Posted on 08/16/2007 6:10:39 PM PDT by RobFromGa
Fair Tax, Foul Politics
By The Editors
Advocates of a national sales tax to replace the income tax have built an impressive grassroots army. They have given their idea an appealing, if somewhat gimmicky, name: the Fair Tax. And they have managed to get five Republican presidential candidates to suggest that they would sign a sales-tax bill if it reached their desk. Some observers credit the enthusiasm of the Fair Taxers for Gov. Mike Huckabee’s surprisingly strong showing in the Iowa straw poll. Huckabee is the candidate most committed to the Fair Tax.
Former senator Fred Thompson is, however, backing away from the idea. Fair Tax advocates have released a video in which Thompson, asked about the proposal, appears to say he would “absolutely” sign it if elected. On August 10, however, Thompson wrote those advocates a letter that said merely that the Fair Tax was a good starting point in thinking about tax reform. Mitt Romney’s campaign says that the Fair Tax has some attractive elements, but that the candidate would need to see details before making any pledges. Rudolph Giuliani has said that he does not think he would sign any such legislation.
The leading candidates are right to be wary. The tax code needs major reform to become fairer, simpler, and more efficient. The Fair Tax is one instantiation of those goals, but its political impracticality makes it fatally flawed. If conservatives force a choice between a Fair Tax and no tax reform at all, the latter is what they are likely to get.
There is widespread confusion about what the Fair Tax would entail. If you bought $100 of clothing and paid a $30 tax on it, you would probably think you had paid a 30 percent tax. The Fair Taxers say that you paid a 23 percent tax: $30 is 23 percent of the $130 you paid in total. When they say they want a 23 percent tax, that’s what they mean.
Since there would be no more income tax in this system, there would also be no more standard exemption to make sure that the basic necessities of life went untaxed. The Fair Taxers would solve this problem by sending out monthly “prebate” checks to all Americans.
The great, undeniably attractive selling point of the Fair Tax is that it would allow the country to dispense with the IRS. But the sad truth is that if the federal government is going to collect as much money as it currently does—which the Fair Taxers say their system would—its methods of tax collection will inevitably be intrusive. The real difference between the current system and this proposal is that the primary brunt of tax collection will be borne by a smaller group of people: business owners.
Over time, then, enforcement measures could become more draconian than they are today: especially since a massive retail sales tax would create a massive incentive to evade it. That’s why every country that has ever tried to impose retail sales taxes this high has quickly moved to a Value Added Tax levied at every stage of production. Consumers rarely see or keep track of these taxes, and they seem to be fairly easy for governments to raise.
These pitfalls are beside the point, however, since a national sales tax is not going to become law. No presidential candidate could be elected on a sales-tax platform, and no Congress would enact one if he were.
A candidate who ran on the national sales tax would be able to run on nothing else. He would have to spend all of his time defending the idea. Off the top of our heads, we can think of three devastating lines of attack an opponent could use in television ads. One ad could argue that getting rid of the mortgage deduction would send home prices into free fall (something that voters are going to find especially worrisome now). Another could ask why senior citizens, having paid taxes all their lives as they made income, should have to spend their retirements paying taxes on everything they use that money to buy. A third could simply ask voters if they look forward to paying a brand new tax.
There are answers to each attack. But no Republican candidate, especially in the daunting environment of 2008, is going to want to have to make them. Republicans cannot win a national election without the tax issue. If they ran on the national sales tax, Republicans would be taking one of their natural strengths and making it into a liability. Which is why we expect them to say nice things about the Fair Taxers’ passion, and move on.
A more salient question would be, "How many of the millions accountants, tax preparers and IRS employees would vote for someone who promised him or her he would eliminate his or her job?"
Before you answer, remember how many votes separated the winner of the last two elections.
If I were starting a new country, I would institute a Fair Tax but from a purely political standpoint, talk of a fair tax is a good way to energize your base.
But it ain't gonna happen. Ever.
Yawn. It’s unfortunate that there are pro-IRS people on NRO, let alone FR. And make no mistake - if you’re opposed to the FairTax and haven’t proposed an alternative that eliminates the IRS and direct taxation on income, you are pro-IRS, if only by default.
I can only offer this data point to the pro- income taxers. As a small business owner, I will not vote, support, or donate to any candidate who will not at least commit to signing the FairTax bill as written. Not for dogcatcher, and sure as heck not for President. Add up all the people like me, and pro-IRS candidates are going to run into some trouble next summer.
no! it’s my money, I want to spend it on what I want and it has nothing to do with what I think the govt is worth! It’s what I think the product is worth.
And I know with a sales tax you will end up with all these exceptions for all the government’s favored goods and higher rates for unfavored goods. How do I know? Because we already see this with state sales taxes as well as the federal consumption taxes we have including gas, alcohol, cigarettes, etc.
So yes, you pay NO tax on income. When you choose to spend the money, THEN you do owe tax due.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I might add if it isn't, its not really a fair tax but a fraud.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I know. I have money now, that I already paid income tax on. Now, if the FairTax is passed, I'll be taxed when I spend it. Hardly seems fair, does it?
If people don't acquaint themselves with the tax consequences of their buying habits, they'll make poor decisions. People need to educate themselves.""People need to educate themselves"...by force of the Fairtax?
That sounds a lot like social engineering. What next? An excise tax on the things YOU don't think people need? (The Fairtax bill creates a new excise tax bureau, what do you they will want to do?)
What happened to everyone's take home is increased, prices about the same as now, a government check every month to cover the tax on your "necessities", more money to save, interest rates reduced 25%, easier to save for that new house?...
How would that acquaint them of the tax consequences of their buying habits...or is all that rhetoric just a lie?
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Until the check arrives.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
This guy loses credibility when he states (Consumption is what we must tax, not production.)That's interesting, I've never heard of a production tax...I'm pretty sure you can produce tax free.
And my present savings will be taxed, AGAIN.
So moving to a new tax system involves trade-offs.
And the AARP will be right behind you, cheering this on. LOL!
So, you start right off by assuming the business will take 7.5% back from the employee. That money paid for employee social security, and should be returned to the employee. Suppose government health care comes along, not funded by the business. Would the business have any moral right to stop spending on health insurance and not give the saved money to the employee? The way you account for the employer part of socsec amounts to theft from the employee. If I tell my employer I don't need this or that benefit, it usually ends up increasing my take home pay.
Tax rates are computed against what you want to buy, not the final total. If the total is $100 and the tax is $23, then the tax rate for any other sales tax100 * 23/77 or 29.87%.
There's way too much twisted logic here. The prebate insures that the IRS (or an equivalent agency) will still be poking into everyone's affairs.
And that $100 was already reduced by at LEAST 7.65% or 15.3% if you want to count the DIRECT or COMPLETE FICA withholding.
And that crane worker also probably paid at least 15% in income tax.
So that $100 he has now really started as $128 or $139, depending if you want to count the employer's contribution to FICA or not.
Or, if you're like me and self employed, you get to pay that 15.3% directly...
To me, it seems darn near equal. $130 for the FairTax, and either $128 or $139 for the current system. With a lot less complexity. And it does NOT penalize investment income OR make savings less attractive for companies (allows companies to roll-over cash from year-to-year without penalty, eliminating a lot of the overhead for lease-to-own offers).
I'd support the FairTax completely if it would also do the following:
1. Abolish the IRS and ELIMINATE that portion of spending from the Federal Budget. Do not reallocate the dollars, just cut them. That alone puts a good sized dent in the deficit (about 15% of the current estimated deficit).
2. Eliminate the Prebate. Completely. It's a dumb idea, and would take a lot of work to process.
3. Anything regulated by the FDA - food, drugs, etc - are exempt from the FairTax. Your basic needs - food and medicine - are not taxed.
4. Mortgage payments are exempt from the FairTax. Your mortgage company will not charge the tax.
5. Cut the FairTax rate down to 27%, which would result in a 10% reduction in revenue to the Government. Give them less!
I think you add those small tweaks, and you have a winner. Lower tax rates for everyone once you look at the ACTUAL rate people pay, elimination of one of the biggest, oppressive and most intrusive government agencies out there, and simplify taxation. No form needed, no paperwork/checks sent out to process (and account for) monthly, and no change to the benefits regarding home ownership.
PS: I'm expating to Asia - where are you located?
Then people will say, I'd rather not pay 30% in a sales tax. Make it 15%. And with it, government would shrink accordingly.Once again. Unless all the rhetoric from the Fairtax crowd is a lie, how would they know? Pull a receipt from the bottom of the bag?
BTW, just eliminating the rebate entitlement alone would reduce the rate about 15% .
Did you know that economics is a social science? It is impossible to separate "social goals" from economics or economics from taxes. A social goal is a social goal supporting the goal doesn't make it any less so.
For an employee making say $50k gross salary per year, they currently have income tax withheld along with 7.65% of their gross salary as their FICA contribution. In addition to that 7.65%, the employer pays an additional 7.65%, so the cost of the employee to the business is really 107.65% of gross salary PLUS any other fringe benefits.
The FairTaxers for years have promised 100% of gross paychecks to people. I was just clarifying that in this case, the employer half of the FICA COULD be saved by the business if they gave the employee 100% of current gross salary. And this 7.65% savings is just about the entire amount of savings available to the business to reduce prices.
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