Posted on 01/14/2008 6:51:54 AM PST by K-oneTexas
COLUMN: The FairTax Promotes Economic Equality Submitted by on 01-13-08, 10:16 pm | Updated on 01-13-08, 10:35 pm |
by Thomas Davis
President John F. Kennedy once argued that our tax system “reduces the financial incentives for personal effort, investment and risk-taking.” Unfortunately, there has not been much improvement since JFK's presidency.
In fact, the tax code has become more complicated and burdensome. Since 1954, the number of words in the IRS regulations has increased by 939 percent. Just consider, how much time do you, or more likely your parents, spend preparing taxes? Or how much money do your parents spend having an accountant prepare your family's taxes? And how much time does a company spend making business decisions with respect to the tax code?
The answer is astounding: Economists estimate that we spend over $200 billion every year and about 5.8 billion hours complying with the tax code. American companies spend another $200-300 billion making business decisions based on tax implications. The average American spends twenty-seven hours preparing his or her income tax forms, and almost 45% of tax compliance costs are directly incurred by individuals.
While the current situation is complicated, the proposed solution is simple. It's called the FairTax. Some of the nation's most eminent economists and businesspeople have researched and developed a system applying a national sales tax of 23% on all goods and services at the retail level. In return, no more income tax. No more corporate income tax. No more payroll taxes, gift tax, alternative minimum tax, self-employment tax, capital gains tax…you get the picture. By the way, no more embedded tax in the goods and services you currently purchase, which averages around 22%.
Whether you realize it or not, the cost of corporate income taxes, payroll taxes and other taxes have been factored into the price of the goods and services you purchase. So when politicians try to tax what they deem to be greedy businesses by assessing higher corporate income taxes, those taxes are actually passed on to you, the consumer. By eliminating embedded taxes, the prices of what you buy after applying the 23% consumption tax would hardly change from current prices. The difference is that you bring home your entire paycheck and that tax is transparently assessed at the end, not through an onerous and bureaucratic system applied within a price tag.
And don't worry; this simplified system is revenue neutral. The government will collect as much money using the FairTax as it does under the current system, having no effect on current ability to fund government programs. Actually, economists expect economic growth to be around 10.5% for the first year, effectively increasing the government's revenue.
Under the FairTax, you would get your entire paycheck and would only pay tax on what you consume, encouraging Americans to do something we do not do well — save. In order to make the FairTax fair, all people would receive a prebate, or advanced rebate, that reimburses them for tax paid up to the poverty line. In other words, you only pay tax for living beyond your necessities.
Without a corporate tax, America will encourage companies to come back to the United States, providing new jobs for Americans. Without embedded taxes factored into the price of a product, American companies can export goods and sell them at prices lower than foreign products. While the benefits are numerous and the drawbacks are few, I encourage you to question the FairTax Act of 2007. Challenge it. Look for shortfalls. But don't forget to take the time to find credible answers. Read The FairTax Book by Neal Boortz and Congressman John Linder. Visit FairTax.org. Search the Web for scholarly criticism. You will see that the FairTax stands for innovation and equality. Do you?
However, what do you call a situation wherein prices rise X% over time under one tax regime, but rise X+Y% over the same time frame under a different tax regime, the sole difference between the two regimes being the principal taxing scheme?
Perhaps someone needs to coin a new word, because said price increase differential would surely be the case, comparatively, in a 'fair' tax scheme.
Go look up the definition of inflation. It is a purely monetary phenomenon,The definition of inflation is meaningless since it was bastardized to fraud when they eliminated food and energy from the equation.
>>”Those embedded taxes can not come out of the product unless employees agree to take a cut in pay, which ain’t gonna happen. Price go up significantly under the fairtax after the 30% sales tax is added on the price.”<<
Well, if the employees’ wages DON’T go down, that means that their take-home pay will RISE significantly, say by 25-35% depending upon the amount of withholding and SS taxes now being taken out. This will give them the added funds to pay the Fair Tax.
Realistically, though, wages will drift lower over time until an equilibrium is reached at lower levels of both wages and prices (pre-fair-tax) because of competition from imports, which will otherwise be lower even after the fair-tax is applied to them. So, logically, wages WILL adjust and the embedded tax WILL eventually come out of prices. In other words, your assessment is probably incorrect and you should consider re-thinking it, assuming you’re serious about trying to figure it out.
To me, the most complex problem the fair tax will face is how to deal with people buying goods through a business and then transferring them to personal consumption without paying the tax, i.e., the black market problem. It won’t be anywhere near the 100% suggested by one poster, but it could be significant unless a way is found around the problem.
I wonder if just labeling all sales of certain products as taxable because they’re consumption items and then allowing businesses a credit for all sales tax paid in the month has been considered? Anyone know? That wouldn’t completely solve the problem, but it would go a long way, I think.
By the way, I’m only now getting into thinking about this, but I’m pretty sure Huckabee is going to be our next president, so I figure I’d better start paying attention. How come none of the rest of the “conservative” Republican candidates have a plan to take on the IRS? Or at least a flat tax proposal? If they do, they’re sure not very proud of it, as I haven’t heard anyone but Huckabee talk taxes. Shows leadership, doesn’t it....
Name calling doesn't get you anywhere. But, it's a theory of mine, and other economists, that Greenspan kept the monetary policy too loose during a period of significant productivity growth. This in turn leads to lax lending practices because money is "cheap." The FED should have kept money tight, but we are paranoid in this country that deflation leads to depression, although deflation can occur with growth as shown in Friedman and Schwartz "A Monetary History of the United States." The productivity boom ended around 2000, which had it's small effect then, and now some other markets are clearing, like housing. To say that the FED doesn't have an effect on prices is true when looking in the long run with monetary neutrality, but it definitely has short term effects. Bush's meddling hasn't helped much either, and there has been some more meddling which hasn't even began to take effect yet. But overall, many of the commodity markets are increasing because people are fleeing to them with investment, suspecting a recession ahead, although there are a host of other issues there.
Ceteris paribus is important, not abusing your patience, because we are trying to examine the effects of a specific policy. Making a comment about the current price fluctuations, which is due to other issues, has no place in the debate unless you can link the two logically.
Sure, I'll admit I'm not good at English or spelling. But again, name calling won't get you anywhere.
It does follow unless you have another solution. By you very statement "One can easily despise the current tax structure AND find your scheme worse still." Means you'd rather have our current income tax system than the fair tax.
Now imagine a Fair Tax...sure people will be happy for the "raise" they get after their first pay check without the withholding. But they'll soon get used to it and take it for granted. On the other hand, imagine how they will freak out over having to pay over 20% tax on a $20,000+ automobile.
Here in Michigan I hear far more people grousing about the 2% increase in sales tax that took place a few years ago than I ever hear them complain about what they pay to the Federal Government.
Absolutely, but that does not help out people who rely on savings and fixed income. Wage earners will make out under the fairtax once they get their share of the $600 billion in yearly prebate checks. It is a zero-sum game in theory because the same amount of net taxes are suppose to be collected. There will be winners and losers. My problem is the fairtaxers misrepresent it so it appears everyone is a winner. Retirees will get shafted.
LOL! You forgot the /sarc tag. I know no one here would seriously compare the FairTax to our present system and try to claim that the FairTax is the more "draconian" or "invasive" system. Good gag, though; you had me going earlier.
If, e.g., the typical 'necessary spending' by a four-member household is about $50k. to $60k. per year, the salestax on that hits households earning less than $80k. per year more than households earning over $200k.
Sorry, that's still incorrect. Inflation is a monetary phenomenon. In other words, it's caused by the government printing too much money. That is the only cause of inflation; c.f. Friedman. The liberal theories that said otherwise were thoroughly discredited during the "stagflation" of the 1970's. Since inflation is caused only by monetary policy, it follows that other actions (such as a change in the tax code, or any given wage agreements or contracts), cannot and do not cause inflation. Thus inflation, or lack thereof, is a complete irrelevancy in discussions of the FairTax or any other tax proposal.
Clearly you have never been an employer. My hiring decisions are based in part on TOTAL compensation, which includes the cost of EMPLOYER FICA, unemployment insurance, workman’s comp payments, as well as the more obvious salary, insurance etc etc.
You can spin it all you want, but the 15.2% full cost of FICA most definitely goes into the price of a product.
I currently have 10.
You can spin it all you want, but the 15.2% full cost of FICA most definitely goes into the price of a product.
I never said it wasn't. The issue is not that the cost goes into the product, the issue is if the fairtax takes it out of the product. From the employers perspective, only have is removed. The employer only sees the other half if the employee takes a pay cut, as I have been saying all along. It is really not that difficult for an intelligent person to understand.
All that did was confirm what I said.
I hear you, but what you are talking about is not “inflation’ as we define the word, as you said.
Any tax policy, no matter what type, distorts market behavior. Prices reflect that. Under the fair tax, for example, I would expect new housing to reflect the fair tax in less profit per unit in order to compete with used (thus non-fed-taxed) housing sales. Right now, tax policy distorts behavior to favor owning over renting with all the write-offs of taxes and mortgage interest.
And on and on and on.
I do believe prices will lower to offset the fair tax to reflect the lack of corporate and other federal taxation. How much is really up to the amount of competition in each industry and area. It would take time to shake that thru the system.
You are confused. The definition of inflation has nothing to do with how the Feds calculate CPI.
Duncan Hunter has signed on as a co-sponsor of the Fair Tax, and Fred wants a flat tax.
Oh wait, you must be watching the MSM - they’ll never report what conservatives want to hear.
No argument.
If we don’t get the socialists out of public K-12 education, we have lost the country.
lemme clarify - if your income barely covers your cost of living, all of it (what you spend) is subject to tax. When your income is much greater than what you need to spend, you are taxed only upon what you spend - the rest is gravy - you keep it tax free.
now if anybody can get this turkey past the class-conscious left (this would be a true “tax break for the rich”.
and of course, if the rich pay less, guess who makes up for the shortfall?
Savers and pensioners pay Federal taxes too, including FICA.
Retirees no more get shafted than they do now. When a retiree withdrawals money from their non-Roth IRA, what happens ? Ding ding ding, they get taxed. Right now. Anybody collect pension ? They get taxed too. Right now.
So tell me again how retirees get shafted?
Since the US Census median family income is 43k per year, how do you get “necessary” spending at 50-60k per year ?
Source, please.
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