If we start with the basic premise that most government spending is illegitimate by definition, than a burdensome, convoluted tax system that enables smart, shrewd people to avoid taxation in a legal manner is a good thing.
I don't suppose that anyone will ever suggest that the government should be limited to those functions actually allotted it by the constitution, with a budget limited to just those funds essential to perform those allotted functions.
Nah - too radical.
That's like the argument made when the tax rates were lowered in 1986 and all the rental real estate loopholes were eliminated. Six years later - the Clinton administration racheted up rates again - and there were no loopholes to jump through.
A "Fair Tax" is a pipe dream. You can't pull the rug out from under the cash flow of the USgovt and expect a non-eventful transition.
At best a "fair" consumption tax like the horrible VAT tax would have to be phased in while other taxes were phased out. And if you think this will happen easily your're dreaming.
Instituting a "fair tax" is the easiest way to form a national GESTAPO who's purpose in life is to harrass, arrest and utterly destroy tax cheats and avoiders.
I like the FairTax but the article does make one good point: what are the final tax burdens? This is a separate issue from the way in which taxes are collected. The answer is simple: the federal government will cease funding for any program or agency not described in the Constitution. That eliminates pretty much everything except the military, intelligence agencies, and a few agencies to regulate interstate commerce. In order to do this, you'd need to submit and pass an enormous bill that implements a sales tax, disbands the IRS (except what is necessary to deal with people remitting collected sales taxes to the government), and sets the sales tax at a rate such that all money saved by such enormous government cutbacks is left in the hands of the people.
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough to fully find the government at today's level.
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates until we find that we are the Laffer optimal point.
In addition I want to see Social Security privatized, and I am willing to pay extra money to pay for those who were promised this benefit, and never receive a penny of it myself. I also want to see Medicare reformed from top-to-bottom. I also want to see Tort Reform to reduce the exorbitant costs of insurance on our medical costs. And we need to reduce the scope of the Federal Government to its constitutionally mandated responsibilities and get rid of the rest. The Golden Goose that is America is way too fat and needs to be put on a severe diet.
These are what we need to do, incremental improvements in what we already have. This is already working and we should keep at it...even Boortz seems to think so. Boortz (9/20): "...the economy continues to go like gangbusters. We are right in the middle of an historic economic boom. Don't let the mainstream media or the Democrats tell you otherwise...we've never had it so good...
Ahhhh... Thank you.
A breath of fresh air blowing away the stench of islamo-fairtaxism er... something like that anyway.
Good Job.
Freeper RobfromGa is getting some press.
The Mises Institute has been trashing the FairTax for years. So now they have a junior college teacher, cued by Rob Northrup, writing a missive that he obviously researched on Free Republic tax threads. I'm not impressed. Yawn.
The nest argument for the "Fair Tax" is that by combining all federal taxes into one clear percentage hit, many more people would be able to grasp what politicians are really doing with regard to taxes. Under the current system, politicians claim to have raised taxes or lowered taxes, but nobody but PhD economists can figure out if they really did, and the truth always boils down to one answer for some people and the opposite answer for other people. People would also have a much clearer picture of just how much of a hit the government is taking. A big chunk of our population is unable to do the math on their paychecks to determine what percentage of the gross is being confiscated in taxes. But a national sales tax would be clear to all but the truly retarded. If it's 20% one year, and 19% the next, it went down.
OK, I'll bite. This article (and reply number 7) are simply too long to digest here at work.
So I'm bookmarking for later.
(Altho, at first pre-read, the argument that fair-taxers are missing the point by not addressing government largesses is flawed since fair tax is aimed at addressing the separate problem of even-handed tax collection.)
Besides, as much as everyone hates the current system, there are enough "beneficiaries" of the system that meaningful reform of any sort will be nearly impossible. Personally, I like the Steve Forbes plan of a flat tax that can be filed on the back of a post card. But good luck getting people to give up their tax credits for housing, children, education, medicine, etc. Our only hope is that technology will one day allow us to earn and manage our money out from under the watchful eye of big poppa gov.
And if only being "revenue neutral" was a virtue.
The tax system in this country is broken, but the damage is not limited to the federal government. The most damaging aspect of the tax system is that it has to support spending habits that are completely out of control.
The easiest way to reduce federal spending is to eliminate all transfer payments to the states. But that would push the deficits down to the states, and start a whole series of crises in states which pretend they balance their budget by using federal money with strings attached to provide services that most governments are not authorized to provide, let alone required by law or God.
There are three rules of taxation you have to memorize. Somebody is always changing all the rest of them, so you might as well not commit them to memory.
1. The only fair tax is the tax that taxes you and not me.
2. When in doubt, deduct it.
3. Who's gonna know?
The lead-in article contains a noticeable amount of distorted fact if not outright misinformation and is intentionally misleading in many of its statements.
This author (an accounting instructor in a FL junior college) continually rails against the FairTax is this manner but reading this rebuttal will offer a more balanced and realistic perspective of the FairTax and its effects and benefits
"Interesting article, lots of good arguments against the Fair Tax."
It is interesting, as well as amusing. The "pure" libertarians who want to limit government to its constitutional limits all in one fell swoop are like children. They want it done and they want it done NOW!! And if they can't get it done immediately, then they don't want to do anything that advances us toward that goal in increments.
The Libertarian candidate for governor here in GA has made the FairTax one of his main campaign themes and he is polling well above typical Libertarian candidates - I have seen some polls as high as 15%. The only real suspense in the governor's race is whether or not he can garner enough votes to force the Republican incumbent into a runoff with his Democratic challenger.
The Libertarian candidate for Lt. Governor, on the other hand, is another "purist" like the author of this diatribe, who attacks the FairTax because it doesn't accomplish everything he wants in limiting government in one fell swoop. I'm sure his opinion isn't affected by the fact that he is a tax attorney who makes his living off the current dysfunctional system. In the coverage of the Lt. Governor's race, he isn't usually even mentioned. I haven't seen any data, but it is obvious that he isn't polling enough to even rate a comment in the media's coverage.
The "purists" can keep holding their breath until they get their way, but they are just going to end up very, very purple. In the meantime, FairTaxers continue to show Americans that there is a simple and fair way to raise taxes and there are any number of associated economic benefits.