Fair Tax vs. Flat Tax

Neal's Nuze ^ | 06/10/05 | Neal Boortz

[Bigun]

Once you marry the UPC with the accounting system with the tax code you will have Washington DC micromanaging our behavior to an extent even Orwell didn't imagine (some products are more equal than others, for those in Rio Linda).

I maintain that what you describe is what is happening NOW under the communist inspired progressive income tax we currently suffer under and that ability will disappear when we have a tax system that does not require the government to know even so much as your name for it's administration.

[Eagle of Liberty]

No....he did briefly give an opinion. He asked the caller for a brief description and he gave a brief answer. Seemed to me like he didn't WANT to answer because he did not know much about it.

I actually don't think that Rush gets in to taxes too much. He simply pays what is asked and goes about his business.

[ex-snook]

" Only when you spend it."

Thanks, didn't know that - [I thought it was another type of income tax]. But next Q - all spending? car purchase, home purchase, stock purchase, taxes, contributions, etc. everything included, no exceptions.

P.S. I am leery that all new ideas are just an escape hatch for someone - just more created loopholes to continue 'don't tax me, tax the guy behind the tree'.

[squirt-gun]

Re # 32.... This is a terrible idea. You would be taxed year after year again on the same wealth.

Well...No.

Annual Wealth would increase just like it does for most Americans now after taxes. Moreover, with waste reduced from no more drone give aways, annual tax rate would decrease via balanced budgets.

Now granted, if the tax rate were, say 1%,.... Senator Kennedy, as an example, would have to cough up 1% of approximatelu 73.5 million dollars each year which is not a trivial sum. But for most Americans, 1% of net wealth after debt reduction would be a god-send and lower their tax.

As for Senator Kennedy, he would have to find gainful employment.

Have a great day.

[Bigun]

In your post #5 you implied that the IRS would be left in place when the Fairtax becomes the law of the land and thit sir is patently untrue which you would know if you had any REAL knowledge of that which you speak.

[NonValueAdded]

What prevents the Feds from adding a sales tax today? What prevents the states from having different rates of sales tax?

Let me address that in reverse order. Very little prevents the states from applying different rates. Some may do it through the sales tax or may use other UPC-based taxes like Florida's flirtation with the Advanced Disposal Fee. Look at how states, counties, and even cities and towns add tiny earmarked fees to things like property tax (a 1/2 mill surcharge for some pet project) or to telecommunication charges (Internet access fees, local surcharges, etc.) The model exists and the only thing keeping it in check are the voters with their last lines of defense like referenda requirements. My county requires a vote to activate the local 1% adder to the sales tax, for example, and we have turned it back many times. This year, the Florida legislature tried to take that option away from the voters because it has proved to be an effective check on county spending. It is a very thin line of defense and under attack all the time.

What holds back the Federal government is simply the political will to implement a federal sales tax. Note well that there is no federal initiative petition process or way to float a referendum. I am actually surprised that the Federal Sales Tax proponents haven't tried to implement a modest tax to get the process started. It is likely that it would require a Constitutional Amendment in the same manner that the 16th Amendment was required to get around Article I, Section 9. Perhaps it is viewed as too much effort for a small tax rate coupled with the public's automatic aversion to tax increases, albeit a small margin.

BTW, can't you just picture Hillary floating the 1/10th or even 1/100th mill surcharge for breast cancer research then someone else doing so for AIDs research, then Embryonic Stem Cell research. Tiny earmarks for "noble causes" that will generate vast sums of money to keep special interest groups happy campaign contributors. Imagine trying to roll back one of those taxes? It is much simpler to implement such a revenue scheme under a sales tax than it is under an income tax. Today, they do it via spending bill and it is hard enough to zero out funding for pet projects. But a sales tax approach makes it a much easier way to make earmarks permanent. Remember, the passage of the "fair tax" will not change the nature of Congress, it will simply give them a new toolbox and when I look at the tools inside, I get a good idea of how they can be misused.

[NonValueAdded]

Change the label from IRS to whatever but don't insult my intelligence implying that there will not be an enforcement arm to ensure the guberment gets every cent of their due and a bureaucracy to cut the rebate checks. The scope of that effort as evidenced by the state tax agencies and the corresponding corporate tax departments necessary to deal with them is proof enough for me.

[Sprite518]

There is no different rates with the fair tax. If it goes to different rates, then you go back to a progressive tax. Which is what we have today.

[Soul Seeker]

I never listen to Neal, but coincidentally I turned on the station he was on and heard this discussion today.

My main problem with the Fair Tax is that I feel it would be too much of an initial shock to the American public accustomed to paying taxes through convoluted methods that disguise the tax. They haven't a clue how much they really pay, whereas a Fair Tax would "feeL" like a tax raise even though it actually is not.

While perhaps preferable, I think initially there would be a lot of outcry until people realized their bank accounts may infact be larger thanks to this system. This is why I backed the Flat tax initially. Less of a shock. Same thing with personal accounts. You can't get rid of the whole system with one move. PA's are meant to accumtom people to re-asserting independence over their own financial futures.

13. Will foreign visitors to our shores contribute to our Social Security and Medicare programs under the flat tax? No. The FairTax? Yes.

This is the first attractive proposal about a fair tax that has me willing to re-consider an incremental change in the tax code in favor of the Fair Tax.

[Sprite518]

Well the Republican party is about to lose power then. I refuse to vote for a politican that does not lower my taxes. There was really only two reasons I voted for Bush in 2004. The first, is the War on Terror. The second was the tax cut.

[Sprite518]

I guess you do not have a source?

[Sprite518]

Then vote them out of Office. I will refuse to vote for a Republican that does not back this legislation up. Fortunately my congressman is John Linder.

[GOP-Gringo]

Human nature is the failing of the sales tax or VAT. Black markets, etc.

Check out the nonsense that France and others deal with in their VAT. Loads of revenue officers looking for fraud.

The VAT / national sales tax always seems to sound great. Until you deal with reality and the human factor.

Under a fair tax, I presume business owners are still required to keep track of sales? And report same? Cash deals? Loads of real world problems.

Some of the points are very weak:

"1. In 1986 the Congress reformed our tax code to essentially give us a flat tax ... a flat tax with two rates. Fifteen and twenty-eight percent. Most deductions were eliminated. Today's tax code is the result of that effort."

Whoa. That was hardly a true flat tax. In fact, it really doesn't fit the definition so the comparison is meaningless.
"Most deductions were eliminated"? Not hardly. The loopholes were still there.

"2. A flat tax leaves the IRS in place. You'll still have to report your income to the IRS every year, and you'll still be subject to audits."

With a simpler tax code and process, the motivation for fraud will be greatly reduced. Most wealthy people would far rather pay a flat amount and not worry about accountants and tax shelters and all the other things we do to avoid taxes. Human nature again.

"4. Do you get 100% of your paycheck? No. Withholding will still be there."

Yes, it will. And for most people in the real world, they don't have to worry about spending it first and then have the very real fear about paying at the end of the year. Slavery, in this case, is hyperbole.

"5. Business taxes? Still there .. and they'll remain embedded in the price of every good and service you buy, so you'll be paying them."

Prices may actually go down to reflect the cost savings from only having to file business taxes on a 3 by 5 card. Competition will have a role in this too. If I can cut my costs and lower my prices to get more business...

"6. Corporate board meetings? They'll still spend an inordinate amount of time working on the tax implications of business decisions, rather than just basing their business moves on what's best for their customers and shareholders. "

Huh? There will be very little a board need do concerning with taxes under a true flat tax. Income times the tax rate. How difficult is that? Besides, it is usually the CEO, CFO and upper management that make those decisions in the majority of corporations. Fortune 500 excluded.

"8. Bring American businesses back home? Nope. Business taxes are still there, so American businesses will still locate their operations overseas in order to escape our punishing business income taxes."

Huh? Reduce my effective tax rate and overhead big time by not paying accountants and lawyers while eliminating the back breaking job of sorting and keeping expense records is NOT a big incentive? Own a business before laying that on me.

"10. Will the flat tax bring American wealth back home? The latest estimates put $10 trillion of American wealth in offshore financial corporations. There is only one reason that money isn't back here working ... and that's our income tax structure. Will the flat tax bring that money back home? Nope. The FairTax? Yup."

Nope on a Flat Tax?. A true flat tax makes investment far more inviting. Far easier decision making. I no longer need to worry about the tax implications of my investment and already know what I might pay if it pays off. A wealthy investor will look at their time and say this is a good deal. It really is a draw for both tax plans.

"11. What about the poor? They're not paying income taxes now ... will they pay the flat tax? No way! But politicians will still be looking for a way to raise taxes on the rich so that they can relieve the poor, poor pitiful poor of the responsibility for paying for their own Social Security and Medicare."

Hyperbole. The poor do not pay under a true flat tax either. The exemption, if memory serves, for a family of four was $35,000. But that was some time ago.

The wealthy already pay the majority of taxes. What is not said here, in balance, is that the productivity increases are huge under a true flat tax and you recapture income that was previously not reported. The net receipts to the government go up and thus reduce the need for a rate increase.

"12. Will all Americans be able to buy the basic necessities of life without any federal tax consequences under the flat tax? No. The FairTax? Yes."

Again, good sound bite. The real world says that this opens the door for massive abuse. Under a fair tax, where is the additional incentive to lower prices? As a businessman, I see paperwork under a Fair Tax and that costs money. Paper is the enemy! Now the poor have to keep records for their rebate? They still have to fork over more cash first then get a rebate. This is sounding far more complex for all concerned.

"13. Will foreign visitors to our shores contribute to our Social Security and Medicare programs under the flat tax? No. The FairTax? Yes."

The sales (VAT) tax is refundable for foreign visitors in many other countries. They may expect the same deal in the US and there goes your point.

Again, the points make good sound bites until the rubber hits the road -- or rather, when human nature is factored into the deal.

[Sprite518]

Our votes. I just refuse to vote for anyone that raises my taxes.

[NonValueAdded]

I guess you do not have a source?

A source for reasoned speculation of how Congress would manipulate a sales tax scheme? No, and I don't have a time machine either.

[Sprite518]

It does not seem to be working to well if you live in Taxachusses.

[Sprite518]

I believe the other name for the fair tax is the NRST(National Retail Sales Tax).

[Sprite518]

Hopefully, John and Neal's book will answer many of our questions. I am pretty sold on it. I think it would help out our country tremendously in so many ways.

[CSM]

All you needed to say was: "Nothing and Nothing."

[CSM]

"My main problem with the Fair Tax is that I feel it would be too much of an initial shock to the American public accustomed to paying taxes through convoluted methods that disguise the tax."

Why is this a problem? I see it as a great instrument to get to a spending reduction. No greater weapon can be against government than an agitated and angry citizenry. When the citizens are forced to see the cost of the largesse they demand, they may just demand less.