Posted on 09/16/2005 5:15:32 PM PDT by Man50D
Dear Editor, I've just read a new best-seller, which I highly recommend to you and your readers: "The Fair Tax Book, Saying Goodbye to the Income Tax and the IRS."
The co-authors are "reformed lawyer" and syndicated talk show host Neal Boortz, and Congressman John Linder, R-Ga.
Linder is also the principal author/sponsor of The Fair Tax Bill (H.R. 25), currently before Congress.
In the interest of brevity (the book is only 180 pages, by the way), I'll quote from the back of the dust jacket.
"What the Fair Tax will do for America: eliminate the income tax and the dreaded IRS; jump start the U.S. economy; bring businesses and jobs back to the United States; and recapture billions of untaxed dollars currently lost to criminal and offshore businesses.
"What the Fair Tax will do for you: allow you to keep 100 percent of your hard-earned paycheck; let you choose to save all the money you want .... and pay taxes only when you spend it; eliminate countless taxes you don't even know you're paying; lower interest rates; and make April 15th just another beautiful spring day."
The authors provide ample citations from the works of various economic think-tanks to back each of those assertions.
The Fair Tax would replace all current federal, income-based taxes with one universal, federal "consumption tax," on both goods and services, at the retail level only. There would be no exemptions whatsoever. The proposed, "revenue neutral," initial tax rate would be 23 percent. Predictions are that the resulting economic boom would make it possible to lower that rate in short order.
As described so far, the Fair Tax would be so regressive as not to stand a snowball's chance in hell of passage. Here's the solution.
At the first of every month, every head-of-household, irrespective of income/net worth, would receive a federal "pre-bate" check equal to the taxes due on his or her appropriate "poverty level spending" for the coming month. To quote the authors, "'Poverty level spending' is, by definition, that spending necessary for a household of a given size to pay for its necessities. It is adjusted every year by the Department of Health and Human Services."
For example, if the Fair Tax were currently in effect, every family of four would receive a monthly pre-bate of $491.82 to cover the 23 percent tax on its first $2,138.22 spent -- its "poverty level spending." All spending above that level (that month) would have a net federal tax cost of 23 cents on the dollar -- be it for sneakers or a yacht.
The federal sales tax would be collected by the states' sales tax offices. Moreover, don't forget that everyone's "take-home-pay" would be their full, gross earnings under the Fair Tax.
It is a most interesting, concise and thought-provoking read that can be knocked out in two or three sittings. Suggested full retail is $24.95. There is at least one copy available at the Camden County Public Library.
I hope that you and your readers will both enjoy the book and come to support the bill.
Here we have the "Mythical Family of Four".
I have found all discussions of this proposal fraudulent in that it is one sided. I have never seen a discussion where real people ask real questions and get full, clear answers.
The book, and all talk-show presentations offer the same tired examples that makes it sound like the best thing since sliced bread.
I suspect the reality is the biggest middle class rip-off since Clinton's "retroactive tax", and the baddest redistribution of wealth since Lyndon Johnson.
Oh, and by the way, there is no iron-clad, irrevocable guarantee that we won't have additional taxes created in the future.
Thank you but no, thank you.
Thank you...
I guess you skimmed the article or just missed it..like I said this is a very conservative estimate(studies were paid by IRS) and does not include tax planning...
"Adding an IRS budget of about $10 billion produces the overall collection cost estimate of $135 billion. This is 14.5% of individual and corporation income tax receipts in fiscal year 2004, and about 1.2% of 2004 GDP."
If the sales tax folks would just stick to real advantages of a sales tax they would go a long ways. Instead they try to sell this tax as all things to all people. The biggest advantage being that it would strip the income tax out of our exports and add sales tax onto our imports, giving the US a well needed trade advantage. Of course that means the price of imports will rise, but that is the price we would pay. That is the one real advantage of the sales tax. Most of the other claims are gross exagerations and misrepresentations that turns most people off.
I guess you skimmed the article or just missed it..like I said this is a very conservative estimate(studies were paid by IRS) and does not include tax planning...The Arthur D. Little study that grossly overstates the compliance burden was paid for by the IRS. They used it until relatively recently. And now they are paying IBM. I don't think the IRS paying for a study affects the outcome one way or the other.
....I don't think the IRS paying for a study affects the outcome one way or the other....
Maybe, maybe not, but it still left out tax planning which is a major cost of our current tax system, how much is that? 100 billion? more? How about if the Democratic party paid for a study on the effects of welfare and food stamps, how do you think that might come out? Would it be shown to be a "Great Society"?
Oh, and yes I DO poke fun at you ... you're an easy target.
To the meat of the debate:
... I've not said that prices will drop 23% (or any other specific number) but just that they will drop a significant amount due to the embedded tax mechanism...
Well you HAVE said:
"Whether it might be 10, 15, 20, 25% - or perhaps more - is not yet known."My choice of 23% is both in your ballpark AND necessary for an after-tax price neutral outcome. What's the problem?
Nor, in fact, have I ever said that embedded tax costs were composed of only the cascading embedded taxes
Well, the multiple times you have been asked to define just what the components of "embedded tax costs" are, you decline to answer. AND your examples only include tax and NOT any "tax-related" costs. So surely, you'd be able to reach consensus on that simplified part of the equation before tackling the other parts.
Your pretense that wages must be cut for prices to drop (or that prices must rise) does not comport with reality.
Well, it's not just MY claim, it's also the claim of the economist who modeled the price drop in the first place Dr. Dale Jorgenson.
the amount that would be necessary to eual 23% of the sell price at Level 6 would be $66.44 x 0.23 = $15.28 which amount is clearly LESS than the 33.88% of embedded taxes which amount to $22.51
Of course; in fact it proves my point. That's because in the example you cite, profit (at 33% for each level) represents 98% of the retail sale price at level 6 ... again underscoring just how important the choice of numbers (inputs) to the model is. As I said, for your claims to be true embedded profit (do you like that term better?) must be at least 67% of final retail sales price to support a 23% price reduction. The example clearly exceeds that requriement and is indicative of just how out of whack your choice of 33% profit is.
The upshot of this is simple: Prices will not decline in the manner you claim.
I'm confused, are you saying that a drop of 23% in prices is required to retain the same amount of revenue as currently collected?
No, he's saying that a drop of 23% in prices is required so that things won't cost more than they do now when the 30% FairTax is added.
In the case of the Boortz book, the biggest "lie" is the one about the Free Lunch. See the thread below for more on the big misrepresentation. I'm glad to see that Boortz has now retracted his claims, and said he will change the book in subsequent printings.
| JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive) |
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| Posted by RobFromGa On News/Activism 08/25/2005 12:40:44 AM EDT · 701 replies · 7,518+ views |
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No, he's saying that a drop of 23% in prices is required so that things won't cost more than they do now when the 30% FairTax is added.
Hmm then how does the prebate affect prices? Proposed to make up taxes on poverty level spending, effectively lowering overall prices paid including tax. Or is that just a freebie? And even if prices go up some, what affect does no SS FICA income tax have on net cost? Lots of apples and oranges involved.
No affect on prices; the prebate is intended to prepay the 30% sales tax on poverty-level consumption, keeping the poor from paying any taxes.
The "prebate" does not affect prices. The prebate lowers the net tax receipts to the gov't thereby causing the "revenue neutral" tax rate to be higher than it would otherwise be. In other words, if there was no "prebate" the sales tax (inclusive) rate would be less than 23%.
It's not a "freebie." Everyone who pay cumulative sales tax in excess of the "prebate" amount pays for everyone who pays cumulative sales tax in amounts less than the "prebate." It's a form of income redistribution or progressivity.
And even if prices go up some, what affect does no SS FICA income tax have on net cost?
Depend on what assumption you choose: If employees get to keep their current gross wages, then prices cannot fall by as much as claimed; after-tax prices will rise considerably. If employees forfeit the income and FICA tax portion of their wages (and keep the same take-home pay) prices can decline more significantly ... if business pass along the forfeiture in the form of lower prices; some will, some won't. After tax prices in that scenario may only rise a small amount. Some claim they will fall a bit, but that debate remains unresolved.
Firstly - I don't "keep telling" you any such thing. I think you have me mixed up with another poster. I rarely (if ever) mention any specific numnbers in relation to compliance costs.
Since we're on the subject, however, be sure to see #236 where I note 1/2 Trillion for what amounts to compliance costs (and I suspect even that's low since it comes largely from IRS-derived numbers - and they certainly aren't going to make themselves look as bad as they really are).
And it's true - compliance costs for the FairTax will basically be zero for taxpayers - unlike at present. Even the businesses collecting the FairTax (and the states, too) are paid for doing so ... there is no unfunded mandate as at present.
Of the $135 Billion in compliance costs outlined in the study, $85 Billion is attributed to costs (time and expense) borne by individuals. Only 60% of that ($51 Billion) is borne by proprieterships. The rest, $34 Billion, borne by individual, non-business income tax payers does not help reduce retail prices.
While the elimination of these costs is a good thing for those individuals, only a small portion of it saves the indivuduals any money (the rest is just time ... whether the individual uses the freed time to watch tv, or work is open to debate.)
Another $10 Billion of the $135 Billion is the IRS budget. Elimination of this expense, while helping to reduce the Federal deficit, does not contribute to the lowering of retail prices either.
That leaves about $91 Billion of the compliance costs from this study available for price reduction ... further supporting the claim that prices will not decline as much as many FairTax supporters claim.
Except that the pre-bates adds about 3% to their inclusive rate.
BTW, welcome back.
Tax Foundation $197 B ('02)
Economist Walter Williams - compliance costs of from $250 - $500 billion each year.
Finance Department at Baylor Univ.:
"It is well known that the U.S. income tax system has enormous compliance costs. Economists generally view compliance costs as the sum of direct payments made to tax lawyers and tax accountants for tax-related services plus the opportunity cost of time spent by everyone else. Everyone else basically includes firms and individuals who complete their own tax forms and deal directly with the IRS with respect to tax audits and litigation (rather than employ tax professionals to do the “dirty work” for them). A cursory survey of the tax compliance literature yields estimates (based upon this specific compliance definition) ranging from $200 to $300 billion, or approximately 1.7 to 2.5% of GDP. "
Add that to the $300 of the lead-in to this thread:
http://www.freerepublic.com/focus/news/1487572/posts?page=1
and you're easily up to $500-600 billion.
The study only includes compliance and enforcement costs, not tax planning..billions are spent to understand the tax laws and apply them to one's advantage, not just to comply with them....Tax attorneys and tax accountants do just, interpret plan, and advise on tax laws, whereas compliance does not involve those things, only compilation. The law is full of loopholes and gotchas and it takes professional help to manuever through the minefield..without it you may be paying more than you need to. I'd like to know that 45 accountants come up with the same answer for one tax return than 45 different answers, and that does not even include planning..the system is broken and needs fixing...
NRST is not a miracle that solves all problems but it seems far better than anything else I have seem suggested. Do you believe our current system is fair and simple? Does the power lie with the people or Congress?
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