Taxation in pictures: Why FairTax makes sense

denisbider.blogspot.com ^ | January 11, 2008 | denis bider

[Man50D]

The New York Times made some coverage of the FairTax proposal recently. The coverage was done in a way typical of mass media trying to be "unbiased": they vaguely describe the topic being covered, and quote some people who are in favor, quote some people who are against. The arguments in favor or against are not really explained, and it is left up to the reader to perform their own research, or walk away from the issue with lingering doubts.

People who are in favor of FairTax generally say that the proposal has been designed by competent economists, and has been verified and endorsed by many more. They say that the calculations behind the proposal have been verified many times, and that the people who refute the proposal either haven't taken the time to understand it, or have vested interest in the current, horrendously complex, tax system.

People who are against FairTax generally quote some other economist who calls it "unworkable" or "a swindle" without bothering to explain why.

However, there is an easy way to comprehend why the FairTax makes sense. All it takes is a picture.

[Man50D]

Fair Tax ping!

[xcamel]

FYI

[groanup]

SOBS ping

OK. Here is a post with pictures. NOW will you discuss the pros and cons of the FairTax vs. the income tax?

Or are you going to, once again, make the invalid claim that you have already discussed them?

[Filo]

There is still double taxation, there is still no direct tie to the repeal of the 16th and the government is still being allowed to steal more than they deserve.

This does little more than re-arrange the deck chairs on the Titanic.

[Bigun]

GREAT article Man!

Best find to date!

Thanks!

[SeekAndFind]

Folks,

The most politically VIABLE, practical and evolutionary approach ( note I used the word “evolutionary” deliberately, NOT revolutionary ) is the CHOICE TAX presented by Fred Thompson.

By this, every tax payer will be provided a choice to either :

A) File the usual way; or
B) File the Flat Tax way ( fitting in one small piece of paper the size of a post card).

The advantage to this is this becomes in effect, a national referendum on which tax policy most Americans would prefer.

In the long term, I believe the Flat Tax will overshadow the traditional way of filing and force lawmakers to admit that that’s what most people want IN EFFECT. The traditional way of filing will eventually whither in the vine ( to quote Newt Gingrich).

Let the market decide for us.

You see, I’m pro-choice in just about everything except when it’s taking the life of a baby.

[Paladin2]

The FT is unworkable or a swindle or both.

[Raycpa]

One system taxes me on everything I earn while the other taxes me on everything I spend. If I am like most folks and die with very few assets, my lifetime tax is the same.

So why take a risk on a new system if there is no effective change from beginning to end?

[Raycpa]

The AMT is a flat tax.

[Man50D]

In the long term, I believe the Flat Tax will overshadow the traditional way of filing and force lawmakers to admit that that’s what most people want IN EFFECT.

The Fair Tax is a flat tax on consumption instead of income. Regardless of that minor fact I admit you're absolutely correct a flat tax on income will overshadow the traditional way of filing as evident by the income tax.

People did not have to fill out any income tax forms prior to the income tax. The income tax began as a flat tax on income when it was enacted in 1913. People were taxed 1% on the first $20,000 and 7% above $500,000. That made it essentially a flat tax as so few people earned more than $500,000. At the time less than 5% of the population was taxed. That flat ax has evolved into the monstrosity we know today taxing more than 80% of the population and consisting of a more than 67,000 page tax code requiring people to fill out a multitude of forms. Confirming, as you stated, overshadowing the traditional way of filing prior to the income tax.

The Fair Tax will accomplish the same goal except it will not require any forms to be filled out because people will pay the tax when they make a purchase.

[ChicagoHebrew]

You can draw all the funny pictures you want, but it doesn't change the facts.

(1) the FraudTax is supposedly revenue neutral. That means that if someone will pay less, someone else must pay more. Who will pay more? People who don't currently pay very much in federal taxes -- namely, the middle class (the poor and the rich both pay less), the retired (who live off of largely tax free income), and students (who currently pay practically nothing). Of these groups, the well-off elderly will be particularly hard hit

(2) There are "embedded taxes" but they are nowhere near as large as FraudTaxers claim. And probably the largest embedded tax is the income tax - but reducing the income tax (or eliminating it) won't decrease the price of products unless people take a corresponding drop in income. Other taxes FraudTaxers claim are embedded aren't "embedded" at all, because they don't go into the cost of the good -- such as the corporate income tax (which taxes profits after the good is produced and sold). There's no free lunch -- if you pass the FraudTax, prices will go up

(3) The FraudTax would destroy the homebuilding industry, because new homes (subject to the 30% Fraudtax) would automatically cost 30% more than existing homes (not subject to the tax). Auto manufacturers would similarly suffer.

(4) There would be huge tax evasion. Take a look at Pa (7% sales tax) and Delaware (0% sales tax). Pennsylvanians for years have crossed the border when buying big goods to evade their state sales tax. Thanks to the Fraudtax, there would be a huge boom in smuggling, shady gray market stores that won't collect the tax, shopping in tax free locales (duty free, native american reservations etc.).

(5) Yes, politicians will meddle. Do you think politicians will be able to resist the urge to exempt medical care, housing, autos, etc. -- especially after the FraudTax destroys the home building industry? So pretty soon we'll wind up with a higher rate, a FraudTax and an income tax, or something even worse.

[xcamel]

You’re and invalid? Why, I never new...

[Harvey105]

Under the current system, the government has the first claim on your income, knows the most intimate details of your personal finances and controls your life.

Isn’t that enough reason?

[navyguy]

Excellent diagrams!

[xcamel]

Might be if it were true, or if everyone was as paranoid as you are — thank God they’re not.

[cinives]

Except that I won’t need an accountant, at $3k per year, to file personal and business tax returns.

[longtermmemmory]

That proposal is absurd because how will a business know who is doing what and how to pay employeess.

The people who come up with this tax concepts have to place in the real world and no clue how to run a business.

It would still just be easier to move production and sale of big ticket items outside the USA and just use the USA like a bigger version of Canada. (raw material ecconomy)

[Filo]

Except that I won’t need an accountant, at $3k per year, to file personal and business tax returns.

You're getting ripped off. I pay about $350 for the same thing.

If your accountant is doing more than just your tax returns then he'll still need to do whatever he does so this claim is disingenuous.

If you own a retail business (products or services) then you'll be spending as much or more on compliance.

And wait until the government reinstates the income tax (since they won't be repealing the 16th as a condition of passing the FT) along with the sales tax. Then you'll really need accounting help. . .