Posted on 05/05/2006 1:35:32 PM PDT by RobFromGa
In my letter to Rep. Linder and Mr. Boortz of August 24, 2005, I pointed out a number of what I called “serious misrepresentations” of the Fair Tax plan contained in “The FairTax Book”. I specifically named many of these by page #.
Now that the revised second issue is out, let’s see what they did to these passages in the book:
First edition page 55, you go on to explain that these embedded taxes are “in addition to the money taken out of your check in income and payroll taxes.”
Second edition- this line was eliminated. This means that they are acknowledging that the 22% embedded taxes INCLUDE the income and payroll taxes which was one of my points all along.
First edition page 59, “Once the FairTax takes effect, you’ll be receiving 100 percent of every paycheck, with no withholding of federal income taxes, Social security taxes, or Medicare taxes and you’ll be paying just about the same price for T-shirts and other consumer goods and services that you were paying before the FairTax.”
Second edition- “Once the FairTax takes effect, you’ll be in complete control of your paycheck as nothing will be withheld and your purchasing power for t-shirts and all other goods and services will be almost exactly what it was before the FairTax.”
This means that they are acknowledging that “purchasing power” will remain the same, not a big increase in purchasing power as they previously asserted with their larger paychecks/same prices verbiage. They eliminated the “100% of paycheck” wording.
First edition page 83: “Remember that the poor, along with everyone else—will no longer have Social Security taxes or Medicare taxes removed from their paychecks. Whatever they earn, they get on payday. For most of those we categorize as poor, this would mean an immediate 25 to 30 percent increase in their take-home pay.”
Second edition- “Remember that the poor, along with everyone else—will no longer have Social Security taxes or Medicare taxes removed from their paychecks. Whatever they earn, they get on payday. If employers leave this money in paychecks instead of taking it out of price, most of those we categorize as poor, this would mean an immediate 25 to 30 percent increase in their take-home pay.”
Of course, this acknowledges that the employer has a choice to make—to pay the worker his current paycheck and not reduce prices (meaning prices with FairTax added go up 30%) or to cut paychecks to present takehome levels. They cannot both give workers more takehome pay and reduce prices. The Free Lunch described in the first edition is eliminated.
First edition, page 84, you make it clear though that even though the workers will keep all of their paychecks for a big raise, you still believe that because of “the disappearance of the embedded taxes, the total price paid for consumer goods will remain very nearly the same”.
Second edition—“when you factor in the combined lower prices/higher takehome pay caused by the disappearance of the embedded taxes” prices will remain about the same.
This again acknowledges that they money currently deducted as taxes can either be used to increase take-home pay or reduce prices but not both at the same time. If they were being more honest here, they would have referred to purchasing power remaining the same rather than prices, but they are trying to put the best possible spin on this major admission.
First edition page 111, you tie it all together with a Quick Review in which you erroneously assert that “Here’s what happens when we pass and implement the FairTax plan:
“We start collecting 100 percent of our earnings on our paycheck.
“We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
“The prices of consumer goods and services remain essentially the same, with the removal of the embedded taxes compensating for the added consumption tax.”
Second edition:
“We start controlling our earnings in every paycheck” (whatever that means)
“100% earnings” line is eliminated from the second edition. "virtual raises" is likewise eliminated.
“Our purchasing power for buying consumer goods and services remains essentially the same, with the removal of the embedded taxes compensating for the added consumption tax.”
This is a MAJOR difference in the Quick Review! In the first edition, they promised larger paychecks and prices remianign the same—which means a major increase in purchasing power. Of course this was a ridiculous promise. In the second edition, they say our purchasing power will be about the same.
They still left a lot of wrong and misleading verbiage throughout the book, but they addressed most of the concerns that I sent to them and removed those claims in the second book.
While I would agree with that statement, the FairTax, as proposed would come nowhere close to that level ... in fact, such a rate would be less than most state sales tax rates.
You are quite naive to think that once enacted at anything close to a "revenue neutral" rate that the rate would EVER decline. The mere fact that you're willing to bury Social Security funding into the FairTax rate suggests that you have little interest in "constitutional duties." If anything, you would be perpetuating massive extra-constitutional spending by securing funding for an extra-constitutional program now in trouble.
It's a game of balance. In your last reply, it comes down to more than just prices.. but location and convenience... thus the name of the stores.So you don't want to play the game. Ok. Does anyone else?
Depends on your sources of incomes. Kinda like the "fair" tax depends on the sources of the items you buy.
Truth be told, I'm gonna buy Diet Coke no matter what. It's a substance I must have.
So I'm getting from your reply that embedded costs will not reduce and create an incentive for suppliers to reduce prices.
I know I pay about a 10% tax on my diet coke now in the great state of TN. I still buy em, and will continue to buy em.
The flaw in your thinking is that the FairTax somehow changes the competitive and economic environments where the Cokes are sold. It will not. Presuming a market in equilibrium under the current system, equally altering the way taxes are collected from the competitors does not change the market equilibrium.They aren't changing the supply or the demand, they are just moving the tax wedge from the producer to the consumer (in effect, they aren't moving it at all). The real price stays the same.
Of course it would be. But the fact that you try and include that as an argument against the FairTax proves your disingenuousness. The fact that the Federal Government is spending outside of its constitutional mandate is not a legitimate argument against taxing based on consumption at all. Quite the contrary. It is an argument for it, since the FairTax is visible, unlike the income tax.
You are quite naive to think that once enacted at anything close to a "revenue neutral" rate that the rate would EVER decline.
I think that it is you that is naive, at the least. Once the American people have been united in one interest, minus the divide and conquer element of the income tax, they will be politically united, finally, in pursuing their common interest: a lower rate.
The mere fact that you're willing to bury Social Security funding into the FairTax rate suggests that you have little interest in "constitutional duties."
Keeping the payroll tax and withholding in place just to collect SS would be stupid. And the fact that you would like to saddle the tax reform movement with having to somehow solve the SS problem (similiar to the way you want to saddle us with the spending problem) once again proves that you're not debating in good faith here.
If anything, you would be perpetuating massive extra-constitutional spending by securing funding for an extra-constitutional program now in trouble.
I suppose you still believe in the mythological "Social Security Trust Fund", too.
I'm outta here for the evening.
Other tax related costs can account for NO MORE than about 7% to 8% of current price levels. Remove THAT the ADD IN THE FAIRTAX and consumer prices RISE by an average of about 20%.
That, of course, presumes that ALL the other costs are given back to the consumer in the form of price reductions ... that is not going to always be the case (think gas prices will decline??, think the price of Windows will decline??)
Of course, if you aren't a wage earner, you don't get a take-home increase, so you're just screwed.
But, frankly, this is but one of the MANY problem with the FairTax. You may wish to dismiss these issues as "details" but it is precisely the details that determine whether the program is good or bad. Good concepts with poor implementation are disasters. The FairTax is a poor implementation. Don't be fooled by the slick marketing that promises you the world but dismisses the faults as mere details.
Look, I'm not gonna battle numbers with you because I suck at numbers.
The fact remains that C-Stores do their business by offsetting costs in various areas. That's the mart of competetive commerce.
You drop the price on grapes at your local grocery store, but cokes aren't on sale this week. Trade off. Surely someone as intellectual as yourself has taken cost accounting.
What sources of income are tax free?
I will think about your comment and read further.
Thanks.
Tax free? You were talking "progressive".
Tell me again what is politically "uniting" about the FairTax? Everybody now has the same "unifying" cause of lower tax rates ... too bad it's not a very effective political force ... you see, there's more power in currying favor through spending than there is through taxation. The FairTax won't change that.
Keeping the SS system starved for cash is the ONLY way it will be truly reformed. Once you bury its funding in a single, general tax rate, especially one put on auto-pilot (read the bill) you ENSURE SS will never be addressed.
What you are describing is a real wage increase. You are still pushing the manna from heaven scenario.
Interesting Kotlikoff, as you have pointed out sees a real wage increase, otherwise recognized as increased purchasing power that comes with higher production efficiencies, among other basic reasons.
Reduce the burden that a tax system imposes on an economy, not just the tax revenue extracted but the entire burden that is imposed through secondary effects of the mode of taxation, such efficiency increases are not only possible but inevitable.
If the FairTax is Trula revenue neutral, the tax is being paid by somebody. Real wages will be the same (if prices go down, so do nominal wages).
Not at all as revenue neutrality merely assures the same amount of revenue is extracted from an economy as one would extract under current tax law, not to be confused with the same rate or burden on the economy.
Different modes of taxation impose differing burdens related to the costs imposed on producers and consumers. The level or amount of tax extracted, does not reflect the overhead burdens that change with a change in mode of taxation.
With a more efficient (with respect to the producer and consumer as opposed to government) mode of taxation overhead cost burdens decrease, allowing more efficient production and application of resources to production resulting in increases in consumer purchasing power, i.e. real wage.
No free lunch any more than an application of technological change and mass production provide a free lunch in terms of increasing production efficiencies resulting in lower real cost, reflecting as higher real income. Tax revenue receipts can quite easily remain the same with changes in production efficiencies resulting in greater economic growth allowing taxes to be collected at lower rates for the same amount of revenue to government.
Interesting Kotlikoff, as you have pointed out sees a real wage increase, otherwise recognized as increased purchasing power that comes with higher production efficiencies, among other basic reasons.Not the first year which would show the microeconomic effects - the "embedded" taxes y'all keep harping about. His real wage increase is a macroeconomic effect and, frankly, anyone who thinks they can predict the macroeconomic effects of a change as drastic as the FairTax is a fool.
Not at all as revenue neutrality merely assures the same amount of revenue is extracted from an economy as one would extract under current tax law, not to be confused with the same rate or burden on the economy. Different modes of taxation impose differing burdens related to the costs imposed on producers and consumers. The level or amount of tax extracted, does not reflect the overhead burdens that change with a change in mode of taxation.You are confusing microeconomic effects and macroeconomic effects. Prices dropping because of the removal of "embedded" taxes is microeconomics, what you are talking about here is macroeconomics. The results you are talking about would be achieved by most any consumption tax, including the Flat Tax.
Look, I'm not gonna battle numbers with you because I suck at numbers.So does any FairTaxer want to play?
Stores have to make a profit.I guess we should all quit our jobs and open up stores.
That does not make the TAX RATE PROGRESSIVE. It's an individual decision versus a decison that made for you.You contradict yourself.It's based on what you spend, and not what you make that makes it progressive.
You make it sound as if spending your money is an extravagant choice. Some people spend all they make because they have to, not because they want to.
BTW, did you know that some interest earned as well as paid would be subject to the Fairtax?...Of course you can choose to earn the below market interest to avoid the tax, I don't know if the same is true of interest you might pay.
The results you are talking about would be achieved by most any consumption tax, including the Flat Tax.
To varing degrees depending on the overhead burden imposed by the particular mode of taxation. The Flat Tax, for example, has a much heavier overhead on business at all levels, as compared to a single stage retail sales tax imposed only on one level of business.
It should also be noted that the Flat Tax does nothing with regards to the collection of the Social Securtity taxes which remain in place in their current form a highly regressive tax on wages in addition to the Flat Tax described below.
A fair representation of what happens with the "Flat Tax", as currently proposed in Congress, is well described by Vern Hoven in this Article published in Tax Analyst's tax notes on that subject:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven; Tax Analysts Tax Notes, Volume 68, No. 6, pp 747-754.
Note that all income is taxed at least once in the Flat Tax, the only factor allowing a claim of being a kind of consumption tax is that the tax is not levied on investment income at the individual's level, for being taxed at its source at the business level. Thus all income in the "Flat Tax" is taxed either at the business level, out of sight of the general elecorate, or the individual level in being applied to wages and retirement income.
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
| In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write. Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive. To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following: Total revenue from sales of goods and services less purchases of inputs from other firms less wages, salaries, and pensions paid to workers less purchases of plant and equipment The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances. |
"If direct taxes upon the wages of labour have not always occasioned a proportionable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour. The declension of industry, the decrease of employment for the poor, the diminuation of the annual produce of the land and labour of the country, have generally been the effect of such taxes....
Absurd and destructive as such taxes are, however, they take place in many countries."
- Adam Smith, The Wealth of Nations, 1776.
A tax on business and wage income by any other name is still a tax on income in its mode of operation. Bovine flatulatnce by any name still retains its distinctive odur.
Patrick Henry, Virginia Ratifying Convention June 12, 1788:
- "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."
"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.
So you don't think that a store owner will drop the price of a Diet Coke to increase his sales over his competitor?More important, logic and clear thinking have a stronger place.The free market has no place in this?? Please explain why.
The Fairtax won't tax their income but would tax their product(s) and then any income they have left when they spend it (that's ultimately what it's for and must always be considered)...Or are you suggesting the store owner reduce his profits in favor of lower prices? If lower prices are a guarantee of increased sales/profits the income tax isn't preventing him from doing it now.
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