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

[Filo]

Naysayers railing against the FairTax become, ipso facto, defenders of the INCOME TAX system.

Not at all.

Prof. Larry Kotlikoff believes that the current tax system IS bringing the country to nothing less than an "economic meltdown" by virtue of the invisibility of actual taxes paid. If Americans do not understand the true cost of their government, they're unlikely to hold Congress accountable - thus the enabling mechanism to continued profligate spending.

That I can agree with. Now all we have to do is fix the Fair Tax concept so we can accept it.

Is that so hard or are the Fair Tax advocates so wedded to this flawed concept that they can't see any way to improve it?

That an monthly advance tax rebate is the same thing as "being on the dole" ?

It is for the large number of people who will not end up earning or spending beyond that.

Let us work, together, to end the enslavement of the Tax Code and to restore Liberty to America's working families.

I agree. Fix the obvious flaws in the Fair Tax and I'm on board.

[Mind-numbed Robot]

You don’t know that you will pay more. You may think it but you don’t know.

You are correct, I just assume that I will because I now get an undeserved "Earned Income Tax Credit" rather than paying taxes. However, the rebate, family of one, may be greater.

[higgmeister]

I have actually seen a FairTax oppenent claim that the FairTax will not get the blackmarket drug dealers and the such to pay taxes because they are not going to charge the tax on the crack, cocaine, heroine, etc... that they sell!

Which is a legitimate point. The Fairtax does not capture the black market in anyway shape or form. The Fairtax just taxes legal purchases, which is exactly the same situation we have today. The net gain is zero if you really understand the argument, which I will not be holding my breath on.

I would think that anyone could understand that a drug dealer or thief currently gets income as ill-gotten gains and is never taxed. the criminal currently makes purchases and does not pay tax.

How could you not see that after the FairTax he may still get his gains through nefarious ways but would then pay federal tax when he or his family makes a purchase?

[lucysmom]

Bingo, Bingo

[lucysmom]

I would think that anyone could understand that a drug dealer or thief currently gets income as ill-gotten gains and is never taxed. the criminal currently makes purchases and does not pay tax.

That's not exactly true. When a non-taxpaying drug dealer is caught, his assets are seized, taxing authorities estimate income and taxes are assessed.

Al Capone was convicted for income tax evasion, not his criminal activities.

In fact, a drug dealer may pay taxes on his ill gotten gains and be assured that the secret of the source of his income is safe with the IRS, though I doubt many test that particular privacy law.

How could you not see that after the FairTax he may still get his gains through nefarious ways but would then pay federal tax when he or his family makes a purchase?

He only pays the tax on what he buys new, and from a seller who collects the tax.

And now, when his customer works, he pays the income tax. With the FairTax, his customer will have 100% of his pay check, tax free, to spend on drugs and the dealer will not have to worry about the IRS.

[Still Thinking]

No, I maintain that in most cases the product is not the same, even if you don’t want to include the shopping experience as part of the definition of the product. K-Mart doesn’t sell the same goods as Macy’s, in most cases.

[fabian]

yes, it is trully amazing how some citizens have fully accepted a tax that was never included by the founding fathers...they fought and lost so much comfort largely due to excessive taxation on a much smaller scale than we have today.

[steve8714]

Your statement makes my point.

[xcamel]

I boiled that down to Bigun's "Joe Six Pack" description of the fair tax (and why you need to believe [like GoreBal Warming]):

"You pay taxes that you don't owe, that are embedded in things you didn't buy, because only your income is taxed, therefore what you might buy will have to be taxed again, especially if you had after tax money, to spend on untaxed things with embedded taxes, that aren't taxed because corporations don't pay taxes, because you paid the taxes you didn't owe."

[Always Right]

How could you not see that after the FairTax he may still get his gains through nefarious ways but would then pay federal tax when he or his family makes a purchase?

But how can you not see when he sells his $10K worth of drugs he fails to submit the $2300 worth of fairtax. The criminal is avoiding $2300 worth of taxes. It works out the same under either tax scheme.

[Your Nightmare]

And now, when his customer works, he pays the income tax. With the FairTax, his customer will have 100% of his pay check, tax free, to spend on drugs and the dealer will not have to worry about the IRS.

Let's not forget that the customer is a criminal, too. So there are two criminals in a drug transaction. In the current system, one criminal pays, the other doesn't - and under the FairTax, one criminal pays, the other doesn't.

[Bigun]

That I can agree with. Now all we have to do is fix the Fair Tax concept so we can accept it.

When you expose a legitimate problem with the FairTax I don't know of a FairTax supporter who would not seek to address it but PLEASE keep in mind that the key word in that sentence is LEGITIMATE.

I have read a number of your posts to this thread and cannot find any such fault that you have exposed. You do seem to not realize that your after tax savings are taxed again today under the income tax just not openly.

• The FairTax ensures Social Security’s soundness by funding it with a progressive, broad-based national retail sales tax, rather than the current regressive, narrow payroll tax.

• The FairTax rebate zeros the retail taxation of necessities, up to poverty-level spending, for seniors.

• The FairTax repeals the taxation of Social Security benefits and adjusts Social Security indexing to protect seniors.

• The FairTax ends all record keeping and income tax filings of any kind for seniors, totally insulating them from the high costs and abusive tactics of tax preparers.

• The FairTax does not tax used goods, giving low-income seniors choices.

• The FairTax reduces manufacturers’, services’, and retailers’ costs, allowing them to lower costs to seniors.

• The FairTax delivers a tax holiday on IRAs and other tax-deferred plans.

• The FairTax ends gift and estate taxes, along with all of the unfairness to heirs and complex planning for those who earned the money.

• The FairTax allows seniors to sell their homes and pay no capital gains taxes.

• The FairTax generates an economic boom, which eases future budget pressure on seniors’ entitlements.

• The FairTax lowers average remaining lifetime tax rates.

• The FairTax ensures your grandchildren have the same opportunity you did.

[xcamel]

It’s for the children...

It prevents dog fighting...

It stops global warming...

yawn...

[Filo]

When you expose a legitimate problem with the FairTax I don't know of a FairTax supporter who would not seek to address it but PLEASE keep in mind that the key word in that sentence is LEGITIMATE.

Perhaps the biggest flaw with the Fair Tax is the fact that it's supporters are both rabid and blind.

The issues I have pointed out are very legitimate. Double taxation on pre-Fair Tax savings and the inability to ensure the death of the 16th Amendment prior to enacting the Fair Tax are both deal breakers in mine and many other's opinions.

The fact that the Fair Tax rate is also obscenely high (in CA I'll be paying a 38.25% exclusive rate on every purchase made) is another problem that needs to be addressed.

Yes, your laundry list is, for the most part, true and reasonable. Yes the current tax system is more flawed. Yes I want to get rid of it. Yes I hope that the transparency of a Fair Tax like system will allow us to start shrinking the government by destroying entitlements (although you seem more than happy to keep them and fund them.)

I will not, however, condone replacing one flawed system with another.

As it stands now the Fair Tax is still flawed and until its advocates recognize that and take steps to correct these flaws the Fair Tax is DOA.

[lucysmom]

So there are two criminals in a drug transaction. In the current system, one criminal pays, the other doesn't - and under the FairTax, one criminal pays, the other doesn't.

Sounds more like a trade off than a gain.

Of course if you accept that prices remain the same because hidden taxes are removed, which I don't, then the non-income tax paying drug dealer will be paying the same amount of tax he's paying now AND he'll get a prebate check at the beginning of each month.

[Ouderkirk]

Don’t mis-read me here. I am not overly enamoured of the “Fair Tax” as writtten. There are several issues about the proposal that I find objectionable. That said, I’m certainly willing to give it a try as the current system is punative and unworkable.

[xcamel]

aww.. bad news for the prebate...

http://www.freerepublic.com/focus/f-news/1887701/posts

[mo]

I agree..in the absence of repealing the 16th ammendment, a procedure that should administratively precede the implementation of the FairTax..I’m not about to trust Capitol Hill. IMHO, the best way to go about is at the state level...each legislature voting to repeal the 16th and implement the FairTax...It will never happen from inside the beltway...and probably should’nt even be tried as they would like to wind up with nothing more than BOTH!!

[Your Nightmare]

Sounds more like a trade off than a gain. Of course if you accept that prices remain the same because hidden taxes are removed, which I don't, then the non-income tax paying drug dealer will be paying the same amount of tax he's paying now AND he'll get a prebate check at the beginning of each month.

Actually, because the drug trade is an import trade, the FairTax could tax the drug trade less than the current system. A portion of the untax money going into the drug market is going to leave the country to buy more drugs for import. In this sense, it's better to tax the money going in (current system) than coming out (FairTax).

[Hostage]

I’ve studied the issue and the embedded federal taxes are lower than the Fair Tax rate which means I will be paying more taxes on purchases made with my already taxed savings...

You need to describe what you have 'studied'. The results have not yet been published and preliminary reports indicate the NRST is substantially lower on certain product categories. But the results are not yet public.

This is why I respond the way I do, lots of detractors saying stuff without backup, i.e. blowing hot air into what should be a frank discussion.

How you can say what you said without having the data, without having done the analysis, without knowing the results is a sign of someone that adds nothing to the discussion and aims to detract.