Abolish the IRS

Since 1954, the size of the United States' tax code has increased by almost 500 percent. Tax regulations created by the Internal Revenue Service have increased in volume by 939 percent, and in April 2006, Americans will spend a combined total of 6.5 billion hours, at an estimated cost of close to $500 billion, in order to simply pay for the privilege of footing Washington's bill.

Perhaps you have heard of the FairTax by now. It is a comprehensive plan for the dissolution of the IRS that would replace all income taxes with an embedded personal consumption tax. According to the website of Americans for Fair Taxation (www.fairtax.org), the FairTax would abolish "personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment and corporate taxes." In their stead would be a 23 percent national sales tax on all consumption goods: a simple, one-time tax that is collected at the retail level.

However, the FairTax is unlike the current sales taxes that exist in this country. These taxes are imposed on top of embedded income tax and compliance costs. In the FairTax Book, written by libertarian radio personality Neal Boortz and Congressman John Linder, a loaf of bread is used as an example to illustrate these hidden costs. For every loaf of bread, the seed producers pass tax costs onto consumers. The shipping company does too. In fact, processors, bakeries, distributors and grocery stores all pass a portion of their income tax burdens onto consumers, no matter how rich or poor they are. Eliminating these costs initially, by eliminating the income tax altogether, would reduce the market price of all products by an average of 22 percent.

Don't take my word for it, though. Take the word of the Harvard Economics Department.

So when these costs are abolished, the FairTax is added and returns the prices of consumption goods to - you guessed it - exactly where they are today. The difference is, of course, that people who are purchasing these things keep every last penny of their paychecks. For low-income families, this would mean an immediate average increase in pay of 25-30 percent.

If you are trying to think of ways in which to oppose this plan, I need to know one thing: why?

The federal government would still steal - I mean, collect - the same amount of tax revenue as it does today under the FairTax. The FairTax does not cut funding from any cherished socialist programs like welfare or Social Security. It is merely a new way for the federal government to pay for its existence.

But wait, it gets better. The FairTax Act of 2005 (yes, it has already been written and is ready to be passed) also contains mechanisms for a "prebate." Based on government figures, the federal government would calculate the "annual consumption allowance" of a household - that is, the amount of money that household can be expected to spend on the necessities of life for that year - and refunds the money. Every household in America gets a tax refund, every year.

In case you had not noticed, wealthy individuals tend to spend more money than poor individuals on consumption goods; thus, the wealthy would end up paying more in taxes than the poor. Most people seem to like this idea.

Finally, the economic impact would be astounding. Driven by the "increasing burden of taxation and Social Security payments, combined with rising state regulatory activities and labor market restrictions," American businesses have been seeking out "tax havens" in other countries with much friendlier tax structures. The media buzzword for this phenomenon is "outsourcing," and believe it or not, our government has been causing it all along.

Passing the FairTax Act would make the United States the "only nation in the world whose companies could sell into a global economy with no tax component in the price system." Companies would rush to bring jobs back to the United States, and their American workers would keep all of the money they earn.

The FairTax is a typical libertarian solution to a greater social problem. Instead of promising more regulations, like many Republicrats typically do, we reduce them. It is a novel concept, I know. The results would be revolutionary.

The FairTax is not a panacea. It does not lower taxes, and it does nothing to curb the spending orgy the Republicrats have been having in Washington. It does not stop pork barrel spending, nor does it re-evaluate how federal money is spent. The responsibility for affecting change in those areas falls squarely on us, as voters.

However, the FairTax would be an enormous stake in the heart of the monstrosity that is the IRS. The thought is enough to make any libertarian smile happily and sleep better at night.

Scott Wagner is the president of the College Libertarians Club. He writes political satire for the Web site The Enduring Vision and thinks you should go read it. He can be contacted at swagner1@nd.edu

"In your quest to prove how much better off a retiree would be, you did just the opposite. You can't even prove it by using made up figures."

I didn't set out to prove a retiree would be better off. I set out to test what would happen, not trying to meet a previously decided upon agenda. And Rob provided the figures, I only made the additional assumptions he told me to.

You look at the total taxes paid, and decide the retiree is much worse off ? Isn't it more important to look at how much buying power they have ? Assuming the worst case -- all purchases are subject to FairTax -- they come out a little worse off. I didn't try to hide that.

If the numbers in the table above were correct, then the middle three quintiles would lose big under the FairTax.

However, those numbers are not correct. They are too simplistic in their assumptions. If you look at the CBO link you provided, you will find the CBO definition of Income:

"Measuring Income This analysis focuses on adjusted pretax comprehensive household income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employee contributions to 401(k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps, among others). The calculations use the Census Bureau's fungible value measure to determine the cash equivalent of in-kind government transfers. "

So not all of the figure you provided as "Gross Income" is actually spendable income. For the elderly, you would need to subtract the fungible value of the Medicare and Medicaid benefits. The value of those cannot be "spent" subject to FairTax, so your Total Tax Inclusive Spending and FairTax Paid figures are all too high.

According to sources like this http://www.aaas.org/spp/rd/tbi2.pdf the Medicare Expenditures alone are over $200B. Divided by 40M elderly, that would mean $5,K each. Because your chart assumes all households contain two elderly, $10,000 of each of the income listed in your chart is not money-income. But the "Effective Tax Rate" for the current Income+Payroll+Corporate tax system is a percentage of this as though it were in fact spendable cash.

Removing just $10,000 from each "Total Spending" would change your Table a bit. Here is your table with just a $10,000 adjustment to FairTaxable spending:

Elderly Childless Households - 2002
	Gross Income	Effective Income + Payroll + Corporate Income Tax Rate	Total Tax Inclusive Spending (including $4,076 FCA)	Gross FairTax Paid	Net FairTax Paid (Gross - FCA)	Effective FairTax Rate	Increase/ Decrease in Tax Burden
Lowest Quintile	$ 11,300	1.0%	$5,376	$1,236	$(2,840)	-25.1%	-2410%
Second Quintile	$ 26,400	2.5%	$20,476	$4,709	$633	2.4%	-4%
Middle Quintile	$ 42,500	5.3%	$36,576	$8,412	$4,336	10.2%	92.5%
Fourth Quintile	$ 64,700	10.4%	$58,776	$13,518	$9,442	14.6%	40.4%
Highest Quintile	$173,600	22.8%	$167,676	$38,565	$34,489	19.9%	-12.7%
All	$ 55,200	14.6%	$49,276	$11,333	$7,257	13.1%	-10.6%

To really create an accurate chart, we would need the quintiles with another column for "Money Income". So that we weren't counting Medicare, housing assistance, Medicaid, etc. as though FairTax would be paid on those "in-kind" benefits.

Using just the adjustment for the Medicare benefits, we can see the only tax burden increase is on the middle and fourth quintiles. We would still need to make adjustments for actual spending that would not be FairTaxable -- used vehicles, educational expenses, travel outside the US -- to get a true picture.

Of course that is ridiculous. Most likely, the lowest quintile doesn't have two persons in the household. But you had used the FCA for two people, so I used the Medicare expenditures for two people.

FYI, if somebody had never made more than minimum wage and retired today, SS would only be paying them $7,300/yr. That isn't far off from the $11,300 - $5,000 medicare benefit.

Although any measure of income definitely must include "in-kind" benefits, for our purposes in trying to pin down tax burdens, we really need numbers based on "money income" that excludes these things. My alteration of your table was just to demonstrate what happens when you take into consideration that not everything reported as INCOME will actually be spent on FairTaxable items.

This is especially important, because the CBO uses the "fungible" method to place a value on the "in-kind" benefits. This strikes me a bizzare, and I see no way to estimate it properly. We'd have to find their table by quintiles. Even though the benefit costs the government the same no matter who receives it, the fungible method actually alots a higher value to lower money-income recipients.

Much better to find an income and effective tax table that includes the money-income figures.

Lewis,

I am honestly exploring an issue. It is a fact that a valid comparison between the existing tax system and the FairTax is more complicated than simply comparing the rates or even the dollars someone pays.

I haven't made any wild assumptions to make the FairTax come out ahead. I've made only those adjustments that might not be obvious at first glance, and the FairTax still loses. So be it. I haven't "failed" to prove the FairTax better for retirees, because that wasn't the goal. If you recall some of my other posts, you'll remember that I am not 100% behind the FairTax as written.

I haven't "failed" to prove the FairTax better for retirees, because that wasn't the goal
Yes it was. Judging by your snippy remarks and demands to Final Authority I'd say it was exactly your goal. You even commented after the comparison you contrived that the two examples were about even when clearly, even with your false assumptions favoring the Fairtax, they weren't.

It is a fact that a valid comparison between the existing tax system and the FairTax is more complicated than simply comparing the rates or even the dollars someone pays.

You say that now after you know you can't honestly skew the numbers without getting caught.

If you recall some of my other posts, you'll remember that I am not 100% behind the FairTax as written.

Big deal. As I recall this is not your first attempt at skewing numbers in favor of the Fairtax either.

What "false assumptions" ? If you disagree with my assumptions, then provide a counter-argument, with independent backup.

What numbers did I try to "skew" ?

"...the two examples were about even when clearly, even with your false assumptions favoring the Fairtax, they weren't."

When two examples fall within 5% of each other, that is pretty "even", in my book. Total purchasing power under the income tax was $3,408,000 and under FairTax $3,248,000. A difference of 4.7% and that is even assuming ALL spending was on taxable items. A little time traveling in Canada, or taking art classes, or buying used vehicles, antiques, etc. might even have erased that small difference. On top of that, I stayed completely away from any assumed decrease in prices, even though Rob has previously mentioned he would expect an 8% drop.

As far as being "snippy" with FA, I would bet he had a much larger difference than 5% in mind when he made those dogmatic comments. His refusal to give any particulars about an example that might prove his point just showed it was nothing more than an assumption. He'd never run any numbers, or he'd have been able to provide them.

"You say that now after you know ..." Actually, last week another poster named Polybius and I went through another example, and I asked all the same questions. The idea that a valid comparison is going to be complex is not news to anybody but you.

It hadn't occurred to me when looking at your table, but that could make sense. So even with the adjustments for "in kind" benefits, their spending could exceed what was in your table ? Yeah, that is possible.

Probably there isn't much savings to deplete in the bottom two quintiles, but certainly above that, people may be depleting savings beyond any earnings on investments.

Then again, retirees with savings don't want to run out of money before they die or need it for a medical emergency. And they can't count on whatever figure they've estimated for inflation. So they may actually spend LESS than their investments are earning, at least during the early years, and let it build up. That is what my folks are doing, and they are 15 years into retirement. In their case, the income taxes are due whether they spend it or not.

It would be interesting to see a comparison of money income vs. actual spending by quintiles. When I have a few minutes, I'll see if I can find something. If you find something first, please post it.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Elderly Childless Households - 2002