Rebuttals to Mises Institute Fair Tax Review

The author Laurence Vance gives a lengthy critic of Neal Boortz's and John Linder's book The Fair Tax Book. In Short, he misunderstands and misquotes (as many critics do) the actual workings of the Fair Tax.

Once you read his entire article you realize his real objection is not with the Fair Tax but with any Federal Taxation at all.

His Anarchist approach to no taxation in which he hates all forms of taxation is found at: http://www.mises.org/story/1975

The National Tax Payer's Union (NTU), Americans for Fair Taxation(AFFT), American Farm Bureau Federation (AFBF), and many more support the Fair Tax HR25/S25. The Fair Tax is much more than just a book by a radio talk show host.

The Fair Tax is a well thought out and extensively researched Legislative package that takes a responsible approach to replacing the current archaic income and payroll tax system with a revenue neutral National Sales Tax system.

Unlike the Laurence Vance Article, the Fair Tax gives an alternative to the Income tax, Vance arguments are against all federal taxation whether it is Income tax or the Fair Tax.

I started to read your review of the FairTax book and had to stop. I finished by skimming it. I realized what this was, a publish or parish review. Your review of the FairTax was so superficial that your review lacks any real weight or thought. You didn't understand that the 23% tax and the 30% tax reflected the same real amount. Simpler still you didn't even grasp that prices on the shelf would be represented in a tax inclusive form so that the consumer would more easily calculate the amount they are intending to spend but that at the moment of purchase the price of the product and the tax would be separated so the consumer could see their true tax burden. You made so many lazy and misleading arguments that this review will lacks substance to your peers. You needed to get your name on a published article as prerequisite to applying for jobs at a 4 year business school. If any of those schools read this article they will not be pleased with the quality of your work. I am sorry you wasted your time to write the review and I am sorry I wasted mine to read it.

From the Fair Tax Blog Bill Rook Posts: http://www.fairtaxblog.com/20051213/liars-use-double-talk/

Ludwig von Mises Institute: Laurence Vance's December 12, 2005 "There is No Such Thing as a Fair Tax" review of The FairTax Book asserts three lies found in the book and asserts 17 problems with the Fair Tax. For brevity, this article shall only address the three lies. A follow-up article will debunk the perceived problems.

Lie #1: taxes would be voluntary under the FairTax. First we must realize that all of our actions have consequences. If an individual chooses to buy a new luxury car, he/she would have to pay federal sales tax. When the individual chooses to buy the new car, he/she is also choosing to pay federal sales tax. Section 505 of H.R.25, entitled PENALTIES details the civil and criminal penalties for non-compliance.

Under the Fair Tax, the federal sales tax would be reimbursed up to poverty level spending via the Family Consumption Allowance (FCA). An individual could purchase new food and services and still survive at poverty level spending. After the FCA, the net tax payments would be $0. The individual could spend significant additional sums of money on used items tax free. The individual could work and earn as much money as he/she possibly could--untaxed. If the individual chooses to purchase a standard of living above the meek poverty level, then net sales taxes would be due.

Under the current tax system, an individual, without dependents, is taxed from the first dollar earned at the FICA/Medicare rate of 7.65%. As annual earnings increase, additional progressive income taxes are due. Under the current system, the only option to not pay any federal income tax is to not work. That is not a valid option.

Given the above two alternatives, the Fair Tax provides the only valid choice. Although the qualifying "Tax Free" situation is narrow in scope, it is possible. When an individual chooses to purchase a standard of living above the poverty level, he/she is choosing to pay the federal sales tax. Therefore, the tax is voluntary. The assertion that item #1 is a Lie is false.

Lie #2: the FairTax rate would be 23 percent. We are talking apples and oranges here. Anyone who claims that both are just fruit is attempting to mislead and misinform the public. The Fair Tax is presented to replace the income tax. The income tax is an inclusive tax. The appropriate Fair Tax percentage for an inclusive comparison is 23%. Recognizing that some comparisons could benefit from an exclusive tax analysis, the following conversion table is provided.

When making comparisons, the appropriate inclusive/exclusive percentage must be used. Either column can be used, but a comparison of taxes between columns is wrong. Only apples to apples or oranges to oranges comparisons are valid. While we are at the comparison game, the following table provides sales verses income tax percentages with the average state sales and income taxes included.

Any argument quoting a combined Fair Tax and state sales tax rate above 36% exclusive is only valid when it is compared to a 94% exclusive combined state and federal income tax rate. However, as a business person filling out the national sales tax form, under the line that says "Gross retail sales of new goods and services," I'm going to put down the 23% inclusive rate. The assertion that item #2 is a Lie is false.

Lie #3: the Fair Tax would abolish the IRS. Laurence Vance debunks this one himself. "The Fair Tax will abolish the IRS in the same way that it will abolish the income tax--by replacing it with something else." The assertion that item #3 is a Lie is false.

The Fair Tax Act of 2005 does not call for a total closure of the federal government--not even a modest 1% cut in spending. In fact, Boortz and Linder promote the Fair Tax as revenue neutral. What does this have to do with abolishing the IRS? Nothing! Just as Vance's accusations have nothing to do with tax reform.

When Boortz talks about abolishing the IRS, he is referring to abolishing the intrusive nature of government inquisition into our personal and business finances. He is referring to eliminating a tax system where the government gets paid as a result of our individual and business efforts before we do. Income and payroll taxes are deducted from our pay before we see the first dime. Businesses must pay matching payroll taxes while the manufactured goods sit in the warehouse.

Will there still be inquisition into our personal finances? Sure, some. Employers will still report gross earnings to the Social Security Administration for calculation of retirement benefits. If a family wants to receive the FCA, they must file with the appropriate agency. The employer will file one form, and the head of household will file the other. Compare this to the current 1040 with the associated schedules A, B, C, SE, and so on. The inquisition will hardly be intrusive.

What about businesses, will their books be scrutinized? Again, yes, of course. Under Fair Tax, the burden of the tax collection process and paperwork will be shifted to businesses. However, this new responsibility for the collection process and paperwork will be significantly less cumbersome and intrusive than the current system. Let's look at a business situation, a Motion Picture Business. A big star with a lot of clout will demand a percentage of gross sales. Gross sales are easy to calculate. Just add up all sales and calculate the split. The Fair Tax is similar to this example. Businesses must track and total gross consumer sales, an easy number. Twenty-three percent of that tally is consumption tax. Send it in.

Applying this analogy with the current tax system, the actor would demand a cut of net profits. What are net profits? Bingo. They have to be defined. What are the valid expenses? Can the "Making of Footage" for the DVD's be counted as a legitimate expense? What about product placement fees? Does that income count when calculating net profits? The actor's agent and lawyer will lobby one way on an issue and the movie company's lawyer will lobby the other way. A lot of time and effort will be spent on details as each side lobbies for a better deal. Under the current tax system, the IRS will audit a business and demand justifications for every expense. Collecting, maintaining, and defending such justifications becomes a dauntingly expensive task, just to comply with the tax code.

The market (buyers and sellers) determines the prices of goods and services. Under the Fair Tax, businesses will be taxed 23% of the gross sales--an easy calculation. Businesses must operate within the means provided by their remaining 77% share of the gross sale. Alternately, a business could determine the pretax market price for their goods and services and keep 100%. They would then add an additional 29.9% at the till for sales tax--again, easy calculations. Both methods result in the same dollar amount of taxes; it really is just a matter of semantics. If the wrong semantics (math equations) are used, however, the numbers will not work out.

We must look beyond the rhetoric for or against the Fair Tax. We must develop an understanding of how Fair Tax changes will impact our individual lives. We must look through the rhetoric and determine the motives of the activists that lobby for or against the Fair Tax and then make our own decisions. Regardless of choosing 23% or 30%, the dollars involved are the same when used in the proper equations. The Fair Tax is revenue neutral. The IRS will be replaced by another agency that has a less intrusive reach into our personal and business lives. This change will save individuals time and stress. The change will save businesses time and money. The vast majority of the people will benefit, only a small number of accountants, tax lawyers, and bookkeeping professors making their livelihood off the current inefficient system will suffer.

References: http://taxes.yahoo.com/rates.html, http://thestc.com/STrates.stm, http://www.nber.org/~taxsim/state-marginal/, Fair Tax Act of 2005

Sorry, but it's YOUR method that is flawed [what a shock] since the non-family households cannot be counted. It is a FAMILY Consumption Allowance for families in a single household. So you don't get to throw in your extra numbers to gratuitously inflate the prebate amount by hundreds of millions.

The estimate I gave of about $369 billion is a reasonable number while the $457 and up numbers that you and your sidekick come up with are meaningless.

And the prebate is no entitlement as there is no funding authorization for it in the FairTax law or by means of any separate appropriations bill which there would have to be were it an entitlement. All present entitlements (as you should know) have separate appropriations bills that pop up all the time being raised each time and dipping into money from the income tax.

The prebate is merely a refund of taxes you would have paid were it not issued in advance and it is the corollary of the April 15 tax refund - a return of tax money paid (or in the case of the FairTax to be paid since it is issued in advance). If your April 15 refund were issued in advance there would be no significant difference between the two.

You either can't read what I said or are too ignorant to understand it.

The Census Bureau works on estimates - continual moving estimates which usually have a good bit of "slcak" in them. The household numbers do not take into account the things I mentioned. In addition (I assumed you realized this, but apparently not) there are millions not accounted for by the family household count given.

There are millions of illegal aliens, non-family households, incarcerated individuals, institutionalized persons and those residing in the US and even working here on a long term basis but not as citizens. None of these are accounted for in the family households number.

So stop your incessant nonsense and just admit your error.

The prebate amount is something around the $369 billion estimate I gave. You can't handle the truth can you???

Sorry, but it's YOUR method that is flawed [what a shock] since the non-family households cannot be counted. It is a FAMILY Consumption Allowance for families in a single household. So you don't get to throw in your extra numbers to gratuitously inflate the prebate amount by hundreds of millions.

LOL! So you don't think single people get the FCA! ROTFLMAO!!! You are the biggest fool!!! LOL! You'll say anything if you think it benefits your love, the FairTax. Pathetic and hilarious at the same time!

Just so everyone can see what a fool you are, here is the CPS definition of "family":

Family. A family is a group of two or more persons residing together who are related by birth, marriage, or adoption. The count of families is for "primary" families only, that is, the householder and all other persons related to and residing with the householder. Families are classified either as married-couple families or as families maintained by women or men without spouses.

So, according to the Great and Powerful Pigdog, if a person doesn't live with someone who is "related by birth, marriage, or adoption" they don't get the Family Consumption Allowance.

Wait a minute! I thought y'all said the FCA wasn't an entitlement because everyone got it, but now you're saying single people don't get it! What gives?!?!?

Fool.

Sorry, Nightie, you're wrong again.

From the bill:

"`(a) General Rule- For purposes of this chapter, the term `qualified family' shall mean 1 or more family members sharing a common residence. All family members sharing a common residence shall be considered as part of 1 qualified family.
`(b) Family Size Determination-
`(1) IN GENERAL- To determine the size of a qualified family for purposes of this chapter, family members shall mean--
`(A) an individual,
`(B) the individual's spouse,
`(C) all lineal ancestors and descendants of said individual (and such individual's spouse),
`(D) all legally adopted children of such individual (and such individual's spouse), and
`(E) all children under legal guardianship of such individual (or such individual's spouse). "

So you don't get to take all of your non-family household members and give them the prebate. In fact it can't be told definitely from the numbers in the tables but some portion of any of those "households" or some living in them would undoubtedly not qualify for the prebate anyway.

Your problem is that you don't realize how creepy and imprecise the Census Bureau projections and "facts" really are. By the very definition of "non-family household" many of those do not qualify. The point is the numbers you and dufus keep trying to push are not realistic as they make unwarranted assumptions about everyone qualifying for the prebate and that is certainly not true. Dufus was even trying to force the prebate onto the entire population not realizing that many would not qualify. You guys are merely driven by your anti FairTax agenda rather than any real information.

My number should not have been that far off of yours. I found three things that account for that.

1. I assumed all households consisted of two adults and the rest children. In your non-married households, you assumed one adult and the rest children. For a two-memeber non-married household, the difference in allowance assuming one adult is $2872 versus $4282 if there were two adults. That resulted in about $11 Billion difference in just that one line item for 2-member non-married households alone. The 3-member adds another $8 billion difference. The truth is somewhere in between, as a non-married household could consist of one adults or two adults. In total that contributed about $27 billion to our differences.

2. I woud using allowance numbers for 2005, that put my figures at 2.8% higher than yours.

3. I was using the latest population numbers, that put my numbers 5.34% higher. 297.911 million vs. 282.805 million.

So if we add the 27 billion to your number and add the 2.8% and 5.34% for current numbers, we get $524 billion. That makes a lot more sense. My number assumed a lot about family size, and I expected it to be off a few percent, but not 20 percent. Your numbers are more percise, but for older data. You still assumed too few adults for the non-married households, so your number is a little low. So splitting that difference puts the current number aroudn $510 Billion.

Pigdog's only legitimate point is the population number does include some non-citizens which the census puts at 18 million, with about 9 million being illegal. If we assume this non-citicen population is made up similar to the overall population, the average allowance is $1700 per person times 18 million, that subtracts about $30 Billion. The current 2005 number for the family consumption allowance is right aroudn $480 Billion. Pigdog can't refute any of this, but will post garbage anyways.

It is no secret that I am a home builder.

Actually, home builders are one group likely to benefit. Suppose that the FT whizzed through congress and passed with a start date of Jan. 1, 2007. People contemplating big-ticket purchases will go into a buying frenzy in 2006 to beat the tax. Anyone thinking of building a home will quickly seal a contract with you in 2006, in order to be grandfathered at the old tax rates.

You can probably build around a half-dozen homes per year per crew. So you'll have a waiting list on the order of ten years long. Thus, to a first-order approximation, you'll have all the business you can handle up until you retire.

Second-order effects will kick in, of course. Congress will be utterly surprised by the Feeding Frenzy of 2006(tm), and will pass a new law that contracts executed under the FairTax are subject to it. They will make an exception, however, if you break ground in 2006. As a result, you'll order all your crews to do nothing but lay foundations, and you'll double or triple on manpower to lay hundreds of foundations in a single year.

For you, that will be an incredible windfall. In 2006 you'll collect hundreds of down payments, plus payment for hundreds of completed foundations, which will come at high rates due to the high demand for skilled labor and concrete. In addition, you'll be booked solid for ten years or more into the future. Even clients who later renege will forfeit at least their down payments.

In the end, the real estate bubble will not only collapse, it will implode, due to the incredible oversupply of new houses. Old houses will be impossible to sell. But it's quite probable that you for one will come out smelling like a rose.

So you don't get to take all of your non-family household members and give them the prebate. In fact it can't be told definitely from the numbers in the tables but some portion of any of those "households" or some living in them would undoubtedly not qualify for the prebate anyway.

From the Census Bureau:

Household, nonfamily.
A nonfamily household consists of a householder living alone (a one-person household) or where the householder shares the home exclusively with people to whom he/she is not related

So, according to the Great and Powerful Pigdog, if you have a roommate you only get one FCA between the two of you. Move in with your girlfriend? Lose your FCA! LOL!

Only a fool won't admit when he's wrong.

First of all, it's not a "check", but a payment which will usually be in the form of a wire taansfer to your checking account.

Do you really think there will be a household who pays NO tax??? That would be vanishingly rare while being theoretically possible I'd think. And proposing that as an argument shows how desperate you guys have become for rational points.

The same observation (rational points) apply to poor families getting more than they pay in taxes. Vanishingly small though theoretically possible.

It's a refund nonetheless and not an entitlement just as the income tax refund is a refund and not an entitlement (it's even called an income tax refund remember).

At least your number is going in the right direction ... lower. You'll soon be down to my estimate (note the term "estimate" since that's all all of this is - even the Census Bureau stuff) of $369 billion. Since some of you started out loudly yelling that the prebate amounted to $600 billion, that's a 20% improvement already - and I haven't even begun to show your errors.

Since you say I "can't refute any of this" let's take a look at your newly-lowered number of $480 billion. The bill specifies spouses as part of the household makeup so that a non-married (e.g., non-spouse) household does not qualify fully for all persons in it. That kicks the snot out of your fake number exercise right there. Similar comment for the non-family households. IOW your numbers are extremely bogus.

In addition your $480 B assumes 9 million illegal aliens. More definitive studies using better (and multiple) methodologies show 20 million. That (using your own horseback assessments - which BTW I haven't said I agree with) reduces your 480 by about another 20. After subtracting the requisite correction for non-qualifying persons in the non-married and non-family households, you'd easily get down below $400 B ... and quite possibly below the $#369 B estimate I gave.

Keep in mind that the family-households (76,217,000) certainly include some number of non-qualifiers as well in the form of either illegal aliens or other non-citizens and you're probably realistically even below $350 B. Of coure I've never accused you of being realistic - since this entier "prebate" off-topic excursion shows you certainly aren't.

If you want to say $369 B, I won't greatly object but as you've typically tried to go the other direction (until this latest "open kimono" exercise), but I'm not holding my breath. That would amount a lowering of your hyperventillation of the "size" of the prebate by almost 40%.

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