Boortz and Lidner's Fair Tax - Could it Happen Here?

TPM Cafe ^ | 8/23/05 | Chris Fonzone

[Man50D]

Imaginative director Terry Gilliam recently released his long-awaited epic The Brothers Grimm, starring Matt Damon and Heath Ledger. After well over a month, Neil Boortz and Representative John Linder’s The Fair Tax Book still resides in the top 10 on Amazon.com’s best-seller list.

It is difficult to tell whether the book or the movie is the bigger fairy tale.

Aug 23, 2005 -- 09:07:50 PM EST

The premise behind the “Fair” Tax is simple – shockingly so. The income tax should be disbanded (as should the IRS) and replaced with a 23% consumption tax on all retail purchases. The authors contend that this change will be revenue neutral, although they clearly intimate that they would prefer (maybe in the future) massive tax cuts of the “drown your government in a bathtub” variety.

Serious tax policy being dictated by a talk show host . . . sounds implausible, doesn’t it? Well, whether it is or not, there are a lot of people who are taking this very seriously. There’s a bill circling Congress in support of the “Fair Tax” with several notable supporters, including Dennis Hastert and Tom Delay. As this TPMCafe post details, letters to the editor are starting to appear in favor of the plan. And, as mentioned above, the book is a runaway Amazon bestseller, with hundreds of favorable reviews. During the last election, President Bush even voiced a willingness to consider the bill, before pulling back on his comments after a groundswell of opposition.

The popular support should not be surprising - it’s easy to criticize the IRS in order to make friends (and win votes). Boortz and Linder even have a valid point: the tax code does need to be reformed; at the very least, its too confusing and too easy to cheat. (For an excellent book on where we really should start reforming the tax code, check out David Cay Johnston’s Perfectly Legal.)

The fact that the plan is gaining momentum does not make it a legitimate option, however. There is plenty of room to question Boortz and Linder’s claims: the book is a ill-supported bromide that ignores unfavorable arguments and considers the necessary data optional, at best. And, even taking the proposal at face value, it is clear that the Fair Tax reflects the business interests that financed its creation and are pushing its adoption. It’s hardly surprising that the proposal is aggressively regressive and definitely not a change that will be beneficial to people who must spend a large portion of their income to live (read: middle and lower class Americans).

Given this, we here at The Warren Reports think it is important to get the word out about this plan. Over the next couple of weeks, we’re going to take a much closer look at Boortz and Linder’s Fair Tax Book, with at least three more posts planned: one on the impact the tax will have on Middle Class Americans (is it regressive?), one on our concerns with the empirical data and consistency of the argument in the book, and a final post on issues ignored in the book (e.g. transition costs). Our hope is that we can both point out the problems with the “Fair” Tax plan and stimulate a discussion on real tax reform – tax reform that benefits all Americans, not just the political donor class.

[pigdog]

If it's a "$100" item, the total will be $100 and the tax will be $23.00 of that - and it'll be shown that way on your receipt.

Overall, prices (including the tax) should stay about where they are now (your $100 item is still $100 but includes the tax) so it looks pretty good.

[pigdog]

The consumption tax base is much larger than the income tax base so at a given rate the consumption tax will actually collect more money than the same rate with the income tax rate.

It's not just corporate income tax that is involved, but all businesses income taxes which are far more than just corporations. In fact, the way it will no doubt work out is that the FairTax will actually collect more in tax revenue than at present which will allow rates to be lowered rather quickly.

[Toddsterpatriot]

Overall, prices (including the tax) should stay about where they are now (your $100 item is still $100 but includes the tax) so it looks pretty good.

I've read this thread, not sure I believe the price will remain the same. Please explain how. Thanks.

[pigdog]

Here's some information hat will explain it better than I:

http://www.fairtaxvolunteer.org/smart/faq-main.html#13

[Toddsterpatriot]

Try this %. Your low-earners current pay payroll/withholding tax at a rate of 15.3% (in addition to whatever they pay in income tax ... say another 10 or 15% or more).

Actually, the low earners only pay 7.65% in payroll taxes. You aren't saying that employers will now give their 7.65% payroll payment to the employee, are you?

I've heard it said that many low earners pay more in payroll taxes than in income taxes. That means their total tax burden is less than 15.3%. Don't forget the EITC. People who receive the EITC could have a tax burden of less than 7.65%.

[pigdog]

Quite a few economists think the employer's portion of payroll taxes is actually accounted for by the employee and should be considered as part of the employee's taxes.

Seems to be a difference of opinion, but it seems reasonable to me that it is part of his pay and so he pays 15,3% right now.

Don't know yet how this will work out under the FairTax, but I'd think it would go to the employee - others don't.

The EITC is actually a fairly complex burden that can have varying rates with different individuals. I'm not considering that in the analysis.