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
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.I couldn't agree more but that's the way the law is written.
BTW, the law does require a receipt showing the tax seperately stated and charged so they can't hide it in the price.
All that proves is the law was hashed together, poorly written and contradicts itself.
Of course I won't. You've obviously made up you mind because you refuse to consider the fact that you might have been mistaken.
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.
Nothing? I've offered a detailed explanation that shows that comparing an NRST to current federal taxes can only be done fairly using tax-inclusive rates. If you want to ignore realities and simply get into word parsing, so be it, but the facts are still the facts.
The detailed explanation was asinine. Trying to snow me with numbers won't work; my math PhD is old, but not that old. The simple fact is:
For congressman, the only relevant comparison is that the tax is "revenue neutral". (That's of course debatable, but it is nevertheless the only thing they need to hear.)
For the majority of citizens, neither the inclusive nor the exclusive rate will allow them to compare the impact of the tax on them. "23% of your consumer spending will actually be tax" is a pointless statement to people who don't know how much they spend on consumer purchases in the first place.
If someone does know what he spends, then the statement is still useless: he would first have to calculate his new total under the proposed tax, which requires him to solve a (simple) algebraic equation: S=.77N for N, where S is the current consumer spending, and N is the new, tax-inclusive consumer spending. The number he wants is then (N-S), the amount of the tax. Shockingly, that happens to equal 0.3*S, where he already knows S.
Even the shop keeper isn't helped by this statement: in order to estimate 23% of gross receipts, he must first calculate his new, tax-inclusive, gross receipts. What he needs to know is that the $3 gallon of milk on his shelf will be marked up to $3.90, which will affect sales. He too needs the exclusive rate.
In short, the calculation is helpful to nobody. It has exactly one advantage: it's a smaller number. Everyone affected by the tax must solve for the exclusive number in order to assess the actual impact of the tax on themselves.
Of course they won't work if you don't bother to read them. You're fixated on implementation, not definition. The real question is -- I have so much money, what do I have left after the government takes their cut. To properly answer that question, the only mechansim that makes sense, for the reasons that I have shown, is the tax-inclusive format.
Again, I'll ask, which mechanism is fairer to compare against a total 24.65% tax rate for a "flat tax"? Or to compare against current effective rates under the existing system? You don't seem to want to answer that question, focusing on implementation details rather than what the expressed rates mean.
For what it's worth, I do beleive that tax-exclsuive will be much easier to use for implementation -- specifically because it much easier to compute than tax-inclusive since the NRST would not tax state sales taxes. I'd go through a numeric example, but you've indicated that you don't care for them, so why bother?
"There's only one way that sales tax is calculated. Deviation from that method was done for a reason."
That is correct. That reason is so that an NRST can be compared in a meaningful way to the taxes that it replaces.
"Second, 'hiding' the tax in the sticker price is very bad on many levels."
The FairTax won't be "hidden in the sticker price"; it will be broken out as a separate line item on the receipt. The FairTax is FAR superior to the current system from a standpoint of visibility.
Sorry - no - you're wrong. the FairTax website uses both the t.i rate and the t.e. rate depending upon the area being discussed.
The FairTax bill uses the t.i. figure so that a rate comparison with the income tax is meaningful. You'd merely LIKE what you claim to be the reason, but t'ain't so. Never was. Look into that on the FairTax website.
Nope - the rate in the bill is continually compared to the income tax rate. That's what the discussion of the two tax plans is all about - a comparison of the two.
Usintg t.e. rates is for a different purpose and my post was discussing the comparison between the 2 systems so I'd thank you to not try to misstate/misconstrue what I said.
The bill requires a receipt that shows the price of the thing without tax and another line that shows the tax amount on the thing taxed. There is no trickery involved as you attempt to suggest.
Sorry but your position is based upon your own assumption as to why the diffeerent rates are used. Your assumption is incorrect as has been explained several times to you on this thread - yet you continue to pursue the incorrect assumption and the conclusion you draw from it - which, of course, is also incorrect.
There is no "single way" to calculate taxes. You merely describe what you believe is the common practice and insist that it is the only way. It isn't as has been described to you. the poster kevkrom described the situation very clearly to you.
Does it help your case to make childish statements like that? Nobody said it's the "only" way; I explained the algebra carefully in a prior post--and pointed out that nobody can assess the impact of the "23% consumption tax" without first representing it as a "30% sales tax". It is possible to convert one to the other quite easily--but the FT site prefers to use the number that requires an extra conversion step...why? The reason is obvious.
More childish statements. The bill stipulates that goods will be priced inclusive of the "FairTax". That the receipt--printed later and seldom read--mentions the amount of the tax has nothing to do with the "sticker price", which the law stipulates will be posted inclusive of taxes.
Therefore, the person walking through the store will see a price tag on the milk that says $3.90 instead of $3. What part of that is too hard for you to understand?
Nonsense. The t.i. rate is helpful and the seller merely needs to set his cash register (which is, after all, just a computer) to accumulate the line item from the receipt that indicates the tax inclusive amount. He'll probably already be accumulating the price of the product not including the tax for other purposes. He's required by the bill to retain this information for a period of time.
Similarly for the other items on the receipt. As for the buyer, he merely needs to do the same thing - check the tax inclusive amount on his receipt. You'd help your understanding if you'd read the bill as it applies to the required receipt.
Once again, you illustrate your ignorance of HR25. The bill nowhere requires a seller to show a "sticker price" in ANY defined manner, let alone one that includes the tax.
Since you believe that to be the case, post the language here or stop such idiocy.
I'm not talking about the mechanics of collecting the tax, which are trivial. I thought that was clear. I'm talking about US citizens who are being urged to support the FairTax, who need to decide whether to do so or not. One of the important data will be, "What will this 'FairTax' thingie cost me? What will it do to the prices on my shelves?" This question can only be answered by looking at the exclusive rate. Given the inclusive rate, one must do extra algebra to find the answer. Why is the "extra algebra" version given? The reason is obvious.
Stop misquoting what I have said. I said there was no "single way" - not that you were claiming an "only way". Your strawman B.S. does not help your cause.
It is also even more childish than the fraudulent claim you make. The poster kevkrom explained it very clearly and I suggest you read his post again.
It's bad enough that you can't read, but apparently you have amnesia too. Your exact words were:
You merely describe what you believe is the common practice and insist that it is the only way.
What does "insist it is the only way" mean in your native language? In English, it means that I have claimed there is only one way. I have not. As for terms like "fraudulent," you should look up "fraud" in the dictionary and can the ad homina. Bad-mouthing the opposition is par for the course in politics, but you've got the technique wrong: you badmouth opposing candidates, not the voters you're trying to convince.
Wrong. The person only needs to know how much his income was for the prior year and that will usually be how much he has spent (for most people). Removing any savings (if he has them) would be a no-brainer since it would not be spent.
Multiplying 23% times his expenditures would give him a very good approximation of what it will "cost" him. The thing not seen in this, though (or by you either) is the extra amount he will pay in the form of hidden taxes which are increases in the prices of things caused by the income tax. This increase will be REMOVED from prices, making the things he buys under the FairTax less expensive before being the tax is applied. In addition to the lowered prices, he will have his full paycheck under the FairTax (plus the prebate) since taxes will no longer be withheld by the employer.
So you see, there are several things that need to be considered other than just simply looking at the single rate number.
And calculations using t.e. of 30% is wrong as you've presented it since based upon the t.i. of 23% currently in the bill, that would make the t.e. 29,87% rather than 30%.
Sorry, pal - your original quote was "There's only one way that sales tax is calculated". Perhaps you read that as "one of several ways" as you now try to pretend, but certainly most readers would not. Perhaps in YOUR version of English that means something else, but most would certainly think you were saying "there's only one way" (which you now claim you did not say).
Perhaps it is YOU who has amnesia. And perhaps you don't understand that one of the dictionary definitions of fraud is "an act of deceiving or misrepresenting" which is precisely what you are attempting.
I responded by saying there was no single way and left your obvious statement that there was "only one way" hanging on the fraudulent tree of statements remaining to be justified. You haven't done so.
I don't recognize you as a "voter I'm trying to convince" either. Your opposition to the FairTax is quite clear by your methods.
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