Pushing 'FairTax' to replace 'monstrosity'

The Houston Chronicle ^ | 16 Apr 2004 | By RAD SALLEE

[esarlls3]

April 15, 2004, 11:09PM

Pushing 'FairTax' to replace 'monstrosity'

DeLay, other lawmakers urge tax code reform

By RAD SALLEE

Copyright 2004 Houston Chronicle

Now that the dreaded deadline is past and the tax forms are in the mail, consider this question: Would you rather slog through a morass of paperwork every April to send Uncle Sam a chunk of your income or have the sales clerk take 23 cents in tax out of every dollar you spend?

U.S. House Majority Leader Tom DeLay, R-Sugar Land, and Republican U.S. Reps. Kevin Brady and John Culberson chose the perfect downtown stage Thursday to promote the second choice, which they call the FairTax.

As about 100 supporters, most of them members of the group Americans for Fair Taxation, rallied outside the Main Post Office at 401 Franklin, a steady stream of cars and trucks rolled through the driveway to drop off last-day tax returns.

Also on hand was Rep. John Linder, R-Georgia, sponsor of the FairTax bill, HR25. Linder said the campaign for the proposal, technically a consumption tax on retail sales, was launched in Houston by businessmen, including Leo Linbeck and Bob McNair.

Linder said Culberson's predecessor, Bill Archer, supported the idea, which has gotten a big boost with DeLay on board.

"Now it's time for Texans to get the president behind the bill," he said.

DeLay described the Internal Revenue Code as "a 1.6-million-word, job-killing monstrosity ... written by tax lawyers to be incomprehensible."

The FairTax would not only be simpler, he said, but also would replace the personal income tax, corporate income tax, capital gains tax, inheritance and gift taxes and Social Security-Medicare taxes.

It would not replace state and local sales taxes, however.

Culberson said the FairTax would be collected like a sales tax and would not penalize taxpayers for saving and investing their money instead of spending it.

Linder said the FairTax would increase saving and investing, expand the economy and help stanch the flow of U.S. dollars and jobs overseas.

Skeptics note, however, that a rich man's purchase of a yacht and a widow's winter coat would both be taxed at the same rate -- about 23 percent at current federal revenue levels.

Food and medicine would be taxed, too. The only purchases exempted would be used goods, business expenses and the costs of education, which would be treated as an investment.

To ease the burden on the poor, each family -- rich or poor -- would get rebates equal to the federally defined poverty-level income, multiplied by the tax rate. At a rate of 23 cents per dollar, a single person living alone would receive $160 a month and a family of four with two children would get $431 a month.

Joe Barnes, a research fellow at Rice University's Baker Institute for Public Policy, said junking the income tax for a simpler alternative is a tempting idea fraught with unknown consequences.

"I'm very sympathetic to consumption-based taxation, but I have profound misgivings about its workability," Barnes said.

For one thing, he said, experience in Europe indicates that when similar taxes climb to about 20 percent, cheating becomes widespread. Because an enforcement mechanism will be needed, he said, "It will not lead to the abolition of the IRS."

"I think it would lead to gigantic off-balance-sheet transactions," Barnes said.

The tax would seldom be paid on personal services, he predicted, and there would be temptations to falsely claim purchases as business expenses.

Barnes said there also would be intense political pressure to exempt some expenses, such as medical care, food and housing, from the tax. For every exemption, he noted, the tax rate on other goods must increase to maintain the same revenue.

ON THE INTERNET FairTax proposal www.fairtax.org and www.ctj.org

[ancient_geezer]

You have got to understand that both an income tax and a sales tax depend primarily on the honesty of the seller.

You also have a buyers in the mix with a sales tax who are in a position to provide witness to the activity. Only the seller is held liable to remit tax in a retail situation, any one of those customers can be a revenue agent, or just plain pissed at the guy and turn him in.

Under the income tax, all it takes is one person not declaring cash income to evade the tax with high probablity of getting away with it as long as he keeps a low profile. With sales situations, there are many witnesses to the sale and high potential for discovery.

In a drug transaction, the dealer will not declare his income nor his sales. This illegal transaction will always escape the taxman.

Until he gets turned in by one or more of his customers looking for a plea bargain, or an undercover agent setting him up. High risk situation, requires high returns. Such activity is not engaged in for evasion of taxes. The profit margin is in the illegal goods not taxes evaded. Thus your hypothetical of the drug dealer does not apply to tax evasion schemes per-se they will occur regardless of the tax system in existance.

Flea markets where cash trasactions produce the potential for tax evasion and are often the goal of the transaction is a much better example. And for that situation and any blackmarket dealing the preceeding analysis applies as the only gain is in the profit to be gained over a legal activity is that arising from the marginal tax rate evaded.

[Principled]

...in the retail sales sector where there are 90% fewer collection points to be monitored

I wasn't aware of this- link?

[ancient_geezer]

Retail sales outlets vs. 100 million income tax payers.

[Principled]

Wow, I never thought there would be such a drastic difference in the number of collection points.

Add to that that 80% of retail sales go thru 20% of outlets and you'd get much greater enforcement capability, eh?

[ancient_geezer]

After abit of googling :O)

Comfirmation comes from the census bureau:

The ratio of retail trade employees paying taxes to retail trade establishments that would be subject to NRST is greater than 12:1

1992 Census of Retail Trade, U.S. Summary

Seeing that not everyone works in retail trade, 90% fewer collection points is very conservative.

[SolidSupplySide]

<Since you consume regardless of the origin of your income, all individuals will pay their share.

You, like all "Fair Tax" proponents I have seen, are not being intellectually honest here. Our drug user is *not* paying his fair share because he is not paying sales tax on his drug purchases.

The cumulative effect of all drug users who are not paying the sales tax *PRECISELY EQUALS* the effect of the drug dealer who does not pay income tax.

under the nrst all of the illegal folks' taxes will be paid

Are you actually arguing that our drug user, one of the illegal folks, would pay the sales tax?

[SolidSupplySide]

Only the seller is held liable to remit tax in a retail situation, any one of those customers can be a revenue agent, or just plain pissed at the guy and turn him in.

You cannot be serious. I bought a set of tires from a legitimate looking business near my home, Mario's Tires. Mario gave me a receipt that indicates the sales tax. I have no clue if he remits the tax to the State of Texas. I assume he does and have no reason to report Mario to the state. Even if I were angry at Mario, what evidence would I have?

Under a sales tax of 30%, Mario has greater incentive to not remit taxes. Of course my receipt will still indicate I paid the tax. What shall I tell the taxing authority? Geezer, keep in mind that I am principled enough to want to avoid making a false accusation.

[ancient_geezer]

Add to that that 80% of retail sales go thru 20% of outlets and you'd get much greater enforcement capability, eh?

From the census bureau an interesting point about individual proprietors vs larger businesses:

Nonemployer Statistics

Nonemployer Statistics summarizes the number of establishments and sales or receipts of companies with no paid employees. These nonemployers are typically self-employed individuals or partnerships operating businesses that they have not chosen to incorporate. (Self-employed owners of incorporated businesses typically pay themselves wages or salary, so that the business is an employer.)

<snip>

In terms of sales or receipts, nonemployers account for roughly 3% of business activity. At the same time nonemployers account for nearly 3/4 of all businesses. Most nonemployer businesses are very small, and many are not the primary source of income for their owners.

meaning 97% of sales receipts flow through the other 25% of businesses of which the Retail Trade sector is only a part and having paid employees are very open to auditing and tracking by state sales tax authorities.

[SolidSupplySide]

Retail sales outlets vs. 100 million income tax payers.

You are making the mistake that individual behavior will not change under a sales tax. Many people are caught up in what economists call "static" analysis.

Some behaviors that would change under a sales tax:

1. Increased acquisition of sales tax exemption certs. People would turn their hobbies into businesses. I like woodworking. I'll sell small desks, chairs, benches, and related items to a craft store. This is a legitimate activity, and I deserve a sales tax exemption cert so I don't pay sales tax on my raw materials such as lumber, saws, stains, etc. I then use my sales tax exemption cert to buy tires for my wife's car, household goods, fertilizer for my lawn and a new faucet set.

2. Since there is not a great reward to buy my tires on the black market today (Goodyear already pays the tax on them), there are few illegitimate sales points to buy them. With a sales tax, there would be an incentive for an unscrupulous seller to open a legitimate looking business and not remit his full taxes. Maybe he only reports 80% of his sales - maybe none. He issues receipts showing I paid the tax, but he doesn't remit the full amount to the state. This 'new' retail outlet will cut into sales at NTB and Wal-Mart precisely because he is a tax cheat and offers lower prices. But how do I know if he is a tax cheat or not? My receipt doesn't indicate anything is wrong.

Geezer, there is a reason no jurisdiction in the world has a 30% sales tax. That reason is massive evasion when sales tax rates get that high.

[SolidSupplySide]

meaning 97% of sales receipts flow through the other 25% of businesses of which the Retail Trade sector is only a part and having paid employees are very open to auditing and tracking by state sales tax authorities.

You should be ashamed of your static analyis. Implicitly in this statement, you are saying that changes to a sales tax would not affect consumer behavior. You are wrong. No jurisdiction in the world has a 30% sales tax because at that rate evasion would be rife.

[ancient_geezer]

I have no clue if he remits the tax to the State of Texas.

You can be sure the tax authority for the State of Texas knows or can find out on audit.

I assume he does and have no reason to report Mario to the state.

Depends, did he give you a cut rate by not charging you appropriate sales tax to get your business? Does he do so for his other customers? Does any other customer have reason to believe Mario is cheating and have a grudge against him because Mario did do the same for him? The point being Mario is at risk from multiple customers any one of which may trip him up if it becomes known to any of them that he is embezzeling tax moneys.

Even if I were angry at Mario, what evidence would I have?

Your receipt detailing the tax paid, and transaction that must be match in his own record on state audit.

Under a sales tax of 30%, Mario has greater incentive to not remit taxes.

He has more incentive to evade the (66% tax exclusive)marginal rates on payroll/income taxes.

[ancient_geezer]

No jurisdiction in the world has a 30% sales tax because at that rate evasion would be rife.

The current income/payroll system is worse with a greater the 15-20% evasion rate under the income payroll tax system with its higher 66% tax exclusive marginal rates.

For it is best appropriate to compare the highest marginal tax exclusive rate of the income/payroll tax systems with your quotation of the NRST highest marginal tax exclusive rate of 30% so we know we are comparing apples with apples here.

So it is with good reason that the NRST is only a maximum marginal 23%(tax inclusive) rate on gross purchases, where the tax burden that a family of four will have a much lower rate of taxation with regard to their gross expenditures:

H.R.25 "The FairTax Act

 

instead of an average 24.2% on gross income then isn't it?

Effective Total Federal Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
All Families	22.8	23.4	23.5	21.4	21.8	22.6	22.5	22.6	23.5	24.7	24.2

Data from IRS collections statistics and The Bureau of Economic Analysis as compiled in tabular form by the Congressional Budget Office.
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

[Principled]

You, like all "Fair Tax" proponents I have seen, are not being intellectually honest here.

You'll have to be specific about my dishonesty. I am not being dishonest in any sense of the word.

You have asserted repeatedly something that is of no relevance to our discussion, claiming it is something important. You fail, however, to be willing to accept that under the retail sales tax, an illegal operator will pay a higher portion of his own taxes.

We've said the same thing to each other about three times. I understand what you're saying, that the transactions on illegal drugs will not be taxed... well friggin DUH! That's not the point. The illegal transaction will obviously not be taxed under an nrst- nor is the income produced from the trasaction being taxed under our income vat-tax. MIGHTY DUH. That is not what makes the difference in the portion of tax the illegal operator pays. That's the SAME, as we've both said, THREE TIMES! Good Grief!

What makes the difference - ie what I've been trying to get you to see- is that under the income tax, the ONLY portion of tax paid by an illegal operator is in hidden/embedded tax costs on goods... the illegal operator pays NO portion of the tax that all legal folks pay - income and payroll taxes. For simplicity, let's say under the income tax, an illegal operator pay only HALF of his taxes.

Now, under the nrst, 100% of everyone's taxes come from consumption taxes. ZERO comes from elsewhere. So whatever one spends on taxables represents 100% of his tax liability.

Of course, fairness rresulting from capturing more tax from illegal operators is just ONE benefit of the nrst.

There's also no more IRS.
THere's also no more payroll tax.
THere's also no more withholding of tax.
There's also the fact that our exports will be 25% cheaper overseas.
There's also the fact that imports will have to reduce their profitability to pay our sales tax without losing market share, making domestic goods more competitive.
There's also no death tax.
There's also no more taxes on necessities.

Buh Bye.

[ancient_geezer]

Geezer, there is a reason no jurisdiction in the world has a 30% sales tax. That reason is massive evasion when sales tax rates get that high.

Precisely, that is the whole point, the NRST is not supposed to be liked, and it is supposed to empower the citizen with contol over his own life and finances.

Yes avoidance will occur and should occur. And the NRST provides ample opportunities to do so and in totally lawfull manners.

We have a tax system that far too many people "like" for it low tax rate on them. Where 60% perceive little to no "Individual Income Tax" burden,(in many cases even a handout); Where 40% experience marginal effective sales tax rates as high as 66% taken out of their income and where the Intent of the tax system is for political and social control not revenue collection.

I discussed the importance of abolishing the income tax because of its tendency to form a habit of servility in the souls of a people that accepts it. Servility of soul is bad not only in itself, it is also an open door through which will soon walk the abuses of ambitious government power. Leaders who find themselves with governmental power over a servile people will be quick to conclude that such a people exist to serve them.
Alan Keyes 1999

 

Effective Individual Federal Income Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
Lowest Quintile	-0.6	-0.8	-0.2	-0.5	-0.2	-1.3	-1.9	-2.9	-3.4	-5.6	-6.8
Second Quintile	3.6	3.9	4.6	3.5	3.9	3.2	3.3	2.7	1.8	1.8	0.9
Middle Quintile	7.1	7.5	8.3	6.8	6.8	6.1	6.5	6.3	5.9	6.1	5.4

and 70% of the voting public clamor for more from government looking for the top 40% of income earners/producers to foot the bill.

 

Walter Williams, World Net Daily, 10-25-2000

• So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?

 

The Honorable James DeMint (R-SC)
United States House of Representatives
THURSDAY, APRIL 5, 2001

• "There has been a shift in the relationship between individuals and government, he argues, such that fewer and fewer are paying taxes at the same time that more and more are receiving increasingly generous benefits. If it becomes the case that most voters do not bear a financial burden for this largess, then there will be little to restrain--and significant political incentives to encourage--the continued growth of government.

That is a situation that must end with the repeal of the income tax from the statutes, and the prohibition of its use by Constitutional amendment that future generations will not face the same manner of manipulation and interference in their lives.

The NRST is supposed to assure incentive to the electorate to push and limit government, and to take control of their own resources:

Federalist #21:

"It is a signal advantage of taxes on articles of consumption
that they contain in their own nature a security against excess.

They prescribe their own limit, which cannot be exceeded without
defeating the end proposed - that is, an extension of the revenue.

 

Federal tax rates are high and government grows ever larger because a majority of the electorate do not perceive the burden their demand for largesse imposes on the minority of citizens.

The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.

Liberty and freedom have a price, responsibility. If that price is avoided there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.

[SolidSupplySide]

the illegal operator pays NO portion of the tax that all legal folks pay - income and payroll taxes.

This statement is clearly false. The drug user, an illegal operator, pays income and payroll taxes from income derived from his legitimate job. Under a sales tax, he escapes the tax completely on his illegal activity.

Sometimes it seems you concede that "Fair Tax" proponents are deceitful when they claim the underground economy would be taxed by a sales tax. It is absolutely clear that the underground economy is not taxed by the "Fair Tax" and any assertion otherwise is made out of ignorance or deceit. One thing is clear though, you seem to have an emotional attachment to the sales tax.

[rolling_stone]

Are you happy with the present system which gives the power and control of taxes to our leaders and allows them to socially engineer people's spending and saving through a complex and voluminous reward/penalty program that seems to only benefit those in the accounting, tax and legal fields or those with enough money to find or pay for the loopholes?

I compare our present tax system to the selective service draft prior to 1973 when there were so many deferments and exemptions for those with the means to use them. Unfair.

I think a Fair Tax like the NRST would be fairer and certainly more efficient than what we have now. Will it be perfect? Of course not. Will it be a vast improvement, IMO yes. A big plus IMO is it will help collect tax money from illegal aliens and lower their net consumption of our tax dollars. Yes there is currently a huge underground economy besides drug dealers that do not pay income tax, but would have to pay a retail sales tax under the NRST.

[Principled]

Sometimes it seems you concede that "Fair Tax" proponents are deceitful when they claim the underground economy would be taxed by a sales tax.

No. False. LIAR.

What I said was that the nrst captures a greater portion of taxes from illegal operators.

I'll type it big to make sure you see it...

CAPTURES A GREATER PORTION OF TAXES

I hope you meant this for another poster and accidentally posted to me, otherwise you're lying.

[Remember_Salamis]

the inter-underground transaction won't be taxed. true. But what wiull be taxed is when there's an underground-legal economy transaction, like buying a car, clothes, a big screen TV, or shiny new jewelry.

[Remember_Salamis]

You still don't get it. You're assuming that everybody is consuming 100% of their income, when in fact this wil rarely be the case. With drug dealers (as an example), however, they will consume neary 100% of their income due to the flashy cars, clothes, and jewelry of the criminal world. I don't think many drug dealers are sending their kids to private school (not subject to the FairTax) or investing in the stock market or saving (not subject to the FairTax). So in reality, the drug dealer could end up paying a higher marginal tax rate than his LEGAL counterpart under the FairTax.

[LincolnLover]

A little post-election bump for this serious issue.

Such a good, good feeling to know that we're going to make headway on this issue over the next 2-4 years.