BUT WHAT ABOUT THE POOR*? (Fair tax POV of Neal Boortz)

Neal's Nuze ^ | 8/3/04 | Neal Boortz

[CSM]

BUT WHAT ABOUT THE POOR*?

OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right? We're actually going to forget, just for now, that poverty is largely a behavioral disorder and consider how they would survive under the fair tax.

We begin with a reality check. Right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly named Earned Income Tax Credit, for example. So right now the government is actually supplementing their income. How can they endure a 23% sales tax?

The implementation of the Fair Tax would fail in short order if, as the question presupposes, the net effect on the poor would be the that they would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.

Let's begin by considering two realities.

First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.

Second. Don't forget the 22% in imbedded taxes. It's lurking there in virtually everything poor Americans have to buy. As soon as the competitive forces of the free market work their magic these people will be paying 20% or more less for virtually retail purchase, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.

So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.

Pull out the calculators. Say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities.

Well, at this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. So, here's the clincher.

The Rebate

Under the Fair Tax plan every consumer will receive a check from the federal government every single month equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households.

Here's an example of how the rebate payments would have worked in 2003.

Let's say you're a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would receive $172 per month.

Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.

OK ... let's add it up for America's lower income citizens:

They get their entire paycheck. Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy. They get a check from the federal government every month to rebate any sales taxes they had to pay. Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.

So, my friends, if you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.

*Please note that I titled this chapter "But what about the poor?" and not "But what about the less-fortunate?" Look, I can't be expected to write this entire book without getting in a few digs at the language of political correctness, can I? To say that the poor are poor because of a lack of good fortune presupposes that those who aren't poor were just lucky. Sorry, but for the vast majority the benefits of an affluent lifestyle aren't a matter of luck, they're the result of attention to education, hard work and good decision making. Luck counts on the Las Vegas Strip, not Main Street.

[radiohead]

poverty is largely a behavioral disorder

Hmmm... I like it!

When I was getting a masters in tax law in the early '80s, any talk of revising the code was shot down because of this same 'what about the poor' rhetoric. It was as if you couldn't even think about changing public policy because somebody, somewhere, might be slightly hurt by a change in the system.

I'm glad to see the changes that we've had over the past few years and will be really happy when the whole system comes crashing down. A sales tax gets everybody, including those participating in the underground economy who currently escape taxation or under report income. You can exempt food and medicine if you are so inclined for policy reasons.

[TexasTransplant]

All your questions can be answered here.

http://www.fairtax.org

I pray that I live long enough to say goodbye to the IRS!

[stuartcr]

Refreshing, but not necessarily true.

[CSM]

As I understand it, there would be a sales tax on new home sales, not used home sales. One benefit is that goods would be taxed only once, rather than multiple times throughout their life of use. Another point is that the tax is only applicable to the goods (house) not the property that had been previously taxed.

I'll defer to the experts for specifics.

[kevkrom]

Could someone please explain how the sales tax rebate would work? Would I be required to keep every single receipt I get? Just curious.

No receipt keeping... it's not actually a rebate, it's more like an allowance (similar to the standard deduction/personal exemption of the income tax). It's a fixed amount based solely on poverty-line spending, but it's available to all legal U.S. residents, regardless of race/class/religion/income/etc.

[television is just wrong]

In London, Vat tax is on everything. When I was there in 1990, it was 16%. On food, and every purchase you made.

[wideawake]

When I was getting a masters in tax law in the early '80s, any talk of revising the code was shot down because of this same 'what about the poor' rhetoric.

It's frustrating.

What is so equally ridiculous about the poverty stats is that they are static

Almost everybody who is not born into privilege is poor at one time or another in their lives.

When I was a 19 year old college student juggling classes and two part-time jobs I was technically below the poverty line.

Yet by the time I was 24 I had a well-paying full-time job with complete benefits.

People who live their lives from birth to death below the artificial poverty line in America are pretty rare, and they either have behavioral problems or have very different priorities from an average Joe.

[David75]

Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after income tax and after payroll tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.

I am willing to allow the rich to get more of a benefit if it keeps government out of my wallet.

Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.

I don't buy this argument. Michigan's sales tax exempts essential items, and such lobbying is not a problem here.

[kevkrom]

Wouldn't the tax benefit for home ownership disapear?

The tax benefit for home ownership allows you to pay your mortgage interest with pre-tax dollars (subject to the AMT). Under the NRST, all of your purchases are made with pre-tax dollars.

[ApesForEvolution]

Eliminate the IRS and all $-intrusions on Americans, put troops, technology and APCs on the Mexican border and I might possibly even REGISTER REPUBLICAN again!

[Remember_Salamis]

FairTax Ping!

[kevkrom]

Is the 23% number mentioned here revenue neutral with income tax and SS/medicare eliminated?

Yes. Without SS/medicare, the revenue-neutral rate is 14.91%.

[Remember_Salamis]

"just don't tax the necessities of life like food and be done with it."

-- Who's to say what's a necessity? Lobbyists, Politicians, Bureaucrats, the food industry, etc.

We're better off letting individuals decide what's a necessity. If I grow my own food, what importance is tax-free food to me, for example?

[Remember_Salamis]

"Indeed, one disadvantage of the rebate method is that it forces everyone to "register" their families with the government. In other words, if you have a new child, and you want to make sure that child gets figured into the tax rebate (which, if you don't make much, you certainly would), then you have to notify the government. Not that they wouldn't already know."

-- If you have a child, you register with the government ANYWAY when you get a social security #. This is a total non-issue.

[rwfromkansas]

Let's get the WH thinking about this:

Andy Card's office phone at the WH: 202 456-1111 (found several...this may be incorrect...if so, just call the main WH number and ask for his office)
E-mail: acard@who.eop.gov

General e-mail: feedback@who.eop.gov

Bush campaign chair and former deputy assistant to the President (don't know if his WH addy will still work, but might as well give it a shot): Ken_Mehlman@who.eop.gov

The guy replacing Ken as deputy assistant (he meets with the President OFTEN): Matt_Schlapp@who.eop.gov

Note: some of the who.eop.gov addresses have changed from thte Firstname_Lastname form to firstinitiallastname@who.eop.gov (such as Andy Card's).....so may have to try that if the underline form does not work.

Karl Rove (have not found an e-mail, though you can try the forms above):

phone: 202-456-2369
fax: 202-456-0191

I did find an e-mail for this person in Rove's office though, Dave Thomas:

davidthomas@who.eop.gov

Of course, there is the old standbys:

President@whitehouse.gov
vice.president@whitehouse.gov

Phone: (202) 456 1414
General WH fax: (202) 456-2461
Alternate fax: (202) 456-6538

[Remember_Salamis]

Here's a FairTax FAQ thread:

http://www.freerepublic.com/focus/f-news/1155628/posts

[Straight Vermonter]

For fiscal year 2002,

IRS Budget
$9.4 billion
101,000 positions

$ 5.51 billion
36,200 positions

[Straight Vermonter]

Dang it

For fiscal year 2002,

IRS Budget
$9.4 billion
101,000 positions

INS Budget
$ 5.51 billion
36,200 positions

[Remember_Salamis]

"Paying for government with an excise tax on demand deposit (M1) account transactions at U.S. financial institutions only takes an account number and transaction amount for compliance and enforcement. For progressivity, those who don't pay income taxes now could legally avoid any tax by using cash or barter.

IIRC, a 3% M1 transaction tax would easily balance the budget while providing a permanent tax cut amounting to hundreds of billions of dollars because virtually all compliance and enforcement costs would be eliminated."

-- I've never heard of this plan. Link???

[looscnnn]

The problem is that Michigan's standards of "essential" items is different from other states. When you have many states falling under a federal standard which would be different, there will be complaints and lobbying to get their standards added. If cheese is not taxed, do you tax mac & cheese boxes? Potatos aren't, what about potato chips? See where this is heading?