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

The Fair Tax is proposed as a Fair, Simple, and Transparent tax system.

You bet H.R. 25 is Transparent___ but it sure is not Fair as is suggested!

For example, the monthly family consumption allowance checks which would be sent out by government under H.R. 25 would come from taxes paid by people who work for a living, pay the H.R. 25 tax, and thereby contribute into the common treasury.

The family consumption allowance entitles those who do not work for a living nor contribute into the common treasury to receive the allowance! Drug dealers and drug addicts are entitled to the allowance; burglars, armed robbers and car thieves are also entitled to the allowance; and, even your local un-wed welfare moms who stay at home, do not contribute into the common treasury but makes babies to increase their current monthly welfare check, are entitled to the allowance. Even criminals who are locked up in prison and jail are entitled to the allowance. In fact, each of the above are entitled to get a $400 per month bonus under H.R. 25, for not contributing into the common treasury, which turns out to be another socialist transfer of wealth entitlement program.

H.R. 25, the alleged FairTax, would create the largest entitlement program in the history of America under its family consumption allowance___ an entitlement which is estimated would cost $ 600 BILLION a year! The cost of this entitlement to the American Taxpayers would make the projected cost of Hilary Health Care look like chicken feed.

Hey Boortz, and all you Fair Tax Neal Boortz Stooges, where are you? Come out and defend your socialist transfer-of-wealth tax plan.

The only stinking tax reform we need is for the people to demand their employees, their public servants, add the following words to our Constitution, bringing us back to our Nation`s original tax plan:

The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay any tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money.

See how easy real tax reform is? It doesn`t take 135 pages of bullstuff, [H.R.25] which would leave us on a sinking ship, it only taxes 32 words for the people of America to gain control of a runaway Congress!

To study Founder`s original tax plan CLICK HERE and scroll down to:

American Constitutional Research Service Before the
Committee on Ways and Means
United States House of Representatives
June 1995

Regards,

JWK

I've just found you "back here" on this old thread, johnnicakes, and felt that I should let innocent readers know about not only some of the incorrect information you post about the FairTax, but also about your involvement with the fringe known as the Tax Protester movement (as shown on this thread post #21 and following). With this data (about the Tax Protesters) readers can certainly decide for themselves the veracity of you and your posts.

When you say:

"... checks which would be sent out by government under H.R. 25 would come from taxes paid by people who work for a living ..."

... you are merely attempting to put out misinformation since the prebate not only does not consist only of checks (it will normally be a wire transfer to the checking account), but it comes from taxes paid by all people not merely those "working for a living" as your attempt at class warfare falls flat. Anyone consuming taxable items pays the FairTax and not merely workers since some people certainly do not work and yet consume from their savings and investments.

This same information also puts the lie to your statement that the prebate:

"... entitles those who do not work for a living nor contribute into the common treasury to receive the allowance! "

Since the tax is based upon consumption rather than income everyone who consumes (as we just pointed out) will pay the tax - including those in the illegal economy that you mention (drug dealers, burglars, etc.) when they buy things at retail. These folks will be among those hardest hit since at present they completely evade the income tax. But they will receive the prebate which requires those in the families that qualify have a bona fide SSN and be a lawful resident of the U.S.

In spite of those requirements, your next statement about:

"Even criminals who are locked up in prison and jail are entitled to the allowance."

Is absolutely false and is specifically prevented in the bill. Nor do those qualifying (as we have pointed out just above) receive the prebate "for not contributing into the common treasury" but for qualifying under the FairTax law. They actually WILL be "contributing to the common treasury" - and far more so than at present.

The prebate is not an entitlement as you claim but a refund of sales taxes paid as shown in this post and certainly "costs" nothing like the false, unsupported number you mention.

As for your ridiculous and out-of-control "repeal the 16th" amendment wording it does not do what you claim at all as shown on this thread post #21 and following but especially post #27.

Frankly, johnnicakes, it seems strange that anyone would even bother to read your "stuff", let alone believe it in view of all of the many "inaccuracies" contained (only some of which have been shown here), but to each his own. Have a nice day.

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