Why Republicans Should Support the FairTax

Feb. 11, 2004 | Wm. Donald Tabor Jr., DDS

[phil_will1]

It would be a lot easier to get support from Republicans if it were called the ClearTax or the TrueTax, since 'fairness', in the political arena, has become a synonym for redistribution of wealth. But the FairTax is the road out of this class warfare mess that paralyzes the country and prevents the Congress and President from attending to the country's business.

Populists pander to their constituencies by manipulating a complex illusion, a fraud upon the public, we call the Income Tax. We waste our time and energies fighting over changes in that system, but the truth is that no one, neither corporation, nor individual, really pays income taxes, or FICA taxes either, for that matter. For all the fighting and demagoguery over every change in the tax code, those complex schemes are no more than changing assignments over who will be required to COLLECT a hidden sales tax from consumers.

Economists have long been aware that corporations don't pay taxes, they only pass them along to their customers, but the same is really true for all of us. We trade our labor for what we take home, not for what our employer forwards to the government in our names. Few people are even aware of the gross amount of their pay. We pass our perceived income taxes and FICA taxes along to our employers, as a cost of the 'business' of being employed. Employers then regard our withheld taxes as just another cost of doing business, like their own taxes. And like every other cost of doing business those taxes become a part of the price of whatever goods or services we produce.

The simple truth is that ALL taxes are passed along like this and eventually paid by the consumer, as a hidden sales tax buried in the cost of those goods and services. The average portion of the price of everything, from a loaf of bread to brain surgery, that is really someone else's Federal Income, FICA, or corporate tax is about 22% of the price of everything you buy. And since everyone buys products and services, rich or poor, no one escapes that taxation. The real impact of taxation is not on our Form 1040, but at the grocery store and the doctor's office.

Imagine the change in the political landscape if that truth suddenly became clear to every American.

It really doesn't matter if we shift the total income tax burden to the top 10% of tax payers or if everyone pays the same percentage from bottom to top, NONE of that is real. Varied income tax rates only change the relative prices of the things we buy. Healthcare costs more because the income tax system makes doctors collect a lot of tax to earn their after tax incomes. The only REAL tax is that hidden sales tax, because that is the only one that cannot be passed along to someone else down the line. The FairTax simply makes this hidden sales tax visible.

Under the FairTax plan, (www.FairTax.org) the IRS and FICA are gone. You get your whole paycheck with no Federal deductions. There would instead be a 28% Federal sales tax. This would be revenue neutral to the government, and cost neutral to us, since the increases in our paychecks and the fall in prices would exactly cancel out the new sales tax. It would have to be that way if you think about it, as all we really would be doing, in the short term, is to replace the existing hidden sales tax with a visible sales tax of the same size. So why do it?

The answer is CLARITY, and that is what changes everything.

No more could the populists pander to the voters with promises to tax someone else for their goodies. Everyone would know exactly what government costs them, it would be on every receipt they get for a hamburger or a new house. And they would know that the burden falls proportionately on all, as it always has, even though they do not know it now.

Any major new program would have to be accompanied by a raise in the sales tax, with no illusion that the cost could be shifted to someone else. Every cut in the size of government would be visible money in the pocket of every American.

Class Warfare would be DEAD forever and we could at last go about the business of the country and set our priorities based on an honest understanding of the costs. And that is how we can bring this country together to face the real threats to our liberty and prosperity.

[ancient_geezer]

For all the fighting and demagoguery over every change in the tax code, those complex schemes are no more than changing assignments over who will be required to COLLECT a hidden sales tax from consumers.

Precisely!!!, this guy gets it.

Also nailed in:

DO YOU PAY YOUR INCOME TAX
AT THE SUPERMARKET?
by D. Sherman Cox J.D. L.L.M. Taxation

The full impact of the federal tax system(taxes in gross wage/salaries & other compensation + business income/payroll taxes) added onto the base(taxfree) price of retail consumption goods and services is 36% for federal taxes alone.

If we add in the cost of federal tax compliance, planning, litigation & enforcement, the percentage that truely represents the burden on the family due to the Federal income/payroll tax system, product prices are increased by more than 55% over taxfree prices.

[kevkrom]

Ah, a rebate! Now you've messed with the whole thing. Well, at least it won't distort prices, but now I'm starting to wonder if it would effect work/leisure choices?

Probably not. The rebate is not income-related, you get the same amount as everyone else (well, ok, different rates for adults and children) just by virtue of being a US citizen who is not incarcerated. The actual amount of the rebate wouldn't be sufficient to live on... let's take that same example of $14,000 as the poverty line for a family of four. That's an annual rebate of $3,220, or $268 a month.

The alternative for a rebate is exempting certain items, but then you just open up the special interests and social engineering can of worms again. The rebate is simpler because it applies evenly across the board.

[kevkrom]

Does anyone know if this Fair Tax would tax securities and investments?

No, with the exception of any fees related to their purchase and sale, which would be taxable services.

[phil_will1]

"Precisely!!!, this guy gets it."

As do you, AG, as do you!!

[ancient_geezer]

Ah, a rebate! Now you've messed with the whole thing. Well, at least it won't distort prices, but now I'm starting to wonder if it would effect work/leisure choices?

Actually it isn't even a "rebate", it is referred to as the Family Consumption Allowence, a fixed amount paid each month to all legal residents. Every household gets it, depending only on number of legal residents in the household. Every one from Hermit the Hobo to Bill Gates qualifies for it as it is not dependant upon one's income. Works more like the personal exemption(which it is designed to take the place of) of the income tax.)

The FCA works like this:

 

All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

[71] To illustrate the plan's progressive nature we can examine the tax burden that a family of four will have at various annual income levels (or in this case, annual spending levels).

H.R.2525 "The FairTax Act

Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their paycheck:

Fedup Smith makes $39K per year...once the FairTax is the law of the land he will receive an instant increase in pay of $200.00 per week. Since he has a family of four, he will receive a FCA of $445 per month, for a total of $1,305.00 additional income per month that he can do with as he sees fit

[ancient_geezer]

Georgians remember that Herman Cain, running for Zell Miller's seat, is a STRONG Fairtax supporter.

As are many House contenders all over the country.

My growing list of Congress Critter's & wanna be Critter's supporting national retail sales tax

all the HR25 Cosponsors (43)

plus some Congress Critter's In the News

Vernon Robinson running for North Carolina's 5th Congressional District

Jacksonville Daily Progress: Hensarling stumps in Cherokee County (Texas' 5th Congressional District)

Bill Lester (Texas' 11th Congressional District)

Anymore you run across, let me know so I can add them to the lists.

[Willie Green]

Huh?

It's a tax "reform" Trojan Horse.
The IRS is the big bad boogeyman who's supposedly eliminated,
but everybody has to line up at the Social Security Administration to receive their cradle-to-grave monthly sales tax rebate checks that supposedly make the system "fair".

Don't let the NRST shills fool you...
It's nothing but a paradigm shifting shell game.

[kevkrom]

The IRS is the big bad boogeyman who's supposedly eliminated, but everybody has to line up at the Social Security Administration to receive their cradle-to-grave monthly sales tax rebate checks that supposedly make the system "fair".

First of all, the FCA/rebate is completely voluntary -- no is compelled to do anything. Secondly, applying for the rebate requires filling out one simple, annual form (or upon change of family status -- births, deaths, amrriages, divorces, etc.) that is no more complicated or invasive than registering to vote.

Secondly, there is no "lining up" anywhere. File an annual form, get a monthly check. Don't file a form, don't get a check. It is that simple.

[ancient_geezer]

but everybody has to line up at the Social Security Administration to receive their cradle-to-grave monthly sales tax rebate checks

Baloney.

If you don't want it, you are expressly not required to apply for it. Your choice.

[Luke Skyfreeper]

First of all, what's an NRST?

Is this anything to do with the "Fair Tax"?

[Luke Skyfreeper]

What do you mean by regressive?

[Willie Green]

First of all, the FCA/rebate is completely voluntary -- no is compelled to do anything.

Yeah, yeah, yeah...
Income Tax refunds are voluntary too...
Nobody's gonna FORCE you to accept a refund from the IRS...

LOL! It's hilarious to see what convoluted inside-out topsy-turvy spin you shills will try next.

It's a crying shame, however, that there are totally clueless idiots out there who actually believe in your snake-oil.

[phil_will1]

"It's nothing but a paradigm shifting shell game."

Well, it certainly shifts the paradigm, all right.

Here are some of the basic fundamentals of our current tax system that will change:
(1) We will be taxed on what we take OUT of the economy (consume), rather than what we contribute TO the economy (earn).
(2) We will stop penalizing US production and making it extremely difficult for US producers to compete with their international counterparts.
(3) We will start putting illegal immigrants and foreign visitors on our tax rolls at a rate that is disproportionate to the rest of us.
(4) We will end the 46,000 page monstrosity that our tax system has grown into and replace it with one that is app. 100 pages, saving several hundred billion $$ in compliance costs in the process.
(5) As the author points out, it will be much more difficult to play the class warfare game.
(6) As the demand for US production increases, jobs will be created here. Even displaced tax lobbyists will be able to find productive employment.

All of that makes for a nice paradigm shift, wouldn't you say?

[kevkrom]

First of all, what's an NRST? Is this anything to do with the "Fair Tax"?

They are almost synonyms. The FairTax is the most prominent national retail sales tax (NRST) proposal, currently with 40+ sponsors in the U.S. House as HR 25. They have been other NRST proposals, but in general, most people are referring specifically to the FairTax when they say NRST.

An NRST, in general, is a single-stage, single-rate retail sales tax that taxes goods and services only at the point of initial retail sale. Business-to-business transactins are not taxed. The NRST is designed to completely replace income, estate, gift, and FICA taxes. It is completely transparent, there are no hidden taxes.

There is a strong community on FR committed to promoting the NRST/FairTax: the TaxReform ping list. There is also a smaller, but no less vocal, group of detractors who will also frequent realted threads.

[free me]

Good explanation. I pray that one day it becomes a reality.

[NYFriend]

Thank you. Now I've got it. It's actually, in theory, a tax preference for basic needs, but in order to avoid distorting prices by exempting food, etc. for the tax you estimate the cost of basic needs for each household size and cut them a check for what they would spend. OK, that works. This tax scheme, by offering a preference for investments, would be a great short term economy booster by providing a great incentive for investment (= capital). How are commodity investments handled?

I agree now that the rebate would not effect work/leisure to any great extent. Actually, I'd like this system, not because it's fair (no tax system can be absolutely fair since we can't agree on what that means) but because it would eliminate the efficiency losses that we know other tax plans create. It also does what the author of the above article says. It makes it clear how much you pay in taxes. Food is not taxed. Except, included in the price are wage taxes for store employees, agricultural and manufacturing employees, taxes on package printing and advertising services, fuel and mileage taxes on the transportation costs, property taxes on place the food moves through, etc. We have no idea how much we really pay in taxes.

[kevkrom]

Yeah, yeah, yeah... Income Tax refunds are voluntary too... Nobody's gonna FORCE you to accept a refund from the IRS...

Well, if you would actually read the proposed legislation (HR 25), you would be able to see that:

CHAPTER 3--FAMILY CONSUMPTION ALLOWANCE
SEC. 302. QUALIFIED FAMILY
(e) Registration Not Mandatory- Registration is not mandatory for any qualified family.

[kevkrom]

It also does what the author of the above article says. It makes it clear how much you pay in taxes... We have no idea how much we really pay in taxes.

Actually, what's even better, is that the NRST would make it appear that you're paying more taxes than you actually are. Everyone is going to see the marginal 23% rate paid at the register on every purchase -- that is what they are going to think is their tax rate despite the fact that their effective tax rate will be lower.

[labard1]

On further reflection, I believe I got the transition problem exactly backwards, for which I apologize. Let me try again.

Anyone who today has assets left after all income and payroll taxes have been paid would be subject to the same federal sales tax as folks receiving new untaxed income. In short, this proposal would subject all current assets already taxed under current law to a brand new sales tax on all purchases.

That's a pretty effective to raise significant new revenue for the government. Good for young folks with no assets. Bad for old folks with big (previously taxed) assets.

[Texas Federalist]

The best part about this proposal is that the federal government could never sustain enough revenues to support current levels of spending with a 28% sales tax. At around 10%, the marginal gain in revenues from an increase in the sales tax rates turn negative as the incentive grows to avoid those taxes and turn to black markets. 28% is WAY over that number. Unfortunately, that is also a reason why the tax may not gain support in Congress.

As much as I loathe an income tax, the best bet we may have for sustained reform is to push for a flat rate income tax of around 20%. It is not ideal, but is certainly preferable to the Leviathan that is our tax system now.