WHY THE FAIRTAX WON'T WORK

NCPA ^ | 2/15/2008 | NCAP staff

[xcamel]

One solution to the nation's long-term fiscal problems that has gained support in recent years is the idea of replacing all federal taxes with a 23 percent national retail sales tax called the FairTax. Unfortunately, the administrative problems inherent in this proposal make it impossible to take seriously, says Bruce Bartlett, former deputy assistant secretary for economic policy at the U.S. Treasury Department.

For example, under a FairTax scheme: A worker now netting $800 per week would immediately get a $200 raise and start taking home the full $1,000 gross wage that he is paid; instead of paying income and payroll taxes, workers would pay their taxes when they buy things.
The FairTax would impose a 23 percent tax on all goods and services (this is not really correct, but for now we'll accept it at face value for analytical purposes).

Whether he is better off or not depends on what his effective tax rate is: Assuming he spends all his income and no more than that, he will be no worse off if he now pays 23 percent of his income in taxes. That is, his effective tax rate is 23 percent; in this case, the FairTax is a wash, the worker is no better off or worse off in terms of taxes than he is now.

But what if the worker is now paying less than 23 percent of his income in federal taxes? In this case, he is clearly worse off, says Bartlett: The prices of the things he buys will rise by more than his income rises from the elimination of income and payroll taxes. Conversely, if one is wealthy and in a tax bracket above 23 percent, that person would be much better off. His income and payroll taxes would fall by much more than the prices of goods and services he consumes would rise.

Source: Bruce Bartlett, "Why the FairTax Won't Work," Tax Notes, December 24, 2007.

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[Tramonto]

Why don’t you humor me and just answer the question. I don’t care if you really would spend all of your income on taxable products or not. If you save some of your money and buy used products, you will be paying even less in taxes.

Any one reading this tread knows that you are a coward and a liar. You refuse to answer a simple question.

[Cracker Jack]

If the Fair Tax brings in the same amount of money as the income tax, where will the funding for the new entitlement program come from?

I believe the term is "revenue neutral", not "bring in the same amount of money". The FairTax, AFTER paying the prebate, results in a net tax to the Feds equal to what is now collected.

The prebate is an essential part of the FairTax that keeps it from being regressive. People at the poverty level, after receiving the prebate, net out at a 0% tax rate. At twice the poverty income level, the after prebate tax is 11.5% of the gross. It would be less than 11.5% if some income is saved or if income is spent on non-taxable items like a used car.

I still wonder if people are purposely trying to avoid learning anything about the FairTax because they just love the current system so much.

[lewislynn]

Where will the money for the monthly FT entitlement check come from? We're not getting one now.

Speaking of that, has anyone else noticed how the (GAG!) "prebate" subject has been dropped like a hot potato by the Fairtaxers since the talk about what a fraud the recent rebate/stimulus plan is?

[lewislynn]

But reading the fairtax propaganda, it is the ultimate fairytale. Everyone wins big.

Even their phony "Fairtax calculator" calculates that with the (GAG!) "prebate" everyone would have more "spendable income" than they actually earned...They actually beleive that stuff.

[FreePoster]

I doubt the Flat Tax will happen simply because I can’t imagine the powers-that-be, i.e. all those with a vested interest in the status quo, removing the shackles of payroll taxes. And the tax code is the greatest instrument with which politicians of every kind can manipulate us with hopes, fears, promises, threats, incentives, and punishments.

However, a lot of the arguments like this against it seem half-baked. For instance, how many people spend their whole paycheck (e.g. no mortgage)? I have no doubt it would work much better than our present system if it were ever given a chance.

The Fair Tax is probably like garlic to a vampire for the business-class wing of the Republican Party.

[lewislynn]

Those taxes compound! Do you know how many times an item is taxed before it comes to the retail market?

OMG!...No, how many? And how many times do they compound before the tax is more than 100% of the retail price?

[FreePoster]

Farther reaching than the payroll taxes, which take your money before you even know what you’re going to spend it on?

[FreePoster]

That math would be correct, though. If you pay 30 cents on $1.00, this is equivalent to a 23% payroll tax. E.g., if $1.30 from your employer nets $1.00 on your paycheck, then a 23% tax rate was applied.

It is honest to portray a 30% sales tax as taking 23% of the earned money for purposes of comparison. It’s the payroll tax that is misleading, with it’s seemingly smaller rate (among other things).

[lucysmom]

I'm honestly not dogging you but some of you are so mislead by "the book" it's unbelievable.

So much for the simplicity and transparency of the FairTax scheme.

[lewislynn]

Under the FairTax our worker pays net $6,176 in federal tax whereas under the Income/Payroll tax system he pays:

SS/MC Payroll tax of 7.65% of gross $45,810 =~ $3,504 Income tax FICA 15.35% of Taxable $37,060 =~ $5,689

for a total of $9,193. .....

------

I guess estimates by leading economists above this neaderthals' paygrade of federal embedded taxes of between 22% to 23% just wooshed past his attention span.

I missed the part where you included them, or did they "woosh past your attention span" too?

Using your calculations your example worker under the income tax paid $9,193 then went on to spend the $37,060 balance, 23% of which is (by your words) federal embedded taxes...meaning your example worker, by your own logic, paid $17,717 in federal taxes. Yet your after Fairtax worker only paid $6,176 and nothing for replacement of the embedded taxes...How convenient for you.

Maybe you could illustrate for the rest of us how your scenario is revenue neutral when you choose to only selectively acknowledge the embedded taxes. Or did they just "woosh past your attention span"?

[lewislynn]

Also, most naysayers do not realize that it is a constitutional replacement for the present income tax...

That has to be another Boortz lie. Where do you people get this stuff?

[lucysmom]

The original tax system that made America the wonder of the world was an excise tax, an indirect tax crafted by the Framers to eschew any form of favoritism.

The excise tax of the "Framers" was on imports, not domestic goods and services, and could easily be avoided by most Americans of the time without impacting their lifestyle. Imports were considered luxury items purchased mostly by the wealthy.

By imposing a tax on imports, favoritism (protectionism) was shown to domestically produced products.

The Income tax is a plank in the Communist Manifesto, promoted by Marx as a way of bringing socialism to a capitalist society.

Marx also saw "free trade" as a means of furthering socialism.

[lucysmom]

The FairTax is the correct hand to play. Nothing else will get rid of the corrupt tax lobby that pits group against group while buying members of Congress to be part of their stable.

The AFFT, FairTax parent, is a tax lobby, and it is clear from the character of the posts offered up by FairTax supporters that it does pit one group against another.

How goes the Congress buying to date? How many cosponsors does the bill have now?

[lewislynn]

I can take your flawed high school math further and say that someone who pays 23% of their income actually pays 30%. It can work both ways. If your gross pay was $50,000 and you paid 23% in taxes, that comes out to $11,500 leaving you with $38,500 net. Percentage of income that is taxed: 11500/38500 = .299 or 30%

That isn't math or logic. 11500 is 30% of 38500...so what? What happened to the $50,000?

Try grade school math. Take a pie, cut it into 50,000 pieces. Eat 11,500 of the pieces. What is the percentage of the pieces you ate, to the 38500 piecs of pie you have left?

[lucysmom]

The Income tax took 50 years to become legal.

Really? Why don't you provide a time line to back up your statement.

[lewislynn]

They'll claim that's only 41% when calculated using their "inclusive" method.

Right and 100% would only be 50% too.

[lewislynn]

It IS a constitutional amendment concurrently adopted with one that ends the income tax.

What amendment title would that be exactly?

[lucysmom]

...the President's tax panel ignored millions of dollars worth of solid, independent research on the FairTax legislation...

Just curious - what is the meaning of "independent" in the above?

[Mojave]

The Presidents Tax reform panel did not evaluate the FairTax proposal at all!

Not only did they evaluate it, they determined that it would be the largest entitlement program in history. The link to their report is in post 249.

[lucysmom]

I still wonder if people are purposely trying to avoid learning anything about the FairTax because they just love the current system so much.

If it is true that "you get less of what you tax", then what would one expect the effect of the FairTax to be on an economy based on consumption?