FAIRTAX, FLAWED TAX?

Nealz Nuze/WSB Radio ^ | August 27, 2007 | Neal Boortz

[Turret Gunner A20]

This is what The Wall Street Journal had to say about the FairTax.

http://www.opinionjournal.com/extra/?id=110010523

And boy did they get it very, very wrong.

Evidently the FairTax is making some people nervous. The attacks are increasing, and there's a striking similarity in the fabrications being offered by columnists and pundits from coast to coast.

The heaviest, and possibly the strangest, attack over the weekend came from Wall Street Journal columnist Bruce Bartlett. Bartlett's column was titled "Fair Tax, Flawed Tax," and by Sunday morning it had generated hundreds of emails. When I finally read Bartlett's column I was completely stunned. I've referred to his commentary dozens of times in the last few years on the show, so for him to be so far off – so bizarrely wrong – about the FairTax was stunning.

OK ... by now you've probably read the column, so let's deal first with what I feel to be Bartlett's libelous assertion that the FairTax was " ...originally devised by the Church of Scientology in the early 1990s as a way to get rid of the Internal Revenue Service,"

Where in the hell did that come from?

This assertion – that the FairTax was developed by the Church of Scientology – is flat-out false. I suspect that Bartlett allowed someone else to do his research for him on this issue; someone with an agenda. Perhaps he blindly accepted some information from a Washington insider, perhaps a K Street denizen who fears the loss of power and income should the FairTax become law.

What Bartlett did was very simple, and astonishingly careless. He mistook a group called Citizens for an Alternative Tax System (CATS) for the people who developed the FairTax.

Now CATS did have a plan for a national retail sales tax, but it was in no way connected with Americans for Fair Taxation (AFFT) and the FairTax.

http://www.fairtax.org/site/PageServer

I was familiar with the CATS program. I had them on my radio repeatedly. As I've told you, I've been interested in this idea of replacing the income tax with the sales tax for some time.

The CATS idea was simply to do away with income taxes and replace them with a 17% sales tax. Payroll taxes would stay with you, as would many other federal tax levies. As you can see, this is substantially different from the program offered by the FairTax.

I'm going to lead you to several articles here. The first link will take you a document detailing the history of CATS.

http://www.fairtax.org/site/PageServer

If you read this carefully you will see absolutely no reference to the FairTax. There is no reference to Congressman John Linder or H.R. 25, the FairTax Act. All of the references are to CATS and their own idea of a national retail sales tax.

Moving right along here, next you have a list of articles detailing the connection between CATS and Scientology.

http://www.google.com/search?hl=en&q=%22Citizens+for+an+Alternative+Tax+System%22%2BScientology&btnG=Google+Search

That's right. It was CATS, not Americans for Fair Taxation with the strong connection to Scientology. In fact, here's another link setting for Scientology front groups.

http://www.google.com/search?hl=en&q=%22Citizens+for+an+Alternative+Tax+System%22%2BScientology&btnG=Google+Search

Scroll down the list a bit and you'll see CATS! You will not see AFFT or the FairTax mentioned.

The people responsible for creating AFFT and the Fair Tax are Houston Businessmen Leo Linbek and Robert McNair. Neither one of these people are Scientologists.

These men and their associates raised over $20 million for a study on finding an alternative to the federal income tax. That research was conducted by a coalition of market and academic experts from places such as MIT and Harvard, none of whom were associated in any way with Scientology. From that research came the FairTax.

Just an interesting historical note: When the research for a new tax system was commissioned with the $20 million raised by Linbeck, McNair and their associates, they made a commitment to accept whatever findings the research developed, strongly suspecting that their efforts were going to lead to the endorsement of some sort of a flat tax. The market and academic researchers came forth with an idea for a national retail sales tax instead, and the FairTax was born.

Bruce Bartlett owes Leo Linbeck, Robert McNair and the hundreds of thousands of FairTax volunteers across an America an apology. I suspect that apology will be forthcoming before too many days pass.

There were many other inaccuracies in Bartlett's column. As you know Congressman Linder and I, with the help of a brilliant analyst named Rob Woodall, are busy writing another FairTax book that will address virtually every meaningful criticism you may have heard or read. In Reader's Digest form, here are some quick response to other charges by Bartlett:

Bartlett jumps right into the middle of this nonsense over what the real tax rate is; 23 percent or 30 percent. He correctly points out that we don't quote the FairTax rate the way conventional sales taxes are quoted. The reason is simple; the FairTax will replace the embedded taxes and already exist in every item or service we purchase; and secondly, the FairTax will replace the income tax. Both the embedded taxes in the prices of what we buy now and the income taxes we pay now are inclusive taxes. We're replacing inclusive taxes with inclusive taxes.

It's so very simple: When you see a lamp on the shelf marked $100, you will pay $100 for that lamp when you get to the checkout. You will receive a receipt which shows that $23 of the $100 you have paid represents the FairTax. You do the math for yourself, but every time I work it out it comes to 23%

Bartlett also joins other critics in another blatant falsehood about the FairTax. Here's a sentence from his column: "If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%." In another paragraph Bartlett also says "Imagine paying 30 percent to the federal government on top of the purchase price of your next house."

Wrong, wrong, wrong. If a product costs $1 at retail .... It costs $1, with the FairTax already included. This is so easy to understand, you almost get the idea that people are intentionally trying to confuse the facts here. That $1 item Bartlett is referring to costs $1 at retail today! But instead of including the FairTax in that price, all of the embedded taxes from every business and individual involved in bringing that item to the marketplace are included. You remove one, you add the other. And that bit about 30 percent to the federal government on top of the purchase price of your new home?

Another lie. The embedded taxes are so high on the price of a new home today that when they are removed and the FairTax added, that home could be a percent or two cheaper! Come on, Bruce. This really isn't that hard. Let's try to spell this out plainly for everyone:

In another astonishing falsehood Bartlett says that the cost of providing the prebate to every household in America is not factored into the FairTax rate. He says it would cost at least $600 billion the first year. Again, Bartlett is just flat wrong. The cost of the rebate most certainly was included in the 23 percent rate. Congressman Linder tells me that if the rebate had not been included the FairTax rate could have been lowered to 18 percent.

The fact is that the rebate is projected to cost 5 percent, and that 5 percent is most certainly included in the rate.

Bartlett makes another huge mistake(?) regarding the prebate. He says that the FairTax sends monthly checks to every household based on income. Then he speaks of the "complexity and intrusiveness of tracking every American's monthly income .." Wrong ... completely and absolutely wrong. As anyone who has read the book knows, the prebate is not based on income, it's based on family size. There is no need to track anyone's monthly income. The only thing the government needs is a valid Social Security number and the number of people in the household.

Then, of course, Bartlett gets into the question of whether or not you can fund the federal government at present levels with a 23 percent inclusive sales tax rate. He cites numerous sources that say the tax rate would have to be much higher than 23 percent.

Know this ... in every case where some individual or organization has come forward to say that the tax rate would have to be higher than 23 percent, they have first changed the terms of the FairTax. That is, they have created exemptions. For instance, they assume that congress would never agree to tax food and medicines, therefore the tax would have to be XX percent, or that congress wouldn't tax transportation and housing, therefore the tax would have to be XX percent. Again .. the fact that the taxes are already there in the form of embedded taxes – embedded taxes to be replaced by the fair tax – is ignored.

Instead of me arguing about the sufficiency of the 23 percent rate, perhaps you would like to read it for yourself. Here's a link to a study by several economists titled "Taxing Sales under the FairTax: What Rate Works?"

http://people.bu.edu/kotlikof/Taxing%20Sales%20under%20the%20FairTax,%20What%20Rate%20Works,%20October%206,%202006.pdf

Don't take my word for it. I'm just a second-tier talk show host. See what several renowned economists have to say in a 34-page report.

Let's face it. The FairTax is a ripe target. It is easy to demagogue.

"Candidate Smith wants to add 30 percent to the price of everything you buy."
"Candidate Jones wants to add 23 percent to the price of your new home"

Can you imagine some uninformed voter (remember, most voters are government educated) hearing something like that? You just know how they're going to vote, don't you?

Is it possible that some of these irresponsible attacks are being mounted right now to prevent a new candidate, Fred Thompson, for instance, from running on this issue? Is a shot being fired across some political bows?

http://boortz.com/nuze/200708/08272007.html - fairtax

[Phantom Lord]

almost certain chance of adulteration by the political establishment

Great, so until politicians are removed from the political process you can't support it.

In that case, you can't support any reform of any kind on taxation.

[Filo]

I am nearing 60 and close to retirement.

Congratulations! :)

Because of that, I will be in a lower income tax bracket, and benefit from a Georgia law that exempts much of my retirement income from state income tax.

Not all of us will have that advantage. California taxes retirees and I’m personally hoping to have enough saved that my retirement will be spent at a higher income level than I earned leading up to it. . . :)

However, I like the FairTax. If it is good for the country, I will support it.

I like it in concept, but not in implementation. Again, with the few tweaks I’ve mentioned I’d be a proponent.

Call me selfish, but I don’t want to pay my taxes twice and I don’t want the government to have the chance to add new taxes later. If the 16th isn’t repealed and replaced with an unimpeachable ban on future income taxes then we’ll be just like Europe with an income tax and a VAT within a decade or less. Count on it.

Think of it in another way. What more do you have to buy in your golden years. I may buy another car, perhaps two, but aside from food, utilities, I won’t be paying out bigtime on the FairTax. Also, my retirement, and accounts (IRA, 401K) will be tax free with no income tax.

Maybe yes and maybe no. But the point isn’t about you and your retirement it is about everyone in the system and what they are doing as well. Yes your 401K is pre-tax which means that you’ll be on par with that regardless of the tax system. Your IRA, however, was funded with taxed money. You’ve already been taxed on that with the expectation that you wouldn’t be re-taxed upon withdrawal. That won’t be the case if the Fair Tax passes. The same holds true of any investment accounts, savings accounts, bonds, cash in the mattress and the like. If you created the wealth with after-tax money before the Fair Tax was implemented then you’ll be taxed again when you spend it. That double taxation is a flaw that absolutely must be addressed.

[Phantom Lord]

And yet prices, in general, rise ALL THE TIME.

Absolutely false.

When adjusted for inflation, many things are much cheaper today than 10, 20, 30, 50 years ago.

And many things in actual dollars are cheaper.

[Phantom Lord]

Call me selfish, but I don’t want to pay my taxes twice and I don’t want the government to have the chance to add new taxes later.

You already do, and the government always has the chance to add new taxes later. You argument seems to be that unless the government and politicans, and what they do every day can be eliminated for all of the future, I can't support anything.

If the 16th isn’t repealed and replaced with an unimpeachable ban on future income taxes

Impossible. The 16th can be repealed. But a ban on a future income tax is impossible. All it would take is a constitutional amendment and bam, its back.

we’ll be just like Europe with an income tax and a VAT within a decade or less.

The NRST and a VAT are two wholly seperate and entirely different things. Worse than apples and oranges in comparrison.

You’ve already been taxed on that with the expectation that you wouldn’t be re-taxed upon withdrawal. That won’t be the case if the Fair Tax passes. The same holds true of any investment accounts, savings accounts, bonds, cash in the mattress and the like. If you created the wealth with after-tax money before the Fair Tax was implemented then you’ll be taxed again when you spend it. That double taxation is a flaw that absolutely must be addressed.

Already the case because of embedded taxes. So at the end of the day, there is no difference. One is replaced with the other.

[Always Right]

So, are you finally admitting that 23% of current product prices is an embedded tax, which you have denied for years?

When did I deny it. My biggest issue was the fairtax does not pass it to the consumer. As long as employees and business keep their portion of the taxes, costs will not go down significantly and prices will go up.

[lucysmom]

Then, by that logic, shut up -- other nincompoops on the board are sniping mouthing the same tripe you two use.

"Sniping" seems to be the FairTax slur de jour.

[Filo]

You already do, and the government always has the chance to add new taxes later. You argument seems to be that unless the government and politicans, and what they do every day can be eliminated for all of the future, I can't support anything.

First of all, you aren’t going to browbeat me with the “you already do” nonsense. I realize that my income is taxed and taxed again, but that is holistically different from the double-taxation I am talking about.

As an example, if I have $100,000 dollars in (already taxed) savings before the fair tax is implemented I can spend that on $100,000 of products. Once the Fair Tax is in place it will be worth, at best, $85,000 because a 23%/30% tax will have been added to the cost of everything sold without the prices coming down by that amount.

Who is going to reimburse me for that $15,000, or whatever the number ends up being, when all is said and done?

Impossible. The 16th can be repealed. But a ban on a future income tax is impossible. All it would take is a constitutional amendment and bam, its back.

Yes and no. If the Amendment that implements the Fair Tax is worded in such a way that it becomes void if any other tax is implemented then there is, at least, some transparency in the effort.

Either way, a pre- or simultaneous repeal is mandatory.

The NRST and a VAT are two wholly seperate and entirely different things. Worse than apples and oranges in comparrison.

I wasn’t making a comparison other than to show that having multiple abusive taxes in place is not out of the question.

I don’t trust our government enough to think they wouldn’t do this in a heartbeat if they could. All I want to do is make it as close to impossible as possible.

Already the case because of embedded taxes. So at the end of the day, there is no difference. One is replaced with the other.

Bullshit. The Fair Tax rate is far greater than the embedded tax rate. You need only look at the tax components being “eliminated” to figure this out.

Is the Fair Tax so inherently weak that its proponents must lie to generate support?

[Phantom Lord]

Bullshit. The Fair Tax rate is far greater than the embedded tax rate.

OK then, what is the amount of current embedded taxes?

[Your Nightmare]

Absolutely false. When adjusted for inflation, many things are much cheaper today than 10, 20, 30, 50 years ago.

ROTFLMAO!! That like saying "If you take out the increase in prices, prices haven't increased at all."

[Filo]

OK then, what is the amount of current embedded taxes?

Less than 23% inclusive, 30% exclusive. That's all I know and that's all I need to know for my argument to be valid.

At 23% inclusive, 30% exclusive the Fair Tax includes income tax, SSDI, FICA and a host of other taxes. As such it is, by definition, larger than the embedded taxes in merchandise.

[MrB]

Anyone who argues what the rate of the NRST should be is telling you to look at his left hand while his right hand pulls off the trick -

and the trick is, keeping the present intrusive and immoral tax on income.

[Phantom Lord]

ROTFLMAO!! That like saying "If you take out the increase in prices, prices haven't increased at all."

Well then, why bother with, consider, or even have inflation adjustments and calculations.

Just as with income. Income today is far higher than it was 50 years ago. And things in actual dollars cost more in some cases.

I also noticed you didn't respond to that aspect of the post. That many many things are cheaper in actual dollars than they were in the past.

What did a VCR cost 25 years ago? Today?

DVD player? Personal Computer?

Or how about a 42" 1080P plasma tv? A year ago one was $15,000. What does it cost today?

Hell, any HDTV for that matter. Flat panel LCD/Plasma or rear projection.

[Phantom Lord]

Less than 23% inclusive, 30% exclusive. That's all I know and that's all I need to know for my argument to be valid.

So your answer is, "I don't know, but its not what they say it is."

Damn, your a genius!

[PreciousLiberty]

“Don’t make the perfect the enemy of the good (and it’s only perfect in your head, anyway.)”

It’s not perfect, but it’s the only way I’ll accept Federal taxation as not violating the Fourth Amendment.

The IRS needs to go, and people need to be able to pay their taxes without onerous paperwork.

The Fair Tax plan neatly accomplishes both objectives, with only more upside as far as I can tell. Perhaps once people see the cost of government rolled into every purchase, they’ll be more interested in smaller government.

[Phantom Lord]

The Fair Tax plan neatly accomplishes both objectives, with only more upside as far as I can tell. Perhaps once people see the cost of government rolled into every purchase, they’ll be more interested in smaller government.

People have no idea how much they actually pay in taxes.

I have long said that the quickest and surest way to cause a tax revolt is to end withholding and make people write a check for what they owe every quarter, or on April 15th.

[untrained skeptic]

Out of the 18-23% embedded taxes, at most 8% can be removed without lowering wages and owners profits.

Why? How does the inclusion of current embedded taxes raise wages and businesses profits?

[untrained skeptic]

All I read by Boortz assumes that the vendor will be forced by “the market” to reduce his prices by the amount of income and other fed taxes; this is fantasy.

Gas prices never drop?

The price of electronics never drops?

Market competition doesn't exist?

What world are you living in?

[Your Nightmare]

Well then, why bother with, consider, or even have inflation adjustments and calculations.

Real prices have nothing to do with what we were discussing. We were discussing price competition and how prices (nominal) generally rise over time. It make absolutely no sense to bring real prices into a discussion about nominal price competition.

[Phantom Lord]

Real prices have nothing to do with what we were discussing. We were discussing price competition and how prices (nominal) generally rise over time.

And many a real price DROPS over time.

[Filo]

So your answer is, "I don't know, but its not what they say it is."

No, my answer is "I don't know but it's less than the Fair Tax number."

Is that so hard to understand?

That means, as I said above again and again and again and again and again, that I will be taxed extra on pre-Fair Tax savings.

Is that so hard to understand?

Damn, your a genius!

Actually, I am. Thank you for recognizing that fact.