The Fair Tax: Stop the Tax Cheats

The Internal Revenue Service reported [1] last week that $345 billion (not a misprint) in taxes owed for 2001 has not been collected. Not to worry, the report also indicates that IRS enforcement efforts will recover approximately $55 billion of this “tax gap.” Bully for the IRS.

Even if the IRS is successful in recovering the amounts they seek, there is simply no way that a $290 billion shortfall can be justified regardless of how it is spun. There are several reasons why taxes rightfully owed are not collected. Many taxpayers underreport income and/or claim undeserved deductions. In other words, a lot of people cheat on their taxes. Is anyone surprised?

Another factor that significantly affects tax compliance is the complexity of the tax code. According to a report [2] from the Americans For Fair Taxation [3], the federal tax code, rules and IRS rulings comprise more than 60,000 pages. While complexity undoubtedly leads to some paying more than they rightfully owe, that complexity also results in billions in unpaid taxes.

The report also indicates that individuals and businesses spent over six billion hours at an estimated cost of $265 billion dollars attempting to comply with the maze of tax rules and regulations. This is equivalent to a workforce of over 2.8 million people spending the entire year doing nothing but tax compliance.

To cover the uncollected taxes, the 130 million U. S. taxpayers are effectively subsidizing the tax cheats to the tune of over $2600 each. In other words, if the cheaters were prevented from cheating, the average taxpayer would see reduction in his or her tax bite by over 30%.

If the tax gap and compliance costs were in and of themselves not sufficient reason to scrap the tax code, the tax code also hurts the U. S. in other ways. The income and payroll taxes ostensibly paid by businesses (but are in fact simply passed along to consumers) make U. S. products less competitive on world markets. This leads to job losses in the U. S. and, as we also saw last week, record trade deficits. The complexity of the tax code also enables politicians to reward and punish via the tax code. This is probably the single worst aspect of the U. S. tax system.

The sheer lunacy of a tax system that fails to collect billions owed, enables political manipulation, hurts the economy and in general works against the taxpaying public is astounding.

There is a solution however. It is a solution that would eliminate individual compliance requirements and make April 15 just another day. This solution would greatly reduce business compliance costs and similarly reduce the size and scope of the IRS. This solution would lead to job growth and economic expansion. This solution would eliminate most of the opportunities for tax cheats and political manipulation. The solution? The Fair Tax.

The Fair Tax would eliminate all income and payroll taxes and would replace them with a national sales tax paid on the retail purchases of new goods and services. The Fair Tax protects low-income individuals and families by rebating taxes paid up to the poverty level.

The first reaction by many people to the idea of a national sales tax is that prices of goods and service would go through the roof. Under the Fair Tax, this is not the case. Consumers are already paying for the corporate income and payroll taxes embedded in the price of virtually all goods and services. It is estimated that these embedded taxes average approximately 22% of the retail price of goods and services. Make no mistake; you are paying these hidden taxes.

Under the Fair Tax individuals would incur no compliance costs and businesses would remit Fair Tax receipts similarly to the way state sales taxes are remitted today. No more armies of lawyers and accountants to figure out IRS regulations. The IRS (or some similar agency) would need to ensure compliance from just the approximately 25 million businesses instead of 155 million businesses and individuals, as is the case today.

Maybe most importantly, the Fair Tax would eliminate the patently unfair manipulations of the tax code that Congress uses to hand out favors to wealthy constituents and lobbyists. The elimination of the incentive and ability to tinker with the tax code would go much farther toward making members of Congress more “ethical” than any other type of reform.

The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The House version already has 48 cosponsors. The Americans for Fair Taxation estimate that it would require just 3000 active supporters in each congressional district to make the Fair Tax a reality. Each of the 435 districts represents approximately 300,000 taxpayers. That means that if just one percent of taxpayers became vocal supporters of the Fair Tax and took the time to write and/or call their representatives in Washington, the Fair Tax could become law.

The Fair Tax would be the most significant tax reform since the Boston Tea Party. Don’t leave this reform to others. Take a few minutes to let those in Washington know that the time for the Fair Tax is now. Think about that as you pore over your 1040 this year.

About the Writer: Jan A. Larson is currently employed in private industry in Texas. He holds a bachelor of science degree from the University of Nebraska, a master of science degree from the University of Kansas, and an MBA from Colorado State University. jan@pieofknowledge.com.

You don't seem to understand that the hidden taxes are not taxes paid into the Treasury Dept. as income tax (business or otherwise) but are prices increased by the cascading of business income tax costs into prices that are passed on to further levels in the production/distribution chain. They cause artificially increased prices due to downstream income taxes that have cascaded into increased costs for things eventually bought by consumers.

LOL!!!! WHERE DOES THE MONEY FROM THE INCREASED PRICES GO? DOES THE BUSINESS BURN IT?

ROTFLMAO!!!!! SO NOW THE CASCADING TAXES AREN'T EVEN GOING TO THE GOVERNMENT!!! TOO FUNNY!

So, pigdog, are business profit taxes "normal taxes" in your eyes?
I don't think he knows what you mean. I think pigdog believes that in life outside of the pigsty profits are really "hidden taxes" that raise the cost of products/services...

I guess now the Fairtax will not only eliminate inflation and the FED's "hidden taxes" but also profits (otherwise known as "hidden, cascading taxes" in pigdog's world)....maybe warts too.

You Squirrels seem to be munching on a bad bunch of nuts that affect your reasoning. You've completely missed the point that the "hidden taxes" are not taxes at all, but artificially-increased prices caused solely by the business income tax and compliance costs.

The "hidden taxes" themselves (since they are not taxes but unproductive price increases) do not need to be replaced by a revenue neutral FairTax. Instead they are removed - POOF! Gone!! That's why prices will decline with the elimination of income taxes. The income taxes formerly paid to he IRS (but not "hidden taxes" which are not so paid) are the ones involved in revenue neutrality.

The question is really not where the money in "hidden taxes" goes since it is not a tax at all, but where it comes from ... it comes from the consumer in the form of unnecessarily higher prices. It certainly takes no "secret tax agent" to realize these "hidden taxes" are not taxes at all. Most consumers with no agenda will realize this readily enough. Those with an anti-FairTax agenda (but no other plan for tax reform) will merely continue inane attacks.

The FairTax will not eliminate inflation, but certainly will help improve business profits in most cases as many studies by recognized economists have shown. No one that I know has claimed that the FairTax eliminates inflation (or warts for that matter).

Profits, OTOH, are not "hidden, cascading taxes" nor have I ever asserted that they were. That's your SQL claim, remember??

You've completely missed the point that the "hidden taxes" are not taxes at all, but artificially-increased prices caused solely by the business income tax and compliance costs. The "hidden taxes" themselves (since they are not taxes but unproductive price increases) do not need to be replaced by a revenue neutral FairTax.

So the business income tax is not a tax and isn't revenue that would have to be replaced by the FairTax?!?

LOL! What a fool. You are a shining example of why the FairTax has supporters - ignorance and stupidity. Please, don't ever stop posting in favor of the FairTax!

The question is really not where the money in "hidden taxes" goes since it is not a tax at all ...

Well, actually that IS the question. Whether a tax or not, these wind up in SOMEONE'S pocket. If prices are going to drop, the amount has to come out of SOMEONE'S income statement.

WHERE IS ALL THIS "hidden" MONEY THAT'S SUPPOSED TO GO AWAY????

It most certainly doesn't vaporize (that is, unless it's not there to begin with.) Every accounting problem has credits and debits; income and expenses; every dollar in has an out.

WHO WALKS AWAY WITH ALL THESE SO-CALLED "hidden taxes" TODAY????

WHO WALKS AWAY WITH LESS AFTER THEIR ELIMINATION?

"... business income tax is not a tax and isn't revenue that would have to be replaced by the FairTax ..."
Sorry, Nightie - misstating what I have said won't cut it either, no matter how much you'd like it to. I've said nothing like your misshapen claim. Business income taxes ARE indeed taxes and will be covered by the FairTax. Price increases caused by the "hidden taxes" (which as I've repeatedly shown and stated are not taxes at all) are removed rather than being covered by the FairTax. That's why prices will go down with the removal of income taxes and your (so-called) "real world" example in #393 biased against the FairTax shows this very clearly - allowing for something like a 15% or more price decrease. I'm surprised your fellow Squirrels haven't nibbled you to pieces for showing this since they've always claimed prices won't drop.

Your above quote is utter nonsense and precisely the opposite of what I've said.

"... business income tax is not a tax and isn't revenue that would have to be replaced by the FairTax ..."
Sorry, Nightie - misstating what I have said won't cut it either, no matter how much you'd like it to. I've said nothing like your misshapen claim. Business income taxes ARE indeed taxes and will be covered by the FairTax. Price increases caused by the "hidden taxes" (which as I've repeatedly shown and stated are not taxes at all) are removed rather than being covered by the FairTax.

pigdog from #524:

"You've completely missed the point that the 'hidden taxes' are not taxes at all, but artificially-increased prices caused solely by the business income tax and compliance costs."

"The 'hidden taxes' themselves (since they are not taxes but unproductive price increases) do not need to be replaced by a revenue neutral FairTax. Instead they are removed - POOF! Gone!!"

I see no reason to answer your ridiculous question asking, in effect, "... are income taxes income taxes...". You'll have to figger that out for yourself - or perhaps ask Looey who likes that sort of conundrum.

As for the prior post of yours (#526) the answer is obvious enough. The consumer benefits by the lowered prices that your toady Nightie demonstrated do exist in #393. That reduces the business revenue by a corresponding amount except for the fact that the FairTax will improve the economic conditions enough for businesses that most will have the opportunity to increase their revenues over those they prevoiously had (without taking that revenue in the form of non-productively increased prices).

If you didn't have such a locked-in anti-FairTax agenda you wouldn't even have bothered to ask such a question, but thanks for letting me explain it to you. Others will learn from your ignorance of the subject I'm sure.

... do you have a point to make, Nightie, or do you wish to incessantly babble?

Note that the lead-in quote in your post is YOURS, not mine.

My post $524 said, indeed, that business taxes WERE taxes and "hidden taxes" were not. That seems to confuse you but then you don't grasp the entire concept of cascading embedded taxes and how they become part of increased prices.

If you have some point in #529 please state it since I know what I posted and you seem not to.

You say:

... lowered prices that ... Nightie demonstrated do exist in #393 ...

The ONLY thing demonstrated in #393 is that ACTUAL TAXES paid by businesses TO THE GOVERNMENT (part of the 927.7 Billion the AFT used to calculate revenue neutrality) are about 4.76% of prices in the example.

There are NO HIDDEN TAXES anywhere in the example. NONE! Every penny in the example can be traced to the original input cost, added value cost, profit, or ACTUAL TAX paid. There is not a penny of "artificial inflation."

If the answers to my questions are so obvious, why won't you answer them???

WHERE IS THE HIDDEN TAX???? (it's apparently so well hidden that it cannot be found!)

Dimp-Dimp ... you're funny as can be. Do you think Nightie would intentionally illustrate something he (or you) doesn't understand?

You've repeatedly demonstrated in post after post that you don't (or, more likely don't wish to) understand what hidden taxes are and how they cascade. No wonder you make such foolish statements.

The mechanism is clearly explained in my #323 and is the same in Nightie's #393 (though obscured somewhat because of the way he intentionally distorted things. Certainly actual taxes are those paid to the government - no one ever claimed differently. And as I've indicated about a zillion times to you obtuse SQL Squad members, hidden taxes are not taxes at all but price increases passed on up the chain from level to level cascading and embedding as they go as described in #323. I'm not about to keep explaining the same mechanism over and over to you since you haven't a clue how it works apparently. For income taxes to be paid by a given business, that amount must be bundled into an increased price to sell to the next level - exactly as explained in #323.

The hidden tax, then, is right in front of your nose and has been explained to you repeatedly by the examples I've given ... and they appear in Nightie's #393 misbegotten example, too, A hint for you - don't look for the term "hidden tax"; it's hidden but it exists and Nightie's example demonstrates what the Squirrels claim cannot happen (which is probably why you try to keep claiming otherwise).

In his example #393, his purposely-skewed-against-the-FairTax example shows (as I mentioned in a later post) what would be something like about a 15% hidden tax when ER payroll and compliance costs are included. As I showed in an even later post his figures are purposely intended to lower the hidden tax (accidentally of course since neither of you understand it) by a couple of different means of "selecting" the data used. In fact had he used more realistic figures the hidden tax figure would probably be 20% or more leaving ample room for price decreases when the FairTax takes effect.

Since you haven't the capacity to understand the mechanism, why keep asking the same nonsense?? It merely makes you look deservedly foolish.

My example was never presented (and loudly hyped) as "realistic" - yours was. It's still drastically skewed against the FairTax and is unrealistic as I've pointed out on several occasions. My example was always intended only to illustrate the mechanism - which it does.

Are you, perchance, claiming that your #393 does NOT show hidden taxes??? I don't know why the Squirrels don't kick you out of the nest with your outrageous claims and attempts to alter what was said. Perhaps they like that since it fits their agenda.

Are you, perchance, claiming that your #393 does NOT show hidden taxes???

It shows businesses paying taxes on their profits (if they have any). Your whole argument is based on the unproven belief that businesses in the real world "embed" their income taxes in the price of their goods. This goes against the very basic microeconomic understanding that price is based on supply and demand. The market dynamic sets the price, not the business.

You have yet to show me even one economist that agrees with your "embedded tax" fantasy. So, either you have made an economic discovery worthy of a Nobel Prize or your are full of crap. I'm going with the latter.

... his example #393 ... shows ... what would be something like about a 15% hidden tax when ER payroll and compliance costs are included.

His example shows nothing of the sort ... you just made up that number like you do every time you talk about it. And, according to you, Payroll taxes are not "hidden taxes" because they are actually paid to the government and counted as ACTUAL taxes.

Take those out (take out any compliance costs, too) and the MOST prices drop is by the EXACT amount of the ACTUAL tax (and compliance cost) removed. There is NO "artificial price" inflation in his example (and certainly not in yours,) the prices are only higher than cost and profit by the ACTUAL AMOUNT OF THE TAXES PAID (and any compliance costs).

Because of that, aggregate prices across the economy can drop NO MORE than that ACTUAL total amount of tax removed: about $200 B of ACTUAL corporate profit tax, about $100 B of ACTUAL non-corporate profit tax, about $360 B of ACTUAL payroll tax, and about $160 B of ACTUAL compliance costs. Spread over a $11,000 B economy, that amounts to NO MORE than about 7% price drop potential. If ANY business keeps ANY portion of the savings, then the actual price drop is less ... likely no more than 5% average across price drop the economy.

Add back in the 30% FairTax, and Consumer Prices RISE by and average of almost 24%.

You have never demonstrated ONE PENNY of "artificial price inflation" from "hidden taxes" (or costs, or whatever else you call them when you're cornered.)

You can't point to ONE PENNY of cost in ANY example that is not an ACTUAL tax, an ACTUAL cost, or an ACTUAL profit. You've been repeatedly asked to show where the "hidden" amount is, and you refuse ... mostly because you can't ... precisely because it's not there.

You know the funniest thing about pigdog's great example. It appears in an object that costs $66.44, there is a total of $65.44 profit in the supply chain that taxes are paid upon. Amazing efficiency, LOL. A $66.44 object has only $1 of costs and everything else is pure profit. I must be in the wrong business if that is how things really work.

And he's shocked to conclude that there were actually $22.51 in taxes paid on the $65.44 profit from the $66.44 item. See!! Taxes are 33.88% of prices!!!! Yeah, but only on an item where profits were 98.5% of the price!

Hmmm... 34.4% (the tax rate used) of 98.5% (the percentage of profit in the price) is 33.88% (the percentage of income tax in the price). What a coincidence.

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