Posted on 10/14/2004 11:11:20 AM PDT by Tolerance Sucks Rocks
By Claire Wolfe & Aaron Zelman
You do not examine legislation in the light of the benefits it will convey if properly administered, but in the light of the wrongs it would do and the harms it would cause if improperly administered. -- Lyndon Baines Johnson, U.S. President
“Abolish the IRS!”
So goes the cry. And who could disagree? The income tax is unAmerican in the most profound way, punishing people for being successful. The tax code is vast and incomprehensible. The agency that enforces it is universally loathed.
Yes, let's abolish the IRS. And the income tax.
Unfortunately, the statement that usually comes next begins, “And replace it with ...” And there a new round of troubles begin.
Over time, proposals have included replacing the graduated income tax with a flat tax, a VAT (value added tax), or some form of consumption tax. For several years now, the buzz has been growing for a national sales tax. While other “abolish the IRS” reforms have languished, the national sales tax has, as they say, developed legs.
The most durable proposal for a national sales tax – called the FairTax – is promoted by an organization called Americans for Fair Taxation (AFT) (http://www.fairtax.org). A bill to implement that tax (H.R. 25; Senate Bill 1943)(1) was introduced in Congress early in the 108th Congress. The so-called “Fair Tax Act” has 54 co-sponsors as of this writing, plus the outspoken support of both Speaker of the House Dennis Hastert and House Majority Leader Tom DeLay. President George W. Bush expressed cautious support for the act (http://www.georgewbush.com/News/Read.aspx?ID=3422) in response to a pre-screened questioner at one of his campaign events. In his acceptance speech at the 2004 Republican Party convention, Bush strongly advocated a total revamp of the U.S. tax system. Although he made no specific proposal, his language was similar to that of the FairTaxers. And at the moment, the FairTax is the only serious tax-revamp proposal on the Congressional table.
Finally, many, many ordinary freedom-loving people, weary of the present outrageous system, are cheering the FairTax as a great improvement.
But it's not.
The FairTax is not only not an improvement. We believe it's UnFair, dangerous, and a disaster in the making. You think nothing could be worse than the graduated income tax? We can virtually guarantee you that, after five years of the FairTax, you'd be looking back with nostalgia on the days when Americans had to put up only with the IRS and the income tax.
The misnamed FairTax is a national sales tax. Under the act promoted by AFT and now being considered by Congress, the federal government would impose a tax on all new goods and all services at the retail level. Proponents claim the tax would initially be 23 percent, but the federal government would actually add 30 percent to the cost of nearly everything you buy. (We'll explain the disparity below.)
The IRS would be abolished, effective three years after passage of national sales tax legislation. The sales tax would replace both the income tax and the FICA payroll tax. Gift and estate taxes would go, under the provisions of H.R. 25. That's the good part. (But don't count on it – as we'll also see below.)
The new tax would be levied on food, clothing, medicine, all services, newly constructed homes – everything except used items. Then every U.S. household would receive a check from the federal government each month, based on the number of Social Security card holders in each family. This check would supposedly compensate each of us for the tax we pay on necessities.
Under current projections, an individual (married or single) would get $178 per month or $2141 per year. For every child or dependent the household would get an additional $61 per month or $732 per year. Therefore a family of two adults and two children would receive payments from the federal government of $5,746 per year or $478.83 per month supposedly to compensate them for taxes payed on necessities.
Proponents point out that the sales tax is simple and highly visible, so Congress won't have such an easy time imposing hidden taxes. And they call it self-limiting: If taxes get too high, people simply stop buying. A tax increase might thus actually result in a revenue decrease for the federal government.
The following are some of the reasons we firmly believe the FairTax would be a disaster for our freedom and our economic well-being. Some of these “unintended consequences” of the national sales tax are verifiable facts or solid certainties based on historical experience. Others are our projections, based on our knowledge of history, the devious ways and means of government, and on technologies and trends that are now developing. These trends may, and probably will, intersect with the “FairTax” in ways that tax proponents would simply rather not consider.
Here is what we expect:
We're likely to end up with both a national sales tax and an income tax. Even if legislation required abolition of the income tax (as HR 25 does), a “national crisis” would soon cause the income tax to be “temporarily re-instated” and the Internal Revenue Service would remain in our lives on an “emergency basis” that never ended.
Likelihood: High probability.
When we posed this issue to Dr. Karen Walby, research director for AFT, she responded in part, “The income tax code would be abolished. Not in my wildest dreams can I see the members of Congress being able to agree on a new income tax code. The current Internal Revenue Code, regulations, and IRS rulings amount to 60,000 pages. Not one person in this country understands all of it.”
Unfortunately, Dr. Walby's statement contains two elements that are common to too many “FairTax” arguments: some verbal sleight-of-hand and a lot of naivete. Although she correctly notes that the income tax portions of the Internal Revenue code would be abolished by H.R. 25, she implies that the entire tax code is scheduled for abolition. That is untrue. H.R. 25 is loaded with amendments to the Internal Revenue Code (including new forms of punishment for tax evasion), but it abolishes only a portion of the enormous, incomprehensible tax code. Also, it would not be necessary for Congress to re-invent a new, complex, controversial income tax code. All they'd have to do is write a few lines reinstating the existing tax code and retaining the IRS.
Furthermore, even if the income tax does truly go away (an outcome devoutly to be wished) bureaucracies never simply disappear. It took nearly 30 years for Congress to have the courage to disband the ridiculous U.S. tea-tasting board. When Prohibition ended in the early 1930s, the federal government's booze-busting apparatus was almost immediately put to work creating and enforcing America's first war on drugs. That's history. And that's the reality of how Washington works. Those savage tax auditors and armed tax enforcers won't be put out in the streets to get honest jobs; they'll continue to be employed – most likely as sales tax enforcers.
The rate of a national sales tax would be colossal. Remember, even the proponents admit they'd need a 23 percent tax rate to fund the current size of the federal government. However, they are starting out their new “fair” tax system with highly deceptive language.
H.R. 25, Section 101(b)(1) states “FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.” Note the phrase “of the gross payment.”
Here's how it works: You buy a candy bar for a total price, including tax, of $1.30. One dollar of that price pays for the candy bar, $.30 goes to the federal government.
One dollar purchase + $.30 in tax sounds like 30 percent to you and me (and to every state that currently has a sales tax). But the “FairTaxers” don't calculate it that way. They say: $1.30 total price. $.30 = 23 percent of $1.30, therefore the tax is 23 percent.
Many critics have pointed out that this is a deceptive way to calculate a sales tax. AFT rebuts the critics by saying (we paraphrase for simplicity), “If you made $1.30 in income and paid $.30 of it in tax, you'd call it a 23 percent tax rate.” The 23 percent figure is what AFT refers to as the “tax inclusive” rate.
But a sales tax is not an income tax, and when we see national sales tax advocates and uncritical journalists promoting the 23 percent figure without giving the underlying explanation, we can only think that some very thick wool is being pulled over people's eyes.
It gets worse. A 1998 analysis by the William Gale of the Brookings Institute calculates that in reality (to pay all current government expenditures while also compensating for such factors as tax evasion), the national sales tax might have to run as high as 67 percent. AFT disputes that high figure. But they do not dispute that their initial “23 percent” tax rate would actually be achieved by adding 30 percent to the purchase price of goods.
Bruce Bartlett a senior fellow for the National Center for Policy Analysis, slams the 23 percent claim, also, saying it's too low even to cover current government spending. He writes in the National Review:
When Congress' s Joint Committee on Taxation scored the Linder proposal [The “Fair Tax Act”] four years ago it estimated that it would actually require a tax-inclusive rate of 36 percent, not 23 percent, to equal current federal revenues. Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate.(2)
Once again, although the FairTaxers dispute most of Bartlett's claims on their website, they make no attempt to refute the basic fact: their “23 percent” is really 30 percent, under the rosiest possible scenario.
Likelihood of the tax actually being more than 23 percent: Certainty.
Inflation will kill you. For decades, the income tax gradually crept up as government-caused inflation pushed Americans into higher and higher tax brackets. This outrage caused horrific hardship before Congress was finally forced to index the income tax to the inflation rate (meaning that if your income goes up with the inflation rate, your tax rate doesn't). There is no indexing with the sales tax. As goods become more expensive, you have only two choices: pay more in taxes or do without the things you need.
Given the U.S. government's eternal spending spree, the mounting deficits, and a national debt whose true long-term obligations run into the tens of trillions, it's a virtual certainty that the federal government will inflate the currency in an attempt to keep Medicare and Social Security afloat and to keep its fiscal house of cards from collapsing. As your food, clothing, vehicles, and medical care get more and more expensive, you'll pay more and more and more sales tax.
Consider just one example. You've been saving to buy a new house. That house now costs $260,000 (which is already 10 times what your parents would have paid for an identical house in 1968). Your “FairTax” on that home will already be a whopping $78,000, for a total purchase price of $338,000. Then government printing presses go into high gear. While you're still saving up for your down-payment, double-digit inflation takes over and the price of your house zooms 20 percent in one year. The house now costs $312,000. Your “FairTax” on that house is now $93,600 for a total purchase price of $405,600. And you have to wait another year to buy it. And if inflation continues to go up, your hopes recede even further. (And all this is without mentioning the increased mortgage interest you'll have to pay over the decades to cover both the government-caused inflation and the government-benefiting tax.)
AFT never mentions the effects of inflation and always insists simply that prices of all American-made goods (presumably including house prices) will drop once the income tax ceases to be an underlying factor in the cost of goods.
Likelihood of inflation boosting the sales tax: Certainty
The FairTax is monumentally unfair to retiring Baby Boomers. People who have paid 1/4 or 1/3 of their income in taxes for 40 years will now have to pay an equally high tax on all the after tax income they've managed to put aside for their retirement. Every time Boomers buy anything with their lifelong savings, they'll be double taxed.
Likelihood: Certainty
Once again, we asked Dr. Walby about this double taxing. She wrote:
First, prices will decline once the 22 percent embedded [income] taxes are repealed. Second, they will get the rebate to pay the taxes up to the poverty level. If they have an IRA or 401k or pension plan in which they made deposits with pre-tax dollars, with the idea being that they would pay taxes on it when they drew it out, they will be better off. With the FairTax there will be no taxes to pay when they take their money out. So these income taxes saved have to be credited back against the taxes you said they paid under the income tax system.
The response about IRSs and 401ks is true as far as it goes. But this doesn't answer the question about savings in general. Your regular savings account, your CDs and other forms of savings which are not tax-deferred (as IRAs and 401ks are) will be double taxed.
In fact, we suspect that this (along with the ability to profit from inflation) is a prime motivation for the tax change, from Congress' perspective. Politicians know that retiring Boomers are soon to be paying less in taxes on their reduced incomes. They want their cut to continue!
The national sales tax is subject to manipulation in even more direct ways than the income tax has been. Let's say that Congress or some powerful regulatory agency decides that fatty foods or sugar or potato chips are bad for you – wham! Suddenly there might a 200 percent tax on those items.
Government won't have to ban firearms; they'll just place a 500 percent sales tax on them. Or a 1,000 percent sales tax on ammunition. Cigarettes? Imported clothing? “Gas-guzzling” SUVs? Given the wonders of the computer age, the eternal greed of government, and the unquenchable meddling of social engineers, we'll soon have custom tax levels for them all, constantly calculated and adjusted by computer.
FairTaxers talk about the tax being self-limiting; when it gets too high, people stop buying. While they praise the limiting effect that might have on government, they ignore the damage that a too-high tax might have on the unfortunate industries or individuals that get hit with it – a problem that's built into the tax even in its initial form, and which becomes Draconian once politicians realize they can use the sales tax as a club or a threat.
Likelihood: Probable.
The tax will be used to track your entire financial life. While H.R. 25 does not contain any requirement that every purchase be linked to an individual's ID, the trend toward tracking every purchase is growing. We expect that eventually, your “national ID cash card” will be required when you buy anything. Or giant databases will combine the records of your credit cards, store loyalty cards, radio-frequency ID tags on merchandise, government ID, etc. into one vast set of interlinked records, immediately accessible to – and subject to manipulation by – government agencies.
Therefore, the national sales tax will eventually be used to track – and manipulate – what we purchase. Instead of merely being profiled by Wal-Mart or Safeway, your buying habits will be available in detail to the Department of Homeland Security, the Department of Health and Human Services, the FBI, the Bureau of Alcohol Tobacco Firearms and Explosives, university researchers – you name it.
The government will then decree that it has a vital interest in knowing exactly who is buying too much unhealthy food, the “wrong” kinds or amounts of medicine, ammunition, or unapproved reading matter. Your purchases could lead to criminal investigations (for buying unapproved books or contributing to the “wrong” charities), denial of insurance (for buying unhealthy foods, firearms, or cigarettes), suspension of your drivers license (for buying too much liquor), and other arbitrary bureaucratic punishments. Such investigations and prohibitions are already underway in America. The national sales tax can make them much easier by creating a federal database of all purchases in real time, linked to the identity of the purchaser.
Katherine Albrecht of the consumer-privacy group CASPIAN points out one way in which the social engineering and people-tracking aspects of the national sales tax might go together: As databases come to hold more information on each individual American, the tax could be manipulated to fit the person, rather than the item: “A welfare mother puts her RFID-enabled ID card under the scanner (or waves her RFID-chip implanted hand across the scanner) and the system says, 'Oh, you're a person who's taxed at the one percent rate.'” On the other hand, a person with a $100,000 salary flashes his card or waves his chipped hand and the system recognizes someone who's “rich” enough to be taxed at the 50 percent rate.
If Albrecht turns out to be right, that would also, of course, lead to the new “crime” in which low-taxed individuals purchased items for high-taxed individuals. Again, in fairness we must assure you that nothing in the current legislation calls for purchase tracking or custom taxing. (In fact, the FairTaxers appear to believe seriously that the tax will always remain absolutely flat and neutral.) We're just remembering our history, being realistic about the methods of government, and heeding Lyndon Johnson's words at the top of this article.
Likelihood: High probability (of tracking); possibility (of custom tax rates for individuals).
A national sales tax will create a huge black market. A punitive sales tax on everything you buy will lead to enormous black markets. You'll soon see gang violence and vast new prisons being built to house the millions of people illegally trading DVDs, cigarettes, canned foods, TV sets, and clothing. This will be true even if the underlying prices of goods drop – as the FairTaxers assure us will happen. If people can evade a 30+ percent tax – they will. Even if the price of items is 20 or 25 percent lower than today (a claim we'll examine in a moment) people will still want – and go after – their 30 percent black-market discount.
Although the tax is initially only to apply to services and new items, here's another projection: Swap meets, farmers' markets, gun shows, and garage sales will automatically come to be considered prime places for black market activity. Either the tax will eventually be extended to used items, or all such free markets will eventually be heavily regulated and patrolled – or banned outright as havens for the new anti-sales tax criminals and resisters.
Likelihood: Certainty (of black markets); high probability (of regulating used and private sales)
AFT persistently denies any possibility of black markets developing. When we raised the issue Dr. Walby responded:
First of all, the FairTax, since it is a tax on consumption, will make the underground economy, which is not paying any income tax, subject to taxation. When those who earn income from these illegal activities (sales of illegal drugs, for example) spend their unreported earnings they will have to pay the FairTax on their purchases just like anyone else. The same holds true for illegal aliens working in this country.
Again, that's true as far as it goes. But merely because one form of tax “avoision” goes away doesn't automatically mean no tax avoision is possible. People who are motivated to keep their own money will always invent thousands of clever ways to do so; we're astonished at the FairTaxers' naivete in assuming there will be no black marketeering.
And remember – to whatever extent some people manage to keep more of their own money through black-market purchases, those who buy on the legal (taxed) market will end up paying higher taxes to feed the insatiable federal government.
The national sales tax will give government another reason to make cash purchases illegal. Because buying with cash will make it easier to evade the sales tax, taxing authorities will quickly conclude that buying with cash is a sure indicator of criminal activity. The federal government has already classed all large cash transactions (in some cases, that means amounts as low as $750) as “suspicious.” Expect cash purchases of all sorts eventually to become criminal under the sales tax regime. After all, as government and the media will soon tell us, “It used to be that big drug dealers and crooked businessmen evaded taxes on large purchases. But now millions of Americans are cheating their countrymen every day by evading tax on billions of small, but cumulatively huge, purchases of milk, coffee, CDs, and tee-shirts!”
Cash purchases, of course, will also make it more difficult for government social engineers and corporate marketers to make sure your buying habits meet their standards. Cash purchases make it harder to tell whether you're guilty of eating too much butter, consuming too much beer, or owning too many guns. That will be yet another reason to make all purchases trackable. But the excuse given will be to prevent the terrible crime of sales tax evasion.
Likelihood: High probability.
This tax is designed to put every single American household on welfare. The FairTax is regressive – that is, the poorer you are, the more you pay, proportional to your income. Sponsors of the new tax have come up with the worst possible solution for making it more “fair.” They want to put every single American household on the dole.
Instead of simply not taxing staple items like food, health care, transportation, or clothing, they want the federal government to send each of us a check every single month. Think of the dependence this would create. It's very hard to imagine a “limited government” -- which many of the FairTaxers say they want – buying the loyalty of every American household with a monthly government payment of $478.83 – or any other substantial amount.
Likelihood: Fact; it's built into H.R. 25.
If everything else about the FairTax proposal were simply wonderful, we would oppose it because it creates universal dependence on a government check (or direct bank deposit) each and every month. Yet once again, AFT doesn't even want to look at the effects of such dependency. When we raised the question, Dr. Walby responded only:
The purpose of the rebate is to make essential consumption (as measured by spending up to the poverty level) exempt from the tax. We do not want to tax the poor. This is similar to the earned income credit (in the income tax) that doesn't tax income below a certain level. Only the poor will not have to pay a tax preparer to fill out a complicated form in order to qualify for it. many have paid $200 to file that return.
But the “rebate” isn't similar to the earned income tax credit because it's intended to go, month after month, to every American household. If the intent was really to avoid taxing essential spending to place less burden on the poor, one could simply not levy the sales tax on stable items like food, medicine, school supplies, or clothing.
Some religious people will be penalized. The monthly rebate check is to be paid by the Social Security Administration, based on the number of SSN holders in a household. Tens of thousands of Americans (for instance, the Amish, or those who believe the SSN is the biblical Mark of the Beast) do not have social security numbers. Therefore, they would have to pay the heavy national sales tax without being compensated in any way. When we asked AFT how their proposal addressed this inequity, their reply was one sentence long: “There is no requirement that any individual apply for the rebate.”
In other words, tough luck.
A working-class religious family of four, forced to absorb $478.83 more than its neighbors for basic expenses each month simply to remain true to its faith, would have considerable incentive to make its purchases on the black market or otherwise go underground to survive.
The economy would very likely collapse. Just before the FairTax went into effect, the economy would boom as Americans raced out to buy cars, electronic gear, or even to stock up on food. They would not believe that prices on everything would drop the very next day, or the very next week, after the sales tax was imposed. Their spending would reflect their quite rational fear that prices would simply jump 30 percent.
The day the tax went into effect, the American economy would collapse. Eventually, the economy would restabilize, and some prices would drop, as AFT claim. But some industries producing high-ticket items, like the automobile industry, furniture manufacture, or construction, might never recover – even if removal of the income tax did allow prices to drop and Americans to keep more of their paychecks.
Likelihood: Probable.
You'll pay a higher sum for your new home. If the tax passes as written, new homes would suddenly become 30 percent more expensive than existing ones (because all new construction, but not existing homes, would be subject to the tax). Two homes could sit side-by-side – each with four bedrooms, two baths, and comparable features – and one would cost $50,000 or $100,000 more than the other, simply because it was being marketed by its builder, rather than a resident.
No one would want new homes. Construction would dry up. The lack of new homes and the price differential between new and existing ones would in turn create demand for existing homes and push their prices up. Eventually, Congress might feel compelled to save the construction and building materials industries by imposing the sales tax on “used” homes, as well. Or the upward thrust of “used” home prices might, by comparison, make new homes desirable again. Housing markets would eventually stabilize, but only after traumatic disruption.
Oh, and that tax applies to your remodeling supplies, too.
This process of constantly adjusting the tax in vain attempts to undo such unintended consequences will take place all across the economy – and go on for decades.
Likelihood: Probable (disruption of the housing market); high probability (tinkering with the tax in panicky attempts to fix unintended consequences)(3).
Countering the “FairTaxers” claims
AFT makes dozens of claims that are backed by only the most sketchy evidence. We don't have space to refute them all. But here are four examples of dubious claims and the realities behind them.
Claim #1: Goods would be cheaper. Proponents of the new tax say that their claimed 23+ percent tax rate wouldn't be so painful because goods would be cheaper. Without an income tax, businesses could charge less for the items they manufacture.
Maybe. And in a truly free market, even likely. But in our real world and our managed economy, this is far from assured. First of all, even if the income tax were repealed, the price of imported goods would have no reason to drop – and think about the huge percentage of our vehicles, electronics, clothing, and other goods that are now manufactured overseas (again, more on that in a moment).
Second, there is simply no guarantee that manufacturers would lower prices – or that the government would resist the temptation to continue placing various punitive taxes on makers of goods – which would force up their underlying cost. The income tax is hardly the only tax the government uses to make our goods more expensive.
And what about products and services whose prices are already set (or “supported”) by the government? Americans already pay three times the typical world rate for sugar, for instance, solely because of government price supports. Neither the income tax nor free markets have anything to do with it. Would powerful industries with high-paid lobbyists urge the federal government or state governments to set their prices considerably lower? Not likely.
Prices of domestic goods and services may certainly fall a bit. Some may fall substantially. But overall, we predict that the after-national-sales-tax price of goods (including the tax) will be higher than the after-income-tax price of goods. And once again we need to consider the worst case: what happens if we end up with both the national sales tax and the income tax?
Likelihood of goods remaining more expensive than the FairTaxers claim: High probability.
Claim #2: A national sales tax would create jobs and support American manufacturing. At first, this seems counterintuitive. A tax that boosts the price of all consumer goods by 30 percent (or more) would help manufacturers? Well, yes, after the U.S. economy recovered from the probable post-tax crash, in the long run the national sales tax actually might boost certain American industries.
What the FairTaxers don't tell you is that it would do so by making one enormous class of goods cost 30 percent more than competing goods. Here's the plan: imported products, which would not benefit by the planned repeal of the income tax, would suddenly be that much more expensive than their domestic counterparts.
That would be the big advantage gained by U.S. manufacturing – and no doubt many people reading this article are all for that. “Buy American!” they cry. “Quit sending our jobs overseas!”
Yet placing a 30 percent or higher penalty on foreign goods essentially forces us to carry U.S. companies on our backs – even when they're less efficient, less innovative, or produce poorer goods. Competition from overseas has often forced American manufacturers to improve their products (as Japanese autos did in the 1970s). Without competition, companies become complacent and sloppy – and their customers are the ones who ultimately suffer.
And again ... what happens if the price of American goods don't drop? Or if we still end up with the income tax on top of the sales tax?
Likelihood: Probable.
Claim #3: Ordinary Americans would be freed from record-keeping and tax filing. Initially – if indeed Congress were to abolish the income tax – this might be true. But not in the long run! Again, look at what the actual legislation says.
From HR 25 Section 101(d):
(1)The person using or consuming taxable property or services in the United States is liable for the tax imposed by this section, except as provided in paragraph (2) of this subsection.(2) EXCEPTION WHERE TAX PAID TO SELLER- A person using or consuming a taxable property or service in the United States is not liable for the tax imposed by this section if the person pays the tax to a person selling the taxable property or service and receives from such person a purchaser's receipt within the meaning of section 510.
In other words, you, not the seller, are liable for the sales tax. Dr. Walby maintains that once you've received your receipt from a business, you're off the hook. According to her, the businesses will (not may, but will) be audited periodically to make sure they're charging and paying the tax. If they are, fine. If they're not, it's the business, not you, that will be in trouble.
We believe her when she explains that this is how the law is intended to work. We simply don't believe this is the way the law will work in the long run. No, when a business is caught not charging sales tax, eventually the federal government will seek to make criminals out of business customers – who are, after all, “conspirators” in tax evasion, black marketeering, and racketeering.
You'll have to have a receipt to prove you bought that can of beans, that computer, or that car “legally.” Lose your receipt and you could be required to pay that 30+ percent tax all over again – plus penalties and interest.
Worse, using the precedent of the drug war and the income tax, we'd be presumed guilty until we proved ourselves innocent. Or, under the legal fiction now used to perpetrate civil forfeiture, our property would be considered guilty if we had no receipts for it. Without due process, it could be confiscated.
Since current paper receipts are easy to forge, an ever-escalating federal program would have to be dedicated to designing – and eternally re-designing forge-resistant store receipts, which private businesses would be forced to adopt under penalty of law. New federal crimes would be created for receipt forgers or possession of forged receipts. Being found in possession of an item originally purchased by a relative or acquaintance could conceivably become a crime, if the tax is extended to used goods.
Yes, these are projections and they sound draconian. Nothing in the above several paragraphs is written into the current bill. But remember Lyndon Johnson's warning. And remember the way government works.
Likelihood: Certainty in the long run (of paperwork for citizens); High probability (of Draconian punishments and controls for failure to keep receipts and other records
Claim #4: A national sales tax is simpler than the income tax.
David Gross (6), an alert critic of both the present and proposed tax system writes:
National sales tax promoters promise that the tax will be a simple one, but I think they're using wishful thinking when they say things like: Exemptions are the work of special interests and their Gucci-shod lobbyists. The FairTax has no exemptions. Sure it doesn't have any exemptions – now -- when it's just an unamended bill on some congressman's desk. But if it gets closer to being law, you can bet that it will get more and more complicated.What do you mean the tax is the same for bibles as it is for pornography? Are you saying that someone buying good, wholesome Iowa corn has to pay the same tax as someone who buys French wine? A poor family pays the same sales tax on baby food that a rich bachelor spends on his sports car? and before you can say Gucci-shod lobbyists, there are a thousand pages of regulations describing which sales tax rates apply to which items.
As we've noted above, the possibilities for using a national sales tax as a social engineering tool or as a carrot/stick for corporations are plentiful. To hungry politicians those temptations will prove irresistible. No matter how a “pure” a national sales tax is initially, it will soon become as complex, punitive, and manipulative as any other mega-billion dollar cash cow.
Anyone who believes a national sales tax would never be used for social engineering, or that it would never be used to favor one industry over another, or that it would never be jacked up even more sky-high that it's already proposed to be, or that it would never be used to persecute ordinary Americans, or that it would never lead to black markets, is simply naive about the ways of government and ignorant of history.
Read the “Fair Tax Act” for yourself. You'll discover there's absolutely nothing simple about the legislation. Already – before the inevitable decades of amending and tinkering – H.R. 25 is an enormously complex proposal that contains gems like these:
SEC. 602. (a) IN GENERAL- The sales tax administering authority may levy and seize property, garnish wages or salary and file liens to collect amounts due under this subtitle, pursuant to enforcement ...SEC. 103. (f) BARTER TRANSACTIONS- If gross payment for taxable property or services is made in other than money, then the person responsible for collecting and remitting the tax shall remit the tax to the sales tax administering authority in money as if gross payment had been made in money at the tax inclusive fair market value of the taxable property or services purchased.
SEC. 905. (a) IN GENERAL- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.
Yes, that's right. That last provision is for an income tax and it's included in legislation that claims to “abolish the income tax.” And those are only a sample of the pitfalls and landmines you'll find within this terrible legislation. Read it. Then re-think whatever favorable attitudes you may have had toward it. (4)
Likelihood: Dead solid certainty (of complexity and punishments)
Advocates of the national sales tax are naive – or believe that we are.
Virtually all of the assumptions promoted by AFT are based on the rosiest possible projections. That there will be zero tax evasion. That all new goods and services will always be taxed equally, without social engineering or other political manipulation. That the base price of new goods will drop 22 percent across the board in the first year (and the price of all services will drop by 25 percent in the same period). That “compliance costs” under the new tax bureaucracy will be lower than those under the existing tax system.
They totally ignore, or breezily dismiss, the jolting disruptions to the economy that imposition of their plan will cause. They pretend there will be no black markets. Despite the clear statement of tax liability in the proposed law, they claim Americans will be forever free of paperwork. They simply don't deal at all with all the obvious implications for citizen tracking inherent in a national sales tax.
They assume that the IRS and a raft of long-time taxes will simply go away, despite every clue that history and the nature of bureaucracy has to offer.
They rightly call all income taxes a “tool of tyranny.” The FairTax, they say, “dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income.” But taxing income isn't the root of the problem – although indeed the income tax is a horrible Marxist system. The root of the problem is a government unchecked, a government that believes it has an inherent right to some government-defined percentage of our property, our time, our very lives. These starry-eyed tax advocated fail to see – or hope we fail to see – that other forms of taxation can easily fill that same role.
Above all, they make the stupidest possible assumption – or they ask us to. They assume that the federal government will not grow, that it will not get more greedy, that it will not consume an ever larger share of everything Americans produce.
Why is this article coming from a gun-rights group?
Jews for the Preservation of Firearms Ownership (of which one of the co-authors is executive director) is a Second Amendment educational foundation, not an economic think tank. So why is this article coming from us?
Two reasons. One: The tax will be used to attack and limit gun ownership; two, it's bad for freedom, and what's bad for freedom is bad for all gun owners.
It is painfully obvious to anyone who observes the tactics of the federal government (and the lobbying groups that buzz around it like flies) that a national sales tax will be used to attack gun ownership. Already, under the planned tax, anyone who wants to buy an imported firearm like a Glock or a SIG Sauer may have to pay 30 percent more than any American equivalent. But the ardent, and persistent gun prohibitionists in Congress – people like Hillary Clinton, Charles Schumer, Dianne Feinstein, Caroline McCarthy, and John Kerry – will never be content with that.
Do you want to see a 500 percent tax on firearms? A 1,000 percent tax on ammunition? A 200 percent tax on targets, smokeless powder, camouflage clothing, and knives? Then tell your Congressperson you want a national sales tax.
Our second reason is that, as horrible as the IRS and the income tax are, the FairTax proposal is even worse for freedom.
Particularly worrying is the plan to put every single American household on federal welfare. Many households will become desperately dependent on government payments to help them survive the higher price of food, clothing, transportation, health care, and shelter. Wealthier people will simply see their monthly handout as an entitlement, a bonus – fun money to help fund their spending sprees.
Either way, a direct payment from the federal government each month will make people less inclined to protest injustice, less inclined to make waves, even when waves are seriously needed. Because people won't want to risk losing their monthly “freebie,” they'll be less inclined to look critically upon the government – and more inclined to oppose anybody who threatens to cut off their monthly handout.
It's all a matter of perception; in all too many cases, people are going to view their $500 freebies as being more important than the even higher – but incrementally smaller – amounts they pay out in sales taxes day by day. They'll say (as so many do with government handouts now), “I'm entitled. After all, I'm only getting my own money back.”
And besides, millions of households will be happily gaming the system – collecting their monthly handouts while buying tax-free goods on the black market. Big government will have achieved its ultimate dream: Citizens will like higher taxes.
In the end, as tyranny tightens its iron grip, Americans will be less inclined to bite the fist that they believe feeds them – even if they're actually paying more in taxes than they do now. All they'll see is that freedom might threaten their government payment. And since fewer will be able to buy guns, even those who want to fight a future tyrant will have a harder time doing so.
Some time ago, we wrote an article claiming that gun-rights and Social Security couldn't co-exist in the long run (http://www.jpfo.org/ssandguns.htm). We'll go further now and add that gun-rights and a national sales tax cannot and will not co-exist in the long run.
We sincerely hope we're wrong. But from where we stand, the conclusion seems inescapable: Imposition of a national sales tax will inflict the same kind of long-term damage to American society that was earlier inflicted by imposition of the income tax, the adoption of fiat currency, and life-consuming programs like the New Deal and the Great Society. And it will be coming at a time when America's fiscal health is already too shaky to absorb one more such blow.
What type of tax do we propose instead?
Now comes the moment where we're supposed to propose our alternative. “Be constructive,” someone will demand. “If you don't like their proposal, what have you got to offer that's better?”
Here's our alternative: Nothing.
Ban the income tax, definitely. Banish it. Disband the Internal Revenue Service and auction their buildings to the highest bidder. Let all the IRS auditors, clerks, and armed enforcers get honest jobs.
But don't replace the income tax with any tax, of any variety.
The United States survived until 1913 without an income tax. It survived until World War II without wage withholding (a federal trick “for the duration of the war” that increased tax collections enormously).
The income tax has enabled and encouraged wild governmental spending sprees. And irony of ironies, the federal government has now gotten so drunk on reckless spending and its attendant debt that (5) an amount equivalent to all the income taxes collected west of the Mississippi River accomplishes nothing but helping pay the interest on that debt! You pay and pay and you're not even getting government services for your money. Just paying off debt that should never have been incurred – and probably wouldn't have been incurred if Americans hadn't been forced to hand over so much money to government.
If you want smaller government, then don't spend your time thinking of “better” ways to feed big government. If you want freedom, don't fall for ploys that simply enable to government to find new routes into your pocket and your life.
If you want to tame the beast of tyranny – starve it into submission. Ban the income tax. Trash the unFairTax. And put the government back on a leash.
(1)The “Fair Tax Act” will almost certainly not pass during the 108th Congress, which ends this year. However, it's gaining support and will surely be re-introduced in the 109th Congress. At that point, the bill numbers will change. We refer to H.R. 25 in this article because that's the bill that's now under consideration. You'll be able to find the text of both the current bill and any new versions of it by doing a keyword search at Congress' Thomas web site: http://thomas.loc.gov.
(2)Bartlett, Bruce. “A National Sales Tax No Vote.” National Review Online. August 9, 2004. http://www.nationalreview.com/nrof_bartlett/bartlett200408090847.asp
(3)It's also worth noting that if the income tax is indeed abolished, the homeowner's interest deduction goes with it. That automatically eliminates part of the incentive for buying houses, rather than renting. It also means that, with no deduction, home buyers effectively pay a larger percentage of their own money for their houses. We don't believe that any tax should ever have been used for a social engineering purpose (e.g. artificially encouraging home ownership). We merely note that this would be one of many disruptive factors Americans would have to cope with.
(4) Use this link and input H.R. 25 into the search box: http://thomas.loc.gov/. If you are reading this article after 2004, then go to the bills of the 108th Congress and search for H.R. 25. Or use keywords to search for any version of the FairTax bill introduced in your current Congressional session.
(5)This is according to a statement by Rep. Christopher Cox made to the House Judiciary Committee on February 3, 1997. http://www.house.gov/judiciary/187.htm. Cox estimated that in that year, $340 billion -- roughly half the federal income taxes collected in the United States – would go to pay interest on the national debt. The actual interest payment in 1997 was $355.8 billion. Interest expenses have gone down slightly since then. However, income tax receipts have also gone down. In 2003, for example, actual receipts from individual federal income taxes were $793.3 billion, and interest on the national debt was $318.2 billion. You can see historic and current national debt interest figures here: http://www.publicdebt.treas.gov/opd/opdint.htm.
(6) Gross, David. The Picket Line. August 29, 2004. http://www.sniggle.net/Experiment/index.php?entry=29Aug04&showyear=2004
Copyright © Aaron Zelman 2004. Permission is granted to distribute this article in its entirety, so long as full copyright information and full contact information is given for JPFO.
Published by:
Jews For The Preservation of Firearms Ownership, Inc.
P.O. Box 270143
Hartford, WI 53027
Phone (262) 673-9745
Fax: (262) 673-9746 http://www.jpfo.org
When people are forced to write checks to the IRS at the end of the year for thousands of dollars, they won't be happy about it.
Problem is those that would be "forced to write checks" are still in the minority and already know they are paying.
From, Effective Federal Tax Rates 1979-2001
Effective Individual Federal Income Tax Rate (Percent of gross family income) Income Category 1979 1981 1983 1985 1987 1989 1991 1993 1995
1997
1999
2001Lowest Quintile 0.0 0.5 0.4 0.5 -0.6 -1.6 -1.6 -2.3 -4.4 -5.2 -5.2 -5.6 Second Quintile 4.1 4.8 3.8 4.0 3.2 2.9 2.9 2.3 2.0 1.8 1.7 0.3 Middle Quintile 7.5 8.3 6.7 6.6 5.8 6.0 5.8 5.4 5.3 5.6 5.0 3.8 Fourth Quintile 21.2 22.1 20.1 20.4 20.2 20.5 20.5 20.2 20.5 20.5 20.5 19.3 Highest Quintile 27.5 26.9 23.9 24.0 25.8 25.2 25.3 26.8 27.8 28.0 28.0 26.8
The Honorable James DeMint (R-SC)
United States House of Representatives
APRIL 5, 2001
I submitt from a perceptual basis and for all practical purposes we are now there.
Your scenarion of paying tax in one lump at the end of the year will only affect those that are already aware of the problem and leads to no change in how the rest preceive the free lunch.
Walter Williams, World Net Daily, 10-25-2000
If you're among those who pay little or no federal income taxes, what do you care about tax cuts? *** 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?
Until all perceive paying taxes proportionately, as is the case with an universal single rate retail sales tax, we will continue with the same old problem.
| "As a matter of fact, what the income tax does — and this is the debate that I think we always try to get into in order to let you and him fight, see — and the people of this country are led down a path where the actual control of their resources, which in the end is the control over their will, is handed off to the government." . . . "The government then manipulates that will in order to destroy the freedom of our electoral system through the income tax structure, and we call the resulting slavery a free system." "In point of fact, it is not as the founders understood, and the only way to restore real freedom is to give people back control over the income that they earn so that they won‘t, at the voting booth and in other phony issues, be subject to that manipulation." |
Even according to your figures, 4/5ths of the U.S. would have to write checks to the IRS.
Even according to your figures, 4/5ths of the U.S. would have to write checks to the IRS.Actually they all would. AG's not including FICA taxes.
Even according to your figures, 4/5ths of the U.S. would have to write checks to the IRS.
At least until, Congress raises the personal exemption to the median income level and expanding tax credits, as the current trend on both sides of the congressional aisle seems to be heading for.
The point being as long as the bottom half perceive little or no cost to themselves yet continue to receive largess we will continue down that socialist spiral. Liberty and freedom have a price, responsibility. If that price is avoided or not perceived by large segments of the country there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.
Right now the bottom 60% perceive little to no "Individual Income Tax" burden,(and as clearly seen in many cases even a handout) and as a consequence 70% of the voting public clamor for more from government looking for the top 40% of income earners/producers to foot the bill. That perception continues to grow ever stronger by eliminating even more participants from the Federal Individual Income Tax rolls as proposed in the tax reduction proposals through changes in personal exemption limits and other mechanisms such as the EITC. Republican or Democrat, as long as a graduated income tax exists the political pressure and temptation to remove the bottom half of the electorate from the tax rolls can only re-enforce the current path towards every growing government.
But the VAT being looked at now is, I feel, a possible recipe for disaster.
I agree that a "VAT" would be a disaster, however the NRST is not a VAT.
If someone is telling you the NRST is a VAT you are buying into a line of bull.
Definition [ http://www.encyclopedia.com/articles/13330.html ]:
value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.
The NRST is a single stage(Retail), single rate(23%), visible to the consumer tax, on the "retail" sale of new(untaxed) goods and service. It is not a VAT and is expressly paid by the consumer not the business and is completely visible to the consumer by a receipt mandated by the law. The NRST does not tax purchases made for investment or business purposes.
Purpose of the NRST is to replace all Federal income/payroll taxes and gift/estate taxes with a single tax levied on all new goods and service once and only once at the retail level paid by the final consumer(the purchaser) of those goods or services. Goods that have been previously taxed under the NRST (i.e. used) are not taxed on resale.
The NRST is a specific remedy and replacement for the current VAT we now pay in the form of inflation and lower income(i.e. the corporate income/payroll tax). The NRST repeals over 95% of all Federal taxes currently in place and replaces them with one simple, easy to administer and understand, Retail Sales Tax.
I gotta say this: It would be nice if, sometime in the future, we could go back to a system of federal government based mainly or completely on tariffs. I would personally add to that duties and an excise tax on purchases of American real estate by foreign interests or Americans acting for foreign interests. The idea is that Americans buying American goods in America would not be taxed.
Correct me if I'm wrong, but aren't acccountants and IRS workers constantly getting tax questions wrong?
I think the FairTax advocates should lose the "prebate" welfare concept. If protecting the poor is the design of this "prebate" concept, perhaps the government should simply avoid taxing certain categories of items, like food, clothing, and medical supplies. The last thing we need is a massive government-dependency program, which is what this "prebate" could become.
That's 23% inclusive. However, I'm sure most people will think that the 23% is what they'll pay on top of the good's price, when they'll actually get dunned at a 30% rate. I suspect it would be more honest and fair to the general public to use the 30% exclusive rate when describing the FairTax.
I'm talking about ones that were surveyed and tested by people interested in the complexity of the code.
"Your “FairTax” on that home will already be a whopping $78,000, for a total purchase price of $338,000. Then government printing presses go into high gear. While you're still saving up for your down-payment, double-digit inflation takes over and the price of your house zooms 20 percent in one year. The house now costs $312,000."
That's incredibly misleading. In reality, inflation would help you out. Once you buy the house, your payments will remain set. As inflation occurs, you will be making more money, and the value of your house will go up. But your payments will not.
But how soon are you going to be able to buy that house in the first place if the Wolfe/Zelman inflation scenario plays out?
Depends on how good your credit is, but interest payments on your current debt tend to exceed the actual costs of the home. The down payment isn't the biggest factor here.
That's 23% inclusive. However, I'm sure most people will think that the 23% is what they'll pay on top of the good's price, when they'll actually get dunned at a 30% rate.
Hmmm, perhaps it would be best to describe all income/payroll tax rates in tax exclusive terms as well, for a proper comparison with the system that is being replaced. Essentially the tax exclusive rate is the ratio expressing how much more you must earn in order to take home a specific amount in your pay check.
The conversion equation:
Rate(excl) = Rate(incl)/(1-Rate(incl))
| Inclusive Rate | Description | Exclusive Rate |
|---|---|---|
| 4.76% | Sample State Sales Tax --> | 5.00% |
| 10.00% | <-- Penalty for IRA/401k Early Withdrawal | 11.11% |
| 15.00% | <-- Marginal Income Tax | 17.65% |
| 15.00% | <-- NRST (not including SS/Medicare) | 17.65% |
| 15.30% | <-- Social Security/Medicare Payroll Tax | 18.06% |
| 17.00% | <-- Flat Tax (not including SS/Medicare) | 20.48% |
| 20.00% | <-- Capital Gains Tax | 25.00% |
| 23.00% | <-- NRST (including SS/Medicare) | 29.87% |
| 28.00% | <-- Marginal Income Tax | 38.89% |
| 32.30% | <-- Flat Tax (including SS/Medicare) | 47.71% |
| 39.00% | <-- Marginal Income Tax | 63.93% |
Note that any tax-inclusive rate larger than 50% would have a tax-exclusive rate of over 100%.
I suspect it would be more honest and fair to the general public to use the 30% exclusive rate when describing the FairTax.
Depends upon what you are trying to describe. If you are looking to describe the tax burden in relationship to total resource available, then the tax inclusive form provides the best measure. If you wish to compare federal tax rates between the proposed NRST and the system of taxes it replaces, it seems to me the appropriate measure is the tax inclusive form.
The tax exclusive form primary function is for ease of calculation of how much own must add to a price in a grocery store, but actully distorts the sense of how much the tax weighs on household resources.
The form you use to express the tax rate, does not change the amount of tax you will be paying, it does however make a difference when comparing tax systems using different measures. To use tax exclusive terms for the NRST while trying to compare with the income/payroll tax system grossly overstates the burden if you are comparing against income tax rates, the system being replaced.
Fairness demands that the measures be consistant, and the apples are compared with apples, oranges with oranges.
AG,
If you are part of the US Government,we will charge you with FRAUD on behalf of the PEOPLES lawsuit.
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