The FairTax -- distortions and lies

Renew America ^ | August 30, 2007 | Bonnie Alba

[Man50D]

The Sunday Wall Street Opinion Journal published an article (8/26/07), "Fair Tax, Flawed Tax" (link below) by former Deputy Assistant Secretary of the Treasury for Economic Policy (1988-1993). It is obvious that the Journal editors and Mr. Bartlett didn't do their homework.

Many citizens will dismiss the FairTax Plan out-of-hand by reading this distorted play on words from the pen of Mr. Bartlett. Dismissing his assertion of the FairTax being connected to the Church of Scientology — a gorgeous lie to behold — he proceeds to lambast FairTax supporters with so-called evidence that it will not work and will cost more at the cash register by tacking on a 30 percent National Sales Tax.

Mr. Bartlett's proclamation of "FairTax" facts lack the knowledge that millions of citizens know from reading the book by radio talk-show host Neal Boortz and Congressman John Linder (R.,GA), "The FairTax Book." And the fact that the IRS will disappear from our lives. Those citizens know that Bartlett is way off base on the FairTax Plan.

He gets into trouble right away by giving examples which do not represent the FairTax. Anyone familiar with how the FairTax would work knows that any product, right now, includes embedded corporate-business taxes. So much so, that we citizens don't really know for sure how many taxes we're paying on any one product and service. [Don't Rug Cleaner services and Doctors pay taxes in running their medical practice (business)? Aren't a few taxes passed on to consumers and hidden in the price of those services?]

Researchers and analysts, after years of study and exposing those taxes to the light of day, have ascertained that the estimated embedded taxes are around 22 percent. Folks, that's after withholdings from wages and before the state and local sales taxes are added to your purchase at the checkout. But you'll never know it.

What Bartlett failed to accentuate about the FairTax Plan is the fact that the hidden embedded taxes are eliminated from the price and then, only then, is the 23 percent included. He offers a weak example: retail product price tag, $1.00, adds a national sales tax of 30 percent to make it $1.30. His big Calculation Error exhibits an example unrelated to the FairTax plan at all.

The True FairTax Plan would subtract the embedded corporate tax of 22 percent and add 23 percent —

$1.00 - 22 % = $0.78 $1.00 x 23% = $0.23 + $0.78 = $1.01 OR $0.78 x 29.5 % = $0.23 + $0.78 = $1.01

Depending on how you figure the FairTax math, either way, it comes out about the same.

Another distortion by Mr. Bartlett: The prebate to "all" households is not based on amount of annual income, but on the number of people in a household.

Mr. Bartlett's warped article makes a mockery of the FairTax Plan but also exposes either his lack of knowledge or his complete and intentional distortion. Other FairTax opponents have weighed in with their own skewed versions of FairTax facts, but this article takes the cake when it comes to misrepresentation. It is a brilliant example of how to persuade people to be "anti-something without really trying," much like global warming.

The faithful to our current tax system, promoting class warfare and progressive tax exemptions, are going to fight against the FairTax Plan to the end. The present IRS tax code with its thousands of pages plus more added annually by Congress continues to obey the Second Law of Thermodynamics — order to chaos. Disorder is what we experience now. It is time to replace this monster.

A near-future "FairTax" book will respond to all the criticisms. Both Rep. Linder and Sen. Saxby Chambliss (R., GA) have introduced the FairTax bills (HR25 and S.1025) in Congress. You may see the content of the bills online at Rep. Linder's site or through the American FairTax Organization (links below).

Attacked from all sides, FairTax proponents must continue to hammer home to the public the facts versus the distortions. The mainstream media, lacking its own FairTax education, doesn't recognize the errors and distorted lies of those promoting other tax reform agendas and calling them "FairTax" as Mr. Bartlett has done.

We Americans must educate ourselves and understand this total replacement of the IRS plan so we may make informed decisions. Read the book. Explore the links below to truly understand the FairTax Plan and its simplicity. It will benefit all of us — government, citizens and the corporation-business sectors.

[MarkL]

Funny, no mention of how workers and business onwers will have to accept a pay cut so this 'math' works out.

In what way? Exactly why would there be a "pay cut."

Mark

[MarkL]

What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed. Say your salary is $100,000 a year today, but you take home $80,000 after taxes.

Your company is still paying that extra $20,000. In a FairTax world, it will save that money, and be able to lower its prices accordingly, only if it can reduce your salary to $80,000. In other words, your take-home pay is the same as before. Sure, you'd get to "keep 100 percent of your paycheck," as Boortz and Linder repeatedly write, but it would be a smaller paycheck. That's kind of a big thing to leave out.

Boy, talk about "slight of hand!"

The savings to the company has NOTHING to do with the fact that the employees will be taking home their entire income, with the possible exception of the roughly 7.5% savings in the "employer's contribution" to FICA and medicare. That cost is a cost of employment, and the savings may or may not be passed on to the employee, it may be kept, or it might be split up between the two. The embedded taxes mentioned by Linder and Boortz are the corporate taxes and compliance costs of the businesses.

If an employee makes $100,000 a year, he will continue to make that $100,000, however the employee's take home pay will reflect the actual earnings of the employee, rather than hiding the taxes paid.

Mark

[MarkL]

The main reason that while I support the Fair Tax, I don't believe that it will ever make it is that it simply takes too much power out of the hands of our rulers in Washington, DC. Remember, "The Power to Tax is the Power to Destroy," and I can't imagine them ever willingly giving up that power, short of a bloody revolution. And every day that gets less and less likely, as they promise the masses more and more.

Frankly, something that I would LOVE to see, and something that might really motivate a serious discussion on taxes is a bill that I call the "Financial Awareness Bill of 2007." A very simple bill, completely revenue neutral, it would simply outlaw federal tax withholding. Each employee would be personally responsible for writing a check once a quarter and mailing it in to the government. Given the fact that on April 15, if you ask anyone how much they paid in taxes, you'll get a response back from about 90% that "I'm getting a refund!" I wonder how long the tax system would stay intact at that point.

Mark

[Turret Gunner A20]

RE: # 24

Embedded taxes consist primarily of payroll taxes, do they not?

If the company keeps paying out this amount, just directly to the employee rather than to the government, how do their costs and prices drop?

If they stop paying this amount, won’t the employee’s top line income drop by 23% or thereabouts? (15% income tax + 7+% SS.)

What is taxed?

The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed. A rebate makes the effective rate progressive.

Exactly what taxes are abolished?

The FairTax is replacement, not reform. It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.

http://www.fairtax.org/site/PageServer?pagename=about_faq

Now, think of the hundreds or thousands of individual parts, tools, and other items needed to manufacture an automobile -- and the number of times the ingredients in those items are bought, changed and sold from the raw material stage to their final installation into the finished products.

At every level, the seller is subject to one or more of the above bold, underlined taxes which he in turn adds to the selling price of his product, and which is thus passed on to the buyer.

When these several levels of taxation are eliminated, a goodly portion (but not all) of which will be paid over their employees, it still doesn't take too much imagination to see that the protion retained by the seller, accumulating through the many levels of sales, can and will total quite a savings -- creating the ability to lower prices on the end products.

And competition will see to that.

[MarkL]

How does a flat tax tax the likes of Ted Kennedy, say, who doesn’t have “Income” per se, but lives off of a trust?

At least the flat tax would tax those folks, as well as the drug dealers et al who are part of the underground economy.

Actually, a "flat tax" wouldn't generate as much revenue as the Fair Tax.

In the case of "trust fund babies," they pay taxes based on the interest and dividends generated by their trusts, or if those funds are "off-shore," on those funds brought into the country. If there are no earnings, and they're just living off of the money in the trust (and it's already been taxed once), then there would be no tax revenue generated. As for the "underground economy," if their earnings aren't reported, then no taxes are collected (hence the "drug stamps" that many states have, in order to make drug dealing "more illegal," since you're not paying the state taxes on the drugs!).

The Fair Tax is a consumption based tax. The more you spend, the more in taxes you pay. Even people in the "underground economy" have to buy stuff, so they'll begin generating tax revenue. And in a way, it's progressive too (and I'm NO FAN of progressive taxes!) For instance, if a wino spends $1.99 on a bottle of Muskatel, he'll be paying less in taxes than Kennedy when he buys a case of Chivas!

Mark

[Turret Gunner A20]

RE: # 28

Dr. Dale Jorgenson....

Oh, I beg your pardon. If a person has DR. of something in fromt of his name, he is always right.

Gee, that's nice to know -- that means that I am always right, then. I have a doctor's degree.

Sorry, sport, he is as wrong in this case as you are.

[Turret Gunner A20]

RE: # 29

I have dozens of times in several threads -- to you and several others, too. You totally ignore it, or come right back with the same lies, accusations, and inane questions. So, I'll just say again, Read the review the many threads, read the book, read the bills, and go to and study

http://www.fairtax.org/site/PageServer?pagename=about_faq

That is, if you can read.

[Sherman Logan]

Thanks for the courteous reply. I’m not convinced, though.

In any revenue-neutral change in the taxation system, by definition some will come out ahead, and some will get screwed. Those differences in themselves will have some profound effects on the economy, as well as on individuals, and I seriously doubt anyone has thought through all the implications.

Law of Unintended Consequences and all that.

[groanup]

In any revenue-neutral change in the taxation system, by definition some will come out ahead, and some will get screwed. Those differences in themselves will have some profound effects on the economy, as well as on individuals, and I seriously doubt anyone has thought through all the implications.

Which is why the FairTax research was funded with 20 million dollars. AFFT thought the economists would recommend a flat tax but after all the research was complete, the consumption tax won out.

No it's not perfect but no other alternative has been so thoroughly vetted as the FairTax. All of the implications have been more thought through than any other system, except for the current one.

[Man50D]

Getting rid of the 16th amdmt does not inhibit the states from charging existing or new income taxes, or property taxes or capital gains taxes.

Connecticut state income tax is based on the federal adjusted gross income. Abolishing federal income tax will force Connecticut to substantially revise the state income tax code. It would be easier for them to conform to a national sales tax that has a far broader tax base and is more stable and will remit to the state a fee for collecting the Fair Tax. Other states who also use the federal adjusted gross income will face a similar situation.

There is zero historical evidence in the history of man to suggest that aggregate taxes charged by the State+Federal govt will go 'down' after reforming them.

You're assuming all states would prefer to maintain both. The Fair Tax alone will have more advantages than also maintaining a state income tax. The Fair Tax will make administrative costs of businesses in that state much lower. The state is paid a one-quarter of one percent fee by the federal government to collect the tax. FairTax base is broader than their current tax base.

Again, the only way to reduce government is by reducing overall spending, and cutting existing taxes.

Again, no tax system is designed with its primary function to reduce spending! It is a false premise to assume replacing the tax code and spending are mutually exclusive. In fact The Fair Tax will keep spending in check to some extent. Any attempt by Congress to raise The Fair Tax will be seen immediately by taxpayers due to its transparency. Raising the rate too high would be met with a corresponding decrease in purchases by consumers. The result will be less tax collected and received by the government. Government would then be forced to reduce spending. Government must keep The Fair Tax rate within reasonable margins if they want to maximize tax collections.

[Man50D]

Here’s the problem with the Fair Tax: Congress will never abolish the federal income tax. I can easily see Congress slapping us with a national sales tax in addition to the income tax but I don’t think that they would get rid of the income tax. So we would just end up paying more in taxes. If the Fair Taxers could guarantee that the income tax would be abolished, then I would consider supporting their idea. Otherwise, no.

Obviously you have not read The Fair Tax Act of 2007 bill. I suggest you read Title III Section 301. It specifically addresses eliminating funding for the IRS after January 1, 2011. In addition House Joint Resolution 16(HJR 16) will repeal the 16th Amendment. The federal income tax will be history without funding to collect the tax or an amendment to authorize collection.

[upchuck]

Thanks guys for your responses.

In the five states that do not have a retail sales tax I guess a collection mechanism would have to be established? Who pays for this?

About enforcement: when I was in business every so often I’d be visited by a State Revenue Office who would look at my books to make sure I was paying the appropriate amount of sales tax. Who does enforcement for the NRST?

And, again, when I was in business, I collected 6% sales tax. But the state only asked for 5%. The other 1% was a fee "paid" to me by the state for the labor of collecting, reporting and paying sales tax. Anything like this in the NRST?

[Turret Gunner A20]

RE: # 52

How is the tax collected? Retail businesses collect the tax from the consumer, just as state sales tax systems already do in 45 states; the FairTax is simply an additional line on the current sales tax reporting form. Retailers simply collect the tax and send it to the state taxing authority. All businesses serving as collection agents receive a fee for collection, and the states also receive a collection fee. The tax revenues from the states are then sent to the U.S. Treasury.

http://www.fairtax.org/site/PageServer?pagename=about_faq

Question # 10

[upchuck]

Thanks for the response Gunner.

But you still haven’t explained how this is done in those five states that don’t have a sales tax.

And you didn’t address at all my question about enforcement.

And I’ve got another question:

I’m starting a new retail business. How do I start paying the NRST? Do I have to notify somebody that I’m now in business? If so who?

[moonhawk]

Thanks, that’s my take as well, at least on that aspect of it all.

[Man50D]

But you still haven’t explained how this is done in those five states that don’t have a sales tax.

Retailers simply collect the tax and send it to the state taxing authority. Fair Tax FAQ #10

Fair Tax Act Passage

SEC. 601. COLLECTIONS.

`The sales tax administering authority shall collect the taxes imposed by this subtitle, except as provided in section 404 (relating to Federal administration in certain States).

I’m starting a new retail business. How do I start paying the NRST? Do I have to notify somebody that I’m now in business? If so who? I’m starting a new retail business. How do I start paying the NRST? Do I have to notify somebody that I’m now in business? If so who?

The Fair Tax Act passage

SEC. 504. REGISTRATION CERTIFICATES.

`The sales tax administering authority shall issue certificates of registration to registered sellers and such other certificates as are necessary or may prove useful in the administration of the taxes imposed by this subtitle.

I suggest you read The Fair Tax Act of 2007 and visit The Americans For Fair Taxation website before asking anymore questions. It will answer many of your questions.

[Always Right]

Boy, talk about "slight of hand!"

That was the man who did the study (who was paid by the fairtax organization) agreeing with that.

[Always Right]

The savings to the company has NOTHING to do with the fact that the employees will be taking home their entire income

Those taxes that the employee will now be pocketing were the majority of the 'embedded taxes' according to the man who did the study. But of course you know more than him.

[Always Right]

In what way? Exactly why would there be a "pay cut." Mark

In reality there probably wouldn't be. But in order for the economist to get the 23% reduction in costs they had to assume employees would take a paycut in the amount of taxes they paid. So without a paycut there would be little savings to the employer and in reality prices would rise.

[Always Right]

Oh, I beg your pardon. If a person has DR. of something in fromt of his name, he is always right.

Dr. Jorgenson was the fairtax expert who authored to the study for the fairtax organization that came up with the 23% embedded tax. So I am just quoting the same expert that the fairtaxers used, only I am HONESTLY representing his results.