Posted on 10/26/2004 4:47:02 AM PDT by NotchJohnson
LET'S DEMAGOGUE THE FAIR TAX
Perhaps you noticed that in quite a few congressional races around the country Democratic candidates have been attempting to frighten voters into believing that the evil Republican candidate is going to burden them with a horrible new tax. More specifically, the wicked Republican is going to add a 23% federal retail sales tax on everything they buy .. and this is in addition to all the other taxes they're already paying!
Effective politics? You bet! Can you imagine how frightened some middle or lower income American would be at the prospect of paying another 23 cents on the dollar for everything they bought? If I believed that a Republican was going to do such a thing ... hell, I"D vote for the Democrat. And there aren't many things that could cause me to vote for a Democrat. A threatened beheading might do it, but I'm not even sure about that.
The big problem with this particular Democratic campaign charge is that it is simply not true. It's a lie. Not only is it a lie, but every single Democrat who has made this charge against their Republican opponent knows it to be a lie. In the Boortz book, that makes these Democratic candidates, and that includes Congresswoman Denise Majette running for the U.S. Senate in Georgia, and Inez Tenenbaum who is running against Republican Jim DeMint in South Carolina, bold, intentional, premeditated liars.
I've been studying the Fair Tax proposal in its various forms for 20 years. I am convinced that this plan to replace virtually all personal and corporate taxes with a national retail sales tax would bring a period of transformation and economic growth to America such as has never been seen before. On top of that, it would be a financial boon to the poor and the middle class.
First ... A Brief Overview
You can learn all of the details of the Fair Tax play by clicking on this link. In case you don't have the time, here's your brief overview.
The Fair Tax (HR-25) would eliminate all personal corporate and personal federal income taxes. It would eliminate all federal payroll taxes, including Social Security and Medicare. The Death Tax ... gone. Capital gains taxes ... gone. Gift taxes ... gone. Excise taxes .. gone. In the place of all of those taxes we would have one national retail sales tax on all purchase at the retail level. This means you would get 100% of your paycheck. The amount you place into an investment .. not taxed. The amount you put into a savings account .. not taxes. Money you give to your kids ... not taxed, neither to you nor to them. You make a consumer purchase, you pay the federal sales tax.
One more thing. The Fair Tax plan calls for the repeal of the 16th Amendment. That's the Amendment that brought us the federal income tax.
When the Fair Tax plan was first being developed it was believed that in order to be revenue neutral ... that is, to make sure that there is no decrease or interruption in the flow of tax revenue ... the national sales tax would be around 23%. I'm led to understand that soon-to-be-released research will show that the actual tax would be around 20% or slightly less. Since I've already run the numbers, we'll stick to the 23% figure for the purpose of this essay. Call me lazy.
So ... let's get on to the Democrat's charges that these evil, wicked, mean and nasty Republicans are plotting a financial Armageddon for poor and middle income Americans.
What Happens to Poor and Middle Income Americans? 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?
Remember ... 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, how can these people survive if suddenly they're paying a 23% retail sales tax?
There's no doubt that any implementation of the Fair Tax would fail in short order if nothing were to change except that the poor 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. There's that 22% in imbedded taxes buried in the cost of all consumer goods. This isn't my figure; it comes from respected economists. That 22% is sitting there in virtually everything Americans have to buy.. and that includes poor Americans. As soon as the competitive forces of the free market work their magic, and they always do, consumers, including the poor, will be paying at least 20% less for virtually everything they buy, 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.
A practical example: Let's pull out the calculators. 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 would be $8.07. This brings the total price to $43.17. That's less than our poor mother 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! Does that sound like such a rotten deal to you?
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. Perhaps you were educated in government schools, or you're just hard to convince. Sit down. Here's where I close the sale.
The Rebate
The folks who wrote the Fair Tax plan knew that burdening the poor with a 23% retail sales tax would doom the plan from the outset. They decided to devise a way were nobody, rich or poor, would ever have to pay the sales tax on the basic necessities of life. So, under the Fair Tax plan every consumer will receive a credit to their checking account or to a debit card 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. Considering the number of checks and financial transactions of this type the feds undertake every single month, this is entirely "doable."
Here's an example of how the rebate payments would have worked in 2003.
You are now 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. It's clear .. you're better off, MUCH better off, under the fair tax plan.
But what about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest rebate 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.
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.
The Democrats who are using sponsorship of the Fair Tax proposal against their Republican opponents know the real story. They also know that for the most part the media doesn't understand the plan and will make no effort to learn the truth. Print this, copy it, spread it among your friends. Expose the lies of Denise Majette and Inez Tennenbaum and other like them. This tax reform idea is simply too good to allow it to be destroyed by desperate campaign lies.
A gross overestimation. Let's do the math: 22% of everything sold in the US plus exports would mean the "federal business tax costs" would be $2.31 trillion!
The tax costs to business include not only the tax but the overhead and opportunity losses associated with the impositon of income and payroll taxes. Planning, accounting, reporting, litigation, necessary price increases to cover uncertainty of the amount of tax, discincentives arising from the tax code in doing business in more productive manners ...
The total impact on to business that arises out of the income/payroll tax system is substantially beyond the direct dollars extracted by government from businesses.
Federal business tax cost inclulding the actual income and payroll taxes paid can very well exceed that $2.31 trillion you figure in our $11 trillion dollar economy.
So you're dropping everyone's salary by the amount of their payroll/income taxes? I thought I got to take home my entire check with the FairTax.
The threads opening article tags your methods well.
It as can be seen by noting the actual content of reply #33:
And you receive your full gross paycheck plus the FCA for your household with no income or SS/Medicare taxes taken out to spend or invest as you please. I know which I favor. |
Federal business tax cost inclulding the actual income and payroll taxes paid can very well exceed that $2.31 trillion you figure in our $11 trillion dollar economy.Can they or do they?
So why did you drop the price 25% for "federal individual taxes"?
In addation to the out-of-pocket cost, Americans spend 5.4 billion hours each year complying with the federal tax code-roughly the equivalent of 3 million people working full time. If it were employed in productive activity, the labor now devoted to tax compliance would be worth $232 billion annually.Americans spend over 417 billion hours a year watching television. According your logic, television costs $18 trillion.
So why did you drop the price 25% for "federal individual taxes"?
I didn't.
As clearly stated in #33:
| Today, you are required to pay Uncle both income and payroll taxes in order to have enough to buy those same goods and services. For a family of four at median income that amounts to having to earn roughly 25%+ more than your takehome pay just to be able to buy anything now, and that is on top of the embedded business taxes in the price of everything we buy spoken of above. |
In short, for every dollar they pay in a store today, that family has to bring in an additional 25 cents in wages to pay that dollar, (based on current individual income tax schedules plus employees half of Social Security & Medicare.)
YN: Americans spend over 417 billion hours a year watching television. According
yourDoctor Walter Williams logic, television costs $18 trillion.
According to Doctor Walter Williams that is a true statement.
There is a price to leisure you know. It amounts to the price of labor one foregoes in earning that additional dollar on top of current gross income. Just another problem reducing productivity and driving up real prices as a consequence of the income/payroll tax system depressing productivity when that max 40% tax margan range starts kicking in.
People become coach potatoes watching televison is one way, or finding a way to evade that extra 40%+ tax imposition is another.
BTW, most of your sources quote Payne's "Costly Returns" which has been discounted by several reputable economists.
Care to provide a link to one of these studies so we can look at how comprehensive their data is and on what they base their conclusions stating that Payne's summary figure of 65 cents impact for dollar of tax collected is too high and not a valid estimate?
By the way James Paynes is not the essential source, he wrote the comprehensive review of many studies by many economist with a summary of those findings. A review that continues to be used and relied upon today throughout the economics community in many studies on tax reform and the impact of federal taxes generally.
The Flat Tax; Hall & Rabushka, '95:
Notes & References:
A comprehensive review of all the studies that attempt to measure the costs associated with the federal income tax appears in James L. Payne, Costly Returns: The Burdens of the U.S. Tax System (San Francisco: Institute for Contemporary Studies Press, 1993). Payne summarizes the estimates of compliance costs that appear in the following studies: Joel Slemrod and Nikki Sorum, "The Compliance Cost of the U.S. Individual Income Tax System," National Tax Journal 37 (December 1984): 462–65; Arthur D. Little, Inc., Development of Methodology for Estimating the Taxpayer Paperwork Burden (Washington, D.C.: Internal Revenue Service, 1988), pp. III–23; James T. Iocozzia and Garrick R. Shear, "Trends in Taxpayer Paperwork Burden," in Internal Revenue Service, Trend Analyses and Related Statistics, 1989 Update (Washington, D.C.: U.S. Government Printing Office, 1989), p. 56; Annual Reports of the commissioner of the Internal Revenue Service; and a variety of other IRS memoranda
[you seem to have a habit of find one guy who makes outlandish claims that meet your needs and ramming him down our throats]
Hmmm, I'm just the guy who goes out and attempts to find sources and information for reference that is out there.
You see to be the guy who prefers to spout opinions with no substance and few identified or available sources to evaluate.
In short, for every dollar they pay in a store today, that family has to bring in an additional 25 cents in wages to pay that dollar, (based on current individual income tax schedules plus employees half of Social Security & Medicare.)Man, you have the goofiest logic. It's really hard to follow.
You are also wrong in you numbers. The median total effective tax rate for the taxes replaced by the FairTax is 14%, so it would require 16 cents, not 25.
The median total effective tax rate for the taxes replaced by the FairTax is 14%
Read again my friend, I am not talking average of all families at all. Which is what your effective tax rate figure pertains to, which happens to include non filers, welfare recipients ... etc. Who do not file/pay the individual income tax.
Perhaps you can tell us the characteristics and source of income your average effective taxrate 14% applies to, how much is wages, how much comes from non taxable sources not applied in the 1040.
As far as I can tell that 14% has little to do with the specifics of the individual federal income tax of the 1040 applied to a typical family scenario paying federal income and SS/Medicare taxes on their wages.
As clearly stated in #33:
| Today, you are required to pay Uncle both income and payroll taxes in order to have enough to buy those same goods and services. For a family of four at median income that amounts to having to earn roughly 25%+ more than your takehome pay just to be able to buy anything now, and that is on top of the embedded business taxes in the price of everything we buy spoken of above. |
(based on current individual income tax schedules plus employees half of Social Security & Medicare.) By the way the calculation incorporates pesonal expemptions, standard deduction, 2 child credits and EITC in figuring the percentage of total wages.
Only the individual wage earning family filing individual taxes and paying the current individual income tax that are being hit by the current income/payroll tax system is considered in the calculation for a reason. Those are people actually paying freight now, and represent many of those reading these threads.
Now if you want to look at other families having large portions of income from non taxable sources you may, under the income/payroll tax system for those folks are likely to end up paying something somewhat closer today to that $1.05 under the NRST.
So lets assume your statistical effective tax rate of 14% reflects the typical 4 person family with 2 childeren reading this thread and paying that rate as individual income and FICA/MC taxes with respect to his gross family income redo the calculation.
Under the 14% effective rate tax system, the cost to a median family today to buy that 78 cent widget is
- 17 cents for federal individual taxes (income + SS/Medicare)
- 5 cents for state sales tax on the embedded tax price
- 22 cents for federal business tax costs
- 78 cents for the base (taxfree) product.
=========================
- $1.22 total
Under the NRST the cost to buy that 78 cent widget is
- 23 cents NRST
- 4 cents state tax on the base product price
- 78 cents for the base (taxfree) product.
================================
- $1.05 total
I still know which I prefer. Even paying your 14% federal tax rate on gross income.
But you always overstate the negatives of the current system and the positives of the FairTax.
No I state typical cases when I am addressing someone who probably would like an estimate close to their own case.
I state average situations when speaking generally.
What I don't do is make up every negative I can dream up for the HR25 legislation as you tend to do.
What's the truth among friends?
Indeed, what 4 person family do you know who earns median income as wages pays 14% individual income tax with SS/Medicare?
the Democratic Congressional Committee is using exactly this this tactic in television ads for the Sodrel (R challenger) vs. Hill (D incumbent) race in southern Indiana.
I'm not surprised at all.
Also lets me know who actually favors less intrusive and manipulative government by taking a solid position inspite of the flack storms.
Care to provide a link to one of these studies so we can look at how comprehensive their data is and on what they base their conclusions stating that Payne's summary figure of 65 cents impact for dollar of tax collected is too high and not a valid estimate?Read Joel Slemrod's "Which is the Simplest Tax System of Them All" in The Economic Effects of Fundamental Tax Reform.
By the way James Paynes is not the essential source, he wrote the comprehensive review of many studies by many economist with a summary of those findings.He is the source for the "65 cents" claim.
Slemrod, Joel. 1996. Which is the Simplest Tax System of Them All, in The Economic Effects of Fundamental Tax Reform, edited by Henry Aaron and William Gale. Brookings Institution.
Sorry doesn't help your case in the least, the cost of compliance addressed in that Brookings release is the lesser paperwork filing costs and does not in anyway address the more comprehensive work of Payne.
He is the source for the "65 cents" claim.
He did indeed add up the big picture of the relavant partial studies up to '93 and why he is referenced in H&R's The Flat Tax as well as in many works throughout economic circles as a primary authority in that field of study.
from ==> The Flat Tax; Hall & Rabushka, '95:
A comprehensive review of all the studies that attempt to measure the costs associated with the federal income tax appears in James L. Payne, Costly Returns: The Burdens of the U.S. Tax System (San Francisco: Institute for Contemporary Studies Press, 1993). Payne summarizes the estimates of compliance costs that appear in the following studies: Joel Slemrod and Nikki Sorum, "The Compliance Cost of the U.S. Individual Income Tax System," National Tax Journal 37 (December 1984): 462–65; Arthur D. Little, Inc., Development of Methodology for Estimating the Taxpayer Paperwork Burden (Washington, D.C.: Internal Revenue Service, 1988), pp. III–23; James T. Iocozzia and Garrick R. Shear, "Trends in Taxpayer Paperwork Burden," in Internal Revenue Service, Trend Analyses and Related Statistics, 1989 Update (Washington, D.C.: U.S. Government Printing Office, 1989), p. 56; Annual Reports of the commissioner of the Internal Revenue Service; and a variety of other IRS memoranda.
Sorry doesn't help your case in the least, the cost of compliance addressed in that Brookings release is the lesser paperwork filing costs and does not in anyway address the more comprehensive work of Payne.Joel Slemrod does not work for Brookings. Are you discounting his work because he is in a book edited by William Gale? Is that the best you can do?
Are you discounting his work because he is in a book edited by William Gale? Is that the best you can do?
Brookings Institute source book,
Economic Effects of Fundamental Tax Reform
by Henry J. Aaron and William G. Gale
Nov. 25, 1996
says all that's really necessary as to the agenda behind the papers.
To get to specifics however.
Slemrod in that paper estimates government administrative and direct compliance costs of about $75 billion, or 10 percent of revenue collected (based on 2 billion hrs taxpayor time). By his own admissions, his estimates are fraught with uncertainty rooted in his surveys (late 80's & early 90's) regarding direct costs of reporting and federal IRS administration costs only.
Unlike Payne, Slemrod notably does not account for the disincentive costs on the economy (by far the largest proportion of tax related overhead costs dragging on GDP), nor litigation, tax uncertainty costs, nor many of a multitude of cost factors affecting product pricing arising for the current income/payroll tax.
As I pointed out earlier Slemrod's figures for compliance are based on a very narrow view comprising very limited studies of direct compliance costs and not the broader based studies and effects addressed by the studies Payne covers in his estimates of the larger picture of overhead costs of the tax burden on the economy.
If you read the paper (have you?) you would understand why the data Payne used is in error (besides being out of date - 1983!?!? Come on.) and overstates the cost of compliance estimates.
Slemrod's claim as regards compliance costs cover studies that are no newer than '92 most dating back to the same period as Payne of the mid 80's and cover only direct compliance costs comprising the requirements for filing, not the broader measures of Payne that effect the economy overall.
In fact by 2002, Slemrod indicates his estimates of his direct costs of compliance to be sorely lacking and expanding greatly with the increasing complexity of the tax code in comparison to the 80's and '90s of his '96 contribution to the Brookings compilation
| http://www.nber.org/reporter/summer02/slemrod.html?tools=printit#N_26_ Slemrod 2002, Tax Systems "In a series of studies based on taxpayer surveys, I have tried to obtain reliable quantitative estimates of the size and nature of the compliance costs of the U.S. individual income tax. Overall, they suggest that the compliance costs dwarf the administrative costs, and are the dominant source of the cost of collecting taxes. The first study, done in 1982, suggested that the cost of compliance of the individual income tax system was between 5 and 7 percent of the revenue raised, including two billion hours of taxpayer time. (26) Some was attributable to allowing itemized deductions, the cost of which can be inferred from data reported on tax returns that suggest that many taxpayers would save money by itemizing but choose not to. (27)A follow-up study, done after TRA86 which had simplification as one of its main aims, indicated that tax reform did not reverse the growth in compliance costs in the 1980s. (28) Despite indirect evidence that tax-induced transactional complexity declined after 1986, measures of the overall compliance cost of the individual income tax system showed a significant increase in the cost of all components of compliance. (29)"
|
Your inferences that compliance costs are falling not rising since the 80's is simply full of hot air even by the limited measures of your own authors.
Brookings Institute source book,Guilt by association, huh? I guess it would surprise you that Jorgenson has been published in several Brookings Institute books and Wilcoxen is even a Senior Fellow at the Brookings Institute. Are we to discount their work because of this relationship?
Economic Effects of Fundamental Tax Reform
by Henry J. Aaron and William G. Gale
Nov. 25, 1996
says all that's really necessary as to the agenda behind the papers.
Unlike Payne, Slemrod notably does not account for the disincentive costs on the economy (by far the largest proportion of tax related overhead costs dragging on GDP), nor litigation, tax uncertainty costs, nor many of a multitude of cost factors affecting product pricing arising for the current income/payroll tax.And how does Payne calculate these? Guestimates at best.
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