"The Fair Tax Fantasy"

Townhall ^ | 4/20/09 | Hugh Hewitt

[pissant]

This is a new book that I have co-authored with Hank Adler, a professor at Chapman University's business school, a post he took up after retirement from a long and successful career as a partner with Deloitte.

Hank and I undertook this project because we had --independent of each other and for different reasons-- arrived at the same conclusion: That the "Fair Tax" proposal put forward by my radio tal show host Neal Boortz and Congressman John Linder is a disastrous mirage that far too many Republicans have been drawn too, and for all the wrong reasons. "The Fair Tax" is a hopelessly flawed fantasy, but one with a surface appeal of simplicity that attracts especially politicians in need of energetic volunteers and quick headlines. But if the "Fair Tax" becomes the "Kemp-Roth" of the next few years, the GOP will be rightly punished at the polls as the details of the plan make it to the desks of serious political and economic analysts and from there to large numbers of voters who will examine the plan carefully and reject it almost immediately upon doing so. In short, not only should Republicans and conservatives not endorse the Fair Tax, they ought to affirmatively disavow the plan and press instead for serious and thoroughgoing tax reform, including lower and flatter tax rates.

Fair Tax enthusiasts often call my show and demand that I "read the book," by which they mean one or both of Neal's books. We have, and they do nothing to persuade serious readers of the plans merits, but much to camouflage the scheme's many deeply embedded flaws. Henceforth I'll be able to respond "Yes, but have you read the book that exposes the Fair tax as a destructive fantasy it is?"

[Man50D]

The income tax is the most intrusive expression of Big Government.

You couldn't be more correct. It's purpose is to be intrusive to expand government at the expense of people's freedoms. That's why Karl Marx made a tax on income the second plank of his Communist Manifesto.

[1010RD]

Sounds good, but we’ll still have government and thus politicians, no? How long do you give it? 20 years?

[Mojave]

The whole idea is to encourage saving (investment).

By screwing everyone who has already saved for their retirement throughout their lifetimes. Since the income tax doesn't tax those savings, the "Fair Tax" cultists have created this scheme to get at those moneys to help fund their "prebate" welfare scheme, the largest in history.

[Man50D]

I am in favor of a flat tax, that is, tax payments attached to the front of a wadcutter

Karl Marx was also in favor of a tax on income. That's why it is a plank of his Communist Manifesto. The Fair Tax is a flat tax but on consumption instead of productivity. We've been experiencing the results of a flat tax for the last 96 years. It's been a complete failure. People were paid only 1% on the first $20,000 of income and only 7% on any income above $500,000. An overwhelming majority of people paid only the 1% since hardly anyone earned $500,000.

This flat tax has morphed into the multi tiered, increasingly oppressive income tax code we have today. Another flat tax on income will evolve into the same monstrosity as present only faster thanks to the lobbyists, who seek all sorts of exemptions and loopholes for their big business clients, that didn't exist in 1913.

[wombtotomb]

I am close to one of those a@%wipes you refer to. I don’t pay too much (under 50,000 per year, family of 5 most of those years). I support the fair tax. I know the merits of it, and find it to be the most fair way to get ALL people to pay taxes, including drug dealers, prostitutes, those who live on gambling revenue, royalties and most importantly only pay capital gains.

I support it because I know that if structured properly, just the way I shop (good will, thrift stores, used cars, garage sales) for a great deal of what I already buy, those items won’t be taxed. Food and necessities won’t be either, and since that is pretty much what I can afford to buy, I will be ok.

It would encourage saving and stop this consumerism driven mentality of buying more bigger and better before the old is no good, just for appearence sake, and SS would become irrelevant because of it except for the poorest of the poor, as it was meant to be. Please don’t paint all the poor with one brush stroke.........

[Man50D]

That’s quite the defensive post you’ve authored there.

Only if you consider facts as defensive.

[John.Galt2012]

Yeah, I hear you, but nobody is forcing you save, you are just choosing where and when to spend and therefore you are choosing when to pay your taxes. The MAN gets his cut of your production on the back end, not on the front. The two things that would take the teeth out our government and give us back our country would be 1. Term limits 2. Fair Tax. Let there be no doubt about it, income tax is weapon use by our govt. Currently, if you make a mistake its your fault and you pay the price for failure to remit your taxes. When was the last time you walked out of a business and noticed they didn’t charge you tax and then thought, wow, I should go back in and pay that tax? Never, because the onus is not on you. Yet on the other hand, have you ever seen something the govt. was doing and thought, “That sucks, I would say something about it, but then I would probably get audited or something.” I know I think that all the time. You would probably be shocked at how often outspoken conservative talking heads are audited.

[Wissa]

By screwing everyone who has already saved for their retirement throughout their lifetimes. Since the income tax doesn't tax those savings, the "Fair Tax" cultists have created this scheme to get at those moneys to help fund their "prebate" welfare scheme, the largest in history.

That'll learn 'em. The fools shouldn't have been saving their money in the first place.

[Man50D]

They use numbers to fool you.

They go by total cost first to fake you into thinking it is only 23 percent.

The total cost to you is $130. $30 of $130 is 23.08 percent, making the amount paid to the business/manufacturer $100.

If you look at it the way we pay sales taxes now the cost of the item is $100 and thus the $30 tax equals a 30 percent tax, which is the actual truth.

The so-called fair tax lies to you by making retailers and businesses advertise the after tax price so that the mathematically challenged will not realize they are actually paying seven percent more than they are being told.

You're only fooling yourself with that line of reasoning. Every product today contains nearly 23% embedded taxes, known as the inclusive tax rate. a $100 item has $23 dollars of embedded tax with the actual cost of $77. The Fair Tax will remove the embedded taxes by eliminating corporate income taxes and apply that amount as a separate entry, known as the tax exclusive rate (23/77=30%). Note the amount of tax collected is the same regardless of which rate is quoted and the total price will be approximately the same amount as it is today. It will not increase to $130$

[Wissa]

The two things that would take the teeth out our government and give us back our country would be 1. Term limits 2. Fair Tax.

If we get that, everything will be sunshine and rainbows from then on?

[John.Galt2012]

Nope, but it will go a long way towards restoring balance in our system.

[1010RD]

but nobody is forcing you save

Impossible and absurd on its face. Every use of force alters your behavior.

As we bicker amongst ourselves over how best to waste our fortunes - silly.

Until conservatives agree on the foundational concept of individual liberty how can we even hope to fix our nation?

The problem is caused by expectations that someone else can run our lives better than we can, that government is neutral and helpful, and by expanding the voting franchise from producers to consumers.

It is simply blather, especially given the fact the when we even get near any power we cannot wait to exercise it over someone else for the cause de jure.

[RayChuang88]

I think Hewitt forgot that the 23% tax rate is based on final sale of goods and services, NOT business-to-business taxation like you get with a value-added tax. In short, the ONLY place you collect this consumption tax is at the retail level, and sales of used items are not subject to this tax either. Since 75% of all home sales are old homes anyway, this right there means under FairTax whole neighborhoods of foreclosed homes will be sold in a blink of an eye as people discover they are 23% cheaper than a new-build home!

[K-oneTexas]

No, not spin.

You calculate tax as inclusive or exclusive. An income tax is exclusive. A sales tax is exclusive.

The term reflect if the tax is included in the base amount or not included. Income Tax the base amount is gross wages, which you taxes are included as a portion. FairTax/Sales Tax the gross amount is the cost of the items/service being purchased.

If you are talking in terms of an income tax, then it is calculated inclusive and thus 23%. Because in an income

If you are talking in terms of a FairTax/sales tax, then it is exclusive and thus 30%.(Which is how all states level sales taxes are calculated and stated to customers)

Since it replaced the income tax it rate would be calculated at the inclusive rate of 23%.

There is no spin, except in the minds of those against the FairTax.

The FairTax isn’t perfect, however it is the best proposal to date. Also, it does away with the income tax which as we are seeing is draconian and punitive in its progressiveness. A flat tax does not change the income tax, if one cares to remember when it was legislated in 1913 it was a flat tax.

[Waco]

My question is, as cos. factor in lower operating costs, at some point they will want to lower wages, right? If so, what about all the workers that are covered by union contracts vs. those that are not.

[Terpfen]

You’ve attacked me as if a) I don’t know the basics of the Fair Tax, and b) that I am opposed to it regardless. That you felt you needed to explain that the Fair Tax would come with the repeal of all other taxes, thus lowering the retail price of goods, is indicative.

You thought I was attacking the Fair Tax, and so you went on the defensive.

[Mojave]

Every product today contains nearly 23% embedded taxes, known as the inclusive tax rate.

Every state in the country has rejected your phony "inclusive" sales tax rate. They all use the actual sales tax rate instead.

[Mojave]

That'll learn 'em. The fools shouldn't have been saving their money in the first place.

Yep. That's the attitude of the "Fair Tax" cult in a nutshell.

[Terpfen]

The two things that would take the teeth out our government and give us back our country would be 1. Term limits 2. Fair Tax. Let there be no doubt about it, income tax is weapon use by our govt.

Agreed. I tend toward the Flat Tax more than the Fair Tax simply because repealing the 16th Amendment is going to be virtually impossible barring a sudden influx of conservatives to state governments in the northeast.

[listenhillary]

Why would a flat tax be any more palatable to the North Easters and progressives?