Posted on 04/19/2007 1:55:56 AM PDT by Man50D
The following is an address I plan to deliver on the House floor this evening regarding Tax Day.
Madam Speaker, many things change from year to year. Tax Day, however, is an exception. Every year, millions of Americans send much of their hard-earned money back to the federal government. Because of the numerous complexities that have become the U.S. tax code, many virtually need an accountant, and others just send in a large check out of sheer frustration, hoping to figure out the right number later on.
What is fair about our current tax code? Absolutely nothing. Is there a better solution? You bet. One answer can be found in the form of the Fair Tax, and it is a solution that helps Americans keep more of the money they earn and creates a more equitable system of collection. In short, the Fair Tax eliminates our current broken tax system and replaces it with a national sales, or consumption, tax to be administered by the states. When a hard-working American receives his paycheck, he actually gets to take it all home. Gone, too, are the estate and capital gains taxes.
I applaud Congressman Linder of Georgia for continuing his strong push for his bill H.R. 25, the Fair Tax Act of 2007. With its enactment, the national sales tax rate would be set at 23 percent beginning in 2009, at which point Americans would no longer be afflicted by the current tax system. Gone would be personal and corporate income tax, the gift tax, taxes on social security and Medicare, and even the infamous alternative minimum tax, which is estimated to hit 19 million Americans in 2006, a figure that could easily double in the next few years if nothing is done. In the case of the Fair Tax, the only people that pay more are those that choose to spend more.
Currently, and in part due to the tax cuts passed under the Bush administration, there are many valuable deductions in our current tax code that are fair and serve a good purpose. On top of the overall savings provided by the Fair Tax to the consumer, it would also permit exemptions from the tax for property or services purchased for business, export, or investment purposes and for state government functions. Nonetheless, this pro-family legislation allocates a sales tax rebate for certain families, based on family size and income. Every family would receive a rebate of the sales tax on spending up to the federal poverty level, plus an extra amount to prevent any marriage penalty.
Another important aspect of this bill is the provision to let the individual states choose how to administer the collection of consumption tax and redirect that funding back to the U.S. Treasury. Many states already have a sales tax, and so the existing state tax authorities will essentially carry on as before without the need to create additional bureaucracies. This system will also be instrumental in eliminating the "tax gap" that exists under the current system. Instead of the Internal Revenue Service waiting on taxes owed, with billions uncollected every year, the Fair Tax is collected at the point of sale. Once the Fair Tax is in place in 2009, funding to the IRS would be eliminated after fiscal year 2011, with taxes directed through a Sales Tax Bureau. Gone would be the days of the IRS spending millions of tax dollars each year just to track down uncollected taxes - the IRS itself would be gone.
The reason is obvious. A person making 10 grand a year can’t afford to pay as much as a person making 20 million. Its easy for those of us that make more than those making less to say “hey I should only have to pay the same as that person”. The problem is with that we all know that the person making more is just looking for a way to pay less. If we voted all the clowns out of office and get our government back to what it should and was intended to be we could go with a flat tax, but thats never going to happen. Since both parties are corrupt. Personally, I have no pity on the CEO,s making 200 million a year. We all know how the system works that got it for them.
My computations are correct. You can also reference the FairTax FAQ #47 on this very subject:
30 percent. This issue is often confusing, so we explain more here.
When income tax rates are quoted, economists call that a tax-inclusive quote: "I paid 23 percent last year."; For every $100 earned, $23 went to Uncle Sam. Or, "I had to make $130 to have $100 to spend."; That's a 23-percent tax-inclusive rate.
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.
Sales taxes, on the other hand, are generally quoted tax-exclusive: "I bought a $77 shirt and had to pay that same $23 in sales tax." This is a 30-percent sales tax. Or, "I spent a dollar, 77 cents for the product and 23 cents in tax." This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same tax of $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.
(I had to reformat the cents character to the word 'cents' since Free Republic's software was rewriting this to a series of nonsense characters.)
You can also reference the tax computation made in the document FairTax Fundamentals and Facts on page #10:
| Component of housing cost | Current law | FairTax |
|---|---|---|
| Home purchase price | $230,000 | $230,000 |
| Mortgage interest rate | 6.6% | 4.95% |
| Interest at rate above for 30 years | $298,806 | $211,962 |
| Federal taxes | $104,854 | $69,000 |
| Income taxes on principal | $64,400 | $0 |
| Payroll taxes on principal | $17,595 | $0 |
| Income taxes on interest | $0 | $0 |
| Payroll taxes on interest | $22,859 | $0 |
| FairTax on home purchase price | $0 | $69,000 |
| Total housing cost including taxes | $633,660 | $510,962 |
| Difference in total housing costs | -19.4% |
(Reformatted since the original formatting didn't preserve well with < pre > tags.)
Note that the FairTax is $69,000, which 30% of the $230,000 purchase price, not 23%.
Finally, you can read the actual legislation at the Library of Congress (the least clear of all of the methods, although the origin of my own initial discovery of the 23% being an inclusive rate, not an exclusive one):
SEC. 101. IMPOSITION OF SALES TAX.
(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.
(b) Rate-
(1) FOR 2009- In the calendar year 2009, the rate of tax is 23 percent of the gross payments for the taxable property or service.
"Gross payments" are the complete payment with tax included.
Your numbers only make sense if the Fair Tax is viewed as an exclusive tax. But he FT is calculated, like the current income tax, inclusively. More to the point, you tried to suggest that if we switched to the Fair Tax things that used to cost 100 dollars would now cost nearly 130 dollars. That is an inaccurate characterization of what would actually happen under the Fair Tax and it maliciously assumes that your readers do not understand the difference between inclusive and exclusive taxes and just what the Fair Tax actually does.
Tomorrow, when I have a bit more trime, I’ll try toi get to your information above. My previous post above refers to your original post.
You are somehow misreading my posting in #7. I didn't post any type of comparison of current prices with prices under a FairTax regime. I instead simply posted what tax was due on a $100 retail purchase once the FairTax was enacted. It's $29.87, not $23.
Please go back and re-read my posting at #7 again if you think that I am somehow trying to somehow relate prices today and prices under the FairTax regime.
In fact, let me quote myself from posting #7 (and a small bit from Cheburashka):
A 23% percent sales tax rate? On every purchase? Oh, that'll happen.
Actually, it's 29.87% when stated as a normal sales tax rate.
If you are comparing it with an inclusive tax rate such as an income tax then it's reasonable to call it 23%, but most people think of sales taxes as exclusive, i.e., calculated on top of the sale, not as part of the sale price.
For instance, if you buy a $100 coat under the FairTax regime, you will pay a total of $129.87 with FairTax included, not $123.
The 23% inclusive rate comes from you paid $29.87 in tax on the whole $129.87 paid out ($29.87 / $129.87 = 23%).
I myself find it very misleading for fellow FairTax advocates to state a sales tax as an inclusive tax rate since virtually no other sales tax is stated as such. I am in favor of a national retail sales tax, but I am not in favor of trying to mislead anyone as to the actual tax rates involved.
There is no reference in that to any comparison between today's prices and any possible change in that pricing due to the imposition of the FairTax. Instead, I am just commenting on the actual amount of FairTax exacted on a $100 retail transaction once the FairTax regime is in effect.
I support the FairTax, and I hope to see it enacted. (Had I my druthers, my version of a national retail sales tax wouldn't include the prebate and it would have a lower tax exclusive rate, but even in the current FairTax proposal, I support it since it seems to be the most politically viable version.) But I like to see its 29.87% sales tax rate clearly laid out, and not misunderstood to be a 23% exclusive rate.
Of course the real fun with Social Security will start when the trust monthly payouts exceed monthly payins. Bad news: according to the actuaries that isn’t that far away.
Trying to figure out how the story will end helps you avoid unpleasant ends. But you can always wait until you actually hit the iceberg to start figuring out your options. That worked out well for most everyone on the Titanic, didn’t it?
Moral of the story: learn from the mistakes your country has already made.
Or you can call Cheburashka a party pooper. No skin off my nose. I've given my opinion, I've given my reasons. You go ahead and believe what you want.
Do you notice they don’t include the $69,000 in FairTax as part of the financed portion of the house. I guess they assume people have $69,000 in cash lying around to pay sales taxes with.
The correct lesson is: when you give the government an easy way to confiscate more and more of your wealth, you can expect the government to actually do so. Since they can raise the rate any time and they hold a gun to the head of the retailer (collect this money from the customer when you sell them anything, then send it to us, or we’ll put you out of business), you can expect the national sales tax rate to do one thing, like Social Security Taxes did: go up and up and up over time.
Social Security Taxes were and are transparent to the employee: the amount he was paying (what was withheld) was listed on every pay stub. That didn’t stop Social Security Taxes from going up and up and up. Of course they never see the half of their taxes that never gets into their gross pay, the "employer pays half" that the employee really pays, but never sees.
But this is all theoretical. The Republicans controlled Congress from 1995-2001 and 2003-2007 and never got this done. I suspect I will not see another Republican Congress in my lifetime, although I pray I do. And no Demonrat Congress will ever do this. They're stupid and HATE THE RICH!!! is too deeply imprinted in their psyches, and they plan tax law to punish the RICH!!!, or what they think will punish the RICH!!!
Gods help us if they ever get smart.
Of course, this thread has been getting me to think again about the issue, which I once thought about long ago. I could actually support a national sales tax if:
The constitutional amendment that abolishes the Sixteenth Amendment (you are planning on that, aren't you?) also says that the National Sales Tax can never be more than 23%, unless specifically approved by a specific vote of the American people, and that increase will be only for a specific time period, never more than eight years, and the rate reverts to 23% at the end of the time period, unless there is a new vote by the American people. The temporary increase provisions allow the U.S. to finance a war or other crisis situation, if that should be necessary. Congress will have the authority to lower the tax rate below 23%, if they want. Fat chance they will ever use that.
On Boortz radio show this morning, he, (Boortz) says if the Republican introduces this bill, calling it the, “fair tax” he, (Boortz) will sue.
Boortz says he has a patent on the term, “FAIR TAX”, something to do with a book he has written about fair taxing. He wasn’t joking about this.
DEBUNKING THE FairTax:
A Fair Question about Fair Tax
OPEN LETTER TO BOORTZ/LINDER (FairTax)
JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
Fair Tax - Straightening Out Some Confusion
FAIR TAX BOOK- 2nd Ed. Revisions
A FAIRTAX PRIMER
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough to fully find the government at today's level.
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates until we find that we are the Laffer optimal point.
In addition I want to see Social Security privatized, and I am willing to pay extra money to pay for those who were promised this benefit, and never receive a penny of it myself. I also want to see Medicare reformed from top-to-bottom. I also want to see Tort Reform to reduce the exorbitant costs of insurance on our medical costs. And we need to reduce the scope of the Federal Government to its constitutionally mandated responsibilities and get rid of the rest. The Golden Goose that is America is way too fat and needs to be put on a severe diet.
These are what we need to do, incremental improvements in what we already have. This is already working and we should keep at it...even Boortz seems to think so. Boortz (9/20): "...the economy continues to go like gangbusters. We are right in the middle of an historic economic boom. Don't let the mainstream media or the Democrats tell you otherwise...we've never had it so good...
You are being dishonest! It's not a National Sales Tax it's the Fair Tax! Neal Boortz and his followers (Boortzbots?) will be very angry with you!
Seriously, calling a National Sales Tax a "Fair Tax" is as honest as lefties calling Socialized Health Care a "Single Payer" system.
(Every time Boortz mentions "Fair Tax" I go elsewhere on the dial.)
Better chance of growing boobs on your back than shutting down the IRS. They are too powerful.
Two points:
1. that was along time ago in a far far away reality.
2.When women got the vote is the exact point this country started to go to hell.
Changing the tax code to one that goes up on auto-pilot (the FairTax) is not going to change the desires of politicians to buy votes. And, once they see that they have not enough money coming in, they will put a income tax surcharge on those “rich” people making more than say $100k per year. This will get them votes from 80% of the population, at the expense of the 20%. And they will do this on top of the 40% or higher FairTax sales tax (when expressed as a normal sales tax).
Polticians spend to buy votes. Plain and simple. The FairTax does nothing to stop that basic fact of politics. Nothing.
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