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

If those taxes are exclusive (of income) where does the money come from to pay them?

Ah a window into the mind of a poster who doesn't understand math.

Lewis, tax inclusive and exclusive refer to whether the TAX is included in the base - not "income" as you posted above.

Maybe that's one of the reasons you have been the ONLY one in ten years saying such nonsense - you don't know what the terms tax inclusive or tax exclusive mean!

LOL!!

But there's a reason they state it the way they do: to make the tax sound smaller.

I disagree. I can provide sound reasons for stating the percentage both inclusive or exclusive. None is to make anything sound bigger or smaller. Indeed one of the fundamental goals of the nrst is to make taxes more visible and more painful.

Like eliminating withholding and forcing taxpayers to pay in cash monthy, or weekly, or daily... whatever. Even though this alone would not implement spending cuts, you must agree that eliminating withholding would put downward pressure on spending.

That is one of the reasons I think the nrst is the best option. To be clear, I use both rates. One to compare to our current income/payroll/estate/gift taxes and one to calculate the amount of tax on a particular pre-tax item.

Since you've explained this to your students before, you most certainly provided more than a single point of view on the matter, right?

An "infidel"??? I'm not concerned with your religious outlook (or lack thereof). I merely find your posts quite foolish and shortsighted.

I think "moron" is a more descriptive term for you. And lest you think your "invective" is, somehow, clever ... get a life, buster - it isn't.

He he like the time a week or so ago that lewis challenged me to calculate the inclusive or exclusive rates on several examples. He really didn't know how to do it.

I did all the examples and didn't hear back from him... til now. he he

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.

Both amounts are indeed the same.

ANd why do you posit that if the taxes were the same (and they are), that the rate would be described compatible with sales tax? Why do you suppose that it wouldn't be compatible (your word -I prefer comparable) to income/payroll tax rates? You know - the taxes that the nrst will replace? Or do you prefer to compare today's income/payroll tax rates to an exclusive nrst rate? Why? Because you want the nrst to seem much higher - and it is not. You are marketing your position dishonestly.

It is not the case that it is "more readily understood" as you state and presume. Why don't today's income/payroll tax rates get expressed exclusively????

Nor do I say that I use the inclusive rate exclusively. I use both.

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.

And what led to your "conclusion"? Are you really telling this forum that since 23<30 that you know some special reason for the rate being expressed inclusively? C'mon .

You can't let that crap fly here on FR. If you want to connect your conclusion to the assumptions you must explain the conection. Your "connection" was 23<30. Not even close to a connection... in your mind, perhaps... but you have some unspoken positions leading you to this. Why not share them? C'mon? You ashamed of your beliefs? What's the real reason you reject tax reform? Not willing to say? WHy not? Embarrassed? Ashamed?

I've told you why, and you've offered nothing to alter my conclusion.

Nothing will alter your conclusion. You have already decided (for unstated reasons) that you reject tax reform because you believe it is being marketed wrong.

Okee dokee.

Why not just open up and tell the real reasons you reject tax reform? Do you make money from our current tax code?

...nobody can assess the impact of the "23% consumption tax" without first representing it as a "30% sales tax".

You have concluded such based on the assumption that impact cannot be assessed without knowing the annual total of tax paid. Well, that is a bad assumption. Have you ever considered that I can assess impact if I know that I have just $77 to spend out of each $100? My babyfood bill, diaper bill, etc can all easily be broken down into federal tax.

I can surely assess how this tax will affect me as described.

Again, why the fake reason? This isn't enough to make even the most liberal professor reject tax reform. The liberals have other reasons. What's yours?

You just gonna stand on this?

The bill stipulates that goods will be priced inclusive of the "FairTax". That the receipt--printed later and seldom read-...

Printed "later"? Exactly when? Oh... at the checkout counter when you pay for the good and the federal tax? That "later"?

"seldom read-"... why do you suppose receipts today are seldom read?

the person walking through the store will see a price tag on the milk that says $3.90 instead of $3

EH? There is nothing that indicates that shelf prices will be either inclusive or exclusive of taxes. There is evidence to support either. What is certain is that at checkout, the tax-included price must be paid... including federal tax - right out of your pocket in cash. (Do you think they do that to minimize its effect? -you know, to make it seem smaller".)

So the same people who don't look at their check stub, W2 or tax return would suddenly look at their sales receipt?

Why would they?

What they WILL do, however, is get mad when they have to pull out an extra $1.50 when they buy a six pack, or an extra $9 on a jumbo pack of pampers, or an extra $6.50 on a jar of formula.

It isn't viewing the receipt that keeps spding down, although that won't hurt... it is the pulling of cash out of one's pocket to pay tax that will put the downward pressure on spending and taxes.

So you're telling us that you reject tax reform because the leading option is marketed improperly...

No, as you've hopefully realized by now. It was just an observation. I do object to the FairTax, though. In fact I have two objections: one in the case that it does'nt improve life economically for citizens; and one in case it does.

If it doesn't really improve things for citizens, then I object on precisely those grounds. (As an aside, I consider this the likeliest case.)
If it does improve things for citizens, I object on the grounds that it makes such things as: the NEA; farm subsidies for Ted Turner; the department of education; etc., bearable. Making those things bearable is a terrible idea, because it reduces the incentive to put a stop to them.

So I guess it's not fair to say I'm absolutely opposed to the FairTax; I'm only opposed under two conditions. One is that it doesn't live up to its promise. The other is that it does.

Lewis, tax inclusive and exclusive refer to whether the TAX is included in the base - not "income" as you posted above.
Maybe that's one of the reasons you have been the ONLY one in ten years saying such nonsense
Maybe you're the first one in history to claim income isn't the base for income taxes...

What they WILL do, however, is get mad when they have to pull out an extra $1.50 when they buy a six pack, or an extra $9 on a jumbo pack of pampers, or an extra $6.50 on a jar of formula.
That's contrary to all your past rhetoric of "prices about the same as now including the tax"....

Were you lying then or are you lying now?

If it doesn't really improve things for citizens, then I object on precisely those grounds.

You are in the minority on this point. The majority of informed individuals see the good that would come to our economy and and individuals from the nrst.

The nrst is border adjustable. Meaning that US made goods become more competitive abroad and at home. No income tax is able to do this. It makes illegals pay a disproportionately higher rate of tax. Income taxes allow them to skate on a lot. The nrst broadens the base significantly - allowing us all who currently pay to pay less to support government.

These things alone make the nrst better than what we have - which is what you're pushing.

it makes such things as: the NEA; farm subsidies for Ted Turner; the department of education; etc., bearable.

How so? IMO it makes them less bearable. If every single individual pays tax at the same rate, then all individuals will be more concerned than now with the NEA, SS, etc. IMO it is fairly clear that eliminating withholding will put downward pressure on spending. That puts pressure on unpopular programs to be cut... programs that under the income tax are unavoidable.

You are in the minority on this point

Learn to read. I said IF it doesn't bring the promised benefit, then I object on the grounds that it doesn't bring the promised benefit.

Conversely, IF it DOES bring the promised benefit, I object on the grounds that it makes blatantly immoral, unconstitutional government spending more tolerable. In answer to your "how so", I'd have thought it was obvious: it's more bearable because I now have more money in my pocket than ever before, just as the FairTaxers promised I would.

Get it now?

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