides for a number of fines and penalties for non-compliance. It also authorizes a mechanism for reporting tax cheats and obtaining a reward. An example would be 1-800–TAX-CHET.
Another potential scam is to have a “fake” family business in order to buy things for family members tax-free. The FairTax has a specific provision to prevent this. Although it does not prohibit businesses from providing taxable property or services as gifts, prizes, rewards or as remuneration for employment; the gift, reward, etc. is considered to be the conversion of property or services from business use to personal use and therefore taxable. Likewise, there is a similar provision to prevent abuse of employee discounts. Under the FairTax, employer-provided employee discounts over 20 percent are taxable. The term “employee discount” means an employer’s offer of taxable property or services for sale to its employees or their families for less than the offer of such taxable property or services to the general public. If the employee discount amount exceeds 20 percent of the price to the general public, then the sale of such taxable property or services by the employer to the employee is considered the conversion of property or services to personal use and subject to tax. The taxable amount is the amount by which the discount exceeds 20 percent of the price to the general public.
May 30th, 2007 at 9:58 pm
Nathan, regarding your second post above, the FairTax will be administered and enforced by the state sales tax authorities (a federal-state cooperative program like this is already in effect in all 50 states for the unemployment tax system). In return, the states will get to keep an administrative credit equal to .25% of what they collect which would amount to about 5 billion for all 50 states. The states have been collecting and enforcing sales taxes for about sixty years and have developed considerable expertise. The IRS has no experience with sales taxes. The states will be able to collect the FairTax in conjunction with their state sales taxes.
And by the way, while I like Gov. Huckabee and I am thrilled he has called such unprecedented attention to the FairTax, the proposal is not “his” perse. You can get more information about the proposal from FairTax.org–the website of Americans for Fair Taxation.
David FL10
May 30th, 2007 at 10:40 pm
“I am not an advocate for the 16th Amendment….”
Then you should be an advocate for the FairTax, the only tax reform proposal with any political traction which would survive a repeal of the 16th. Stated another way, the only realistic way of repealing the 16th is to pass the FairTax.
May 30th, 2007 at 10:55 pm
RonPaul Rev is correct in pointing out the many reasons that compliance will be higher under the FairTax than under the current system. However, one very big one that he left out is the enormous simplification which the FairTax would cause.
The current system, according to CCH, is over 67,000 pages (including the Code itself, IRS regs, Treasury Dept Rulings, etc.) and the FairTax is around 140 pages. That is about a 99.8% simplification if you accept the number of pages in the system as a reasonable approximation of its complexity.
That is HUGE. Not only are we significantly reducing the number of points of collection/enforcement, we are also dramatically simplifying the system being administered. The combination of those two will be very powerful and will create a situation in which enforcement resources can be targeted and focused much better than under the current system.
May 31st, 2007 at 1:12 am
I am shocked that you would write a blog like this. I am network engineer and if I was to ask a silly question the reply I would get would be to RTFM. I suggest going to Amazon.com and buying a copy of the Fairtax book.
If you don’t want to read the book, then I would recommend contacting Rep. Linder and seeing if you can set up and interview to voice your concerns. It is really disappointing when people write articles or talk about the Fairtax and they know nothing about it. Research is key to not look a fool on something you know absolutely nothing about.
Josh
May 31st, 2007 at 4:37 am
Nathan,
You have not throughly educated yourself about the Fairtax. I suggest that you purchase a copy of The Fairtax Book and read it cover to cover. If after doing so you can come back and still say you have the same concerns you stated in your original post, then we can have an intelligent discussion. At this point, you are embarrassing yourself with the uneducated comments you are making. The Fairtax legislation is probably the most throughly researched and thought out bill ever put before the Congress for consideration. The grassroots support for it is huge and growing everyday. Read the book, then let’s talk.
Tom
May 31st, 2007 at 7:20 am
I know this is an unofficial website, but if your thoughts on the FairTax are consistent with Romney’s then he just lost the vote of everyone in my family.
May 31st, 2007 at 9:56 am
Nathan clearly has the disease that many writers have; likes to write more than he does think. The last few posts have clearly pointed out Nathan’s failure to study before he takes the test! While the FairTax may have a few weaknesses, none of them can compare to the abominable system in place today.
May 31st, 2007 at 10:38 am
The FairTax is not portrayed to be a tax on wealth and it is not, neither is the current tax system. Under the current system someone can be wealthy but only convert a portion of that wealth to taxable income. In addition, the current system allows some to keep their wealth in off-shore accounts that are drawn from using an ATM card here in the US, at which point the tax free money is presumably spent on retail goods. Lastly on this opening statement, to measure success by the standard of living is a dangerous datum. We all know of the debt to savings ratio of Americans and it is the use of a “standard of living” datums that leads to such inverted ratios.
Right out of the gate in your 3rd paragraph under “Where Does the Motivation Go” you mis-state a component of the FairTax. Tax inclusive… tax inclusive… say It with me… tax inclusive The tax will not be ADDED to the price, it will be INCLUDED in the price. Not only would the tax be included in the price but the removal of the embedded taxes will allow the competitive forces of the free market to reduce the retail price such that the tax increase will be marginally noticeable. I digress for a moment to correct a mis-representation widely accepted by FairTax supporters. Many supporters will repeat Boortz’s fallacy that removing embedded taxes will reduce the price of goods AND allow people to take home their full paycheck. Simply put, the savings from the removal of embedded taxes cannot be doubled to replace taxes paid by the employee/employer, and then used again to reduce the retail price of goods. It will be a mixture of the two, or all of one and none of the other. With that said I will reevaluate your statement in regards to lost manufacturing of new goods. If prices remain relatively unchanged, after competitive forces push retail prices down to equal the embedded taxes and we are still bringing home the same amount of money, why would we change our shopping habits. Also, by intentionally ignoring the pros you have come to a conclusion of layoffs, without realizing one of the ignored cons would work against such an occurrence. By removing the enormous tax code compliance burden from businesses involved in the process of producing retail goods you would essentially set up a business mecca here in the US and that would far offset any layoffs you predicted.
Mr. Waite, the current system is cheated by people claiming non-business expenses as business expenses and they do this at the risk of great consequences. The same will occur in any system of taxation, but under the FairTax the tax base will be greatly expanded.
I don’t have the time to hang around but would like to say; I am pretty well educated in micro and macro-economics, have been researching this consumption tax for nearly a decade now and I recommend Mr. Romney look into this seriously. The republicrats have nothing to hang their hats on in this election and by ignoring their “Contract With America” they essentially spit in the face of those that elected them. People don’t like to be spat on and the republicrats better heed this; I now call them republicrats because they have taken too much to the vote buying schemes of social dependence and until they drop those tendencies their moniker will always end with “rat”, whereas, it used to end with “can”.
However the republicrats need not make this “their” issue, at the exclusion of democrats, because it will take both parties and both parties will experience benefits from its enactment. I believe i to be a Pareto Efficient idea, but unfortunately it is very complex and takes a lot of power away from K-Street and their politicians.
May 31st, 2007 at 10:56 am
Why aren’t we talking about one of the best reasons for FairTax? It eliminates the EasyAccess procedure for congress to get votes and contributions by making changes. That’s why we we have a 70,000 page system that NO ONE understands.
May 31st, 2007 at 11:22 am
To: Nathan Waite
Re: Aftermath of the Fair Tax
You said “I prefer Romney’s fix the inefficiencies verses throwing out the baby with the bathwater.”
It is time to throw out the baby with the bathwater.
It is time to throw out the baby (IRS) with the bathwater ( income tax)
I know some people have trouble understanding the FairTax. And why not, we have been taxed on income for what seems like forever. (or since 1913).
Most objections to the FairTax apply to the short run and are completely overcome by time and economic activity.
I have found that most negative comments are caused by:
1. Thinking the FairTax is on top of and income tax and not realizing the huge economic benefits of the removed tax. Income-taxes = spending VS. Income = spending + taxes
2. Evaluating a consumption tax with income tax rules as in perceived fairness. They fail to see that “spend more pay more” is progressive.
3. Using a static view instead of a dynamic view. The static view compares the current “poor” to the current “rich”. It compares young beginning workers to those who have been working for 20-30 years. The dynamic view “sees” right through the rich vs. poor class warfare.
4. Those who’s jobs, income, or power are threatened by it. This would be career politicians, lobbyists, tax lawyers, tax accountants, the non working rich, IRS agents, and illegal aliens.
5. Those who just don’t know better than to parrot some party line.
Remember, Production - Itaxes = (Labor x Capital) + Itaxes.
Remove income taxes from labor and capital, and production increases.
Production = (Labor x Capital)
It is interesting to know that much of the FairTax economic studies come from Romney’s own State of Massachusetts. Mitt Romney is currently at the top of my candidate support list and I hope he will take the bold move supporting the FairTax rather than a short term easy fix.
Let me urge all to read more beyond Huckabee and the FairTax Book:
America’s Best Kept Secret FAIRTAX
https://secure2.convio.net/afft/site/Ecommerce?VIEW_PRODUCT=true&product_id=1066&store_id=1161&JServSessionIdr007=qhjzw54ro1.app1b
The Secret Chamber or the Public Square?
https://secure2.convio.net/afft/site/Ecommerce?VIEW_PRODUCT=true&product_id=1067&store_id=1161&JServSessionIdr007=qhjzw54ro1.app1b
This one can be a snore, but hone in on chapters 6 and 8
From both of these other books look in the footnotes and Google the papers.
Opposing congressman will refer to the “JCT and the “CBO”. Read “The Secret Chamber or the Public Square?” and you will be able to counter them.
A MACROECONOMIC ANALYSIS OF THE FAIRTAX PROPOSAL
February 2006 http://www.arduinlaffermoore.com
©2006 Arduin, Laffer & Moore Econometrics. All rights reserved.
Taxing Sales under the FairTax – What Rate Works?
http://people.bu.edu/kotlikof/BHI-LK%20Taxing%20Sales%20under%20the%20FairTax-%20What%20Rate%20Works%209-25-06%20FINAL.pdf by Paul Bachman
Director of Research, Beacon Hill Institute, Suffolk University
Jonathan Haughton Associate Professor of Economics Senior Economist, Beacon Hill Institute
Suffolk University
Laurence J. Kotlikoff Professor of Economics, Boston University
Research Associate, National Bureau of Economic Research
Alfonso Sanchez-Penalver Economist, Beacon Hill Institute, Suffolk University
David G. Tuerck Chairman and Professor of Economics
Executive Director, Beacon Hill Institute Suffolk University
September 2006
Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation by
Laurence J. Kotlikoff Professor of Economics Boston University
David Rapson Doctoral Candidate Boston University Revised October, 2006
http://ideas.repec.org/p/nbr/nberwo/11831.html
Tax Incidence, Tax Burden, and Tax Shifting: Who Really Pays the Tax? http://www.heritage.org/Research/Taxes/cda04-12.cfm
by Stephen J. Entin
The Correct Way to Measure the Revenue Impact of Changes in Tax Rates May 3, 2002 http://www.heritage.org/Research/Taxes/BG1544.cfm by Daniel J. Mitchell, Ph.D.
The Required Tax Rate in a National Retail Sales Tax William G. Gale http://www.brookings.edu/views/articles/gale/199909.pdf
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036
The National Sales Tax: Who Bears the Burden? by Gilbert E. Metcalf
http://www.cato.org/pubs/pas/pa-289.html
Gilbert E. Metcalf is an associate professor of economics at Tufts University and an economist with the National Bureau of Economic Research
Ashford Schwall aschwall@comcast.net
May 31st, 2007 at 11:40 am
I’m a 67 year old republican who is strongly in the Romney camp for ‘08 —- and has voted in eleven presidential elections….
I’m also a VERY STRONG SUPPORTER of the FAIRTAX and what it will do for America! Why someone with Mitt’s grasp of the issues would attack the fairtax to score political point with the uninformed, is very disappointing.
I may be forced to jump ship — please email me and tell why I should continue to support Mitt….
Clint in Mississippi
May 31st, 2007 at 11:54 am
Mr. Nathan Waite does not consider some major cause-and-effect factors in his “analysis” of HR-25 that would replace all federal taxes with a single national sales tax on new goods and services. For example, he says people will seek out used goods (and therefore not buy new goods) and put new good suppliers out of work. Wrong-wrong. The price of used goods will rapidly rise with the demand and people will buy the marginally higher new goods. Used goods wear out. Because of our current tax structure we produce few goods anymore, our companies have mover off-shore, and Congress has become “whores” to the lobbyists. HR-25 is rare in being simple (little or no loop-holes) and a careful read would counter the “points” of Mr. Waite.
May 31st, 2007 at 12:14 pm
Nathan P,
I’ve wondered about the point you raised before, re: boortz fallacy, and I’m still not certain.
I do know, though, that the pay raise and the price drop aren’t necessarily exclusive to each other. Keep in mind that the pay raise doesn’t require the employing company to earn any extra money (aside from matching payroll taxes dropping off). That side of the equation simply goes withholding —> your pocket.
The price drop bit, I -think-, comes from no more corporate income tax, no more compliance costs, no more capital gains tax, etc. and NOT from the ‘take home your entire paycheck’ bit.
Just my 2 cents,
Jeremy
May 31st, 2007 at 1:41 pm
“The retailer is uncertain how much cost it will be for them to implement the new transactional tracking system in hardware and labor.”
Whatever the cost of implementing the new system will be, it will be absolutely dwarfed by the enormous complaince costs savings caused by removing the current system.
May 31st, 2007 at 1:42 pm
complaince should be compliance
May 31st, 2007 at 2:58 pm
Jeremy, movements get rich when deposits are made in 2 cent increments.
I too have a little trouble wrapping my head around this specific portion, because of all the variables at play. Try to follow my convoluted writing that follows my convoluted thinking. To me, the largest variables at play are; the expansion of the tax base, removal of the currently embedded taxes and the FairTax being revenue nuetral.
Now, in order to be revenue nuetral the bloated gov’t has to take in the same amount as it does now. So, where does the tax revenue come from now? I assume we all know business taxes are in reality paid by the individual consumers but the individuals are currently paying taxes on their income, as well as the taxes embedded in the retail price of the goods they consume. Now, it seems logical that once the embedded taxes are removed from the production process and the inclusive tax is reinserted, then the actual price of goods will remain the same. Since the FairTax is revenue nuetral we have now repositioned the embedded taxes, but the income tax portion of the federal money hole is still lacking. Perhaps the expansion of the tax base would make up for this shortfall, but I just don’t feel confident in that.
You know Jeremy, it is really a complex macro-economic idea and when economies get as large as ours it is really difficult for me to feel one hundred percent confident in my predictions. The nuts and bolts of why I mention the Boortz fallacy is because I am skeptical of that portion and I am sure others will be as well. So, I prefer to sell it as the worst I think it will be. My dad always told me “plan for the worst. That way you can only be surprised” I firmly believe if we implement the FairTax and there is one negative hic-up during the transition period the politicians will quickly retake their power. Not to mention, if there is a single piece of low hanging fruit for the detractors to grab and use to discredit the FairTax they will do just that. We FairTax supporters must inform the people of that low fruit, so when they come to pick it they will see the bountiful harvest waiting in those hard to reach branches.
May 31st, 2007 at 3:14 pm
Clint in Mississippi;
The only reason to support Romney is if all other candidates have weaker positions than he does.
Mitt has publicly stated he does not support the Fair Tax or the Flat Tax. He thinks the current system can be fixed.
Now, is that dumb or is that DUMB?
As for Mr. Waite, he has displayed so much ignorance it isn’t worth responding to.
May 31st, 2007 at 7:24 pm
In Florida just 8% of the retailers (the big box stores ) collect 90% of the sales taxes. THis suggests at the national level a huge reduction in compliance costs which are a form of tax on our entire economy with absolutely no benefit! Put another way, if we could reduce our compliance costs by 90% as our research suggests, we could balance the federal deficit in a single year. The Fairtax is far more progressive than our current payroll tax which hurts the working poor the most. When you spend more, you pay more. Retail cost should not go up much as we are paying the corporate taxes embedded in every product and service already. These would all disappear under the Fairtax, thereby lowering the price to the consumer by about the same amount as the Fairtax. This plan is both revenue neutral and cost neutral. It has more benefits than can be addressed in one e-mail. Go to http://www.faritax.org for more answers.
May 31st, 2007 at 7:52 pm
Apparently, Romney has not read the FairTax as evident by his comments in the above. Under these circumstances, I will not vote for Romney. Issue settled!
May 31st, 2007 at 8:26 pm
First, the writer’s comments on the decline in consumption ignores the fact that the FairTax will increase the purchasing power of most individuals; a combination of the fact that the FairTax eliminates income tax withholding and payroll tax deduction allowing workers to receive 100% of their pay, and the FairTax prebate which makes all spending up to the poverty level tax-free for everyone. The increase in purchasing power fuels and increase in consumption.
Economic research shows predicts a positive impact on several major economic indicators. (1) the economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the tenth year than it would otherwise be. (2) Consumption increases by 2.4 percent more in the first year than it would be if the current system were to remain in place. The increase in consumption is fueled by the 1.7 percent increase in disposable personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted. (3) By the tenth year consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income will be up by 11.8 percent.
(4) Following the implementation of the FairTax plan, the higher take-home wage provides an immediate incentive for people to work more. During the first year, this will lead to total employment growth of 3.5 percent in excess of the baseline scenario, which continues to grow through year ten such that total employment is 9.0 percent above what it would have been under the baseline scenario.
(5) The impact on total labor income is even more pronounced, increasing due to both an increase in after-tax wages and an increase in the number of people working. Total labor income will rise 27.4 percent in the first year. By year ten, labor income will be over 41 percent higher than what it would have been under the baseline scenario.
May 31st, 2007 at 10:19 pm
Mr. Waite’s statements about “evils” of taxing business services are correct; however, his statement that the FairTax taxes business services is FALSE. Sec. 102 of HR25, the FairTax Act, provides that no purchases of goods or services for business purposes are taxable. Only final consumption is taxable (retail sales to the end user or customer).
Here is a quote from the legislation:
“1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for–
(A) a business purpose in a trade or business, or
(B) export from the United States for use or consumption outside the United States, if, the purchaser provided the seller with a registration certificate, and the seller was a wholesale seller.
(b) Business Purposes- For purposes of this section, the term `purchased for a business purpose in a trade or business’ means purchased by a person engaged in a trade or business and used in that trade or business–
(1) for resale,
(2) to produce, provide, render, or sell taxable property or services, or
(3) in furtherance of other bona fide business purposes.
http://thomas.loc.gov/cgi-bin/query/F?c110:1:./temp/~c110UMyZgn:e24686
June 1st, 2007 at 12:10 am
Boy! Seems like people are really sharing the love now.
First of all, I am not a spokesperson for Mitt Romney, his campaign or the creators of this site. Mitt Romney may come out and support the Fair Tax tomorrow as all I know.
Second of all, I think some people are being a bit hasty in their comments. This discussion is about the cons or weaknesses of the Fair Tax to inspire healthy discussion about it and find and educate what can be improved. This would be a government program, thus problems will always arise, and even the simple programs are warped out of shape by the way our existing Congress works.
This post was not meant to become a slug fest of why we shouldn’t have the Fair Tax, either most didn’t read the first or last paragraph or understand them. I am intrigued by the Fair Tax as it is an interesting alternative proposed today. But at the same time, I have my concerns and I have voiced those playing devil’s advocate to gain understanding by those of you who know more than me. DavidFL10 has been the best one here trying to explain that, others just think my post was to bash the Fair Tax and responded rudely. For a more mature discussion, please check out Redstate’s participants whom responded five times as much and although strong opinions were shared, it was much more civil.
For some, my posts are spiraling downward, that’s my right until I’m shown the virtual door. I am a Senior Software Engineer with an Accounting background. My opinions are my own even if they are stupid. But after all, that is the beauty of a blog, to share ideas. Those who choose to harp on ideas shared without giving logical reasons are just taking up space.
For an educational perspective, I have not read the Fair Tax book, that is obvious, but I have been to the website on many occasions while creating this post and responding to comments. I have become a student on some of its principles and techniques. I have made several incorrect assumptions and appreciate the civil comments that corrected me on my understanding of the Fair Tax, and the Fair Tax folks have done a great job with their web site and the FAQ. You should consider that I am like most who didn’t know about the Fair Tax until seeing it during the GOP debates and the comments on it given by Gov. Mike Huckabee whom should be the candidate for anyone espousing the Fair Tax as the single issue reason for voting. Again, Romney can come out tomorrow in support of the Fair Tax, but to date his approach has been to fix the current system. Huckabee is the latest person to jump on the bandwagon and has added his own ideas along with it as DavidFL10 pointed out.
Some of the things I have learned about the Fair Tax:
Simplicity
It is very simple compared to the Income system, even so there will be problems, all systems have problems and civil discussions only help to find solutions.
Market Demand
The Fair Tax folks expect lack of corporate taxes to offset 20% of the price increase which coupled with the 23% tax would bet a net 3% price increase to what we see now. This may happen, but I have concerns. What about the entire inventory that was made under the current corporate tax rate? It will take one inventory lifecycle with the higher sales tax to clear through the system.
Labor taxation which makes up most of corporate taxes is variable based on the product. Thus, products with high labor costs may benefit most from corporate tax cuts, but not all products will. Price affects demand. Period. There is a 23% reason for people to buy a used item over a new item. Thus, I do see a recycling of used items economy emerging from the Fair Tax in place of our disposable economy. Some would argue that is good. I see it as a potential reduction in research and development. Obviously it would balance out in time, but in the short term I see potential new product job loses. Many will disagree with me and that’s fine, but what if it happened? Instead of calling me stupid, why don’t you tell me what can be done in a Fair Tax environment to increase new purchases over older purchases in the short term. Come up with a solution, not a zinger.
Enforcement
Simplicity creates transparency which will reduce fraud. I believe this is a true statement, but I do not believe the Fair Tax has fully achieved it yet. Yes, it’s better than the current system, but I’m talking about improving the Fair Tax, not the current system. If you study risk management you follow the money and opportunity. Enforcement affects opportunity. Yes, I know there’s 10 billion ways to hide money from the government with the Income system, so let’s not talk about that since a 23% Fair Tax is supposed to raise as much revenue for the government today as our current broken fraudulent Income system.
With retailers now having 23% more revenue in their tills the money is present. Do retailers have the opportunity to conceal moneys from the sales tax system? Yes, the only check or balance is Register Receipts and Credit Card transactions. Thus, cash transactions are a big red flag. Now we know that most people are honest. But talk to the many people who have downloaded MP3 music files without sending money to the artists. Apples and oranges? Maybe, but I see a larger opportunity for fraud in the Fair Tax than is currently being discussed and that worries me.
State Tax collectors and for states that opt out, the Federal Government will be collecting the Fair Tax. How is enforcement done? Audits. Audits of the sales receipts. Cash transactions are easy to bypass or fix a register to not record them. Register receipts are the single point of failure that is a red flag to me. I would enjoy ideas about how to enforce better and maybe introduce more checks and balances so any retailer that is dishonest can be caught easier by our tired and overworked state auditors.
Government Revenue
What about National Emergencies? What if our government needs to raise more revenue from the Gross Domestic Product because of a National Emergency? This is a weakness of the Fair Tax. Two things need to change: the Tax Rate and/or demand of new products. The government can only affect demand by raising or lowering the sales tax percentage. Lower the rate and demand for new products goes up. Raise the rate and the demand goes down. The problem here is how much does demand have to change to affect the revenue the government wants? Let’s imagine the GDP is $100 dollars and currently the government gets $23 (100 X 23%). If Congress lowers the Fair Tax to 22% to stimulate revenue, then the demand must raise 5% in GDP to break even (105 X 22% = 23.10). That means the US has to increase the speed of the economy 5% just to break even and hope that it would increase even more to get the need extra revenue for the emergency.
Now let’s look at the flip side. What if the government raises the 23% to 24%? We know demand would fall and the economy would slow down for new products, not used ones. The GDP can then fall up to 5% before it hits the break even point for the higher rate. The government would make higher revenues immediately at the higher rate until the economy slowed down 5%. To me, this is a motivation for Congress to raise the rate instead of lowering the rate if more revenue is needed. And really the problem is Congress. Currently the Fair Tax is 125 pages verse our current 16K page system. We’ll have a new Tax system, but we’ll have the old Congress and they love to mess with revenue systems. We have tax rate changes with each and every President or Congressional change and Democrats are currently in power. So what can we do to protect the Fair Tax from the people that made the Income system a problem in the first place? This is the purpose of this post. Let’s talk about solutions.
Conclusion
So I extend my invitation again, “The Fair Tax is esteemed as a great idea now, but so was invading Iraq in 2003. Maybe the Fair Tax can become a solid solution with thought, planning and adjusting for life, because as we know, life isn’t fair.”
June 1st, 2007 at 6:58 am
FairTax.org spent a number of years (1995 to 1998) and a lot of money to fund extensive policy research and to commission a variety of research studies on the economic impact of the FairTax on various sectors of industry and individual taxpayers. A number of these studies were conducted at prestigious universities (Harvard, MIT, Boston , Stanford) and think tanks (Heritage Foundation, Cato Institute, Beacon Hill Institute). Survey research and focus groups were also conducted to see what kind of a tax system taxpayers preferred. The results of this research were used to design “The FairTax plan” embodied in HR25/S1025 introduced in the 110th Congress. The late Senator Daniel Patrick Moynihan (D-NY) said the FairTax was “the most thoroughly researched tax reform proposal.”
And the FairTax does in fact tax wealth. I quote public finance economist, Dr. Laurence Kotlikoff:
“Taxing consumption is effectively equivalent to taxing what’s used to pay for consumption, namely current and future labor earnings and current wealth. In effectively taxing wealth as well as labor earnings, in introducing a progressive rebate, and in eliminating the regressive payroll tax, the FairTax introduces three important progressive changes to our fiscal system. In addition, the FairTax provides much better incentives to work and save by lowering the effective tax on working and eliminating the effective tax on saving.” Source: Kotlikoff & Jokisch, Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax, forthcoming in the National Tax Journal.
June 1st, 2007 at 8:43 am
Tax Base Increase
It seems to me that increasing the taxable base from approximately 70 million income tax filers to 300 million plus retail purchasers would be a logical diversification of the funding load on our economy.
Most people do not put “all the eggs in one basket” when it comes to their savings, and, the nation would be best served by likewise diversifying the tax base to the much more stable retail consumption market, rather than depending on the limited income based market.
As we all know, jobs and whole industries are leaving this country for more favorable labor markets and tax environments overseas. The Fair Tax would bring back some, if not all, of those jobs and industries, and, would generate new investment in new markets here at home.
Why a candidate like Mitt Romney, who is supposed to be an intelligent and literate individual, cannot see the vast superiority of the Fair Tax over the current, socialism based system of the income tax, is beyond comprehension. That is, unless he has some other, hidden agenda which he is wishing to promote.
The Fair Tax legislation, once enacted, would benefit Republicans, Libertarians, Democrats, Greens, Constitutionalists, and all other political party members. It is not designed to benefit one group over another. So, Mitt, why are you opposed to it? Is there something that you have not told us? Come on now Mitt, fess up………..
It is entirely possible that Mitt does not understand that there is a groundswell of political support in all areas of the population for the Fair Tax as a solution to the complicated, uncomprehendable mess that is currently termed the federal income tax.
If candidates like Mitt do not understand this considerable grassroots support for tax reform, then they will be buried in the dust of history, as the electorate chooses leaders that promote solutions to our current national fiscal funding problems.
So, WAKE UP, MITT, and smell the revolution that is brewing right under your nose. Tax reform will happen, and, the Fair Tax is going to make it happen. Get on board or be left behind.
June 1st, 2007 at 10:43 am
Nathan,
I tend to agree with you on the civility of the comments. Though in fairness to the FairTax diehards who may have been irked, you stated that your post was not going to be about the potential pitfalls of the FairTax but then it appeared you pretty much just did that. From my perception of reading your blog at least.
You admit that your new to this idea, and that you haven’t read the FairTax Book. I don’t think in a civil blogging you will come to fully understand and appreciate what the FairTax is about unless you 1.) read the FairTax Book and then 2.) Read the research white papers at FairTax.org.
I’m not sure what a “national emergency” consists of, and what this has to do with the FairTax.
We’re spending $3 Trillion dollars and government spending is over 20% of GDP while historically it has always been
June 1st, 2007 at 11:39 am
RP Rev,
Thank you for your comments. I would like to correct you about what I said at the beginning so I quote myself, “I want further educated discussion on all aspects of the Fair Tax…. I will not discuss all the pros of the Fair Tax as those have been addressed many times and in many forums. I’d like to bring up several of the cons to the Fair Tax and seed a discussion”.
Your point is well taken about research, and I admit I should have taken more time to do a better counter-point research. But as a simple and some consider stupid netizen, I have limited time like everyone else. I have been educated by many on this topic and I will always appreciate those people who take the time to do that in civil manner. Again I commend the Fair Tax folks on their comprehensive FAQ.
The Fair Tax has EVERYTHING to do with a large national emergency. Let me explain. During WWII, the government had to tax over 30% of the GDP for war funding just to the Deparment of Defense. During the cold war the GDP percentage that went to Defense was under 10%, now our GDP percentage that goes to defense is 3.8%. If it’s all a wash in total revenue, then your point is well taken, but if we have a large national emergency like Iran bombing Israel, the government may need to increase the overall tax revenue from the American people. That is a plausible scenario and at the very least be well discussed.
Now some here would just like us to say something like, “hey, all the smart people have already thought about this and the solution must be there.” Poppy cock! All the smart people including the entire Intelligence industry thought we had an Iraq incursion figured out. We didn’t because obviously we didn’t have contingency plans about the jobless military or the looting. My point is let’s not dish off things that affect you and me only to the “smart people”.
June 1st, 2007 at 9:09 pm
While the FairTax is not perfect ( what government plan ever was?) It’s hard to argue against the logic of 300 million plus consumers, not to mention the tourists, paying into the tax base as opposed to the 140 million or so people who are currently paying into the income tax system. The current tax system is incomprehensible to most of us and I, for one, would gladly pay a little more (or less if that’s the case) at the sales register in return for 100 percent of my paycheck and never have to file another 1040 ever again.
June 2nd, 2007 at 11:16 am
Nathan says, “The Fair Tax is not a tax based on wealth, our current system does that.”
What is he smoking? Our current system is an INCOME tax, not a wealth tax. Your’s is just another example of trying to make your points on a foundation of class envy. You would like for people to think only of themselves, to consider only “what’s in it for me” as the basis for decision making. The more civic minded of us will consider what is in the best public interest and national interest. I think the FairTax fills the bill best, without regard to whether it gives me a personal advantage.
June 2nd, 2007 at 4:27 pm
Actually Kimball, I don’t smoke or do drugs despite the reference. Maybe I should be more specific for you. Our current system is a tax on wealth creation, and it’s complicated and needs to be fixed. The Fair Tax is a tax on consumption, so if a Millionaire spends the same amount of money as a middle class person (which is easily plausible, check out the book, The Millionaire Next Door), then the Fair Tax is not progressive like our current system, the tax is equal between the two. Where’s the class envy in that? I think you missed my point.
What some people seem to be missing here are that the problems with the Fair Tax are not the micro-economics, but macro-economics. Since the 23% Fair Tax raises the same amount of money that our current broken system does, it’s all a wash in total government revenue raised which means it’s a shell game of where in the economic pipeline is the revenue collected. I know our Income system is broken, but the Fair Tax system raises red flags in my mind on the macro-economics level (a.k.a. health of the economy) under certain scenarios. I’ve made those points above and I’ve yet to read good analysis or solutions which is the purpose of this post. To have us consider how to make an interesting idea have contingency plans that makes sense when certain situations arise. That type of planning is smart and best when it comes from the people since the people become educated about the alternative tax system being placed upon them.
June 3rd, 2007 at 7:33 pm
Quote”Remember to add in the 5 – 7% local sales tax, and we’re at roughly 30% taxation on new products. This penalizes the consumer. Why do Fair Tax folks think demand for new products would be maintained at a 30% increase in price? ”
We already pay the 5-7% in price NOW. does that stop anyone from buying stuff now? No it doesn’t. This statement is flat out bs. Even if everything goes up 22-23% ……….. big deal!.
Let’s work on your incorrect terms and assume that everything goes up 22% and that embedded taxes do not go away. That’s 22 dollars on every hundred. Is 22 dollars that much any more? I mean really. The monthly prebate would cover the “extra” taxes on the basics each month.
A family of 4 is looking at a prebate of around $500 per month. Would the prebate NOT cover the extra taxes on food and clothing? We are not talking about HEALTH CARE and braces, insurance, we are talking about the taxes on the basics of life: food, medicine,clothing, gas.
My family of 3 spends about $85 per week at Wally World on food some shoes occasionaly,some shorts here and there ,etc etc. That’s about $340 per month. Let’s add 22% shall we? That’s an extra $74.80 for a total of $414.80 We are in our mid 30’s so medication is only about $100 per month. That’s an extra $22 for a total of $122. Last one. I consider gasoline a necessity. Some would argue the point. I NEED it to get to work , hence it’s a necessity. My family spend about $75 per week. That’s $300 per month. Add the extra 22% for a total of $366. Now let’s add the extra’s in this incorrect assumption here. $74.80+$22+$66= $162.80 extra per month. Remember this is IF the imbedded taxes don’t go and everything rises 22%.
BIG DEAL!!!!!!! The prebate alone will be MORE that this. On a family of 3 it will be about $350 per month. That still leave about $190 per month to pay for taxes that I haven’t covered here. I have covered FOOD,CLOTHING,MEDICINE, AND GAS. The basics. Should the imbedded taxes go, it just gets better for everyone.
You people need to start considering the prebate when attempting to discredit this plan.
What you are not willing to face is that we are talking about the basics of life. This doesn’t include plasma tv’s,new gadgets, this, that, and the other. You simply can’t stand the thought of being punished for running out and buying the latest dooo-dad. Our consumer buying is out of control and this may help put the brakes on this rampant need to buy, buy, buy, buy, buy, and oh by the way…..buy some more. The basics are one thing. A stupid Roomba is anouther!!!
Question: Whoever wrote this article capitalized the word “millionaire”. WHY?
3 words. Class Warfare Pimp
June 3rd, 2007 at 8:48 pm
Again Nathan. Read the book. The questions you are asking are in the book.
September 7th, 2007 at 1:49 pm
“Since the 23% Fair Tax raises the same amount of money that our current broken system does, it’s all a wash in total government revenue raised which means it’s a shell game of where in the economic pipeline is the revenue collected. I know our Income system is broken, but the Fair Tax system raises red flags in my mind on the macro-economics level” - Nathan Waite
It might not exactly be a “macro economic” factor, but one very important factor not mentioned in this dialog string is the individual’s right to “privacy”.
What business is it of anyone else to know how much you, or me, or Nathan Waite, earns? Or how we invest our earnings… or what we spend it on? It’s no one’s business!
A sales tax simply deprives those in power from using the tax code as a social engineering tool and to spy on what you earn, consume or invest. It disallows them to coerce you to do something they want you to do (using tax credits or deductions) or get you to stop doing something they don’t want you to do (with tax increases or penalties).
For example, the National Association of Realtors is vehemently against any tax reform proposal that would remove their prized “Mortgage Interest Deduction” claiming that the MID is beneficial in that it can reduce the carrying cost of home ownership. But the Fair Tax would let homeowners make their ENTIRE payment using untaxed dollars.
For example: If your monthly mortgage payment is $1200, you may be able to deduct the interest portion resulting in approximately a $200 savings depending on your tax bracket. But you are still paying the difference ($1000) using after tax dollars.
For those in the 28% tax bracket, you would have to earn over $1,550 in wages (after including FICA in the analysis) in order to have $1000 in net spendable after tax dollars with which to make that house payment.
With the Fair Tax, that $1200 monthly mortgage payment would cost only $1200 in earnings. That’s a $350 monthly savings over the existing tax system even when the MID is taken into consideration. That’s $350 in funds that would be available for other spending, or investment, or education or whatever! And it would be available without any overt coercion via tax considerations of your consumption choices.
October 9th, 2007 at 9:55 pm
The reason we are struggling to fix the problems you keep pointing out is simple: Most of the problems do not truly exist.
The individual income tax that is not collected on top of the exposed embedded tax is not explicitly made up in the fair tax is not a problem because individual income tax contributes to the average imbedded tax removed.
Money that is not spent serves no purpose; all cash will be cycled through the system eventually.
I am not informed enough on the system yet to pass judgements on some problems I perceive, primarily the vagueness of tax-exempt business transaction conditition clause c, which seems to allow a corperation to consume goods tax-free, though that may be permissable. The prebate seems to be the only problem I really have, which I think may cause a significant number of people to rely on the prebate, with no real motivation to become truly successful.
January 4th, 2008 at 6:10 pm
I can’t undersatnd why Mitt is not on board with the FairTax Act. The research comes from his back yard.
The FairTax is a nonpartisan national issue campaign to replace the income tax system with a progressive national retail sales tax. The FairTax is a new proposal, and one developed after a decade of study and experimentation. It is no fly-by-night idea written by Congressional aides and small-town college professors. When economists from places like Harvard, Stanford, Rice, MIT, etc. develop something new like this, it’s no sideshow.
After truly understanding the FAIRTAX:
The only people who hate it are the “income tax profiteers”. Included are career politicians, lobbyists, tax lawyers, tax accountants, the non working rich, IRS agents, illegal aliens and rhe underground economy. Get ready for even more distortions and lies by those who profit from the income tax system.
Ashford Schwall
January 6th, 2008 at 5:05 am
Hi Ashford,
I am not an “income tax profiteer” and I have come to dislike the FairTax for many reasons all of them not being included below:
I for one have been looking at my 2006 U.S. Individual Income Tax Return 1040 form. I contrast my Total Income on line 22 with the amount of Taxable Income on line 43, and I am grateful for itemized deductions even as complex as they are. I then look at line 63 which is my Total Tax and divide that by my Total Income which is my effective income tax percentage rate when you times it by 100. My tax rate is significantly below 23% which is the overall rate the FairTax will impose on me. Sure my prebate will help me, but I spend much of what I make. So no matter how wonderful and bright Christmas futures will be due to the FairTax, it will be a higher tax burden on me personally. I’m not even going to touch the affect it will have on folks that spend more than what they make, but that credit discussion can be saved for later.