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
Is that all you can you? A veiled attack? Can you not back up your argument without making it personal?
I’ve been jaded here on “FredRepublic”. It wasn’t intended as a slight to you personally. Sorry if you took it that way.
My thoughts exactly
I don't have to. I know what tax rate I pay at the end of the year. A 23% tax on all my food, energy and everthing else I buy is not going to be the same.
If you want to cheer on the socialist thievery and support the current Marxist redistribution scheme, be my guest.
But don’t try to sell me the “realist” crap.
“He gets to enjoy those benefits for free while those of us supporting the economy get stuck with the tab.”
Oh, you mean the exact same situation we have now. The rich already pay a quite disproportionate amount to keep things running, while quite a lot of the poorest people pay no tax whatever. In fact, they get money from the state.
Equitable? No. Fair? No.
“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.”
Yep. Reminds me of the “how are we going to PAY for it?” nonsense that comes up every time tax cuts are mentioned. The government DOES NOT need to “pay” for tax cuts. The government simply needs to SPEND less money, in other words live within its means.
Oh, so now the burden of the federal govt. is TOTALLY on the consumer? I didn't know that, I admit. However, do you really expect consumers to foot the entire bill for the federal govt?
The FT does not apply to goods/services used/consumed in the production of goods/services for resale.
So, costs for raw materials would not be subject to the FT. However, the desks, chairs, office machines, paper, supplies, etc., consumed by the business would be subject to the FT.
It really would help the discussion if you took some time to actually read the FT FAQ. It’s an excellent source to get you started on your road to understanding the concept.
Notice I said I pay an effective rate of ten percent? Under the FT, according to this chart, I lose.
Again, I am asking if you have a problem with rich people, since you have total disregard for the taxes they have to pay.
The problem I have is with you implying that I have a "problem" with the rich. How do you kow I am not "rich"?
The "FT" makes tuition exempt in direct opposition to the claims that there are no exemptions.
Man50D: “You make erroneous assumptions because you prefer to wonder instead of taking time to actually investigate the facts.”
There are no FACTS to investigate. It’s all opinion with a bunch of numbers tossed in to make it seem plausible. No one can guarantee the “numbers” concerning a very, very radical change in an entire nation’s tax code, and no one has a viable plan (in my opinion) to actually get the Fair Tax passed.
It’s a pipe dream. I’d much rather concern myself with realistic changes to simplify and reduce existing tax code than spend time fantasizing.
Since you have given me ABSOLUTELY NOTHING TO GO ON, I can’t answer you.
Let’s assume you are rich. You got that way, presumably, either through investments, or you owned a business.
If you owned a business, then you must know of the taxes you embedded in the price that you passed to your customers. What would you have done with the $$ if you hadn’t had to pay it?
I also assume you must be old (retired?), giving you adequate time to generate the wealth you have.
To which I answer, “Thanks to your generation that built this unsustainable House of Cards”. I’m really looking forward to the crushing taxes that I will have to pay in my prime earning years (in about 10 years), to reimburse the IOUs written before I could vote.
Since you don’t wish to engage in meaningful dialogue, you should be ignored.
I have been asking essentially the same question: "What will the price of Diesel after the FT?" for a while with no answer excpt for the boilerplate FT b0t response that "all prices will drop 23%, read the book". There is not 23% of embedded (income tax) taxes in road taxed fuel at the currernt price of oil.
The FT is not a VAT, and the comparison only clouds the issue further.
The FT applies a fixed sales tax rate to NEW goods and services at retail. It is ‘upfront’ and obvious to the final purchaser.
A VAT applies an incremental tax to the value added at each stage of production/distribution, and generally remains hidden (or, at least, not obvious) to the final purchaser.
It is unforutnate that the opposition chooses to use half truths, outright fabrications, and other scare tactics to attempt to discredit a plan that makes good sense.
Of course, it’s equally unfortunate that not all the plan’s proponents are fully educated about the plan and its mechanisms. They invite criticism by their errors in discussion threads such as this.
IMO, the income tax system has been a huge fiscal catastrophe. It has been twisted by power hungry politicos, fertilized and maintained by a whole army of IRS career bureaucrats, and rendered ‘palatable’ to the great unwashed masses by means of the magic of withholding. It has engendered a massive code of regulations, definitions, and penalties, administered by a huge departmental leviathan at the Federal, State and local levels. It has been used as a weapon by underhanded politicians who haven’t the wherewithall to win popular support of their socialist plans (witness the Great Society and its spawn).
A tax on consumption, OTOH, puts the ‘cost’ of government upfront and makes it apparent to the taxpayer every time they make a purchase at retail. With proper oversight, it can be less likely to be ‘tweaked’ by self-serving legislators.
It will cut the huge nut of compliance costs associated with the current model. It will help to level the playing field, internationally, by making US goods and services more cost competitive in global markets.
The FT is deserving of closer examination, and represents, IMO, the only viable alternative to the current model yet presented.
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