Posted on 05/11/2007 5:30:56 AM PDT by Dick Bachert
I have a little scenario I would like to paint for those of you out there who just insist on finding something wrong with the FairTax. Admittedly, the FairTax isn't perfect. No tax plan is. How, after all, can you come up with a perfect way for a government to take its operating funds from its subjects? If you know an easier and more equitable way to do it, by all means, let me know!
I'm going to ask you to crank up your imagination for a moment here ... and by "you," I mean those of you who think that this FairTax thing is a bad idea and you're not prepared to come on board.
I want you to imagine a scenario. Don't worry about whether or not this scenario is possible .. Just accept it as I present it, and then consider the alternative picture I'm going to also present. Simple as that.
Let's imagine that the FairTax is the law. We've been operating under the FairTax since the day you drew your first paycheck. It's all you know. Here is your imaginarily "reality."
On every payday you get your complete paycheck. There are no deductions. If you earn $2,000 per week, you get a check for $4,000 every two weeks. You never have to save receipts or create any records pertaining to federal taxes. You can invest money without paying any taxes on it. You don't have to pay taxes on the money you earn through your investment portfolio. You pay no taxes on any money you put in your savings account. When you die you get to leave your entire estate, everything you own, to whomever you wish. The federal government will take no taxes from your estate. Your death is not a taxable event. When you go to the store to buy an item, and the price tag says $19.99, you will had a $20 bill to the cashier and get one penny back. The price tag is the price. There are four people in your household. You, your spouse and two rug rats. At the beginning of every month you get a check or a credit to your checking or charge card account in the amount of $506.00 to compensate you for the federal sales taxes that are included in the price of everything you buy; right up to the poverty level.
All in all .. not such a bad deal. You keep all of the money you earn and you get five hundred bucks a month from the feds. Plus .. you only pay taxes when you spend money.
Now .. .here comes some politician who has a grand scheme for a new tax system. He wants to explain it to you. Here's his great idea ..... give him a listen and tell us what you think.
The plan is simple. First the federal sales tax is going to be removed from the price of everything you buy. This will mean that everything will cost 23% less than it does now. But ... he's going to levy an income tax on every single individual and business who plays any role at all in bringing those products to the marketplace. These people and companies are all going to pass the cost of these taxes down the economic line to the final consumer of the products they manufacture. These taxes will end up embedded into the prices of products in our retail marketplace, bringing those prices right up to the current level. So .. no loss, no gain.
Next your political benefactor is going to take away your $500 per month prebate from the government. In its place he's going to tax every penny you earn. It doesn't matter where the money comes from. Your salary, your investment income, winnings at the track ... whatever you earn and however you earn it, it's going to be taxed.
Wait! He's not through. He's also going to tax your wages for Social Security and Medicare. He's going to try to soften the blow by telling you that your employer is going to match the taxes he takes out of your paycheck, but you're employer has made it clear that this money is all going to come out of the money he has budgeted to hire you. You'll probably lose out on your next raise while the boss his accounting in order.
There are some more nifty ideas in your congressman's tax reform plan. When you die your family is going to have to file a complicated estate tax return. A huge amount of the wealth you have managed to build during your life is going to be sent to the government. Your survivors may well have to sell the family business in order to come up with the money to pay for these death taxes.
One more thing .. you're going to have to keep records of all of your financial transactions. Every year you're going to have to spend no less than about 30 hours or spend hundreds of dollars to hire someone to fill out tax forms for you. If mistakes are made you will be hit with a huge penalty and interest. Oh .. and the government is going to have access to all of your financial records to make sure that you are paying everything you "owe."
The question, of course, is why does this politician want to change the tax system in this way? Power, that's why. They want to be able to enact little changes to the tax code that will benefit certain constituents ... which constituents will then benefit the politicians -- with money or with votes. Under the FairTax system these politicians have no power to favor one group of voters over another for the benefit of votes. The new system would give them that power.
Your choice, my friends. If we had the FairTax now ... would you be willing to make the switch?
There is actually a huge tax windfall to the government if the fair tax is enacted. Right now the cost of Federal taxes is built into the final cost of the product. Roughly 20% in the US. Foreign imports compete against US goods, only that 20% leaves the country after sale. With the Fair Tax, that 20% stays in the country amounting to about $150 billion per year.
Now admittedly the politicians could just choose to spend that $150 billion, or they could cut the tax rate to remain revenue neutral. But, this would offer the opportunity to cut taxes without cutting spending. It's a one time opportunity, but it's a beauty!
The Fair tax would stop the excess revenue flow out of the country, almost instantly cut the trade deficit by 20% and make US goods more competitive. If automotive unions really understood the Fair Tax they would be forcing it upon us.
"Fact: James L. Payne demonstrates in Costly Returns that for every tax dollar the IRS collects, we pay 65 cents more in compliance and other costs. These costs - which as law abiding taxpayers we cannot escape - are never included in any discussion of IRS efficiency."
Perhaps YOU cannot get your mind wrapped around the meaning of the word demonstrates but most others can and have!
If the costs Dr Payne speaks of were eliminated - as they surely would be under the FairTax - the savings would be more than adequate to allow individuals to keep their entire paycheck AND prices of goods manufactured in the USA to drop by at least the amount of the tax as well.
The "prebate" is a gimmick to make the plan pallatable to the uneducated. It doesn't affect the real impact one way or the other. Whatever is "prebated" gets built back into the final cost of the goods and services so the people that got "prebated" end up paying it anyway. The prebate is what Carville once called, "Boob bait for the Bubbas".
The "prebate" really doesn't do anyone any good, but it doesn't hurt anything either. It is just smoke and mirrors. Considering the daunting task of selling and implimenting the fair tax, if you support it, forget the "prebate" it just doesn't matter in the real scheme of things.
And I sincerly join you in that hope!
the fair tax will not do what you propose - generate an outcry against spending.
you’re throwing the baby out with the bathwater.
you’re the ‘expert economist’, not me. but even I know that the more you tax something, the less people buy of it. items subjected to this tax will plummet in sales, causing losses for their manufacturers, suppliers, etc.
AND you’ll be priving the average Joe out of many things, and for what purpose?
If you buy into his 'demonstration'. Actually, what he did was analysis and it wasn't all that convincing. I personally don't spend 40 hours reading every instruction for every form. Nor do I charge myself $25-40 per hour to do such.
Income tax does affect what people choose to earn - “Why work harder for diminishing returns? I’ve got enough now...”
That's fine, except it is only a matter of time before the sales tax gets intrusive. Just look at states like New York and the cigarette tax. They are suborning records from Internet retailers to get customer lists, then charging the customers from New York large fines, back taxes, and interest penalties. With a 30% sales tax similar tactics will have to be used to get compliance.
Yeah and I guess Rob’s a Gemini: Most are born without a sense of humor.
I hear the doctors can surgically implant one now.
Any tax system affects people's behaviour. Under the current system, people may not choose to earn less, they just decide how they will earn it based on the tax system.
Changing the tax system will change peoples buying habits as well as changing their savings and investment habits.
Yet another wrong prediction from a FairTaxer. And a wrong "fact" based on the incorrect prediction. You will go far in the FairTax movement, young Dick! Great things we see for you. Maybe Minister of the FairTax Compliance Center network.
You're defending the status quo, and obstructing the only path away from it, whether you recognize it or not.
Which includes labor, as well as other forms of income generation, all of which drive the economy just as much (if not more, when considering exports).
I'm no expert economist, but it makes no practical or logical sense that an insidious, multi-layer, front-loaded tax would be less disruptive to an economy that a single-stage, transparent, back-loaded tax.
In truth, it more affects how they choose to earn it. Taxes affect behaviour. They are not really a disincentive to earning, they just promote those forms of earning which are less subject to taxation.
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...
Rob, you’re talking tinkering, which has gone on for almost a hundred years, and which has gotten us nowhere good.
Start thinking liberty, and maybe the scales will fall from your eyes.
Always Wrong,
How can you support the idea of an ‘Income’ tax over the FairTax? It’s not a question of paying less tax, it never was. It’s the need to get the stinking KGB IRS out of American lives.
And the author makes the point clear that under the FairTax Congress will have to deal fairly with its constituents rather than succumb to bribery.
There’s only one reason to oppose the FairTax and that is if your livelihood depends on the ‘Income’ tax.
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