"The Fair Tax Fantasy"

Townhall ^ | 4/20/09 | Hugh Hewitt

[pissant]

This is a new book that I have co-authored with Hank Adler, a professor at Chapman University's business school, a post he took up after retirement from a long and successful career as a partner with Deloitte.

Hank and I undertook this project because we had --independent of each other and for different reasons-- arrived at the same conclusion: That the "Fair Tax" proposal put forward by my radio tal show host Neal Boortz and Congressman John Linder is a disastrous mirage that far too many Republicans have been drawn too, and for all the wrong reasons. "The Fair Tax" is a hopelessly flawed fantasy, but one with a surface appeal of simplicity that attracts especially politicians in need of energetic volunteers and quick headlines. But if the "Fair Tax" becomes the "Kemp-Roth" of the next few years, the GOP will be rightly punished at the polls as the details of the plan make it to the desks of serious political and economic analysts and from there to large numbers of voters who will examine the plan carefully and reject it almost immediately upon doing so. In short, not only should Republicans and conservatives not endorse the Fair Tax, they ought to affirmatively disavow the plan and press instead for serious and thoroughgoing tax reform, including lower and flatter tax rates.

Fair Tax enthusiasts often call my show and demand that I "read the book," by which they mean one or both of Neal's books. We have, and they do nothing to persuade serious readers of the plans merits, but much to camouflage the scheme's many deeply embedded flaws. Henceforth I'll be able to respond "Yes, but have you read the book that exposes the Fair tax as a destructive fantasy it is?"

[RayChuang88]

I support FairTax for these reasons:

1) It gets rid of the most insidious form of corruption--the buying and selling of income tax breaks.
2) It saves Americans at least US$350 BILLION per year in compliance costs.
3) It encourages savings and capital formation with no tax consequences, so the savings rate and investment rate will rocket through the roof.
4) Income tax evasion is GONE. The need for the cash-only underground economy and the funneling of what some estimate as high as US$17 TRILLION out of the USA to offshore financial centers goes away, and we could get a gigantic boost in financial system liquidity as these funds are now repatriated back to the American financial under better tax circumstances.
5) We could see several trillion more enter the USA as foreign investors take advantage of investing in a country with no taxes on earning money.
6) #4 and #5 could bring in US$17 to US$20 TRILLION in liquidity to the American financial system. That is essentially the world's largest "private bailout," so big that it could revive all the major distressed banks, AIG and the Big Three automakers and still have more than enough to revive the rest of the US economy.
7) Because of no more taxes on earning money, businesses will now based their economic decisions on what is best for the company, not what is the lowest tax burden. Corporate headquarter and production jobs come flowing back into the USA under better tax circumstances, and all those idled factories and office space will be taken in a matter of months.
8) Homes will be realistically priced based on the value of the property and how the house is built, not what kind of mortgage interest tax deduction you can get.

[Apple Pan Dowdy]

So, does this guy actually lay out his argument anywhere..... or does he just pompously tell us to read the book?

Somehow I do not trust him. It seems his motives are to sell the book, not to push his cause.

[tnlibertarian]

I admit the current income tax may be better than the Fair Tax. But, since we’ve tried the income tax for a while, let’s try the Fair Tax for the next 96 years and compare.

[John.Galt2012]

I think it’s a bad idea because it’s a disincentive for consumption...

As opposed to disincentive for production (income tax)???

As you stated, tax that which you wish to discourage i.e cigarettes, alcohol, earning and production???

You are correct, it would disincentive spending, which is detrimental to a country who borrows in order to spend money it doesn’t have. IMO that is probably why we are in such an economic mess right now.

[EternalVigilance]

serious and thoroughgoing tax reform, including lower and flatter tax rates

IOW, Hugh Hewitt, RINO extraordinaire, is for the communist-inspired income tax, and nothing but more deckchair arranging on that Titantic.

Which shows that he isn't "serious," and that, as usual, his thinking is far from "thoroughgoing."

[Man50D]

There's a little bit of spin here. The Fair Tax, in order to achieve revenue-neutral income to the Treasury, would have to be set at 23%. The 30% number arises when you add in state taxes to the final retail bill, but state tax rates are irrelevant to federal gubmint tax rates. (Unfortunately.)

This remark is spin. Everything we purchase today contains nearly 23% embedded taxes due to corporations passing on the cost of their income taxes to the consumer. A $1.00 item today actually costs 77 cents with 23 cents of embedded taxes. That is a tax inclusive rate. The Fair Tax will eliminate corporate income taxes and apply the 23% to the actual amount as a separate entry on the receipt(23/77=30%). This is the tax exclusive rate. The amount of tax collected will be the regardless of which rate you cite and the total cost of the product will be close to the same as we have now. It will not increase 30%.

Solution: set the national sales tax at a rate lower than 23% and cut federal spending. Which is the entire goal of the Fair Tax, to achieve lower federal spending while making Americans completely aware of how much they REALLY pay in tax.

Twenty three percent in necessary to collect the same amount as is collected today. Cutting federal spending is only one part of The Fair Tax. Americans will be aware of how much they pay as the tax rate will be itemized on the bill.

That all said, the Fair Tax is never getting enacted anyway, so who cares?

Why do you bother to respond if it is a moot point? The fact is support is growing for The Fair Tax. That is evident by the increasing number of cosponsors that have signed on in each session of Congress since the bill was first introduced in 1999. That number is a direct reflection of the growing grassroots movement that has put increasing pressure on Congress critters.

[Man50D]

Problem is why would the 50+ % of asswipes in this country who pay NO taxes at all be interested in something like a ‘fair tax’?

How about the fact they will see an increase in purchasing power as all federal income taxes will be removed from their paychecks. Everyone is paying for the hidden taxes in the cost of everything we purchase. The Fair Tax will remove those embedded taxes. That along with more money paychecks will make everything more affordable.

[savedbygrace]

Also, the FairTax is the only retail sales tax EVER that is calculated as tax inclusive.

If your State has a 7% sales tax, the sales tax is calculated by simply multiplying the retail cost of the item by 0.07.

The FairTax calculation is anything but simple. A few years ago, I figured out all the algebraic expressions that are involved, but today it hurts my brain to try to think about it.

The basic concept is that the 23% is calculated on the sum of the retail price of the product/service and all of the taxes. It’s immediately obvious that if you add the retail price and the taxes, then take 23% of the sum, you will get a larger number than if you multiply the retail price by 23%.

If you take a product/service that retails for about $77, the gross payment will be $100. IOW, the tax would be $23, which is 23% of $100. Now, since the retail price is $77, then the tax of $23 is about 30% of the retail price.

Just remember, the Fair Tax is the only retail sales tax that is calculated that way, by including the tax in calculating the tax percentage. That is what tax inclusive means.

All other retail sales taxes are calculated as tax exclusive, the tax itself is excluded from the calculation. Like your State sales tax.

[Terpfen]

That’s quite the defensive post you’ve authored there.

[1010RD]

If they’d started that way...oops they did.

[Terpfen]

You are correct, it would disincentive spending, which is detrimental to a country who borrows in order to spend money it doesn’t have. IMO that is probably why we are in such an economic mess right now.

Clearly more people should save just according to common sense. I have a problem when people attempt to use tax policy to achieve that higher rate of savings, that's all.

[mad_as_he$$]

Thanks!

[OldMissileer]

You're going to have to explain your reasoning as to how a 23% rate adds up to $30 on a bill of $100

They use numbers to fool you.

They go by total cost first to fake you into thinking it is only 23 percent.

The total cost to you is $130. $30 of $130 is 23.08 percent, making the amount paid to the business/manufacturer $100.

If you look at it the way we pay sales taxes now the cost of the item is $100 and thus the $30 tax equals a 30 percent tax, which is the actual truth.

The so-called fair tax lies to you by making retailers and businesses advertise the after tax price so that the mathematically challenged will not realize they are actually paying seven percent more than they are being told.

[Mojave]

The 30% number arises when you add in state taxes to the final retail bill

Bzzzzt. Wrong.

The 30% tax on the item is BEFORE the state taxes are added in. The bogus 23% rate is based on a sales tax formula NOT used in any of the states.

A dollar item is taxed 23%. Then the tax is taxed 23%. Then the tax on tax is is taxed 23%. Then the tax on the tax on the tax is taxed 23%. And so on....

[Terpfen]

So they round down the rate, and that’s how they achieve the numbers. Got it, thank you.

[Man50D]

IMO the problem with a "fair tax" is that it's only "fair" to the single wage-earners who have no dependents and no mortgages. Their taxes will go down, but all the married-with-two-kids-and-a-mortgage wage earners will see their federal taxes go up.

It will be fair to everyone since they will have more input as to when and how often they are taxed based on how often they decide to make purchases as opposed to the income tax where the government makes the decision to take money from your hard earned wages before you receive a paycheck.

You also need to factor in that most people fall into the 15% tax bracket, pay the 7.5% payroll tax, the 7.5% employer matching and the 23% embedded taxes in all items today. The total is over50%! That will be reduced to 23% with The Fair Tax. Then factor in the prebate and the effective tax rate will be less than 23% for everyone and lower for low income earners than higher income earners.

[1010RD]

It would be better to let your property slide to accelerate depreciation to improve your tax position...

The free market would stop you. Unless the entire excercise of property ownership is to simply reduce your property taxes over time.

But, that would be stupid, no?

[Mojave]

The total is over50%! That will be reduced to 23% with The Fair Tax.

And it will be revenue neutral. Free money!

[1010RD]

The whole idea is to encourage...

You just lost the argument.

America is founded on individual liberty, not government encouraging anything - especially the pop idea of the day.