Typical Fairtax advocate response. If you can’t refute the message, attack the messenger. Shame on you!
To finish with your pathetic responses, let’s talk about the prebate. Calling it a tax refund is one of the oldest and disingenuous Fairtax myths ever put forth. Google “entitlements” and read the definition. HR25 does indeed authorize such payments. Here is a simple test to prove it is an entitlement (that we can’t afford). Entitlements add to your gross annual income, while tax refunds do not! Case closed!
Setting your character attacks aside, all you have to do is show that any of my claims are wrong. I have always been willing to learn, unlike the average Fairtaxer. So, anyone who wants to give it a try would be more than welcome. Here are my 15 criticisms of the Fairtax scheme. Taken individually, they may not seem overly important, but taken collectively, the Fairtax scheme can’t work. The income tax needs replacing, but the Fairtax is not the way to do it!
(1) The Fairtax plan just won’t work! Economists tell us that at sales tax rates above 10%, illegal evasion as well as legal tax avoidance start to increase significantly. And at 30%, the Fairtax plan becomes unworkable. No other nation has ever successfully funded their central government with such a broad based national sales tax. Six have tried, failed and switched to a VAT which has significantly less evasion at higher rates. There is no dual reporting under the Fairtax, and our 10 million retailers would be sorely tempted to “cook their books” in order to avoid sending off the tax revenue to the federal Treasury.
(2) HR25 proposes that the Federal government tax State and Local government purchases of all new goods and all services, including a significant portion of State and Local government employee payrolls as representative of services provided. Under the long held Supreme Court doctrine of intergovernmental tax immunity, this taxation would be found to be inappropriate. The 30% exclusive sales tax rate could easily rise to 43% or higher.
(3) Although Fairtaxers claim that the Family Consumption Allowance (FCA) or “prebate” is similar to a tax refund, it is not! The FCA is an income supplement that can be spent (and taxed), or saved as financial circumstances allow. The FCA would be scored by CBO/OMB as a cash grant entitlement costing $600 billion annually at a time when entitlements are squeezing out discretionary spending in the federal budget.
(4) The Fairtax could destroy the new housing market! Banks typically loan the sales price or the appraised value, whichever is less. Appraisers generally do not include commissions or taxes in their valuation. There is no collateral value in a federal sales tax. In order to purchase a new house without mortgage insurance, buyers may have to come up with funds for not only a 20% down payment but also the 30% sales tax at closing.
(5) The National Governors Association opposes any federal tax that would intrude into a tax area that has traditionally been reserved for and relied on by state and local governments. The Fairtax would seriously threaten the ability of state and local governments to maintain their tax base. With this kind of headwind, the States may not be willing to act as the federal tax collector, nor are the States liable to approve repealing the 16th Amendment.
(6) The Fairtax plan would destroy our Social Security system as presently structured. (a) Today, workers typically pay FICA for 45 years or so. Under the Fairtax, everyone pays sales taxes on purchases for all their life. (b) Upon reaching retirement age, today’s workers begin to draw benefits and make no further FICA contributions. Under the Fairtax, everyone, including retirees drawing benefits, continue to pay sales taxes for life. (c)Today, benefit amounts are tied to income earned during work years. But, under the Fairtax, that would be unfair because the Fairtax taxes both income and wealth. A major restructuring of Social Security would be necessary under the Fairtax.
(7) The Fairtax scheme throws middle class retirees under the bus. All after tax savings accumulated under current tax law would be directly double taxed when spent. Retirees would be forced to resume paying for their benefits with their sales tax dollars. Middle class retirees would see a significant increase in their federal tax burden along with a reduction in their purchasing power.
(8) The Fairtax rationale for treating all government agencies as consumers is that it would prevent unfair government competition with the private sector. But that issue was dealt with in Section 704 of HR25. Any government agency that sells $2500 or more per quarter would be considered a Government Enterprise, and would have to collect and remit the 23% sales tax. There was no need to tax all government consumption.
(9) Despite repeated claims by Fairtaxers that investments wouldn’t be taxed, Section 801-806 of HR25 lays a large implicit service charge (tax) on both interest bearing investments such as CD’s, and debt instruments such as mortgages and credit cards.
(10) HR25 provides for an inventory tax credit which would add about $350 billion to the federal budget deficit with no offsets in the first year of implementation.
(11) HR25 proposes to implement the national sales tax “cold turkey”, despite the fact that no other country has ever successfully funded their government with such a broad based sales tax. The Congress is basically conservative and would much prefer an evolutionary approach rather then the revolutionary one proposed in HR25.
(12) No list of Fairtax criticisms would be complete without including the disingenuous claim that the revenue neutral Fairtax rate would be 23%. In terms all Americans understand, the proposed rate is 30%, or likely even higher. According to AFFT, retail merchants will have to add a 30% sales tax to their costs in order to arrive at the 23% tax inclusive price.
(13) One of the most egregious Fairtax claims is that retail prices would remain about the same. The 1997 Prof. Dale Jorgenson embedded tax study assumed that employee payroll and income tax withholding would be available to employers for greatest cost reduction. Reducing employee gross pay/pensions by the withheld amounts will not happen for a variety of contractual, legal, and fairness reasons. The Fairtax Director of Research and other expert economists have written that the most likely scenario would be that everyone would get 100% of their gross pay and retail prices would rise. A best estimate, based on 2007 actual revenue data, is that business tax costs of 10% of sales could be removed and retail prices would rise by 17% on average after adding the 30% sales tax. (1.00 x .90 x 1.30 = 1.17)
(14) There is no data supporting the claim that there is $13 trillion in US owned wealth located offshore to avoid US taxes. According to the Tax Justice Network, an international organization which tracks offshore wealth, there was $1.6 trillion in offshore wealth owned by North Americans in 2005. There are 23 sovereign nations in North America, so the best estimate for US owned wealth offshore is $700-800 billion. And, lacking some sort of amnesty provision from IRS penalties in HR25, why would any of that wealth come “rushing home”?
(15) Fairtax savings from buying “used”, (tax previously paid), are highly overstated. There are no used services, which make up half of the typical family budget. No used groceries, no used restaurant meals, no used heating oil, no used gas for the family auto, nothing used at Wal-Mart, etc. etc. The opportunities to buy used would be limited to infrequent purchases of houses, cars, boats, etc. unless families choose to lower their standard of living just to spite the federal tax collector.