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Fair Tax, Foul Politics [NRO on FairTax]
Fair Tax, Foul Politics ^ | August 16, 2007 | NRO Editors

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.


TOPICS: Politics/Elections
KEYWORDS: fairtax; fraudulent; freelunch
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To: ih2005
"According to the Washington, DC-based advocacy group [ Americans for Tax Reform ], the average American had to work through July 11 this year just to pay all federal, state and local taxes, as well as regulatory costs including workers' compensation and unemployment benefits.
The Fairtax doesn't repeal government regulations, state and local taxes, workers comp or unemployment insurance...they're only trying to make you think they can.
121 posted on 08/16/2007 8:24:55 PM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: RobFromGa
Or to say the item is used, and not charge the tax.

Would returned items that are resold be taxed? When the item is returned for a refund, would the tax also be refunded?

122 posted on 08/16/2007 8:25:36 PM PDT by lucysmom
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To: PugetSoundSoldier
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).

The IRS is no where near 15% of current deficit. And you will need a strong enforcement arm to enforce the FairTax collection. Probably zero savings here, and no less intrusive.

2. Eliminate the Prebate. Completely. It's a dumb idea, and would take a lot of work to process.

Good idea, but you just lost all the freeloaders. And they represent a sizeable chunk of the population.

3. Anything regulated by the FDA - food, drugs, etc - are exempt from the FairTax. Your basic needs - food and medicine - are not taxed.

The reduction in the taxable base frome exempting these items caused the calculated rate on everything else to go up substantially.

4. Mortgage payments are exempt from the FairTax. Your mortgage company will not charge the tax.

Do you mean exempt housing purchases from the FairTax? If a new home is $200,000, then the price will not go up to at least $260,000, is that what you are saying? Ditto answer to #4. Tax rate on everything else goes higher.

5. Cut the FairTax rate down to 27%, which would result in a 10% reduction in revenue to the Government. Give them less!

Why do we need the FairTax to do this? If we can cut the size of government in a politically tenable fashion, lets do it. In my view that IS THE ENTIRE PROBLEM.

123 posted on 08/16/2007 8:29:00 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: goldstategop
A consumption tax makes that brutally clear as day.
Sorry to inform you, I know you'd like to have it both ways but there's no evidence of what you say when you read the high points from AFT...Who's the expert on what the tax would do, you or AFT?
124 posted on 08/16/2007 8:29:37 PM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: goldstategop
Do we really want to spend 30% under the Fair Tax for government? Again, I remind the opponents today we spend 50% under the income tax on government. So, under the Fair Tax, that amounts to a 20% cut in the overall tax burden!

Do really believe the FairTax will reduce the overall tax burden by 20% and still raise the same revenue?

125 posted on 08/16/2007 8:30:48 PM PDT by lucysmom
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To: lucysmom
Would returned items that are resold be taxed? When the item is returned for a refund, would the tax also be refunded?

We're gonna need some tamper-proof super-stickers to go on everything to prove the tax was paid. And a very strong powerful enforcement army to check out everything in our houses to make sure our papers are in order.

126 posted on 08/16/2007 8:31:40 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: lucysmom

Math is hard. LOL!


127 posted on 08/16/2007 8:31:45 PM PDT by Toddsterpatriot (Ignorance of the laws of economics is no excuse.)
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To: Texas Eagle

“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?”

Perhaps salient to your perspective, but not at all responsive to my question. Nearly all who benefit from the present tax structure will vote against tax change.

What I was pointing out, eviddently not clearly enough, is that I am of the opinion that the Joe Six Packs vastly outnumber the tax beneficiaries.


128 posted on 08/16/2007 8:35:01 PM PDT by GladesGuru (In a society predicated upon freedom, it is essential to examine principle)
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To: lucysmom
Don't forget that all state and local governments also have to pay this dandy tax on all non-education related costs. This includes employees, and their fringe benefits. That mayor's assistant making $50k a year, now they have to pay the FedGov $15k in FairTax on the salary and more on the medical insurance etc. And road construction supplies and workers, cost 30% more. And everything else they spend money on.

Does anyone have a guess where the state and local governments will get this extra revenue to pay the FairTax to the FedGov??? If you said, they will raise taxes at the state and local level, please get your gold star now.

129 posted on 08/16/2007 8:35:52 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: GladesGuru
Nearly all who benefit from the present tax structure will vote against tax change.

Almost all sane people will vote against the FairTax once they understand it. And there is no way it can get passed without the roaches hiding inside it from being exposed to the light.

130 posted on 08/16/2007 8:37:50 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: goldstategop
California relies on its income tax for government revenue. Every year, it keeps bringing in both record revenue and yet, it still spends more than it receives. A state sales tax would be a less volatile and more predictable revenue base for the government.

Umm - I live in California, we have a sales tax - 8.25% where I live. It is estimated that we would have to raise the sales tax by two percentage points and expand it to include goods and services that are now exempt from the sales tax to raise the same revenue. That would bring the tax at the register to over 40%.

The common wisdom is that higher tax rates, produce lower collections, what do you think a 40.25% sales tax would do to collections?

131 posted on 08/16/2007 8:45:12 PM PDT by lucysmom
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To: GladesGuru
What I was pointing out, eviddently not clearly enough, is that I am of the opinion that the Joe Six Packs vastly outnumber the tax beneficiaries.

True dat. Numerically speaking, I would argue that the Joe Sixpacks even more vastly outnumber illegal border-crossers and welfare recipients and other groups of completely non-productive people and even talk of cutting them off can't garner a majority of sizable note.

So I don't know how anyone could expect people to vote for someone who says he or she is going to throw millions of their fellow Americans out of work.

I could be wrong. But I just don't see it happening.

132 posted on 08/16/2007 8:46:23 PM PDT by Texas Eagle (If it wasn't for double-standards, Liberals would have no standards at all.)
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To: lucysmom

How much higher would taxes be in Cali if they had to pay 30% or more FairTax to the Federal government on every salary, benefit and purchase of goods and services (except education)? 25% higher? more?


133 posted on 08/16/2007 8:48:14 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: goldstategop
You can't evade a consumption tax. When you spend the money, it becomes income for the government. The only way to avoid the tax is to keep it in the bank or in your investment accounts and let it grow, tax free.

Oh ye of little imagination...

134 posted on 08/16/2007 8:50:52 PM PDT by lucysmom
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To: Texas Eagle

The IRS people wouldn’t be out of work, they would change uniforms to the HappyTax compliance center logos and be issued new rules and regulations to ferret out the HappyTax cheats. And they would either be just as ruthless or they would be less effective. Less effective means a higher rate for honest people to make up for the evaders... My bet is they would have to be ruthless.

Our current income system with withholding and double and triple reporting of figures has a certain non-compliance rate. The Fairtax rate caclulation assumes no evasion on any sales of goods or services, PLUS no negative effects on consumption. If either is wrong, the rate ratchets higher to generate the required revenue.


135 posted on 08/16/2007 8:52:07 PM PDT by RobFromGa (FDT/TBD in 2008!)
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To: RobFromGa
I just don't see it happening. I remember when Ronald Reagan promised he would eliminate the Dept. of Education.

I don't know how seriously he tried but I do know the Dept. of Education exists to this day. And it's probably ten times larger than it was back when Reagan said he would eliminate it.

If we can't get rid of one utterly useless bureaucracy, there ain't no way on God's green earth we are going to get rid of a monstrosity like the IRS.

136 posted on 08/16/2007 8:59:46 PM PDT by Texas Eagle (If it wasn't for double-standards, Liberals would have no standards at all.)
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To: ari-freedom
   Thanks for the link. I didn't know that services were included in the tax. A tax on retail sales is simple, but including services is a nightmare! I don't like the idea of any tax system that is 'revenue neutral.' If 90% of federal spending is unconstitutional, we are already living under a lawless government. Maybe this is the real reason that socialists in government fear a Supreme Court run by strict constitutionalists.
137 posted on 08/16/2007 9:00:08 PM PDT by Maurice Tift
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To: RobFromGa
How much higher would taxes be in Cali if they had to pay 30% or more FairTax to the Federal government on every salary, benefit and purchase of goods and services (except education)? 25% higher? more?
One thing that can't do here is raise our property taxes to pay for it.
138 posted on 08/16/2007 9:08:09 PM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: Texas Eagle
I just don't see it happening. I remember when Ronald Reagan promised he would eliminate the Dept. of Education.
LOL! That's right and I remember when the new Republican Congress (1994?) was going to defund PBS...they couldn't even do that.
139 posted on 08/16/2007 9:12:29 PM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: Turbopilot

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 did. we should
1) have a very small govt with no entitlements
2) eliminate taxes. Completely. If the govt wants money it will have to earn it just like any other company by asking for ‘donations’ and delivering a real return for the money.

But in the meantime, a flat tax.

No it will not eliminate the IRS. But neither would the fairtax which would require agents in every store to ensure they get the tax from every transaction. That may be even more intrusive than the income tax! The fairtax will creep into a sales tax with different rates for different items. The government will thus be able to influence every single spending decision you make. Let’s say the govt wants a fat tax? The infrastructure will be in place with the fairtax.

Now look. We’re not exactly socialists. You’re not the only ones who hate the IRS, ok? So when we say there’s something wrong about the fairtax, perhaps you should listen carefully to what we’re saying because we all want the same thing in the end.


140 posted on 08/16/2007 9:23:09 PM PDT by ari-freedom (I am for traditional moral values, a strong national defense, and free markets.)
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