FairTax vs. Flat Tax

Townhall.com ^ | 01/11/06 | Neal Boortz

[Eaglewatcher]

There are essentially three tax reform proposals being considered by Congress. There’s Rep. John Linder’s (R-GA) FairTax, the flat tax, and the politically (though not popularly) preferred method of incrementalism.

Before we dwell on the differences between the flat tax and The FairTax Book co-authored by John Linder and myself, let’s acknowledge one political reality illustrated by the success of both The FairTax Book and Steve Forbes’ Flat Tax Revolution: the people of the United States are ready for bold and decisive tax reform NOW. They don’t want the incremental approach. The FairTax Book would not have debuted No. 1 on the New York Times Bestseller List if people were disinterested in wholesale tax reform.

Pleasantries aside, let’s illustrate the superiority of the FairTax plan over a flat tax. Flat tax advocates propose a flat 17% tax on all earned income with just a few allowable deductions. Nice try, but we’ve been there --- done that.

In 1986 Congress passed what was essentially a flat tax. The main difference between the 1986 effort and that proposed by Dan Mitchell, Steve Forbes and others was that the earlier effort set forth two flat tax brackets: one at 15% and the other at 28%. It’s now 2005, some 19 years after this attempt at a flat tax … and the tax code has been amended nearly 10,000 times.

A flat tax leaves politicians room to tinker, to manipulate the tax code for the benefits of large campaign donors or specific constituencies. As we’ve seen, with a flat tax it is all too easy for the political class to decide to add just a “small” surcharge to high income taxpayers; after all, the surcharge will only affect a small percentage of taxpayers, and the money can be used to buy votes from an even larger percentage! Under the FairTax, the national retail sales tax, there is no way to raise the tax rates on the rich, or to favor any one particular business group. The FairTax treats each and every citizen exactly the same, playing no favorites among people or business entities. You can’t raise the rate without raising it for everyone, nor can you offer one particular product a break since the tax is applied universally. Nobody, rich or poor, has to pay the FairTax on the basic necessities of life, because the prebate* is applied universally.

The FairTax would constitute the largest transfer of power from government to the people since the Revolutionary War. The flat tax takes no power from government. The FairTax is a revolution. The flat tax is an idea that’s been tried before, and found wanting.

*Prebate? Read The FairTax Book … you’ll love this idea.

[Eaglewatcher]

Let's keep it going!

[Man50D]

Fair Tax Ping!

[FerdieMurphy]

Fair tax?

Flat tax?

NO TAX!

[Man50D]

Fair tax? Flat tax? NO TAX

You'll have to amend Article 1 section 8 of the Constitution. Passing the Fair Tax will be much easier since The Fair Tax Act (HR 25 in the House and S 25 in the Senate) are already being considered.

[Rsgood Dsbad]

The fact that they use a euphemism to describe it instead of calling it what it is, a SALES TAX, should be a red flag. I don't trust politicians. If a sales tax is passed with a promise that it will replace the income tax, it won't happen. They'll never give up the income tax. We'll find ourselves with both. The flat tax is the way to go. They argue that the flat tax won't really be flat. So why should we believe that the sales tax will completely replace the income tax? How is it we can trust the politicians to do one but not the other?

[SolidSupplySide]

You can’t raise the rate without raising it for everyone

False. You just magically declare education an investment and not consumption. The Fair Tax does exactly that. It has the same exact effect of exempting everyone providing education (teachers, suppliers of schools, etc.) from paying an income tax. Now who wouldn't want to be exempted from the income tax? Expect every industry to demand to be an "investment" rather than consumption.

[KarlInOhio]

Under the FairTax, the national retail sales tax, there is no way to raise the tax rates on the rich, or to favor any one particular business group. The FairTax treats each and every citizen exactly the same, playing no favorites among people or business entities. You can’t raise the rate without raising it for everyone, nor can you offer one particular product a break since the tax is applied universally.

Such amazing naivete. I would like the Fair Tax, but Congress will have to be kept on a very tight leash to keep them from giving different rates to different products.

All it takes is one Congressman sneaking something into a "must-pass" bill and suddenly gas guzzlers have a higher sales tax rate and hybrids have a lower tax. After all, it's only "fair" to have a lower sales tax on hybrid cars because they already have an income tax credit under the current plan.

[captain_dave]

The real problem is the size of government and government expenditures. Ask less from Government and expect less from Government. Then reduce its size and scope.

For example, why do we have - or need - federal departments of commerce, of agriculture, transportation, or labor. All of these deal with commerce. Combine them all. Likewise, why do we have an education, a welfare and health departments. Combine these - or eliminate them altogether.

As long as our Government remains fat, we will remain overtaxed.

As a side note... only people pay taxes. Businesses to not pay taxes; they are costs that are passed on to customers - the people.

[ops33]

Fair Tax is useless unless the 16th Amendment to the Constitution is repealed. Otherwise, there would be nothing to stop Congress from reinstating an income tax in the future. Constitutional Amendments involve the state legislatures further complicating the process.

[crescen7]

Fair Tax, Flat Tax, Progressive Tax, all have their inherent advantages and disadvantages.

While I might agree that the "Fair Tax" would be an improvemnet, it doesn't really address the biggest problem. In fact it tends to perpetuate a myth that the only thing wrong with taxes is that they're unfairly collected.

As Walter Williams correctly contends, "As long as Government spending amounts to 5 - 10% of the GNP, just about any method of collecting taxes works fine." The problem is that Government expenditures approach 40% of the GNP. Even Boortz himself admits that the Fair Tax does nothing to limit Government spending, and is designed to be revenue nuetral.

In conclusion, the only real solution is to get a handle on Government spending. That will happen when people "en masse" stop voting for government handouts for themselves.

I'm afraid that means the solution is a long way off.

[Principled]

The flat tax still allows a sales tax to be added to it. No flat tax proposal indicates even a desire to prohibit the addition of a sales tax at a later date.

However, the nrst imposes some serious obstacles to adding an income tax to it.

First, the entire income tax is erased, gone. At the moment nrst HR 25 becomes law, the income tax ceases to exist.

Also, all existing income tax records are destroyed save those of delinquent taxpayers at changeover.

To re-impose an income tax, some politician would have to propose it (death wish), politicians and lobbyists would have to write, negotiate, rewrite, renegotiate an entire income tax code. THen, some politicians would have to vote for and pass it....this all after the individual American has been receiving a paycheck with no federal deductions and no individual tax filing.

This would take a relatively long time - long enough to pass the amendment repealing the 16th and making the taxation of any kind of income unconstitutional. If there is no income tax, why oppose repealing the 16th?

If you're worried about both taxes being imposed, then passing HR 25 will be a priority to you.

[Man50D]

The fact that they use a euphemism to describe it instead of calling it what it is, a SALES TAX, should be a red flag. I don't trust politicians. If a sales tax is passed with a promise that it will replace the income tax, it won't happen. They'll never give up the income tax. We'll find ourselves with both. The flat tax is the way to go. They argue that the flat tax won't really be flat. So why should we believe that the sales tax will completely replace the income tax? How is it we can trust the politicians to do one but not the other?

You are correct. The Fair Tax can be described as a sales tax, National Sales tax and a consumption tax. No Fair Tax supporter is trying to hide that fact. I don't trust them to pass the Fair Tax without a lot of pressure from their constituents and that's exactly what it will take. The women's suffrage movement was a highly organized grassroots campaign that put a lot of pressure on politicians. The result was the 19th Amendment. We will only find ourselves with both if people don't put enough pressure on the politicians and maintain that pressure. People will put much more pressure on their politicians if they attempt to pass an income tax again after people have received 100% of their paychecks and no longer fill out tax forms. The original income tax passed in 1913 (or there abouts) was a flat tax and we can see the result. More importantly the IRS would still exist with its oppressive 60,000+ page tax code. That alone should encourage people to change to the Fair Tax.

[staytrue]

The arguement against the fair tax is similar to the arguement against the flat tax, that once you put in the fair tax, the income tax will start to creep back in at first only taxing the rich, then everyone else.

[tiger-one]

I am in favor of the Forbes flat tax.....

But if the Fair or Flat is passed, the present system MUST BE terminated 24 hours before the F or F tax is enacted.

[staytrue]

Businesses to not pay taxes; they are costs that are passed on to customers - the people.

This is true only in non monopoly situations. In situations that are monopolies or near monopolies, the business/owners really do pay the tax.

[Principled]

Is it not the case that we've been trying to cut gov't spending for decades? Why hasn't it worked? We still have nearly unbounded growth of gov't.

Consider the idea that the method of tax collection we currently use is permissive to increasing taxes and hence gov't growth.

Withholding, business taxes, employer "contributions" are all ways to prevent the individual from recognizing his tax burden. Withholding doesn't hurt, you never have to "give up the cash". Business taxes are just passed on in higher prices, lower wages, or reduced ROI...all are hidden costs of government paid by an individual. Ditto employer contributions for FICA.

All these "tricks" work to prevent individuals from knowing how much gov't actually costs them.

Consider changing nothing except eliminating withholding and having individuals pay their tax monthly like any other bill. Would that put downward pressure on taxes/gov't spending? Of course it would... just by changing the method of collection....even though that step does not include a spending cut. This simple step would be effective even though it ignores business taxes!

Avoid fixating on spending cuts before tax reform. It hasn't ever worked. I don't think it will... of course the pols don't want reform of this nature. They have to support it or lose their jobs.

[Wolfie]

Why wouldn't Congress be able to tinker with the national sales tax?

[Principled]

The flat tax still allows a sales tax to be added to it. No flat tax proposal indicates even a desire to prohibit the addition of a sales tax at a later date.

However, the nrst imposes some serious obstacles to adding an income tax to it.

First, the entire income tax is erased, gone. At the moment nrst HR 25 becomes law, the income tax ceases to exist.

Also, all existing income tax records are destroyed save those of delinquent taxpayers at changeover.

To re-impose an income tax, some politician would have to propose it (death wish), politicians and lobbyists would have to write, negotiate, rewrite, renegotiate an entire income tax code. THen, some politicians would have to vote for and pass it....this all after the individual American has been receiving a paycheck with no federal deductions and no individual tax filing.

This would take a relatively long time - long enough to pass the amendment repealing the 16th and making the taxation of any kind of income unconstitutional. If there is no income tax, why oppose repealing the 16th?

If you're worried about both taxes being imposed, then passing HR 25 will be a priority to you.
11 posted on 01/11/2006 3:43:04 PM EST by Principled

[MRMEAN]

To: captain_dave Businesses to not pay taxes; they are costs that are passed on to customers - the people.

This is true only in non monopoly situations. In situations that are monopolies or near monopolies, the business/owners really do pay the tax.

15 posted on 01/11/2006 3:51:13 PM EST by staytrue

And in non-monopoly situations both the producers and the consumers effectively pay; the relative amount depending on the specific demand and supply curves.

[Element187]

Under the FairTax, the national retail sales tax, there is no way to raise the tax rates on the rich, or to favor any one particular business group.


This is the single reason why it will never become a reality. Lobbyist lose the majority of their power and influence, and the demmies wont be able to scrap votes from the parasites in this country... even some republicans hate the idea of losing some of their power.... but any logical person can come to the conclusion of this being the only way of really making America free.