Fair Tax, Foul Politics [NRO on FairTax]

Fair Tax, Foul Politics ^ | August 16, 2007 | NRO Editors

[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.

[ari-freedom]

see post 61. Huckabee supports the fair tax so let’s see...
http://www.clubforgrowth.org/2007/01/a_report_on_mike_huckabees_fis.php
* Immediately upon taking office, Governor Huckabee signed a sales tax hike in 1996 to fund the Games and Fishing Commission and the Department of Parks and Tourism (Cato Policy Analysis No. 315, 09/03/98).
* He supported an internet sales tax in 2001 (Americans for Tax Reform 01/07/07).
* He publicly opposed the repeal of a sales tax on groceries and medicine in 2002 (Arkansas News Bureau 08/30/02).
* He signed bills raising taxes on gasoline (1999), cigarettes (2003) (Americans for Tax Reform 01/07/07), and a $5.25 per day bed-tax on private nursing home patients in 2001 (Arkansas New Bureau 03/01/01).
* He proposed another sales take hike in 2002 to fund education improvements (Arkansas News Bureau 12/05/02).
* He opposed a congressional measure to ban internet taxes in 2003 (Arkansas News Bureau 11/21/03).
* In 2004, he allowed a 17% sales tax increase to become law (The Gurdon Times 03/02/04).

By the end of his ten-year tenure, Governor Huckabee was responsible for a 37% higher sales tax in Arkansas, 16% higher motor fuel taxes, and 103% higher cigarette taxes

[goldstategop]

If people don't acquaint themselves with the tax consequences of their buying habits, they'll make poor decisions. People need to educate themselves. If they let accountants and tax preparers fill out the forms for them, they will never appreciate the true burden of government. It SHOULD be terrifying. So if you faint at the burden under the Fair Tax, then propose a level YOU think is appropriate. And let's go from there!

"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

[RobFromGa]

So the FairTaxers have dropped the increased purchasing power argument?

Some have but the vast majority still expect 100% of their paycheck and prices remain the same. That's the mantra that has been recited ad nauseum, and a Free Lunch is always a tasty treat!

[Natty Bumppo@frontier.net]

How taxes are collected is not nearly as important as what is the size of the government as a component of Gross Domestic Product (GDP).

For 2006, the United States had a GDP of $13.25 trillion dollars. The Federal government consumed $0.92 trillion (7%) and state and local governments another $1.6 trillion (12%) for total government expenditures of $2.52 trillion (19%).

No matter who collects the tax and how it is collected, 19% of the productivity of every citizen of the United States must be taken away from them every year to feed the beast we call government. Since only about half of the population is productive; that is in the workforce (151 million out of 302 million) at any one time; under any flat tax system with NO exclusions, NO deductions, NO loopholes, and NO avoidance, you have to tax 38% of the productivity of each worker each year.

The moment you allow for “prebates,” “exclusions,” “deductions,” or any other mechanism for avoidance of the tax, you rapidly drive the tax rate on the rest of the productive members of the United States towards 50%.

Bottom Line: Solving the “tax issue” in this country involves taking a chain saw to the Federal, State, and Local budgets of this country. Total government spending in this country needs to be half its current size or less. Defense spending in 2006 was $0.50 trillion (3.7%) of GDP. Interest on the public debt was $0.41 trillion (3.0% of GDP) for a “minimum necessary” size of government of $0.91 trillion (6.7% of GDP).

EVERYTHING ELSE in government spending is a “nice to have” not a “got to have.” (Although I can make a case for outright repudiation of the public debt.) There is no Constitutional requirement for the Departments of Education, Labor, Commerce, or Health and Human Services. Social Security and Medicare/Medicaid are not enumerated in the Bill of Rights.

Less than 2.8% of GDP ($371 million) is available to fund ALL OTHER functions of government at ANY level.

Until the voters are willing to hold their elected representatives to account for a RUTHLESS prioritization of government spending (if it is not absolutely necessary to spend it; it is absolutely necessary NOT to spend it) and make the goring of sacred oxen the number one political and economic activity in the United States, we are not going to improve “the system.”

[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. Any income you have is never taxed again. The only time you pay a tax is when you buy a good or service. Simple and straight.

"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

[GladesGuru]

“Which shows you why a smart businessman is a better potential presidential candidate than a crowd pleasing huckster like Huckabee.”

Would you vote for a businessman dumb enough to be considered a ‘gun grabber’?

[goldstategop]

I'd love to know of a society where no one has to pay taxes. It has never existed.

"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

[ari-freedom]

sure you can. It’s called paying in cash. The store underreports the cash (off the books) and can charge a lower price because they aren’t paying all the tax they are supposed to.

[GladesGuru]

“No politician is going to throw literally millions of accountants, tax preparers and IRS employees out of work.”

True.

But just how much does Joe Six Pack value accountants, tax preparers and the IRS? Last time I counted, there were more Joe’s than the the three classes of Schoes combined.

[RobFromGa]

One easy way to evade the tax is to make the purchase under the auspices of a business. Since almost everything could be a business expense, plane ticket, meal, hotel room, car payment, gasoline, auto repair, office supplies, etc this is a major loophole.

Another easy way is for people to do services for cash or trade services with each other.

Another way is for retailers of items to simply not report the tax collected and hide the sale. Or to say the item is used, and not charge the tax.

For a 30-50% tax the desire to cheat will be huge and require an intrusive enforcement agency.

[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. The Fair Tax could be calculated to have the same effect on a national basis. An income tax relies on the earnings of a handful of wealthy people. A Fair Tax relies on what every one spends to determine what the government will receive in a give year.

"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

[Your Nightmare]

This guy loses credibility when he states (Consumption is what we must tax, not production.) The Flat Tax is a consumption tax. Put down the Kool-Aid and try to educate yourself.

[goldstategop]

That brings us back to the value of government. I don't know of any one who thinks government is giving us value today. Then people will say, I'd rather not pay 30% in a sales tax. Make it 15%. And with it, government would shrink accordingly. So the question is really: do you think government is worth that much or isn't it? Either way, the Fair Tax still makes sense, not because its a free lunch but because it forces people to decide how much government we want to support with our spending dollars.

"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

[ari-freedom]

maybe the solution is to have zero tax and people would donate to the govt when they feel confident they will get what they pay for.

[goldstategop]

That's exactly what a consumption tax does! Don't spend the money. Or spend just what you think the government is truly worth. We'd then become citizens rather than passive by-standers. For most of this country's history, we never had big government. The income tax made it all possible.

"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

[lewislynn]

How else will the government come up with the billions of dollars it will need to pay for all these prescriptions?

And that doesn't include the additional 30% tax they'd we'd have to pay.

[Toddsterpatriot]

I'd love to know of a society where no one has to pay taxes. It has never existed.

I'd like to know how you'll convince people who already paid taxes on their saved money, that they should pay another 20% (or more) when they spend it.

[goldstategop]

You miss the the point. The Fair Tax doesn't tax INCOME. It taxes CONSUMPTION. You can put the money away in the bank or an investment account and its tax free. As far the government is concerned, it doesn't exist because it doesn't tax income. However, when you do BUY something, then you are taxed - but you are taxed only ONCE.

"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

[Man50D]

A thread that needs some truth injection.

The fact that this article was written and posted shows one very undeniable truth.

My favorite MLB team is the New York Yankees. They are constantly criticized for a multitude of ridiculous and incorrect reasons. Why? They answer is they have been successful for a long time and a considered a threat to those who wish to have the same success. You don't hear people criticizing the Cleveland Indians because they haven't come close to achieving the same amount of success as the Yankees.

The same process is occurring with The Fair Tax. As it's grassroots efforts grow and more politicians jump on the AFFT bandwagon the more desperate Fair Tax foes become. They make a poor attempt to counter attack a legitimate and increasingly successful grassroots campaign with falsehoods and misrepresentations. They sound more ridiculous with each additional cosponsor. These types of articles are a good sign for AFFT and show the increasing weakness of their arguments.

[Toddsterpatriot]

The Fair Tax doesn't tax INCOME. It taxes CONSUMPTION.

Excellent. The money I've saved, after already paying income tax on it, will be taxed, AGAIN, under the FairTax.

but you are taxed only ONCE.

I was already taxed ONCE. Now you want me to pay again? No thanks.