Huckabee's fantasy FairTax feeds on workers' frustration

Atlanta Journal-Constitution ^ | 12/20/07 | Jay Bookman

[Man50D]

Common sense indicates that if the income tax was replaced with the Fair Tax, and the same amount of revenue was brought in, some people would pay more than they presently pay, perhaps a lot more, and some would pay less, perhaps a lot less.

That would be true if it weren't for the fact the income tax contains embedded corporate taxes and associated compliance costs that are an inclusive tax rate will be eliminated under The Fair Tax and consequently the price will be reduced with the same dollar amount generated by the inclusive tax applied to lower price as a separate item on the receipt as an exclusive tax rate under The Fair Tax. Therefore the amount of tax collected and the price will remain the same.

[Sherman Logan]

300M people. $1.5 trillion in federal income tax (corporate and personal).

You cannot seriously believe that the same amount of money will be raised, but each of the taxpayers will pay less?

[Callahan]

The person who wrote this article comes off like just another liberal douchebag. There are many advantages to a consumption based tax. The real problem with it is that it’s politically unrealistic thank to the leeches feeding off the current system. Additionally, it would require a constitutional amendment banning the income tax. Otherwise we’d end up with both (See the VAT in Europe).

[Turbopilot]

Oh gee, a rabid left-winger like Jay Bookman doesn’t like the FairTax. Shocking. As an Atlanta resident who frequently is exposed to Bookman’s liberal screeds, I take his article as seriously as I would an article by Hillary on limited government.

The Cliif’s Notes version is that he’s wrong and he lies about the FairTax. He doesn’t deserve any further scrutiny. And I’d be looking forward to Boortz raping him on tomorrow’s show, except he’s on vacation and the milquetoast Herman Cain will let his enemies babble for far too long. Good thing for me I have satellite.

[Callahan]

While we’re discussing bold ideas, I was talking with an old cop the other day who suggested changing the color of US dollars to to, say, red and giving everyone 6 months to trade in their greenback cash. Since the illegal drug biz is primarily a cash business drug dealers would be screwed.

[Neu Pragmatist]

I wish Fred would push the Fairtax .

[Brad from Tennessee]

You have a point. A lot of transactions though are recorded whether you keep a receipt or not. Credit cards, debit cards, checks. At the grocery store where I shop I usually pay cash but I use a store-issued discount card that saves me a few cents. Every purchase I make there is recorded in my name because of the card. Most people don’t use cash for large purchases.

[Hostage]

Under the FairTax the act of paying taxes is a complete choice. We are all free of NRST on necessities up to $10,294 per individual consumption.

That means after necessities are bought we choose to buy or not to buy.

Fact is those with the means will buy and they will pay the NRST. It’s not difficult to see that those with the means who choose to buy will bear more of the burden.

But consider this, the federal burden today is embedded in prices so it is on average no different under the FairTax. Every corporation that brings a product to market embeds their federal tax burden into their pricing. The FairTax merely abolishes and replaces all those federal burdens. The overall burden is the same.

The misunderstanding that is perpetuated by FairTax haters, generally those with a stake in the current Income tax mess, is the notion that the FairTax is a new tax on products and services. No, it is a replacement tax on the embedded taxes.

But that’s not the end of the story and your question is not without relevance but your question needs context. Here’s the context. The NRST is 23% inclusive. It will be applied to all retail level products and services except for used items. Currently some products and services have a different federal burden percentage embedded into pricing by the current tax system than 23% NRST to be imposed.

A preliminary range on current federal burdens on pricing has been estimated at 8% to 33% over a 8-item category on general products and a 3-item category on general services. That’s really where your question lives, the question of what is the distribution of existing federal burden in pricing over a given categorization of products and services. And we are cranking out results now. For example, an ethanol producer is tremendously less burdened that a producer of corn because of existing tax subsidies. And when you begin to get serious about understanding your question in this way you should begin to realize the FairTax is not a debate about which tax system is better, because the FairTax wins all debates on that question, it is not a debate at this point among participants in subcommittees, it is a propaganda war over lobbyist turf.

More than 23,000 tax lobbyists and tax power brokers inside the beltway, more than quadruple the number since Reagan left office, are in a battle against the FairTax and they will use every smear and lie available to attempt to discredit it. But they are losing as the FairTax is the fastest growing reform movement in Congress today.

[lewislynn]

The FairTax cult also boasts its own holy manuscript, in this case "The FairTax Book: Saying Goodbye to the Income Tax and the IRS," by radio talk show host Neal Boortz and his congressional sidekick, U.S. Rep. John Linder (R-Ga.). Cultists insist that the book, like the Bible, is inerrant and answers all doubts, and that all who read it will earn enlightenment.

BWAHAHAHAHAHA!!

Too funny and dead on accurate!

[lewislynn]

While we’re discussing bold ideas, I was talking with an old cop the other day who suggested changing the color of US dollars to to, say, red and giving everyone 6 months to trade in their greenback cash. Since the illegal drug biz is primarily a cash business drug dealers would be screwed.

Not if the Fairtax is law. Under the Fairtax it's not the government's business where your money comes from...Don't take my word for it, ask any of the Fairtax supporters.

[lewislynn]

A preliminary range on current federal burdens on pricing has been estimated at 8% to 33% over a 8-item category on general products and a 3-item category on general services.

LOL! Yeah, that hasn't been done too many times. < /sarcasm >

"Preliminary", "estimated"... Not very convincing coming from the most researched tax bill ever...Let me guess..the final result will be around 23%.

Your Fairtax studies for embedded taxes are like Communism. You think it's not working because the right people aren't trying it...Apparently now it's your turn to fail.

What is a "federal burden on pricing" and how does the Fairtax eliminate them?

If you want to talk about federal regulations that's one thing, but I missed the part of the Fairtax bill that eliminates federal regulations.

Here's an exercise on how the amount of items in a product can affect the "embedded tax".

You have 8 vendors in the manufacture of a product, each vendor (including the retailer) has 100 employee's. Each employee and his employer contributes 15.3% of their wage base to FICA

What is the total (embedded) percenatge of all 800 employees wage base in the final sale of the product?

If you said 12,240% you would be wrong.

You don't like that one? Try this one.

8 vendors including the retailer. Each vendor, including the retailer pays 25% tax on their 10% profit or 2.5% of their gross.(actually the tax isn't ON their profit it's a percentage OF their profit).

Is the total tax percentage in the final sale of the product 20% or 2.5%?

If you said 20% you would be wrong.

[esarlls3]

Jay Bookman has demonstrated his ability to a) Find a platform issue supported by a candidate he opposes, b) Find criticism of that platform issue somewhere, and c) Write a light-hearted article which ridicules anyone supporting the platform issue.

Too bad he was not able to find FairTax.org so he could compare the results of $20M in economic research with the criticism he found. He might have discovered that all of the points of criticism he used had already been rebutted.

Jay Bookman writes:	esarlls3 responds:
Let us go forth and abolish the federal income tax, the estate tax, corporate taxes, capital gains taxes and payroll taxes, as well as the IRS. Let us then replace all those taxes with a 30 percent national sales tax collected on all services and goods, from a new house to chemotherapy treatments to a gallon of milk.	A nice touch of phrasing the FairTax like scripture to play on Huckabee's ministerial background. I'll give Jay credit for the originality of this paragraph. Jay leaves out the prebate already mentioned by Man50D but that's basically the idea. A simple, visible, efficient, border neutral, progressive consumption tax.
According to Huckabee and other proponents, the FairTax will raise just as much revenue as the current system. They also believe that, somehow, almost everyone will pay less in taxes. They believe that under the FairTax, the economy will grow at double-digit rates, interest rates will fall, exports will boom and the Falcons will win the Super Bowl.	1) The FairTax is designed to exactly replace the revenue generated by the taxes it is replacing. 2) The FairTax is broader than the income tax which lowers the amount paid by each person. Some will pay more. I tried the FairTax Calculator to see how my family would work out. With no retail price reduction, I pay $3600 less in taxes than today. With a modest 10% reduction in retail prices, I pay $10000 less in taxes than today. Even if I did not come out ahead, it would be worth paying more to eliminate the incomprehensible Income Tax and the lobbying power that is embedded in it. 3) Here are some research papers describing the impact of the FairTax on our economy: A Macroeconomic Analysis of the FairTax Proposal The impact of the FairTax on American manufacturing, agriculture, trade, and international competitiveness How the FairTax affects wages The FairTax and the global economy The FairTax and economic growth Here is An Open Letter to the President, the Congress and the American People by 75 leading economists from major universities and think tanks who endorse the FairTax.
The proposed 30 percent sales tax, for example, wouldn't come close to being revenue neutral. A tax commission convened by the Bush administration found that eliminating just the federal income tax — leaving all other federal taxes intact — would require a sales tax of at least 34 percent, a finding backed by other economists.	Here is research about Taxes & Tax Reform, which includes Taxing Sales Under the FairTax - What Rate Works? Where the Tax Reform Panel and others get higher 'FairTax' rates is when they start changing the FairTax into something different. Here is the list of recent rebuttals to these obfuscations of the FairTax. You can also search the rebuttals. Here is an Excerpt from Rebuttal to President's Tax Panel Report
The fantasy nature of the FairTax is perhaps most glaring in its approach to enforcement. Advocates believe that under their system, tax fraud would essentially cease to be a problem and that the new system would almost enforce itself, allowing the IRS to fade away.	With Income Tax compliance of only 84% of taxpayers and 70% of taxes due, it's hard to imagine FairTax compliance being worse. Note that the number of taxpayers to audit would decrease by 90% and 20% of these are responsible for 80% of revenue. This allows enforcement efforts efficiently focus where their effors will be productive. Most enforcement would be through existing state Sales Tax enforcement organizations, so a large IRS-like federal enforcement organization will not be needed. See FairTax Reduces Complexity, Compliance Costs, and Noncompliance for details.
Ask yourself how many people would be lured into the black-market economy to avoid paying a sales tax of 30, 40, 50 or even 60 percent on expensive items?	Back to the rebuttal page for those rates. If federal taxes are really taking 60% of consumption, shouldn't we bring this out in the open so people can demand Congress lower spending?
However, under the FairTax, those folks would end up paying significantly more in taxes, while the tax burden for the wealthy would fall dramatically. It would victimize the very people who look to it for salvation.	Back to the FairTax Calculator to test specific examples. See also Demographic Research, including A Distributional Analysis of Adopting the FairTax, which concludes: On this basis, we show that the FairTax benefits households and individuals in the lower expenditure categories, while imposing a higher burden on those in the higher expenditure brackets. When the dynamic effects of the FairTax are included, only those households in the top per-capita-expenditure decile would be worse off after the 25th year of the implementation of the tax, and then by a relatively small amount. Thus, we conclude that replacing income and payroll taxes with the FairTax would make the United States federal tax system more progressive than it is now and would benefit the average individual in almost all expenditures deciles.

I think Hunter and Tancredo are better speakers on the details of the FairTax than Huckabee, but they have not organized a campaign that attracts attention. Note that there are now 69 sponsors in the House (up 17% in the last year) and 5 in the Senate. There is still a long way to go but the train is moving and gaining momentum.

[esarlls3]

Common sense indicates that if the income tax was replaced with the Fair Tax, and the same amount of revenue was brought in, some people would pay more than they presently pay, perhaps a lot more, and some would pay less, perhaps a lot less. I have seen very little analysis of who would fit into each group.

Any arguments?

See Demographic Research Papers, including A Distributional Analysis of Adopting the FairTax, which concludes:

On this basis, we show that the FairTax benefits households and individuals in the lower expenditure categories, while imposing a higher burden on those in the higher expenditure brackets. When the dynamic effects of the FairTax are included, only those households in the top per-capita-expenditure decile would be worse off after the 25th year of the implementation of the tax, and then by a relatively small amount. Thus, we conclude that replacing income and payroll taxes with the FairTax would make the United States federal tax system more progressive than it is now and would benefit the average individual in almost all expenditures deciles.

[lewislynn]

2) The FairTax is broader than the income tax which lowers the amount paid by each person. Some will pay more.

More Fairtax double talk...

[esarlls3]

Additionally, it would require a constitutional amendment banning the income tax. Otherwise we’d end up with both (See the VAT in Europe).

1) A constitutional amendment to repeal the 16th amendment is part of the FairTax plan. From the FairTax.org FAQ:

What about the 16th Amendment?

It is not the intention of this plan, or the desire of the American people, to end up with both a federal income tax and a federal sales tax. The objective is to ensure that one is replaced by the other, not added on top of the other. By repealing the 16th Amendment, we close the door on an income tax for generations to come.

2) Actually, we already have both. The corporate income tax is in effect a secret VAT which is embedded in the prices of everything you buy. Unlike a VAT, though, it can't be removed from export prices or added to import prices, so U.S. production is at a 20% price disadvantage compared to foreign goods. That giant sucking sound was our manufacturing jobs moving offshore to avoid the U.S. tax system.

[esarlls3]

Bears repeating, emphasis mine:

The FairTax is not a debate about which tax system is better, because the FairTax wins all debates on that question, it is not a debate at this point among participants in subcommittees, it is a propaganda war over lobbyist turf.

More than 23,000 tax lobbyists and tax power brokers inside the beltway, more than quadruple the number since Reagan left office, are in a battle against the FairTax and they will use every smear and lie available to attempt to discredit it. But they are losing as the FairTax is the fastest growing reform movement in Congress today.

[PizzaDriver]

“Under the FairTax the act of paying taxes is a complete choice.”

That might be true for folks who can OWN a home. For those that must Rent a place to live, It ain’t so.

Nor would owning a Duplex, to retire into, continue to be a valid American Dream. If the Fair Tax had been in place when my Mother retired into her very own Duplex, her tax liability would have been 30% of ALL rents recieved. As it was, she paid around 15% on her net Profit.

[esarlls3]

8 vendors including the retailer. Each vendor, including the retailer pays 25% tax on their 10% profit or 2.5% of their gross

You asked me a similar question a few days ago and I didn't get around to answering it. Here is my attempt - let me know if I made a math error :)

Level	Income Tax						FairTax
	Cost	10% Gross Profit	Sell Price	25% Income Tax	7.5% Net Profit		Cost	7.5% Net=Gross Profit	Sell Price
1	$100.00	$10.00	$110.00	$2.50	$7.50		$100.00	$7.50	$107.50
2	$110.00	$11.00	$121.00	$2.75	$8.25		$107.50	$8.06	$115.56
3	$121.00	$12.10	$133.10	$3.02	$9.08		$115.56	$8.67	$124.23
4	$133.10	$13.31	$146.41	$3.33	$9.98		$124.23	$9.32	$133.55
5	$146.41	$14.64	$161.05	$3.66	$10.98		$133.55	$10.02	$143.57
6	$161.05	$16.10	$177.15	$4.02	$12.08		$143.57	$10.77	$154.34
7	$177.15	$17.72	$194.87	$4.43	$13.29		$154.34	$11.58	$165.92
8	$194.87	$19.49	$214.36	$4.87	$14.62		$165.92	$12.44	$178.36
Retail Transaction	Retail Price		$214.36				Retail Price		$178.36
	Secret Hidden Taxes			$28.58			30% visible FairTax		$53.51
	Total Paid		$214.36				Total Paid		$231.87
Wages Required	Earned Wages		$274.82				Earned Wages		$231.87
	15% Income Tax		$41.22				No Withholding		$0.00
	7.65% FICA		$19.24
	Net Wages		$214.36				Net Wages		$231.87

Notes:

• The hidden taxes under the Income Tax are $28.58, or 13.3% [exclusive] of retail price, which is a 15.4% [inclusive] secret sales tax.
• The retail price dropped 16.8% under the FairTax.
• What required $274.82 in earnings with the Income Tax, can be bought with $231.87 in earnings with the FairTax, a 15.6% increase in purchasing power.
• This example does not include the FairTax Prebate (which would make the FairTax better) or employer FICA payments (which would make the Income Tax worse).

This is admittedly a simplified example. For a more thorough analysis, see Industry Research Papers, and The impact of the FairTax on American manufacturing, agriculture, trade, and international competitiveness.

[Hostage]

You need to read and study more. Here’s some help (below is one of many written at a level most can understand; there are several academic drafts involving leases/rents as well but written for economists):

http://www.bargaineering.com/articles/my-thoughts-on-the-mother-of-all-tax-reforms.html

Posted: November 1st, 2007 at 11:00 am

A simple point to understand is the FairTax simply moves taxation from the front of your income to the end of your consumption. An example is rent. Rent is taxed today. To have $500 available to pay rent today you must earn $653 in the lowest marginal tax bracket (15% income tax plus 7.65% payroll tax). This expense is not deductible. If the income earned today and used to purchase some good or service is taxable and not deductible, it is the same as taxing the purchase of that good or service.

Under the FairTax, if you earn $654, you will get to keep it all. The $500 rental payment will now become $650. You are no worse off. The landlord’s expenses will go down. They are not disadvantaged in anyway. The purchase of the property would be considered a business expense and not taxable. Their other expenses for maintenance, insurance, etc are considered business input expenses and not taxable. The seller of the materials they need to buy for that maintenance, the insurance companies selling protection services will also not be taxed on their inputs. Their income from rents will not be taxable. They will simply pay taxes at the retail level like everyone else. All this allows lower prices to be passed through to the renters. Whether lower prices will be passed through depend on supply and demand, just like currently. But even if prices didn’t drop at all, most Americans will be better off. Purchasing power definitely goes up by the increase in take home pay with or without pretax price reductions and now the citizen will be much more in control of their own burdens.

I realize that the standard deduction/personal exemption result in no net taxes for some, but the prebate under the FairTax accomplishes the same thing and it is larger at every family size…so we are concerned with the margins, not the first dollar.

I’m not sure if Joel’s comment was meant as it sounded, but to clarify, most home owners today do not itemize. The percent of Americans who itemize is around 34%. Those wil claim the home mortgage interest deduction is 27% and about 68% own their home…so a little less than 40% of home owners itemize their interest. Almost none of these will be the poor or the middle class because when you itemize, you must give up a $10,700 standard deduction (married filing jointly). If your total interest paid plus any other deduction aren’t at least that amount, you won’t itemize. (Based on interest alone, your monthly interest payment would need to be almost $900. How many poor or lower middle class can afford a $1,000 monthly house payment).

Even for those who itemize, this is not a great benefit. For example, it my total interest deductions were $13,000 for the year, at the same time I claim this deduction I give up another $10,700 deduction (the standard deduction) so my net benefit is only equal to the difference of $2,300 in deductions. Additionally, it is ONLY deductible for purposes of INCOME taxes, not for payroll taxes so I’m still paying 7.65% on the entire payment.

Under the FairTax, NONE of the base interest is taxable and that applies to 100% of Americans, the poor included. There is nothing to give up and the tax free status applies to the entire tax. The principal is only taxed on a new home so for the poor and middle class, home ownership becomes much more possible. Add to this the fact that savings will not be taxed which helps Americans save for a down payment quicker and the fact that interest costs are projected to decline by 25% making payments less expensive and you have a recipe for many more homeowners.

A final note, I have several low income clients who I help with cash flow issues. Many times an increase in income is turned down, not because they are lazy, but because an increase in income is subject to new taxes AND costs them in lost EITC as well. When adding these together, their effective marginal tax rate on new income sometimes goes over 50%. they are simply unwilling to work longer hours or harder for less than half their money. Under the FairTax, every extra hour of work or harder effort can be rewarded with 100% of its value. They will determine how it is treated for tax purposes by their own choices, but we will trully be rewarding hard work and savings, the two things we tell most Americans they should do.

[FreedomProtector]

Informative post.