Posted on 08/26/2004 11:05:33 PM PDT by n-tres-ted
Two weeks ago a man stood up at a George Bush campaign appearance in Florida to ask about a piece of legislation known as HR25. Many, including myself, were pleased to hear Bush respond with some positive thoughts about the Fair Tax plan, a movement to replace the federal income tax with a national retail sales tax.
Washington is a city of inertia, and right now the inertia belongs to our present method of funding the operations of our government, the income tax. Politicians will not easily surrender a funding mechanism that lends itself so well to political demagoguery and which can be used to reward political allies and punish enemies.
The Fair Tax plan deserves a thorough public examination and debate. John Kerry seems dedicated to making sure this doesn’t happen. Soon after Bush cited the national retail sales tax as something worthy of further exploration, Kerry stepped forward with the typical class warfare rhetoric of the left. Acting as if he actually knew what was he was talking about (he didn’t), Kerry announced that the Fair Tax would amount to the largest increase in the tax burden on poor and middle income Americans in our history.
John Kerry was wrong. He was either speaking out of ignorance, or he was deliberately lying about the Fair Tax proposal in order to gain a political advantage. A politician lying in order to gain political advantage --- imagine that.
This column is lengthier than the norm, but I promise you that if you will invest the time it takes to read it you will be well on your way to becoming yet another rabid supporter of the Fair Tax plan. You will know that the poor and middle income Americans would be the prime beneficiaries of the proposal. You may even organize your own neighborhood march on Washington to demand that HR25 receive a fair hearing. In the next two minutes I’m going to turn you into a HR25 Fair Tax zealot. Read on:
First … the briefest of overviews: Simply put, HR25 would provide for the repeal of the 16th Amendment (the income tax amendment) and the dismantling of the IRS. All personal and corporate income taxes would end, as would all payroll taxes. There would not be one cent of federal taxes of any nature taken out of your paychecks. No more Social Security taxes. No more Medicare taxes. You earn $2,000 a payday; you get $2,000 a payday. The federal government would be funded through a national sales tax on goods and services sold at the retail level. No taxes on investments. No taxes on savings. You only get taxed on what you spend at the retail level. Store your earnings in a shoebox if you wish. They won’t be taxed.
When originally proposed, calculations showed that the sales tax would have to be in the area of 23%. A complete economic study is now being completed that is expected to bring that total to under 20%. For the purposes of this column, we’ll stick with the 23% figure.
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?
Bear in mind that 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; a form of outright income redistribution. The absurdly named Earned Income Tax Credit, for example. How can these people survive going from a no-tax situation to paying a 24% sales tax on all their retail purchases?
The implementation of the Fair Tax would fail in short order if, as the question presupposes, nothing were to change except that all of us would be paying today’s prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But … that’s 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 the poor this means an immediate 12 to 15% increase in their earnings.
Second. Don’t forget the 22% in imbedded taxes. These embedded taxes exist in virtually everything poor Americans or any other Americans have to buy. These embedded taxes represent all of the corporate and business income taxes and payroll taxes that the companies involved in the production, manufacture, marketing, distribution and sale of the goods and services must pay in the course of business. As soon as these taxes are gone, and after the competitive forces of the free market work their magic consumers, including the poor, will be paying at least 20% less for virtually everything they buy. This includes such basics as 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 in terms of real dollars will fall or 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, amounting to a 12 to 15% pay raise, and when you factor in the Fair Tax and the lower prices, they’re actually end up spending less of their money for a retail purchase than before. What John Kerry calls the greatest increase in the tax burden on the poor in the history of our country is, in reality, their greatest tax reduction.
You need a clearer picture? Pull out your calculator. Let’s 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 at 23% 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 12% to 15% increase in her weekly paychecks, and she’s paying less at the grocery story for her basic necessities.
So far, so good. 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. Here’s the convincer. Brace yourself for the knockout punch.
The Rebate
Under the Fair Tax plan every consumer, rich and poor alike, will receive a check or an electronic credit to their bank account from the federal government every single month equal to the sales tax that person or that family 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. If the Fair Tax Act had been law in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have had 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 would have rebated 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 have received $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:
1. They get their entire paycheck. 2. Even with the sales tax, and considering the drop in prices, they’ll be paying essentially the same or less for everything they buy. 3. They get a check from the federal government every month to rebate any sales taxes they had to pay on life’s basic necessities.
Are you beginning to see just how far off-base John Kerry was with his intemperate criticisms?
Though most of the poor don’t have what we would call complex tax returns, let’s also include the time these they (all of us, really) will save by not having to keep tax records or file tax returns.
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. John Kerry might find it politically expedient to demagogue the issue for votes, but now you know enough to know what he’s up to.
For more comprehensive information on The Fair Tax you can visit http://www.fairtax.org.
Neal Boortz is a lawyer and nationally syndicated radio talk show host.
©2004 Neal Boortz
Hi Willie, it was getting boring here without your pov being expressed in person :o)
Posing as "tax reform", the NRST (HR 2525) also represents a "land grab" where business interests are favored over individuals purchasing for their own use:
Posing?
H.R.25
SPONSOR: Rep Linder, John (introduced 01/7/2003)
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer: http://www.fairtax.org & http://www.salestax.org
Sure looks like tax reform to me.
Willy, how many years you going to continue with the same wornout irrational diatribe? You never change it or try even to clean it up to present a more coherent and rational argument for your postition. Just through it out there to bump a thread because you don't like seeing the NRST touted as a alternative to the income tax.
You continually throw it out inspite of the fact it has been totally refuted everytime you have posted it.
Now to answer your specific allegations:
- Landlord/investors enjoy a 23% discount compared to the individual personal home buyer.
- Individual personal home buyers must pay 29.87% more than landlord/investors.
This a significant inequity between individuals trying to buy their own new homes and landord/investors looking to buy the same single family dwelling as a rental investment.
ROTFLM(_|_)O!
Still playing rich man against poor man aren't you Willy.
You do know of course, that investors are home buyers and renters too, don't you?
Why don't you mention:
These factors more than overcomes any imagined advantage of investor over the homebuyer so that all homebuyers can become an investors too.
But then good socialists never consider becoming investors themselves now do they W.G.
Now, lets take a look at some of your points and see how they hold up:
A typical family purchasing their own new house today has 25% or more of their gross income extracted by the Federal government before they even think about buying a new or even an older house. That is not even counting the tax costs and costs of compliance placed on businesses of an additional 20 to 30% and embedded in the price of the new house.
Of course that landlord/investor also pays the same tax on the house he lives in or rents before he can ever become an "investor/landlord" in the first place. Or do you figure such folks live in NY allies and sleep on park benches.
Additionally, a buyer of an older home, is not charged the NRST, which is the case of most first time buyers of homes.
Actually not, as the Landlord/invester pays the 23% tax on the home he lives in whether rented or purchased, the same manner as any other individual.
Again untrue, the landlord/investor pays the same tax on the home he rents or buys new for his personal use. All individuals are treated the same under the NRST. Infact, because the individual receives the full benefit and control of his gross income, as opposed to merely after tax income under the current system. That plus the NRST prebate paid to ALL households provides an enhanced opportunity for everyone to become investors.
Under the current Income/Payroll tax system, the total contribution of the federal tax system(including taxes in gross wage/salaries) to the price of retail consumption goods and services is 36% for taxes alone. Including cost of compliance at around $600billion/year, increases that percentage to about a 47% total burden with respect to current family consumption expenditure caused by the federal tax system as it exists today.
Frankly, I'll be happy to pay 23% of the total payment for new goods and services, or as you would put it (30% added on) to the tax free price any day. Considering that I have available my full gross pay from which to accrue tax free growth of my savings and investments.
Compared to what we are hit with now:
We must . . . End Tax Slavery Now; Nov '97
by Jarret B. Wollstein
HOW MUCH DO YOU REALLY PAY?
According to the Tax Foundation, in 1994 the average American paid 22.4% of his or her income in federal taxes, plus 11.8% in state and local taxes - 34.2% total.
But that's just the beginning! Dr. James Payne of the University of California found that in addition to direct taxes we also pay huge, hidden taxes including:
- Compliance costs - record keeping, monies spent on tax planning, computers and software purchased to fulfill IRS requirements, etc.
- Enforcement costs - IRS audits, field investigations, service center corrections, criminal investigations, litigation, and forced collections.
- Emotional, moral and cultural costs - families forced onto welfare, time and creative energy lost figuring out how to avoid taxes, etc.
For every $1 we pay in direct taxes, we spend an additional $0.65 in compliance costs. And even that figure doesn't include the cost of import duties, license fees and other government regulations. For a typical U.S. family, the real cost of taxes and regulations is at least:
Federal taxes 22.4% of income
State & local taxes 11.8%
Compliance costs 22.2%
Regulatory costs 12.7%70.1% of your income is now consumed by government
Why thank-you, wheezer!
I'm glad you could fill in for me!
Keep up the good work!
Producer prices also don't include services and, since the 22% producer price reduction is for US companies, imported items would not see a reduction in price due to producer prices. Services and imported goods are a larger portion of our consumption than domestic goods.
Hmmm, need to fill in the service sector too I guess.
Unfortunately the analyst of the below piece does not cite his sources in this writup, His comments do at least suggest that service sector prices can fall as much as goods. Especially considering the 22% decline in producer prices was predicated on an NRST that only replaced income taxes where the Linder NRST in HR25 replaces payroll (SS/Medicare) taxes as well.
PDF:American Farm Bureau Analysis of Fair Tax Proposal
| December 1, 2003 Ross Korves, Senior Economist Economic Analysis Team American Farm Bureau Federation An Economic View of the FairTax Proposal Decline of Prices with the FairTax The FairTax proponents have stated that the prices of goods and services would decline by about 25 percent with the implementation of their plan. That would be offset by the sales tax that would be added when purchases are made. Consumers of goods and services pay all of the current taxes imposed on productive activity in the economy. The retail price of a bar of soap has embedded in it all of the property taxes, payroll taxes, income taxes and excise taxes paid by the manufacturing company, the wholesale company and the retail company. The same is true for the taxes paid by a dentist and all of his or her suppliers that are involved in filling a tooth. Studies from Harvard University estimate that about 22 percent of the prices of goods are taxes and 26 percent of the prices of services are taxes. Competition will force companies to lower prices by the full amount of the reduction in embedded taxes. Consumers will be able to make a direct comparison between the old prices with embedded taxes and the new prices plus the retail sales tax. |
Why thank-you, wheezer!
I'm glad you could fill in for me!
Keep up the good work!
Ahhh Willie, no one can fill in for you.
That's why I paged yah!!.
even if consumer prices for US products went down 22%, the price of our total consumption would not go down nearly that much.
bttt
did read where you say import prices won't be affected - i disagree with that... do you have other reasons?
amd are you including or excluding the possibility of wage increases? that is are you attributing the 22% solely to prices or are you allowing for some to be put into higher wages (ie the possibility that the employer's share of payroll tax go to the emp rather than to the emp then prices?)
Wouldn't be fun to get rid of tax attorneys and accountants?
What a thought!
amd are you including or excluding the possibility of wage increases? that is are you attributing the 22% solely to prices or are you allowing for some to be put into higher wages (ie the possibility that the employer's share of payroll tax go to the emp rather than to the emp then prices?)
I assume you address this one to me.
First the average 22% drop in producer prices that is generally referred to in regard to the '97 Jorgenson/Wilcox paper drawn from his General Equilibrium Model in simulating the economic effects of Flat taxes or Retail Sales taxes replacing income taxes alone as they compared to the '96 tax law baseline economy. That 22% is used as a conservative baseline for discussion recognizing repeal of the payroll tax as well would enhance the overall results.
From what I understand of the Jorgenson models the fall in prices in the studies, is a consequence of all economic factors that arise from repeal of the income tax, not just the the tax per-se. IAmong those factors must be included attendant reduction in costs associated with dealing with the tax & legal system, increased productivity achieved from multiple factors including all changes in resource allocations and their consequences.
Obviously labor allocations will adjust in directions that promote productivity as resources are redirected from addressing tax iand towards more productive activites and capital investment. The manner in which those changes take place will undoubtedly be quite varied ranging from natural attrition and not rehiring as productivity increases, transfering personel released from working on tax law into more productive capacities, even to targeted wage increases as merit incentives etc., especially in the expanding economy that is projected in the Jorgenson/Wilcox paper.
So no sources, huh?
what are your reasons for this position? please provide link/sourceI think I explained my reasons.
So no sources, huh?
I don't have any I can find on the web.
You are free to contact
Ross Korves, Senior Economist
Economic Analysis Team, American Farm Bureau Federation
American Farm Bureau Federation Staff Directory
about what he put into his analysis on behalf of the AFBF.
yes you explained that imports don't have the same tax costs built into their prices - we agree on that.
unless i misunderstand you though, you think import prices will increase by the amount of our sales tax - we disagree on that.
i was wanting to better understand that position with which i disagree and so asked for links/sources.
of course this doesn't even touch on cheap overseas labor markets... but that's another topic
yes and thank you for the links - i appreciate the information suporting the claims- i am learning a lot
i still have a question about producer/consumer prices... why is this relevant?
if producer costs are cut by 22%, then why would one think that consumer prices and/or wage increases of corresponding amunt wouldn't follow? doesn't supply/demand and competition require the maximization of profit?
if producer costs are cut by 22%, then why would one think that consumer prices and/or wage increases of corresponding amunt wouldn't follow?
As far as can see it would, or increasing capital assets. Depends on relative price & wage elasticity factors and what is seen by business to buy the greatest bang(productivity and return on investment) for the buck.
doesn't supply/demand and competition require the maximization of profit?
Human behavior might suggest that ;O)
"Honestly, the number of pages is completely meaningless. Red herring."
It is the best way to quantify the cancerous growth in complexity that characterizes the current system. If you have a more meaningful measurement, by all means, I would love to hear it.
"We're talking about very serious business here."
Indeed we are. The current system has long been recognized as a disaster and it gets worse every year. Continuing into the 20th century in an increasingly global economy with a tax code that puts our producers at a decided disadvantage vs their counterparts in other countries is ridiculous. I will grant you that fundamental change has associated risk. As I tried to point out on my previous post, doing nothing has substantial risk associated with it, also. Sorry if I didn't word that as diplomatically as I could have, but the point remains the same.
AG, the link to the Jorgenson/Wilcox paper didn't work for me.
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