Posted on 12/15/2005 10:33:58 AM PST by Eaglewatcher
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.
For specific rebuttals read on:
Dec 14th, 2005: 08:29:48
Jeff Horgan writes: Hello Mr. Vance,
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.
Regards,
Jeff Horgan Richmond, Va
From the Fair Tax Blog Bill Rook Posts: http://www.fairtaxblog.com/20051213/liars-use-double-talk/
Liars use Double Talk to Lie about Lies in the Fair Tax
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.
Apples Oranges
Tax (inclusive) (exclusive)
Fair Tax 23% 29.9%
Payroll: FICA 6.2% N/A
Payroll: Medicare 1.45% N/A
Income Tax 10%-35% N/A
Income & Payroll
10% Bracket 17.65% 21.4%
15% Bracket 22.65% 29.3%
25% Bracket 32.65% 48.5%
28% Bracket <$90K 35.65% 55.4%
28% Bracket >$90K 29.45% 41.7%
33% Bracket 34.45% 52.6%
35% Bracket 36.45% 57.4%
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.
Tax Inclusive Exclusive
Fair Tax + 6.33% Ave. State Sales Tax 26.6% 36.2%
35% Bracket + Medicare + 4.44% Ave. State Income Tax 40.9% 94.3%
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
Ask a person how much of their income went to paying taxes under the FairTax and they will give you the tax inclusive percentage.Ask a person how much of their income went to paying taxes under the FairTax and they'll rightly call you a delusional fool, there is no "Fairtax".
Nor did anyone say that they did. Please spend some time on the FairTax website to determine that for yourself instead of just guesing about it - or taking the misinformation put out by FairTax opponents who, after all, have their own ax to grind.
For the ones you cite:
Tax (inclusive) (exclusive) Fair Tax 23% ....29.87% Payroll: FICA 6.2%.... 6.61% Payroll: Medicare 1.45% ....1.47% Income Tax 10%-35% ...11.11% - 53.85%
Read 'em and weep!!
Did you also tell tham that to compare a tax such as the FairTax to the Income tTax it replaces that using the same basis (tax inclusive) is required???
In fact, that's why the rate is used in the bill as tax inclusive. Those Congresspersons ain't too smart, you know.
lol. Duuuuhhhhh!
I told you in another reply that the fair tax page has the explanation spelled out completely and has ALWAYS had it there. You chose to ignore me and still post this bs. I hope your students aren't subject to such deviance. Of course, they can't be, they are studying math. One can't refute that can they?
lol. Duuuuhhhhh!This bit of idiocy from the same clown who, using examples, argued there is.
The FairTaxers do, however, calculate sales tax in a manner inconsistent with the way everyone else does it. Why? Because the number comes out smaller. It's marketing.
That's an idiotic statement: in replacing an income tax with a sales tax, people will appreciate the magnitude of the resulting sales tax much more readily if it's calculated in the same fashion as all other sales taxes.
On the contrary, the tax is routinely referred to as a 23% tax, with a FAQ explaining why that's a legitimate way to describe a 30% sales tax. If they were truly "both the same", then the FairTaxers would describe their proposed tax in terms compatible with existing sales taxes, which is more readily understood. Since I assume they're not stupid, I conclude that they made this choice consciously.
BTW, when you finish taking a logic course, you will know that I never assumed 23% was quoted for marketing reasons: instead I concluded it. The assumption was one you already granted: sales taxes are always calculated exclusively, therefore stating them in a novel way must be done for a reason. Observing further that 23 < 30, I conclude that they consciously picked the calculation that sounded smaller.
Your logic is then faulty, because you have reached an invalid conclusion. In fact, it is the opposite conclusion that is correct: those who insist on using the tax-exclusive rate are doing so to make the tax look larger.
The NRST rate is quoted in tax-inclusive terms specifically so that it can be correspondingly compared to income and payroll taxes on an equal footing. For example, I earn $100, of that I pay $20 in taxes and $80 for goods and services. What is my tax rate? Is it 20% of $100 or 25% of $80? Both are correct, but which one is useful in context?
Let's try to compare the NRST (at the 23% tax-incluive and 29.87% tax-exclusive rates) to a 17% flat income tax. Of course, that flat income tax doesn't include 7.65% payroll taxes, so let's add that in for a total of 24.65%.
So, which one NRST rate is the best one to use for comparison? If I use the tax-inclusive rate (23%), I can easily see that I can buy $77 worth of goods for each $100 that I spend. As a direct comparison, I can buy $75.35 worth of goods under the flat tax with that some $100 pre-tax money. I was able to figure out those numbers using the same calculation for each: pretax money times ( 100% minus the tax-inclusive rate ).
If I use the tax-exclusive rate (29.87%), however, when I ask the question of how much goods and services I can buy with my pre-tax $100, I have to use an entirely different equation: pretax money divided by ( 100% plus the tax inclusive rate ).
In the first case, the rates can be compared on the same footing -- an apples-to-apples comparison. In the second, since I have to use different means of calculating the same answer, I have an apples-to-oranges comparison.
But, you may say, isn't it just a case of how I chose to frame the question? Of course it is -- but the question as I framed it is what the average person wants to know: I've got $X, how much stuff can I get for that after taxes are taken out?
The honest fact is, it is the NRST opponents who insist on using the tax-exclsuive rate in order to scare people into thinking the rate is higher than it is. Take our example again -- using an honest head-to-head comparison, the NRST rate (23%) is actually lower that the flat tax plus payroll taxes (24.65%), and the example shows that after-tax money follows these numbers. However, those more interested in the flat tax use the tax-exclusive number (29.87%) to make the NRST look larger than the flat tax plus payroll taxes.
In fact, that's why the rate is used in the bill as tax inclusive. Those Congresspersons ain't too smart, you know.Actually you aren't too smart. Show me where it's written a business has to charge the consumer 29.87% sales tax.
The reason the wording of the bill is "23% of the gross payments" (tax inclusive) is because it doesn't dictate what the sales tax rate is any more than it dictates what a business should charge.
It wasn't written for the consumer because the consumer doesn't remit the tax. The wording is to instruct the business to remit "23% OF the/ir gross payments" which would have to be "tax inclusive"...In fact "gross payments" would be everything "inclusive".
State sales tax laws are also written for the business not the consumer. But state laws dictate a business impose a tax ON a purchase then remit that amount instead of a tax "23% OF the gross payments".
Sorry, but that doesn't wash. There's only one way that sales tax is calculated. Deviation from that method was done for a reason.
There are two problems with that. First, the consumer is the one who will be expected to vote for or otherwise support the FairTax, so informing them is the highest priority. Second, "hiding" the tax in the sticker price is very bad on many levels. If you'd like to see why, look no further than the gas pump. Gas stations are blamed for "price gouging", when in reality it's the politicians who should be lynched for "tax gouging."
I see. Absolutely no discussion of the merits of my presentation, just a reassertion that your flawed premise is correct.
The problem lies in that you are getting stuck on the term "sales tax". The NRST is intended as a replacement for federal taxes, so instead of trying to express it like something it isn't (a state sales tax), you need to express it like something it is (a federal tax). You're trying to compare it to the wrong thing.
Discussion will go smoother when you learn the difference between a premise and a conclusion. Meanwhile, "hype" doesn't sink the FairTax proposal, but yes, you are correct: you won't convince me that their chosen method of expressing the tax wasn't picked for marketing purposes. I've told you why, and you've offered nothing to alter my conclusion. Repeating ad nauseam that income taxes are calculated inclusively won't help: I already replied that sales taxes are always calculated exclusively.
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