University Economists review "FairTax"

Americans for FairTax ^ | current | University Economist listed in article

[Eaglewatcher]

-1- An Open Letter to the President, the Congress, and the American people Concerning Reform of the Federal Tax Code

Dear Mr. President, Members of Congress, and Fellow Americans,

We, the undersigned business and university economists, welcome and applaud the ongoing initiative to reform the federal tax code. We urge the President and the Congress to work together in good faith to pass and sign into federal law H.R. 25 and S. 25, which together call for:

• Eliminating all federal income taxes for individuals and corporations,

• Eliminating all federal payroll withholding taxes,

• Abolishing estate and capital gains taxes, and • Repealing the 16th Amendment

We are not calling for elimination of federal taxation, which would be irresponsible and undesirable. Nor does our endorsement call for reduced federal spending. The tax reform plan we endorse is revenue neutral, collecting as much federal tax revenue as the current income tax code, including payroll withholding taxes.

We are calling for elimination of federal income taxes and federal payroll withholding taxes.

We endorse replacing these costly, oppressively complex, and economically inefficient taxes with a progressive national retail sales tax, such as the tax plan offered by H.R. 25 and S. 25 – which is also known as the FairTax Plan. The FairTax Plan has been introduced in the 109th Congress and had 54 co-sponsors in the 108th Congress.

If passed and signed into law, the FairTax Plan would:

• Enable workers and retirees to receive 100% of their paychecks and pension benefits,

• Replace all federal income and payroll taxes with a simple, progressive, visible, efficiently collected national retail sales tax, which would be levied on the final sale of newly produced goods and services,

• Rebate to all households each month the federal sales tax they pay on basic necessities, up to an independently determined level of spending (a.k.a., the poverty level, as determined by the Department of Health and Human Services), which removes the burden of federal taxation on the poor and makes the FairTax Plan as progressive as the current tax code,

• Collect the national sales tax at the retail cash register, just as 45 states already do,

• Set a federal sales tax rate that is revenue neutral, thereby raising the same amount of tax revenue as now raised by federal income taxes plus payroll withholding taxes,

• Continue Social Security and Medicare benefits as provided by law; only the means of tax collection changes,

• Eliminate all filing of individual federal tax returns,

• Eliminate the IRS and all audits of individual taxpayers; only audits of retailers would be needed, greatly reducing the cost of enforcing the federal tax code,

An Open Letter to the President, the Congress, and the American people -2- • Allow states the option of collecting the national retail sales tax, in return for a fee, along with their state and local sales taxes,

• Collect federal sales tax from every retail consumer in the country, whether citizen or undocumented alien, which will enlarge the federal tax base,

• Collect federal sales tax on all consumption spending on new final goods and services, whether the dollars used to finance the spending are generated legally, illegally, or in the huge “underground economy,”

• Dramatically reduce federal tax compliance costs paid by businesses, which are now embedded and hidden in retail prices, placing U.S. businesses at a disadvantage in world markets,

• Bring greater accountability and visibility to federal tax collection,

• Attract foreign equity investment to the United States, as well as encourage U.S. firms to locate new capital projects in the United States that might otherwise go abroad, and

• Not tax spending for education, since H.R. 25 and S. 25 define expenditure on education to be investment, not consumption, which will make education about half as expensive for American families as it is now.

The current U.S. income tax code is widely regarded by just about everyone as unfair, complex, wasteful, confusing, and costly. Businesses and other organizations spend more than six billion hours each year complying with the federal tax code. Estimated compliance costs conservatively top $225 billion annually – costs that are ultimately embedded in retail prices paid by consumers.

The Internal Revenue Code cannot simply be “fixed,” which is amply demonstrated by more than 35 years of attempted tax code reform, each round resulting in yet more complexity and unrelenting, page-after-page, mind-numbing verbiage (now exceeding 54,000 pages containing more than 2.8 million words). Our nation’s current income tax alters business decisions in ways that limit growth in productivity. The federal income tax also alters saving and investment decisions of households, which dramatically reduces the economy’s potential for growth and job creation.

Payroll withholding taxes are regressive, hitting hardest those least able to pay. Simply stated, the complexity and frequently changing rules of the federal income tax code make our country less competitive in the global economy and rob the nation of its full potential for growth and job creation.

In summary, the economic benefits of the FairTax Plan are compelling. The FairTax Plan eliminates the tax bias against work, saving, and investment, which would lead to higher rates of economic growth, faster growth in productivity, more jobs, lower interest rates, and a higher standard of living for the American people.

An Open Letter to the President, the Congress, and the American people -3- The America proposed by the FairTax Plan would feature:

• no federal income taxes,

• no payroll taxes,

• no self-employment taxes,

• no capital gains taxes,

• no gift or estate taxes,

• no alternative minimum taxes,

• no corporate taxes,

• no payroll withholding,

• no taxes on Social Security benefits or pension benefits,

• no personal tax forms,

• no personal or business income tax record keeping, and

• no personal income tax filing whatsoever.

No Internal Revenue Service; no April 15th; all gone, forever.

We believe that many Americans will favor the FairTax Plan proposed by H.R. 25 and S. 25, although some may say, “it simply can’t be done.” Many said the same thing to the grassroots progressives who won women the right to vote, to those who made collective bargaining a reality for union members, and to the Freedom Riders who made civil rights a reality in America.

We urge Congress not to abandon the FairTax Plan simply because it will be difficult to face the objections of entrenched special interest groups – groups who now benefit from the complexity and tax preferences of the status quo. The comparative advantage and benefits offered by the FairTax Plan to the vast majority of Americans is simply too high a cost to pay.

Therefore, we the undersigned professional and university economists, endorse a progressive national retail sales tax plan, as provided by the FairTax Plan. We urge Congress to make H.R. 25 and S. 25 federal law, and then to work swiftly to repeal the 16th Amendment. Respectfully,

Donald L. Alexander Professor of Economics Western Michigan University

Wayne Angell Angell Economics

Jim Araji Professor of Agricultural Economics University of Idaho

Ray Ball Graduate School of Business University of Chicago

Roger J. Beck Professor Emeritus Southern Illinois University, Carbondale

John J. Bethune Kennedy Chair of Free Enterprise Barton College

David M. Brasington Louisiana State University

Jack A. Chambless Professor of Economics Valencia College

Christopher K. Coombs Louisiana State University

William J. Corcoran, Ph.D. University of Nebraska at Omaha

Eleanor D. Craig Economics Department University of Delaware

-4- An Open Letter to the President, the Congress, and the American people

Susan Dadres, Ph.D. Department of Economics Southern Methodist University

Henry Demmert Santa Clara University

Arthur De Vany Professor Emeritus Economics and Mathematical Behavioral Sciences University of California, Irvine

Pradeep Dubey Leading Professor Center for Game Theory Dept. of Economics SUNY at Stony Brook

Demissew Diro Ejara William Paterson University of New Jersey

Patricia J. Euzent Department of Economics University of Central Florida

John A. Flanders Professor of Business and Economics Central Methodist University

Richard H. Fosberg, Ph.D. William Paterson University

Gary L. French, Ph.D. Senior Vice President Nathan Associates Inc.

Professor James Frew Economics Department Willamette University

K. K. Fung University of Memphis

Satya J. Gabriel, Ph.D. Professor of Economics and Finance Mount Holyoke College

Dave Garthoff Summit College The University of Akron

Ronald D. Gilbert Associate Professor of Economics Texas Tech University

Philip E. Graves Department of Economics University of Colorado

Bettina Bien Greaves, Retired Foundation for Economic Education

John Greenhut, Ph.D. Associate Professor Finance & Business Economics School of Global Management and Leadership Arizona State University

Darrin V. Gulla Dept. of Economics University of Georgia

Jon Halvorson Assistant Professor of Economics Indiana University of Pennsylvania

Reza G. Hamzaee, Ph.D. Professor of Economics & Applied Decision Sciences Department of Economics Missouri Western State College

James M. Hvidding Professor of Economics Kutztown University

F. Jerry Ingram, Ph.D. Professor of Economics and Finance The University of Louisiana-Monroe

Drew Johnson Fellow Davenport Institute for Public Policy Pepperdine University

Steven J. Jordan Visiting Assistant Professor Virginia Tech Department of Economics

Richard E. Just University of Maryland

Dr. Michael S. Kaylen Associate Professor University of Missouri

David L. Kendall Professor of Economics and Finance University of Virginia's College at Wise

Peter M. Kerr Professor of Economics Southeast Missouri State University

Miles Spencer Kimball Professor of Economics University of Michigan

James V. Koch Department of Economics Old Dominion University

Laurence J. Kotlikoff Professor of Economics Boston University

Edward J. López Assistant Professor University of North Texas

Franklin Lopez Tulane University

Salvador Lopez University of West Georgia

Yuri N. Maltsev, Ph.D. Professor of Economics Carthage College

Glenn MacDonald John M. Olin Distinguished Professor of Economics and Strategy Washington University in St. Louis

Dr. John Merrifield, Professor of Economics University of Texas-San Antonio

An Open Letter to the President, the Congress, and the American people -5- Dr. Matt Metzgar Mount Union College

Carlisle Moody Department of Economics College of William and Mary

Andrew P. Morriss Galen J. Roush Professor of Business Law & Regulation Case Western Reserve University School of Law

Timothy Perri Department of Economics Appalachian State University Mark J. Perry School of Management and Department of Economics University of Michigan-Flint

Timothy Peterson Assistant Professor Economics and Management Department Gustavus Adolphus College

Ben Pierce Central Missouri State University

Michael K. Pippenger, Ph.D. Associate Professor of Economics University of Alaska

Robert Piron Professor of Economics Oberlin College

Mattias Polborn Department of Economics University of Illinois

Joseph S. Pomykala, Ph.D. Department of Economics Towson University

Barry Popkin University of North Carolina-Chapel Hill

Steven W. Rick Lecturer, University of Wisconsin Senior Economist, Credit Union National Association

Michael Rizzo Assistant Professor of Economics Centre College

Paul H. Rubin Samuel Candler Dobbs Professor of Economics & Law Department of Economics Emory Univeristy

John Ruggiero University of Dayton

Michael K. Salemi Bowman and Gordon Gray Professor of Economics University of North Carolina at Chapel Hill

Dr. Carole E. Scott Richards College of Business State University of West Georgia

Carlos Seiglie Dept. of Economics Rutgers University

John Semmens Economist Phoenix College, Arizona

Alan C. Shapiro Ivadelle and Theodore Johnson Professor of Banking and Finance Marshall School of Business University of Southern California

Dr. Stephen Shmanske Professor of Economics California State University, Hayward

James F. Smith University of North Carolina- Chapel Hill

Vernon L. Smith Economist W. James Smith Dean of Liberal Arts and Sciences and Professor of Economics University of Colorado at Denver

John C. Soper Boler School of Business John Carroll University

Roger Spencer Professor of Economics Trinity University

Daniel A. Sumner, Director, University of California Agricultural Issues Center and the Frank H. Buck, Jr., Chair Professor, Department of Agricultural and Resource Economics, University of California, Davis

Curtis R. Taylor Professor of Economics and Business Duke University

Robert Vigil Analysis Group, Inc.

John H. Wicks, Ph.D. Professor Emeritus Department of Economics University of Montana

F. Scott Wilson, Ph.D. Canisius College

Mokhlis Y. Zaki Professor of Economics Emeritus Northern Michigan University

An Open Letter to the President, the Congress, and the American people -6-

[Willie Green]

However, that begs the question of why businesses are even being taxed. It is an unquestionable fact that businesses do not pay taxes.

LOL!
What a convoluted pile of manure!!!
If it is a "fact" that businesses do not pay taxes,
then they shouldn't care whether they're taxed or not.

[Mojave]

I think it means that the fairtax will get us lasting tax reductions faster

By guaranteeing to not reduce taxes?

The NRST cult has found another True Believer.

[Principled]

mojave admitted that eliminating withholding would reduce spending... when I asked how, b/c it would be revenue neutral, he went off... he's the same lightweight we know him as.

[Casloy]

What a convoluted pile of manure!!!

I guess when you have no alternative data, just call someone's argument manure. Lot easier than thinking. Have you noticed that corporations never ask for an elimination of business taxes? All they ask for is tax breaks. Tax that guy over there more than you tax me and I get an advantage. That's how it works.

[Casloy]

A government that sets tax policies without regard to changing conditions in the economy and without input from the business sector is a leftist wet dream.

I don't think tax policy should be changed to meet economic conditions or based on input from any interest group. It doesn't take a rocket scientist to see that what we have now is a system that is a total disaster both in it's unfairness and complexity. Make it a fair system for everyone and then stop fiddling with it.

[Mojave]

I don't think tax policy should be changed to meet economic conditions or based on input from any interest group.

I suspect that most of the NRST cult feels that way too.

[kevkrom]

[Tin-foil Scientology rant intentionally not quoted]

Oh, please, tell me more. Despite being completely off-topic, it's quite amusing to see you go completely conspiracy-theory whacko. What's next... the Trilateral Commission? The build-a-burgers? Some secret NWO cabal?

I knew you Patsies had serious disconnects with reality, but I didn't realize the disease was so advanced in your case.

[Casloy]

I suspect that most of the NRST cult feels that way too.

How is it people who support the status quo consider anyone who challenges it the member of a cult? You like this screwed up tax system, fine. I happen to think there is a much better way.

[sauropod]

Thanks for getting back to me. I will need to dig deeper.

[kevkrom]

then why is the word "progressive" used?

Because it is progressive taxation, relative to the total amount spent on retail sales and services. Basically, there's a "rebate" called the Family Consumption Allowance (FCA) equal to the poverty level times the tax rate that's available to any legal resident of the U.S. (The poverty line calculation depends on the family size, and does not penalize for a 2-adult household.) Think of it as a replacement for the standard exemptions/deductions in the income tax code.

So, while there's a constant marginal tax rate on all retail purchases, the effective tax rate is lower, and follows a progressive curve by the formula:

R_eff = R_mar x ( S - P ) / S

Where:

• R_eff is the effective tax rate
• R_mar is the marginal tax rate
• S is the total amount of retail spending
• P is the poverty line

In essense, this means that someone with retail spending equal to the poverty line has a 0% effective tax rate. Spend twice the poverty line, and the effective rate is 1/2 of the marginal rate. Spend 10 times the poverty line, and the effective rate is 9/10 of the marginal rate.

So, the more you spend, the higher your effective rate.

[floozy22]

The words "fair" and "tax" should NEVER appear in the same sentence. IMHO.

[kevkrom]

And, of course, if you did away with the FCA, then you'd have a perfectly flat sales tax with the effective and marginal rates being equal.

Of course, that's politically unviable, because such a flat tax would be perceived as regressive, since the wealthy spend less of their income than the ppor.

[Eaglewatcher]

This is what Boortz is proposing!

[Eaglewatcher]

It can only be considered progressive because everyone is exempted to the poverty level. This is also one of the provisions that makes it fair.

[Your Nightmare]

R_eff = R_mar x ( S - P ) / S

Where:

• R_eff is the effective tax rate
• R_mar is the marginal tax rate
• S is the total amount of retail spending
• P is the poverty line

The problem with your equation and the way the FairTax figures the FCA is that it assumes the FCA won't be taxed when spent. The real value of the FCA, and all government transfers for that matter, is reduced by the amount of the FairTax.

To determine the FCA in the bill, they multiplied the poverty level by the inclusive rate but the poverty level doesn't include the FairTax and the bill doesn't require it to, either (like it does with Social Security payments). The correct way to determine the FCA would have been to multiply the FCA by the exclusive rate.

For example, if the poverty level were $20,000, the FCA would be $4,600 but the FairTax on $24,600 worth of spending (tax inclusive) would be $5,658. A person at the poverty level was only able to consume $18,942 (tax exclusive) worth of goods and services. So their income was $20,000 and they paid a net FairTax (after FCA) of $1,058. Their effective tax rate was 5.29%.

[Mojave]

How is it people who support the status quo consider anyone who challenges it the member of a cult?

Why is it that you pose a question built on a false premise?

[Mojave]

To determine the FCA in the bill, they multiplied the poverty level by the inclusive rate but the poverty level doesn't include the FairTax and the bill doesn't require it to, either (like it does with Social Security payments). The correct way to determine the FCA would have been to multiply the FCA by the exclusive rate.

Their usual shell game.

[Principled]

For example, if the poverty level were $20,000, the FCA would be $4,600 ...

THis is right. Today's 20,000 spent includes taxes and tax costs. An nrst's 20,000 spent will include taxes too.

Prices aren't going up as a rule.

Today's 20k buys the same as an nrst's post-tax 20k.

Of course, if you deny the existence of any price inflation due to income taxes and the income tax system's costs, you don't see this.

[Principled]

The correct way to determine the FCA would have been to multiply the FCA by the exclusive rate.

This would be the way to calculate the FCA if prices were to increase by the amount of the nrst. The only way that could happen would be if there are zero costs in prices due to the income tax system - which is preposterous.