Posted on 01/23/2008 3:28:27 AM PST by xcamel
H.R. 25, the legislative proposal inappropriately named the FairTax, would eliminate the Federal income tax and replace it with a national sales tax. It is axiomatic that if enacted, those individuals who have saved money during their lives would be faced with double taxation. (Under the Fairtax, someone who earned $1000 and paid income taxes of say, $250, would find his remaining $750 subject to a 30% sales tax on all retail purchases.)
Generally, when commentators have pointed out the above fact, they have been met with either personal attacks or nonsensical economic gobbledegook. Recently, Bruce Bartlett, a former deputy assistant secretary for economic policy in the George H.W. Bush administration wrote a treatise entitled “Why the FairTax Won’t Work” in a noted tax publication. In that same publication, a week later, Laurence Kotlikoff, who appears to be the lead economist speaking for Americans for Fair Taxation, responded. Mr. Bartlett’s statement with respect to double taxation and Mr. Kotiloff’s response are as follows:
Bartlett:
(The Fairtax) penalizes those late in life who have saved for their retirement during an era when saving was heavily penalized by the income tax. But rather than being able to spend their savings tax-free, as they anticipated, they will now have to pay sales taxes on everything they buy, including health care. It will be hard for them to avoid seeing this as a double tax.
Kotlikoff:
Bartlett suggests that it would be unfair to force wealth holders to pay extra taxes when they spend their wealth (principal). He might have added in his defense of the rich that most of the rich are older and that we should tread lightly with respect to the elderly.
Well rich members of today’s older generations may be a concern of Bartlett. They aren’t a concern of mine. Our country has spent the past five decades transferring ever greater sums from young workers to contemporaneous older generations, including extremely wealthy members of older generations. The most recent example his the introduction of Medicare Part D’s prescription drug benefit. This transfer to current and near-term elderly has a present value cost of some $10 trillion.
The above confirms that supporters of the FairTax understand and acknowledge that the Fairtax would cause anyone that has saved money during their lifetimes to face double taxation. (Mr. Kotlikoff’s extensive prior writings are consistent with his above paragraphs. Perhaps his most interesting paper is his short presentation in 2001 entitled: “The Case For a Tax Hike”.)
While it is the contention of both myself and Mr. Bartlett that the rich will undoubtedly be the mega-beneficiaries of the proposed FairTax, Mr. Kotlikoff’s acknowledgement that there would be double taxation to anyone, rich or poor, who saved money for their retirement is of great importance.
Older generations are and should be a concern of most Americans. Endorsing a tax plan that penalizes Americans who have saved money for their retirement is a pretty interesting position. Penalizing older Americans with double taxation because the government has determined to subsidize medications that keep them alive is, well, a bit beyond the pale.
The double taxation element of the proposed Fairtax is not an issue solely for the rich. It is an issue for anyone with any savings, including and particularly for the retired individual who has been responsible and saved for retirement. It is not an issue which is ameliorated by a monthly prebate of $188.00 which theoretically covers taxpayers at the poverty level; having income $1.00 beyond the poverty level does not make one rich.
The very thought of subjecting the savings of responsible social security recipients to double taxation on their savings should be a notion which is repugnant to Americans.
Hank Adler is an Assistant Professor at Chapman University
Finally a little more truth ping
There is no tax which is fair. But I believe the Flat Tax is the fairest.
Uh...scuzie....
Those folks are paying the embedded taxes when they spend their money now “tax free”.
That won’t change. The tax just becomes naked. Its no more “double taxation” than it is now.
wait for it - the personal attacks, name calling, and general Clintonian attacks comeing from the proponents.
I’m not a Fair Tax proponent, and agree with his article for the most part. But he is wrong in the case of some types of retirement savings (401K, etc.)...these plans enjoy pre-tax status and in the case of spending 401K or IRA retirement dollars, they have not already been taxed.
It was my understanding that the Fair Tax would return the same amount to the government as the current tax system.
If that's the case how can the total tax burden be decreased?
Or is the total tax collected by the government decreased? If that's the case explain how this will put government on a much needed diet?
What provisions exist to ensure that the tax rate won't be increased? Or that the pre-bate level won't be increased?
No one believes your embedded taxation BS anymore, as it has been disproved time and time again.
This is why I prefer a simple, low flat income tax. Low rate, no exceptions, no deductions, no credits. Everybody pays the same rate.
ANY tax structure (Fair Tax / Flat tax / Income tax ... are all simply tax structures) that is implemented by Congress can be later manipulated by Congress to achieve the societies agenda of wealth redistribution.
REGARDLESS of the tax structure, the conversation that is needed in today’s society is limiting the amount of tax collected from a single individual. That of course would require a Constitutional amendment to be enforceable.
The article raises a valid point, and nut just about retirees — anyone who has after-tax savings will pay tax on that money again when they spend it. It’s a drawback for the Fair Tax, no doubt; but you can’t have a major change, even a change for the better, without a transition.
This is the biggest negative for the Fair Tax. I’m not as starry-eyed as some Fair Tax proponents, but I still think the positives outweigh the negatives.
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