FAIRTAX, FLAWED TAX?

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,"

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.

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.

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.

"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?

How could they pay more in taxes if they believe the 23% is a fraction of the 23% enbedded tax

You misunderstand what I said.

It is some fair tax opponents on here who claim that the 23% is far more than the current embedded taxes. And they claim it will not cause drug dealers to pay more in taxes.

But if they embedded tax today is LESS than 23% as they claim, and often claim by a large amount, then at a 23% NRST the drug dealers would be paying MORE in taxes.

If the FT Plan becomes law the employee will keep his after tax pay,not the gross pay.

In the example by Dale Jorgenson,the Harvard Economics Professor who is the father of the National Sales tax,an employee earning $1000 a month and paying $200 in fed income taxes and payroll taxes would keep $800 under the FT Plan as he kept under the current system

The $200 now the employer gets to keep goes toward reducing PRODUCERS PRICES,but RETAIL PRICES would be increased by the National Retail Sales tax Any gains by workers and investors would be the result of increase economic efficiency

Meaning if the producing price fell by 23%,the retail price would be increased by the National Sales Tax rate of 23%

I.e, no change in price to the good or services before or after the FT Plan

All of you can email Dr Dale Jorgenson at djorgenson@harvard.edu
to get this info

Current example $100,000 annual salary,$80,000 net after Fed and Payroll taxes

Monthly gross $8333
Monthly net $6666

Under FT Plan employee would continue to receive the same net figure of $6666 and the $1667 difference would go the employer to reduce production costs

Further payroll reductions to the $6666 figure:

Health Ins
Life Ins
State Inc Tax
IRA
401K

Net figure $5000 take home pay

$5000 take home pay deduct expenses:

Mortgage
2 car payments
credit cards
Utilities
Car Maint&gas
Food,clothing and drugs and medical

Total expenses $4000
Disposable income $1000 to buy goods and services that did not change in price from before the FT plan to after it.

It’d true that some of these deductions and expenses will be taxed at the sales tax rate,but a lot of them,mortgages,credit cards notes etc won’t be taxed at near the sales tax rate.

Not that great a deal to me or the gov’t

Agreed. Lots of wages are set by contract. They are not going to change. In my experience, non-union employees wages are set by comparison to union contracted wages. All hell will break loose if a company determines to drop engineers' wages, while keeping janitors wages' the same. Lots more future union forming activity at least, perhaps more ill-designed widgets in the short term.

I will expect to be paid my full salary, with no FICA and no SS or medicaid deductions. And I would expect that the additional SS payroll tax paid by my company for my labor would also be returned to me; since we are changing the way we are being taxed.

None of the fallout is clear in the proposal. If the changeover were to be phased in over 20 years or so, or started as an experiment in one or two states, it would be tolerable, and recoverable. But as proposed, it is a MOAB in the economy, and nobody knows its fallout.

Those of us who are legally successful pay both the embedded corporate “income” tax and individual income tax, while those Americans who are either not successful and receive welfare, either by means of “tax cuts”, or directly, via other means, or those who earn income under the table or off the books pay only the embedded taxes. With the fair tax, which is based solely upon spending, and not income, everyone would pay the sales tax, and only the sales tax on purchases of new items at the retail level. Illegal aliens would not receive the prebate which is based upon family size, and not income.

May I suggest you read either the book or the legislation?

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