Posted on 11/20/2005 2:37:00 PM PST by RobFromGa
The format of the letter is as follows: My points from other articles are written in bold, the letter writer's text is in a regular font and my responses are in italics. Here we go:
----
1. Economist William G. Gale at the Brookings Institute has determined that most low income families will pay more taxes. "Under the Americans for Fair Taxation proposal, taxes would rise for households in the bottom 90 percent of the income distribution, while households in the top 1 percent would receive an average tax cut of over $75,000."
2. You are right in saying that the "FairTax is actually a tax on accumulated wealth". I think that might be the biggest reason why it will never pass. Senior citizens as a group have the largest accumulated wealth of any demographic group and they'll get hit hardest by the tax. I can't imagine a tax plan that hits the elderly the hardest will ever be implemented, particularly when it also gives a break to the highest income earners.
Mr. Gale's statement numbered 1 indicates the poor will pay more while those in the top 1 percent (they are going to have accumulated wealth) will receive a tax cut. Your answer numbered 2 indicates that the Kennedys, Rockefellers, and Gates's are going to pay more in taxes.
No, it doesn't at all. While Gates might have a high accumulated wealth, he also has a high income. So while he pays a lot more sales taxes, he pays a lot less income taxes. Since the savings rate for high income earners is less than low income earners, the net effect will be a large reduction in taxes for the top 1% of income earners.
My sense is that you can't have it both ways. Gale's point that the rich are going to pay less and your point that the rich are going to pay more contradict one another.
Only if you equate wealth with income, but they're not at all the same thing. Senior citizens as a group have high wealth, and low income so they get hurt. Gale's report, if you haven't read it, may make the issue more clear.
Under the FairTax income is either going to be spent, or invested. If it is spent it will be taxed. If it is saved or invested it will create capital for further economic growth. Also, it is illogical to separate very high incomes from accumulated wealth.
You fail to point out that poor elderly people will not have their pensions, IRA's, investments, savings, or Social Security income taxed. They will also receive the monthly rebate, which will cover the cost of the FairTax for them. You also fail to point out that the estate tax will be gone. The gift tax will also be history in case they wish to give funds to a loved one.
Seniors only pay the estate tax if they're the recipient of an estate. Do seniors really receive more estates than the rest of the general population?
I realize that every group will receive a benefit. But every group will receive a cost, namely the cost of paying the sales tax. For some groups the benefits will be higher than the costs, for others it will be less than the costs.
What I'd like the FairTax supporters to do is tell me one thing: Which group will pay more taxes? The FairTax plan is revenue neutral and supposedly the poor will be paying less taxes than they do now. So somebody has to be paying more to offset that. Who are these people?
Be sure to continue to page 2 for the next part of the letter.
Bad laws are a much easier target. As you're aware the House passed a bill to sunset the tax code. It failed in the Senate by only one vote. Our studies show that once Americans become familiar with the FairTax that 85% of them support it. It will be no problem to get two thirds of the states to ratify it.
I'll say it again: There's no way this passes in 2/3rds of the states. I live in the Northeast and I can't imagine our state even thinking about this, even with a Republican governor. We can't even pass a budget! Our government can't find a way to keep the 200 or so pieces of spam e-mail I get a day out of my inbox, but they're somehow going to pass a constitutional amendment with little political support in this state?
Passing a law and amending the Constitution are two distinct processes with very distinct ramifications. In fact, the process of amending the Constitution only modestly includes Congress and can proceed without Congress. Article V of the Constitution indicates that there are two ways to amend the Constitution. The first method is the only one that has been utilized to date. Under this method, a Member of Congress proposes an amendment, and should two-thirds of both bodies of Congress agree to the amendment, it is considered passed and is sent to the states for action. The signature of the President is not required. Once Congress has concluded action on the amendment and it has passed, three-fourths of the states must ratify the amendment for it to become law. (Ratification by the states varies and depends on state law.) There is usually a time limit for the states to ratify the amendment.
A second method for proposing and ratifying a Constitutional amendment is discussed in Article V or the Constitution; however, this method has never been used. It allows a Constitutional Convention to be called when two-thirds of the legislatures of the states so desire. That Convention can propose one or more amendments. These amendments are then sent to the states to be approved by three-fourths of the legislatures or conventions. Again, this method has never been employed, and there is discussion in political science circles about how a Constitutional Convention would be convened, and what kind of changes it would bring about.
4. Every study has shown that FairTax is more regressive than our current income tax. The supposed benefit is that everyone will pay less taxes. I honestly don't see that happening, but I'm willing to state that it is possible.
I would like to see your studies. All dynamic studies have shown the FairTax to be progressive and beneficial to the poor. Even the PricewaterhouseCoopers (PWC) dynamic study reported a net positive result for the poor. With your education I'm sure that you understand that static studies aren't worth the effort since they don't take into account changes in the entire economy. The PWC study assumed the worst-case scenario for Rep. Tauzin's sales tax plan. PWC never studied the FairTax, which includes a rebate.
I'll have to admit that I haven't seen (or heard of) the PWC report. I'll look for a copy of it, and review it. It may be the source of another story. Thanks for the tip.
Be sure to continue to page 3 for the next part of the letter.
You have totally ignored the cost of complying with our current tax system. I have yet to read about it in any of your writings. It must cost something to fill out all of those forms, and to hire all of the accountants. What about the $8 billion that the large accounting firms took in, in 1997? I read in a recent newspaper article that Madison, the capital of Wisconsin, sent 32 tons of tax forms to Milwaukee. That's just Milwaukee, and only one city in one state. We have a tax system in which the forms we send to the IRS would go around the Earth 36 times if we placed each sheet end to end. Crushing indeed!
I'll give you that one. I hate trying to decipher all those forms.
I understand the FairTax proposal allows for very simple collection and remittance to the state. Of course, at one time so did our income tax system. What safeguards will be in place that the FairTax doesn't become overrun with exceptions and extra taxes once special interest groups get a hold of it?
6. I agree that's it's naive to think companies will start cutting the pay of their employees. If they don't, though, how is this huge drop in prices we're supposed to see come about? Where are these "reduced costs of production" going to come from? If the companies are spending more money on health care, then shouldn't prices go up, not down?
It is illegal in most states to reduce an employee's wages without both the employer and the employee signing an agreement to do so. The Fair Labor Standards Act does not allow employees' wages to drop below the minimum wage. If you employed ten people and announced to them that you were going to reduce their wages by 25%, what is your sense as to how these people will react to you? What if you employed 100 people?
That's why I said it wouldn't happen
They are not reduced costs of production. They are reductions in the cost of compliance, which you have yet to approach in any of your writings.
Where are these substantial drops to the cost of business compliance going to come from? In fact, haven't we just added more work to businesses as the entire revenue stream of the government is to be collected by businesses? Since there will be a 20 or 25 or 30% sales tax rate (whatever the final number ends up being), there's going to be a big incentive to try to evade these taxes. Businesses will now have to police their customers, to make sure that anything they claim is for business use isn't actually for personal use. This is why almost every country in the world has gone to a VAT system. The opportunities for tax evasion are quite high otherwise, and there's the risk that the government asks to police the purchases of it's customers. An income tax audit is bad enough, but how about an audit of everything you've sold in the last six months and who you sold it to? You have to be dreaming if you think we can get rid of all the tax auditors. If we do, too many people will evade taxes.
What does health care have to do with the subject matter?
To be honest, I have no idea. A couple people have brought up that FairTax will cause either better health care plans for employees or lower health care payments. I can't figure out how they expect this to happen.
Be sure to continue to page 4 for the next part of the letter.
That's not my point, or at least not my entire one. I admit we're covering a lot of ground here. But as far as the poor go, you have to remember two things:
8. One of the biggest arguments for the FairTax is that prices will somehow become a great deal lower when income taxes are removed from the United States. I don't see how that's going to happen at all. I understand the argument: if an employee makes $45,000 in income, he might only get to take home $30,000. If income taxes are removed, the company can just pay him $30,000, the employee is now just as well off, but the company has saved $15,000 in costs that they can pass along to the consumers. But how realistic is it to expect people to take a pay cut when they have to pay a 35% tax-exclusive rate tax on purchases?
Secondly, given the experiences in Japan, I don't see how a proposal which would cause deflation is particularly desirable.
Please cite your sources for the cause of deflation with the passage of the FairTax?
I'm not the one saying that prices are going to drop 12% or 18% or 314% like many FairTax advocates are. I don't think that's going to happen at all.
What I am saying, even if those claims are true, would a general drop in the level of prices even be desirable? Deflation occurs when prices are declining over time. So any study which says that the prices of goods will drop is implying that there will be deflation, even if they're not using the "D" word.
Best regards, One of 7 million taxpayers who've had enough
I would like to thank you for your very kind, very thoughtful, and very thorough letter. I'm glad people are learning about the issues and seeing what they can do to help.
In the long run, if we really want to pay less taxes, there's only way to do it: Make sure the government spends less money and ensure that the money it does collect it spends wisely. Controlling spending is the only sure fire way of making sure that you pay less taxes.
Final thought: The income tax was originally 3% and only applied to a small segment of the population. Look where it is today. If we enact the FairTax today, what will rates be in a few generations?
ping
On the FairTax exclusion for "used goods" how would the government define what good is "used"
Is any returned item now used? And can retailers sell returned merchandise sans sales tax?
If the tax has been collected the first time when it was sold as new, then it is used. No more taxes to be collected. Sounds simple to me.
The only "FAIR TAX" is no tax at all!
If the tax has been collected the first time when it was sold as new, then it is used. No more taxes to be collected. Sounds simple to me.It may not sound so simple if you're a retailer. If the retailer returns 100% of the customer's purchase for something never used was the tax really paid? If it was, how does the retailer now legally sell it as new?
(Denny Crane: "I Don't Want To Socialize With A Pinko Liberal Democrat Commie.Say What You Like About Republicans. We Stick To Our Convictions. Even When We Know We're Dead Wrong.")
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.