Posted on 02/01/2008 12:06:25 PM PST by Man50D
There has been much misunderstanding-deliberately promoted by income tax system defenders recently-about the effects of the FairTax on different income segments of the taxpaying public. Let's clear the air a bit.
The greatest benefits of tax reductions under the FairTax, according to respected economists, accrue to low income taxpayers (an average 14% reduction) then to the middle class taxpayers(an average 7% reduction) and then even to the wealthy (an average 5% reduction).
How can this be and still raise enough revenues to replace all taxes now collected under the income tax system? It's because the taxpayers base is dramatically broadened under a consumption tax by bringing in illegal immigrants, as consumers, and the $1.5 trillion annual underground economy. In addition, the very wealthy pay the full 23% rate on spending, which is an increase over the typical 15% capital gains tax now paid on dividends and stock gains when redeemed (Warren Buffet's recent complaint). In a nutshell, the more you spend under the FairTax, the more taxes you pay. Remember, too, that all the gimmicks that those with tax lobbyists and tax lawyers are able to exploit in the current 67,500 pages of income tax regulations also disappear (along with the role of tax lobbyists as there are no exemptions, loopholes or deductions).
The President's Advisory Panel on Tax Reform declared that taxes would go up on the middle class under a consumption tax when they ignored the definitions in the actual pending FairTax legislation and created their own flawed consumption tax. They quietly loaded it with exemptions they felt more "realistic", ignored the distributional effects of eliminating highly regressive FICA taxes (you know, the ones that represent the highest tax payments by low and moderate income taxpayers) and refused to examine the $22 million of FairTax research. They then declared a consumption tax (which many writers have wrongly assumed was the FairTax) as requiring a higher rate and punitive to the middle class.
The FairTax monthly prebate actually wipes out all federal taxes on the poor and a diminishing amount of taxes are reimbursed the further one is from the poverty line.
There is great resistance to the FairTax within the circles of those who profit from the complexities of the income tax code. Last year 53% of all lobby expenditures in Washington, DC were paid to tax lobbyists. It's big business that includes not only lobbyists and tax related think tanks and tax reforms groups (entirely devoted to tweaking the income tax code) but academicians who have built careers on understanding the arcane details of the code.
Add to that the center of resistance to a simple, transparent system without gimmicks-the Congressional tax writing committees themselves. In truth, Congressional Members from both parties are addicted to using the tax code to reward friends and contributors, punish opponents and inept attempts to manipulate citizen behavior through the code. In other words, our tax writing process is driven by all the wrong reasons.
This is the single biggest reason that our tax code is so complex that it costs taxpayers $265 billion a year just to complete tax returns. It is so complex that the IRS can't answer taxpayer questions right more than six of ten times. It is so complex, the IRS comes up $350 billion short of owed taxes every year (raising the average taxpayer bill by about $2,000 annually).
On the merits, the FairTax takes politics out of the tax code and the tax code out of business decisions. It is the politics that are tough because passage requires overcoming powerful institutional players. To this end, Mike Huckabee and a host of other candidates have joined 72 Congressional co-sponsors and a growing army of citizens who believe that the public can still drive public policy ( a novel idea first suggested by the Founding Fathers). Otherwise, we are stuck with a system that makes debt more favorable than wealth, puts the "Made in America" label at a severe competitive disadvantage and punishes labor and investment. It's a system driven by politics, power and profit instead of economics or fairness. It's a lucrative gig for those in Washington and a destructive torture for everyone else.
Instead of borrowing money from the Chinese to pay out rebates to American taxpayers (as welcome as they will be) maybe we should think about what happens to the American economy when we make the USA the most desirable "tax haven" in the world. We have lost at least $12 trillion in American capital to offshore locations in recent years. Economists who have studied the FairTax agree that this wealth and a lot more in foreign investment will rush to our shores once the FairTax is enacted.
As FairTaxers say, "Dare to Be Fair". The FairTax won't be perfect and the transition will require adjustments but compared to the badly broken income tax system that so bedevils taxpayers and damages our economy, it's well worth it.
The FairTax research-as well as a recent article on how the FairTax helps the middle class by brilliant Boston University economics chair, Larry Kotlikoff, can be found at FairTax.org
Which state tax departments have expressed an opinion? I’m not aware of any state that has expressed an unfavorable opinion on the Fair Tax. On the contrary, if memory serves Georgia and Michigan were trying to institute a state level “Fair Tax” by increasing their sales taxes and eliminating their income taxes. Massachusetts too. See:
http://www.bostonherald.com/news/regional/politics/view.bg?articleid=1048331
and this, FROM: http://www.goldwaterinstitute.org/AboutUs/ArticleView.aspx?id=834
“...In Thomas Friedman’s “flat world,” Arizona is not only competing against zero income tax states like Nevada, Texas and Washington, but low-cost labor countries like India. By cutting taxes, Arizona will attract more entrepreneurs, produce jobs and encourage innovation. That’s one investment we can all get behind....”
Why would I waste my time on such a fool’s errand?
Point taken.
and..
"President’s Tax Reform commission about a national retail sales tax, State tax officials suggested that if the Federal government gave up taxation of incomes, “States would view this as a tax base now available to them to tax more fully. Since all but seven States have an income tax, it could be better to get rid of State sales taxes and let the Federal government collect its own revenue.” Also, in 1990, a GAO survey found that 80% of the State tax officials queried voiced strenuous opposition to a federal consumption tax like the Fairtax as an intrusion on a tax base that traditionally belonged to them."
within: http://www.fairtaxblog.com/20071230/bruce-bartlett-why-the-fairtax-wont-work/
The Fair Tax broadens the base and reduces the incidence. It is revenue neutral. Whether your taxes are cut depends on many factors. Generally, working stiffs are much better off under the Fair Tax than the income tax. Please see:
http://www.fairtax.org/PDF/TheFairTaxAndMiddleAmericans—CaseStudy.pdf
And here is an excellent rebuttal to Bruce Bartlett:
http://www.fairtax.org/PDF/080115-Kotlikoff_on_Barlett.pdf
Care to expand on how Kotlikoff has openly stated he could “care less about seniors who did the right thing and saved for retirement” ?
Care to expand on how both Jorgensen and Kotlikoff ave both backed way off their claims of massive embedded taxation?
You know, xcamel, it is easy for you and the other nattering nabobs of negativism to hide behind your keyboards and dream up impossible worst case scenarios about what America will look like with a FairTax.
Likewise, it is easy for you to anonymously make negative smartass remarks about the FairTax and those of us who support the FairTax.
The facts are that a majority of the American people do not like the income tax or the IRS!
It is a very real problem, and many Americans are searching for a better way to fund the federal government.
We FairTax supporters are working to fix that specific problem.
OTOH, you and your nattering nabobs of negativism buddies, like the income tax (and the IRS), probably profit FRom it, and are selfishly working to keep the income tax and the IRS in place.
IOW, your present and future economic security is threatened by those of us who are working to replace the income tax with a National Retail Sales Tax and abolish the IRS.
For all we know, you are hired guns, possibly working at a LIEberal/Socialist/Marxist “think tank” (you may even be GASP!, IRS employees!), whose job description contains the phrase “do whatever you can to keep the FairTax FRom becoming law of the land” or words to that effect.
After all, you do seem to spend an inordinate amount of time on these threads bashing the FairTax.
Why don’t you come clean and admit your livelihood depends on the continuation of the income tax?
Once you admit that, you can then go find honest work, quit spending so much time and effort badmouthing the FairTax, and we’ll all be better off!
“....Well rich members of today’s older generations may be a concern of Barlett. They aren’t a concern of mine. Our country has spent the past five decades transferring ever greater sums from young workers to contemporaneous older generations, including extremely wealthy members of older generations. The most recent example his the introduction of Medicare Part D’s prescription drug benefit. This transfer to current and near-term elderly has a present value cost of some $10 trillion.
This process of passing the generational buck constitutes fiscal child abuse, pure and simple, and has left the country with a fiscal gap (difference between the present value of future federal spending and taxes), which, by my estimate, now totals $70 trillion. There is simply no way we can deal with this huge insolvency without asking the wealthy, including wealthy older Americans, to pay substantially more taxes....”
If we repeal Medicare Part D, perhaps there is an argument here. Failing that, the wealthy should pay their fair share. My 74 year old Mother can buy her own medicine. I will buy my own medicine. My children and grandchildren should not pay for this expansion of the Socialist Welfare State.
With respect to embedded taxation, Kotlikoff and Jorgensen, economists, have done a wonderful job explaining the embedded tax in a manner that most can grasp. They've simplified it for mass consumption. The more correct way to present this is in terms of preserving purchasing power, not preserving nominal prices. Joe and Jane Sixpack, unfortunately, equate purchasing power with price. I don't believe Kotlikoff and Jorgensen backed away from anything. I believe they have clarified economic reality for those who are interested and who are able to conceptualize the difference between nominal price and purchasing power.
2) Simple enough: The FT is being sold using half truths, and emotionalism, by a talk show host and a one trick pony politician. Not one single speck of proof has been tendered, Not one real world example cited, It ignores what has been successful in many other countries around the world in the last 50 years (some longer), It ignores the socioeconomic impact of "radical change", It ignores history, and the governments abysmal record of turning "populism" into unmitigated disasters, and generally, "what does not solve the problem, is not a solution".
3) A presidential panel, many economists, many state sales tax departments, political scientists, and sociologists, have come out opposed to the FT, only to be shouted down, berated, and insulted by "high ranking" members of the "FT movement", whereas the reverse has not been true. This should tell any thinking person all they need to know about rage-fueled "populist" ideas, and why they should be avoided like the plague.
"Taxes should be uncomfortable. Not especially painful, mind you -- just a bit irritating. Enough to make you pay attention. Modest discomfort is an element of citizenship, reminding voters of the price they pay for civilized society."
(thank you, Oliver Wendell Holmes, Jr., Associate Justice, US Supreme Court )
/waits for the usual assault
No one with serious questions regarding the FT seriously advocates "maintaining" the income tax, whatever "maintaining" is supposed to mean.
Then we agree on that point. How do we lift that yoke off of our necks? How do we replace the lost revenue? If you answer "flat tax". Who's proposal do you support? Do you have economic research to back up your proposal? Do you have an organized group willing to man political events to demand change?
The “yoke” is one of your imagination, and I have explained this many times before.
Your questions are answered. Now bug off.
He got you there groanup! He HAS explained many times that "there is nothing inherently wrong with the income tax".
Of course that statement ignores all manner of factual information to the contrary but one must have his illusions I suppose.
Do you advocate maintaining the existence of the IRS and the income tax or not?
X, this is a simple question: Do you advocate the continued existence of the IRS and the income tax or not?
"Taxes should be uncomfortable. Not especially painful, mind you -- just a bit irritating. Enough to make you pay attention. Modest discomfort is an element of citizenship, reminding voters of the price they pay for civilized society."
Oliver Wendell Holmes, Jr., Associate Justice, US Supreme Court
and raise you one
“The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person, so that the tax payer is not put in the power of the tax gatherer.”
Adam Smith, The Wealth of Nations
and one
Many inequities are inherent in the income tax. We multiply them needlessly by nice distinctions which have no place in the practical administration of the law.
William O. Douglas, Associate Justice, United States Supreme Court
Then answer this one: Do you advocate the continued existence of the income tax and the IRS or not?
Is there some part of “bug off” you don’t get?
The second is the result of your vote. nothing more, nothing less.
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