Posted on 01/22/2008 3:43:13 AM PST by xcamel
Look up the word “fair” in Webster’s dictionary and you’ll find this definition: “Free from favoritism or self-interest or bias or deception.” Ironically, the so-called “fair tax” proposal that has been getting some attention lately is fraught with favoritism, self-interest, bias and deception.
The phrase “fair tax” is a new way to refer to the old proposal to create a national retail sales tax. Such a tax would replace essentially all federal income and payroll taxes with a national sales tax levied on all purchases. So instead of having Social Security and Medicare taxes taken out paychecks and filing those April tax returns, Americans would pay a national sales tax on every purchase they make. There are four myths about this tax proposal that must be dispelled in order to have a meaningful debate about its merits.
The first such myth is that the rate would need to be set at 23% in order to raise enough money to run the federal government. Not so fast. Under the proposal if you buy a $100 item the tax would be $30. Most of us would describe that as a 30% tax. But proponents would have us believe that the tax rate should be calculated by dividing the tax amount by the total purchase price including the tax. So divide $30 by $130 by and you get 23%. That is truly fuzzy math at its finest.
The second myth that needs to be addressed is that the IRS could be abolished because the federal government would no longer collect income and payroll taxes. That might technically be true but a new massive bureaucracy would have to be created in its place. This new agency would be in charge of sending every single American an approximately $450 check at the beginning of every month that presumably reimburses them for taxes they pay on their income up to the federal poverty level. This new agency would also be charged with making sure that anyone who sells anything is collecting the tax. So the guys who live out in the country near my home who shell the pecans that grow on my trees would have to start charging me sales tax and send that money to the federal government. And for each of these types of services that aren’t taxed or retailers that aren’t discovered, the tax rate on other purchases has to be that much higher.
This brings me to the third myth – that a 30% rate would be adequate to run the federal government. There is no way that a national retail sales tax could pay for current federal programs without setting the rate at least 45%. The allegation that a 30% rate is sufficient relies on some strange assumptions such as requiring government to tax its own spending and even taxing free services like free checking accounts and free care at veterans’ hospitals. It also assumes that every single transaction is taxed, including lots of things that aren’t taxed currently. So, imagine adding $90,000 to the purchase of a $200,000 home or adding $450 to your $1,000 monthly rent. Better yet, imagine adding $4,500 for every $10,000 paid in college tuition.
Fourth, and most importantly, it is a myth that the tax is “fair.” A deeper look at the proposal clearly shows that it would raise taxes substantially on most Americans while giving the wealthy a substantial tax cut. That’s because most Americans must spend most or all of their incomes to make ends meet, while better-off people can afford to spend a much lower share of their incomes. According to the Institute on Taxation and Economic Policy, the typical middle-income North Carolinian who earns about $34,000 per year would pay an additional $3,800 in federal taxes. The state’s wealthiest 1% of taxpayers whose average income is over $700,000 would get a tax break of around $150,000 per year.
It’s not fun to be in the role of defending the current federal tax system because it is confusing and not always fair. But ideas for replacing it need to be grounded in sound tax policy principles. An idea that relies on myths and gimmicks to get attention is not one worth considering.
Elaine Mejia is the Director of the N.C. Budget and Tax Center
The other psychological issue that will sink the Fair Tax out of the gate is the inequity. The chap bastard down the street who makes his kids wear second hand clothes and such pays no tax while the rest of us have to choose to live like him or be saddled with the burden of supporting our military, veterans and roadways. He gets to enjoy those benefits for free while those of us supporting the economy get stuck with the tab.
It is legalized tax evasion, an the sad thing is, if you read enough of the things said by the FTers it is obvious. Look at the points they stress, keep all your money, “choice” , the prebats etc.
LLS
HAHAHAHAHA!
Turrent Gunner A20: “I don’t know about you, but I think that stinks.”
I never said I like taxes. I only wonder what impact an overt tax like the Fair Tax would have on the economy. It’s something that should be at least considered, since our economy is presently very dependent on consumption.
As for the crooks who keep taking more, well...we let them. Americans could rise up whenever they wanted to kick the shysters out, but I can only conclude majorities like the government we keep getting (unfortunately).
“The current federal gasoline tax would go away.”
You other points are valid, except that one.
Remember, the FairTax is not about money; it’s about power and influence.
Who has it (the politicians), who wants to wield it (the lobbyists), and who wants to take it back (We the People...)
As in the devil we know vs. the oily devil we haven’t met, yet. One real answer is to reduce the government by 30% the first year and 10% each year following and to use fair tax calculation in the cuts. Soon we would reach a point at which government was palatable and met its Constitutional roll.
I’m afraid that all of this is wishing as long as Tocqueville’s rule remains, (paraphrased) “The republic is safe until politicians learn that they can bribe you with your own money.”
“This brings me to the third myth – that a 30% rate would be adequate to run the federal government.”
This socialist reveals herself. What she’s really worried about is that the pig bureaucrats and thieving politicians won’t have enough money to run the criminal fascist syndicate occupying Washington.
Whenever the current Marxist applecart tax system is threatened, the socialists and others who leech off the system come out screaming.
My solution to cut taxes and business costs is simple - fire every fascist/Marxist federal bureaucrat who’s not involved in national security.
Don't fair-taxers leave out the fact that everything a corporation buys would be taxed at the mythical 23%? Wouldn't that cost be embedded in the price of everything all over again?
Since "we the people" don'ts set the rate how would "we" be in control?
Socialist my ass. She’s a realist. The Federal Gov’t doesn’t go without. It either raises taxes or deficit spends. And you seem to have forgotten that the Fair Tax mantra is supposed to include the term “revenue neutral”.
“The republic is safe until politicians learn that they can bribe you with your own money.”
I’d say a significant portion of our countrymen have enthusiastically chosen to enslave themselves to the government.
“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.”
- Alexander Tytler
Thanks to the democrats and their followers, we are well on our way there. Once the electoral college is abolished (happening right now), mob rule shall prevail.
Those on public assistance should lose their right to vote.
Just don’t buy anything. Of course, in a popcorn fart economy based on consumer spending, that might not be such a good thing.
It is much more difficult to play “class warfare” with a flat rate, especially when income is unknown.
Any alteration in the tax rate hurts all equally; rich and poor alike. No more demagoguery of the “evil rich”
Man50D: “I suggest you actually read the bill and visit the AFFT website before making anymore erroneous statements.”
Nothing erroneous about wondering about the impact of a consumption tax on a consumption-based economy. As I wrote, Fair Tax advocates write as though it’s all about numbers. It’s anyone’s guess what the tax would actually do. I suppose someone could analyze Europe’s VAT for clues, but who can predict? Plus, I think Fair Tax fans are extremely naive to think politicians will give up the source of their power. Even if I liked it, and some parts I do, it’s just not going to happen.
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