Fair Tax, Foul Politics [NRO on FairTax]

Fair Tax, Foul Politics ^ | August 16, 2007 | NRO Editors

[RobFromGa]

Fair Tax, Foul Politics

By The Editors

Advocates of a national sales tax to replace the income tax have built an impressive grassroots army. They have given their idea an appealing, if somewhat gimmicky, name: the Fair Tax. And they have managed to get five Republican presidential candidates to suggest that they would sign a sales-tax bill if it reached their desk. Some observers credit the enthusiasm of the Fair Taxers for Gov. Mike Huckabee’s surprisingly strong showing in the Iowa straw poll. Huckabee is the candidate most committed to the Fair Tax.

Former senator Fred Thompson is, however, backing away from the idea. Fair Tax advocates have released a video in which Thompson, asked about the proposal, appears to say he would “absolutely” sign it if elected. On August 10, however, Thompson wrote those advocates a letter that said merely that the Fair Tax was a good starting point in thinking about tax reform. Mitt Romney’s campaign says that the Fair Tax has some attractive elements, but that the candidate would need to see details before making any pledges. Rudolph Giuliani has said that he does not think he would sign any such legislation.

The leading candidates are right to be wary. The tax code needs major reform to become fairer, simpler, and more efficient. The Fair Tax is one instantiation of those goals, but its political impracticality makes it fatally flawed. If conservatives force a choice between a Fair Tax and no tax reform at all, the latter is what they are likely to get.

There is widespread confusion about what the Fair Tax would entail. If you bought $100 of clothing and paid a $30 tax on it, you would probably think you had paid a 30 percent tax. The Fair Taxers say that you paid a 23 percent tax: $30 is 23 percent of the $130 you paid in total. When they say they want a 23 percent tax, that’s what they mean.

Since there would be no more income tax in this system, there would also be no more standard exemption to make sure that the basic necessities of life went untaxed. The Fair Taxers would solve this problem by sending out monthly “prebate” checks to all Americans.

The great, undeniably attractive selling point of the Fair Tax is that it would allow the country to dispense with the IRS. But the sad truth is that if the federal government is going to collect as much money as it currently does—which the Fair Taxers say their system would—its methods of tax collection will inevitably be intrusive. The real difference between the current system and this proposal is that the primary brunt of tax collection will be borne by a smaller group of people: business owners.

Over time, then, enforcement measures could become more draconian than they are today: especially since a massive retail sales tax would create a massive incentive to evade it. That’s why every country that has ever tried to impose retail sales taxes this high has quickly moved to a Value Added Tax levied at every stage of production. Consumers rarely see or keep track of these taxes, and they seem to be fairly easy for governments to raise.

These pitfalls are beside the point, however, since a national sales tax is not going to become law. No presidential candidate could be elected on a sales-tax platform, and no Congress would enact one if he were.

A candidate who ran on the national sales tax would be able to run on nothing else. He would have to spend all of his time defending the idea. Off the top of our heads, we can think of three devastating lines of attack an opponent could use in television ads. One ad could argue that getting rid of the mortgage deduction would send home prices into free fall (something that voters are going to find especially worrisome now). Another could ask why senior citizens, having paid taxes all their lives as they made income, should have to spend their retirements paying taxes on everything they use that money to buy. A third could simply ask voters if they look forward to paying a brand new tax.

There are answers to each attack. But no Republican candidate, especially in the daunting environment of 2008, is going to want to have to make them. Republicans cannot win a national election without the tax issue. If they ran on the national sales tax, Republicans would be taking one of their natural strengths and making it into a liability. Which is why we expect them to say nice things about the Fair Taxers’ passion, and move on.

[lewislynn]

In one (#293) the poster made the accusation of wanting "a 40% VAT on top of the existing income tax"...

No such thing that I know of ever came up in conversation...Is there some reason why you couldn't find where that accusation came from?

The other was RobfromGa's opinion that the Fairtax rate was already so high that, his opinion is, if more tax is needed and OUR opinion is the Fairtax would not provide enough revenue then Congress would reinstitute another income tax...Even though, since you brought it up, if it ever became law, rolling the Fairtax into a VAT is not out of the question.

The truth is the Fairtax would not be passed into law as written. I think you know things don't work that way in Congress so it's all moot anyway.

Nice try though.

[lewislynn]

Businesses need answer only one question to determine the tax due: How much was sold to consumers?

Really? Just one question? Aren't businesses consumers that could be exempt from the tax?

I would think all you need do is show sales receipts.

Sure that's right, just flash a couple of sales receipts and they'll cut you a check.

[RobFromGa]

but I don't understand why you feel that you would have to submit essentially an expense report to the government of everything I spent on your business, maybe with receipts attached, when you don't do that now with municipal and GA Sales Tax.

Because right now there isn't an exemption for paying sales tax on business expenses unless you are buying something for resale. All other business expenses: hotels, meals, planes, office supplies, printing, car rentals, mileage, etc. that are NOT for resale are exempt from the FairTax. It is expected that business people will pay the tax and then file for a refund for these individual small amounts that add up to a lot.

That is the difference.

[RobFromGa]

Sure that's right, just flash a couple of sales receipts and they'll cut you a check.

Some people have said you can just flash a card at the hotel, or at the ticket counter, or at the Outback, and they won't charge the FairTax. If they do that, everyone will start a business and have a card. The evasion would be through the roof.

Of course they are going to want to approve every small, medium or large business expense before issuing the refund check. They might just rote approve the majority of the filings then go back and audit a percentage later, but I ask again where is the compliance cost savings with having to submit every business receipt to the FedGov for refund of the FairTax???

[higgmeister]

It is expected that business people will pay the tax and then file for a refund for these individual small amounts that add up to a lot.

The quick answer was;

"When a business purchases items for business use from a retail vendor, they have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return."

My thought is that a business already does cost accounting and logs expenses. Most businesses keep documentation to track what is on the ledger. The only difference under the FairTax is that they would be expected to show the support documents if audited.

A one man deep business that travels far and wide and keeps receipts in a basket may require a process change.

[RobFromGa]

If I am in B2B sales, I don’t have any sales tax to collect. And there are a great number of B2B businesses.

In any event, you are pointing out that most accounting is done for reasons other than taxes. Another reason that compliance costs will not be dropping much with the FairTax.

And for any B2B business, I see a lot more intrusion. How does anyone guarantee that those business records are kept secret for example. ANd not sold to my competitor who might love to know everywhere I’ve been and what I’ve spent.

[higgmeister]

Nice try though.

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Turbopilot on Post 292 said:     "Generally what they want to debate is something like a 40% VAT on top of the existing income tax."

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RobFromGA responded on Post 293:     "You have no idea what you are talking about. How long have you been posting to FairTax threads? I have never seen the discussion you are describing on a single one."

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RobFromGA then said on Post 298:     "The FairTax in my opinion, which I have described in detail throughout many threads, will not be able to generate this amount of revenue and will need to be much higher than advertised. This loss of revenue will cause panic, and the politicians will have to fall back on something that they know works to collect the revenue to keep the old people and orphans from starving and to ensure the Assistant Undersecratary for Feminine Napkin Procurement and his family are able to get their paycheck."

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will not...generate...revenue and will need to be much higher ₌ something like a 40% VAT politicians will ... fall back on something that they know works to collect the revenue ₌ the existing income tax.

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In effect, Rob said the same thing that he told Turbopilot that nobody ever said.

It happens over and over, that Pro-IRS fans will say that the FairTax rate has to be much higher to collect the revenue. Then, that it still will not work and the Evil politicians will pass a Twenty-eighth Amendment to bring back the IRS and income tax in addition to a keeping he failed Mega-Sales Tax, in effect having both King Kong and Godzilla preying on starving Americans.

[higgmeister]

Your fears are not a deal-breaker for me.

Maybe the next Fair Tax Book will cover your procedural concerns along with the double-taxed savings during the transition time.

Didn't NB say his deadline was next month? He said he was spending every moment working on it except for attending his wife's fund-raiser week before last.

[lucysmom]

All other business expenses: hotels, meals, planes, office supplies, printing, car rentals, mileage, etc. that are NOT for resale are exempt from the FairTax. It is expected that business people will pay the tax and then file for a refund for these individual small amounts that add up to a lot.

All of the above would be pretty easy to use personally and claim as business expenses. How will government KNOW if the expense was a legitimate business expense without becoming intrusive?

[lewislynn]

My thought is that a business already does cost accounting and logs expenses. Most businesses keep documentation to track what is on the ledger. The only difference under the FairTax is that they would be expected to show the support documents if audited.

----------

"When a business purchases items for business use from a retail vendor, they have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return."

What happened to all those "compliance cost savings"?

Wholesale businesses and manufacturers won't have a "sales tax return"...There is no tax due, what's to credit?

[lewislynn]

It happens over and over, that Pro-IRS fans will say that the FairTax rate has to be much higher to collect the revenue.

That's because it's true.

Being opposed to one bad idea doesn't make you a cheerleader for the other...grow up.

[lewislynn]

In effect, Rob said the same thing that he told Turbopilot that nobody ever said.

Only in your mind.

[Turbopilot]

I’m impressed that an almost week-old thread is still generating a healthy rate of reply. Unfortunately, it looks like the “antis” have moved from demolishing their own strawmen to picking the tiniest of nits and believing that they have successfully argued against the entire FairTax.

It takes about five minutes of thought to come up with counterarguments to the worries about supposed double taxation of savings and about reimbursing businesses for tax paid on items used for business. Arguing that these problems mean the entire FairTax should be ignored is the very definition of throwing the baby out with the bathwater, which is unfortunately a far too common theme with the antis.

[phil_will1]

“I’m impressed that an almost week-old thread is still generating a healthy rate of reply.”

My timing was impeccable - I wasn’t aware of this thread until it was basically done (I think). That just means that I can spend a few minutes scanning the whole thing and not have to log on every few hours to catch the latest back and forth.

I’m not sure that “healthy” is an adjective I would use to describe this exchange. I haven’t had much time (or interest, frankly) in going back and forth with the same old posters and playing “wack a mole” with their various objections to the FairTax. Much of the current thread rehashes points of contention that have literally been argued about for years now. The old issue about whether costs affect prices is a case in point. Another is whether those who attack the FairTax and its supporters are really aiding and abetting the current dysfunctional and incredibly inefficient system.

A large percentage (probably well over 67%) of the posts on this very long thread are from people who have been debating their side of this thing for years now. I have yet to see anyone change sides and it just seems to be the same ole same ole in many cases.

The most disengenuous aspect strikes me as coming from those who deny defending the current system. Many of these antis have literally thousands of posts on FairTax threads going back over many years now. I would be willing to bet that none of them have started a significant number of threads for their own proposals or alternatives to the current system, nor do they have even 10% the number of posts advocating and promoting their preferred alternative. In addition, if you got five of the antis in a room and told them they could not come out until they arrived at a consensus relative to what option is the best, they would stay in there until they rotted.

The leading alternative to the FairTax is the current system. From a political reality standpoint, that isn’t even debatable. There is a lot that I like about the “Perfect Tax”, which I thank Zon for providing the link to. That had a lot of good information about the current system, as well as a persuasive argument for his preferred solution. The problem is that that recording was made 10 years ago (about the time the FairTax was in development) and I see no public support or even awareness of it. The same could be said for the various other proposals advocated on this thread, many of which have active supporters that you could count on the fingers of both hands.

With 62 co-sponsors, the FairTax has emerged as the leading alternative to the current system. The so-called “flat tax” has as its leading legislative flagship a bill which is a flat tax option, meaning it does not get rid of a single page of the current bloated mess, does not address (to any meaningful extent) the host of economic challenges that this country faces, and is not revenue neutral, which means that congress will never seriously consider it. As long as the concept of a “flat tax” has been around, there is no single bill or written set of specifications which has any political traction or viability. Flat taxers talk in vague generalities and don’t (in most cases) support a specific flat tax proposal. They just like the concept of a postcard return. That is a convenient way of not having the pros and cons of their proposal scrutinized. However, it also ensures that their solution isn’t going anywhere legislatively.

I certainly don’t think the FairTax is perfect and I do agree that spending has to be brought under control. However, I also firmly believe that the structure of the tax system matters greatly and that the current system is dysfunctional on so many levels. Also, I strongly believe that we are moving into an era of global competition the likes of which none of us have ever seen before; for that matter neither did our parents’ or grandparents’ generations. Addressing our tax system is just one of the areas which we are way past due. It would be nice to get this past us so that we could move on to some of these other pressing needs.

[Bigun]

The most disengenuous aspect strikes me as coming from those who deny defending the current system.

AMEN! And most of that coming from those "economic geniuses" who deny that costs affect price.

I completely concur with every word of your post and you will no doubt have noted that I currently spend very little time here (this thread being the exception. I had some time on my hands and - well it's like a cat and a ball of string - irresistible! LOL!) playing with what, in reality, amounts to a very small group of antis each of whom I STRONGLY suspect of having a perceived vested personal interest in preserving the status quo.

As I have said for years now, for me the entire argument can be boiled down to "do we citizens of the greatest nation on earth REALLY want to be a FREE people once again or not". If we DO want that then we MUST rid ourselves of the income tax and the IRS as FREEDOM is not possible with those impediments in place. If we do not want our FREEDOM - if we chose to remain slaves - then I suppose the system we currently have is ideal.

[groanup]

Here is what became an alternative to an earlier system of oppressive taxation:

[Man50D]

With 62 co-sponsors, the FairTax has emerged as the leading alternative to the current system.

Actually its 63 cosponsors. The Anti Fair Taxers statements carry less weight with each additional cosponsor.

I would be willing to bet that none of them have started a significant number of threads for their own proposals or alternatives to the current system,

You're absolutely correct. Any thread they do post is just another attack against The Fair Tax. I liken their approach of constantly stating derogatory remarks against The Fair Tax for the same reason people do the same with my New York Yankees. Over the decades the Yankees success grew. The growing Fair tax grassroots movement is experiencing the same vociferous opposition for the same reason. I take it as a sign of success. The number of posts on this thread is another indication of that success.

[Principled]

I would like to see someone post an alternative. They won't.

:0)

[phil_will1]

“Actually its 63 cosponsors.”

Sort of. The late Charlie Norwood is one of the 63. His replacement, Dr. Paul Broun (pronounced Brown) is a FairTax supporter, but he isn’t yet on the bill.

[Zon]

That had a lot of good information about the current system, as well as a persuasive argument for his preferred solution. The problem is that that recording was made 10 years ago (about the time the FairTax was in development) and I see no public support or even awareness of it.

The presentation was accurate yet unrealistic in the frame it was presented in. It failed to acknowledge the steps required that a revenue neutral tax plan be implemented before reducing the size and spending of government. This is my understanding that the FairTax gains control of the taxpayers' part in funding the government and once implemented then tighten the reigns on government dereliction of duty.

Now, that is one frame of reference but it is not the best nor widest scope or big picture.

I've been immersed in research for four weeks to get at the roots. To discover the nuts and bolts of the legal and lawful aspects of government operations -- statutory/admiralty/maritime law and jurisdiction. 

I've had to re-question and revisit and further research in light of newly acquired information the foundations on which governments -- local, county, state and federal -- operate and the people's relationship to government under each government's jurisdiction. 

Also universities, mainstream media, money, currency the banking system, the federal reserve and multi-national corporations. The methods, strategies, tactics and concepts used to deceive and defraud virtually ever living person. Not just in the united States of America but also virtually ever living person in all other countries.

Very little of the information is speculation. More than ninety percent is documented fact. Many bits and pieces have been discussed on FR. Whereas I've seen no mention whatsoever of other areas. Two key pieces of the puzzle have no presence on this forum. Least wise none that I've seen.

Many people on these threads know me from theses threads. To that I inform you that what I've discovered, as have many people before me uncovered many pieces of the big picture puzzle is that beyond their accurate analogies to the movie The Matrix as a metaphor, little has been mentioned about where this all goes when Neo, in the last scene says just prior to hanging up the telephone, "Where it goes from here is up to you..." 

The picture of where this is intended to go and how to proceed is being filled in. It's the half of the big picture where all future progress and prosperity will flourish.

In the other half of the picture is at least six, but probably not more than ten, large puzzle pieces that accurately describe that half of the picture that is to be separated or cleaved from the big picture. This describes the matrix. It is in that half of the picture that the controllers and handlers -- parasitical elites -- where many or most dissatisfied people wind up fighting the prevailing current -- swimming upstream, so to speak -- without having accurately identified what they're up against--the nuts and bolts and in most cases the foundation.

The FairTax grass roots movement is one piece of the puzzle. Because it's a headline, attention grabber that the people in general can sink their teeth into. It leads people to question other areas that they otherwise would not be inclined to look into or research.

Side note. Carrying on the legacy of my tagline, after nine years of posting to FR, for the first time I've posted something at my profile page.