Free Republic

“Online voting/polling is flawed IMHO unless there is a way to ensure one person/one vote. It’s also very hard to know if a person truly understands what they are voting for/against unless a series of questions is asked about the subject and replies are consistent”

The alternative is to employ Zogby, Rasmussen or someone like that to do scientific polling. No one is saying, for example, that the 86% support shown in this poll is representative of the public as a whole. It does suggest, however, that of those who feel strongly enough to vote one way or the other, the FairTax enjoys very strong support.

As far as the competence of the respondents, I agree that that is an issue. I particularly noted that the comments of those opposed show a lack of understanding of the proposal in many cases. I would say that at least half of the objections voiced in those opposing comments would go away if the respondents understood more about the proposal.

There are, of course, some misperceptions revealed among the supporting comments, also, but nowhere near as many.

“As to the Fairtax, it sounds great but is goofy. They have a massive ‘second tier’ of taxation.....”

Can you explain what you mean by a “second tier” of taxation?

“My thought is noncompliance will go up dramatically...”

I disagree and here’s why. It occurs to me that there are 3 “choke points” in the consumption economy that will be the revenue base of the FairTax.

1. Big box retailers - Here in GA, the big grocery store chains are Kroger’s and Publix. There are several more that are just below them in sales volume. Then you have the electronics superstores, Wal-Mart, Target, etc.

2. Auto dealers - while used cars are sometimes sold by individuals, news cars (the only ones taxed by the FairTax) are always sold through some type of dealer.

3. Real estate closing attorneys - New houses will still have to go through a formal closing process to change ownership.

I would hazard a guess that these three types of consumption account for 60 to 75% of the consumption economy. None of these three “choke points” will conspire to cheat on the sales tax. Why? Because the risk/reward ratio just does not make sense. It would be too easy to catch these guys. Can you imagine what would happen if one of the big-box retailers did not charge the sales tax to their customers? Or if the remittances to the state authority from one of those retailers stopped or went down significantly?

We could get a very high level of compliance with relatively few resources allocated to enforcement from that sector of the marketplace. We already know that there are enormous economies in compliance enforcement due to the fact that there are so many fewer points of collection/enforcement under the FairTax than under the current system - more than an 80% reduction in the number of filings. Then you have well over 50% of that greatly reduced number that will require very little oversight resources allocated to it.

On top of all that, you are talking about a greatly reduced and much, much simpler system to enforce. According to CCH, the current system (NOT just the IRC BTW) numbers in excess of 72,000 pages. The FairTax is less than 150 pages. Anyone who has been through a sales tax and an income tax audit will tell you that sales tax audits are trivial compared to income tax audits.

All in all, I think we can get a higher level of compliance with less resources allocated to enforcement under the FairTax than under the current system, or any modified form of income tax.

Of course, that is not good enough for some who raise this issue as a red herring. They insist on a perfect tax system where there will be zero problems with compliance. This is, of course, impractical and unreasonable and strongly suggests that they have some other agenda and that concerns over compliance are merely diversions to mask their vested interest in perpetuating a highly dysfunctional system that serves them personally even if it is hugely damaging to the economy of this nation.

“Yes, to Flat Tax.”

Which flat tax proposal do you support?

You can vote for HR 1040, which is the only flat tax bill in the house, here:

https://www.popvox.com/bills/us/112/hr1040/report#nation

It isn’t doing too well, as you can see.

BTW, the Republican establishment LOVES the flat tax because it doesn’t really reform the corrupt system of trading earmarks and tax preferences for campaign cash, aided and abetted by an army of lavishly paid lobbyists.

POPVOX is still relatively new. It will be interesting to see if it takes off and the number of votes being cast grows rapidly.

“What does a flat tax really gain us?”

You are right about that. The flat tax is appealing to the inside the beltway crowd because it essentially wipes the slate clean and enables the lobbyists to go right back to work peddling influence and reinstating the tax preferences that “the flat tax” wiped out. This is what history has taught us.

“TX sales tax law is 161 pages. And that’s just the code. Who knows how much the regulations and interpretations behind it are.”

I have never seen the TX sales tax statute, but I am guessing you could reduce that by at least a third if you substituted a rebate system, such as the FairTax has, for the exemptions/exclusions that I assume Texas uses.

The FairTax bill is, I think, around 140 or so pages. Even if Treasury supplements that with regs that are 3 times that long, you still would have less than 1,000 pages in the system. CCH counts the current system at over 70,000 pages. Are you really implying that you don’t consider that a significant simplification?

All consumption purchases are taxed. The FairTax uses a rebate, rather than exempting specific items or classes. It is much simpler and fairer. No one pays taxes (on a net basis) up to poverty level purchases; everyone is a net taxpayer who consumes above the poverty level.

Business inputs are not consumption and are therefore not taxed. The idea is to tax a product once and only once during its life cycle.

Internet sales would be taxed the same way brick and mortar sales are. The idea is to stop playing favorites with the tax code and stop all the economic distortions and political games of the current system.

The sales tax will be collected in the same state that the sale takes place by the business making the sale. It doesn’t matter if the buyer is from down the street or from France.

“And when they get through grandfathering all the decisons that were made under the old system....”

That makes no sense at all. You don’t have all the complications of defining what taxable income is under a sales tax system. For example, depreciation methods, useful lives, depreciation recapture, the earned income tax credit, various and sundry itemized deductions and a whole host of other complications are irrelevant under a sales tax.

If you are going to defend the status quo, you need to come with a much stronger argument than that.

“I have to admit that I have not been active in the discussions for awhile, so I may have lost touch. How would the federal law eliminate state income tax?”

I mistyped it. I meant to say that it would eliminate individual and corporate (federal) income taxes.

“But if congress is still spending and part of that spending is hidden from the tax payer by borrowing (say spending at 23% of GDP but only taxing at 19% GDP), then the tax payer STILL will not see the cost of government.”

That component of spending is already highly visible in the form of the federal deficit. There is more attention being paid to the deficit now than I have seen in my lifetime. Of course, for most of my lifetime deficits weren’t anywhere near the level they are now. However, it appears that the federal deficit has become one of the top political issues of 2011, due in no small part to what happened on Nov. 2.

“Isn’t ‘revenue neutral’ kind of a moving target?”

Somewhat moving. However, a couple of studies were done in the 2005 timeframe (app.) and they validated the original rate calculations done in the late 90s - within a percentage point or so. The reason is that it is spending that has gotten out of whack, and taxation has not risen proportionately. That is why we have a big deficit. Well, part of the reason. The other is that economic growth has slowed, which is what the FairTax addresses.

However, bear in mind that the revenue neutral calculation is done on a static basis, which is what current congressional rules require. If the calculation were done on a dynamic basis, the FairTax would be highly revenue positive because of the substantial economic expansion it would create.

The dispute over static vs dynamic scoring has, of course, been raging for some time in the halls of congress completely independent of the FairTax.

“So then it sounds like the 16th still remains active even after the Fair Tax Bill goes into effect. If that’s not true please correct me.”

The FairTax has a provision which would “sunset” the bill itself if the 16th amendment is not repealed within 7 years. That is, if the 16th isn’t repealed within 7 years, then the old system is reinstated and the sales tax goes away. Because ratification/repeal of a constitutional amendment is such a high hurdle, it will take longer than the passage of a simple bill. However, FairTaxers have enough confidence in the proposal that they know that once the FairTax is put in place, the American public will demand that it be made permanent and the political pressure on the federal and state legislatures to repeal the 16th will be enormous. Generating that much political pressure in advance of implementation is virtually impossible - which is what the opponents are banking on who insist on repeal of the 16th before the FairTax is passed.

Almost forgot. It’s important to note that, with regard to consumption, any decline would be
a) relatively small (compared to the entire economy)
b) temporary - 3 or 4 years or less (because economic growth would overtake it), and
c) comprised 100% of imports - there would actually be a small increase in the consumption of US produced goods (not only here but in foreign markets as well)

So while it may seem contradictory to forecast total net consumption declining and the economy growing, that is precisely what eliminating the bias that the current system provides to foreign producers over and above our own domestic producers will do. On a longer term basis, we end up with a faster growing economy with a better balance between savings and consumption and with US producers being more competitive on a planet where globalization is the biggest transformational change taking place.

“Who in the world would want to buy ANYthing at that rate, and how in the world is that supposed to stimulate the economy?

It might stimulate savings, I’ll venture.”

There would some shifting toward savings and away from consumption, which is one of the economic benefits. Every serious economist I have heard speak on the subject has said that our savings rate is too low and is going to cause long term problems if not addressed. We cannot remain dependent on foreign sources of capital indefinitely.

There are, however, three primary reasons that the FairTax would stimulate the economy:
1. It would facilitate the repatriation of much of the app. $13 trillion (and growing) that is stranded offshore by the current tax system. This is capital that could be used to fuel our economy, rather than foreign economies.
2. Because it is “border adjustable”, it would create pricing shifts that would improve the competitive position of US producers (primarily mfg & ag) in foreign markets, as well as our own marketplace. The US is the only one of 30 OECD nations without a border adjustment element in its tax system.
3. It would eliminate several hundred billion $$ in wasted compliance costs. This is capital which could be much more effectively employed in our economy.

Every economic study that I am aware of has forecast a more rapidly growing economy under the FairTax than under a continuation of the current system, with GDP growth of typically 10 to 14 % higher in the initial years immediately after implementation. That is HUGE. None of us have ever lived through a year in which GDP grew by 10+%. That is Chinese growth rates in an economy three times China’s size. Obviously, those growth rates aren’t permanent, but by the time they leveled off, the US economy would be 1/4 to 1/3 bigger than it would have been under a continuation of the current system and THAT difference would be permanent.

“If I’m not mistaken, a tax on consumption would pass Constitutional muster, whereas a tax on ‘income’ does not.”

The founders rejected the notion of an income tax, which is why the 16th amendment had to be ratified. An income tax had been tried a couple of times in the 19th century (most notably to help finance the Civil War), but the Supreme Court struck down an income tax sometime after that. The 16th amendment was ratified in 1913, I think.

We believe that the founders got it right and the legislatures (both state and federal) of the early 20th century were wrong. I won’t even get into the controversy over whether the 16th was duly ratified or not.

“The so-called Fair Tax is just another name for a national sales tax.”

Close. The “so-called FairTax” is the name of a SPECIFIC sales tax proposal which is laid out in bill language and is available for anyone to see on the internet. It is the most thoroughly researched tax reform proposal ever presented to congress and addresses the broad range of adverse economic trends that the current system exacerbates more comprehensively and effectively than any other alternative.

Compare that to “the so-called flat tax”, which is the preferred form of tax reform of the Republican establishment. If you ask 5 flat taxers what version of flat tax they support, you are quite likely to get 5 different answers, or some sort of evasive answer, such as “any”. None of those answers will correspond to HR 1040, which was the only flat tax bill in the house last session. In actuality, there is no such thing as “the flat tax” in the sense of a single proposal that enjoys the support of even a majority of those who call themselves flat taxers. A flat INCOME tax is a form of taxation, rather than a specific proposal, just as a sales tax, VAT, excise, etc. is.

For this reason, comparing the FairTax to “the flat tax” is a bit of an apples to oranges proposition. The various flat tax proposals (other than hr 1040) typically do not have enough support to have been drafted into bills* and I have never seen an economic study done on one. Hr 1040 isn’t even revenue neutral, which is a minimum requirement for a tax reform proposal to be taken seriously in congress. Many flat taxers don’t even know that it is a flat tax OPTION, meaning that it does not get rid of a single word of the current mess that no one understands.

Little wonder, then, that the Republican establishment keeps introducing “new and improved” versions of “the flat tax” every few months or so in an effort to find one that resonates with voters. I think that Laffer alone has touted two different flat tax versions within the past year. All of those misguided efforts to date have fallen flat (pardon the pun).

“The fight for fundamental tax reform is such a difficult uphill battle that requires so much energy and political capital, why would you go through all that and come up with the wrong answer?”
Dick Armey
Former House Majority Leader
Current Lobbyist

Indeed, FairTaxers agree with Mr. Armey’s statement - we just don’t agree with what constitutes “the wrong answer”. Why go through the effort to pass tax reform and not address the trade deficit and the ongoing erosion of our manufacturing sector, the crisis in SS & Medicare, etc, etc, etc?

* In addition to HR 1040, there were a couple of “flat tax” bills in the senate, none of which have more than a couple of co-sponsors and none of which have companion bills in the house where tax reform legislation is supposed to originate in our form of government.

Marlin Stutzman and Dan Burton are also on there. That makes three from Indiana. There are three other freshmen Republicans from Indiana that we are working on. We should get at least one of those by March 31.

The goal is to have 100 co-sponsors (in the house) by the end of the first quarter.

“Where’s Mike Pence?”

37) Jeff Duncan (SC)

38) Rob Bishop (UT)

39) Mike Pence (IN)

40) Sandy Adams (FL)

41) John Mica (FL)

“In the end, taxes are paid by the consumers and they generally balance out based on your level of consumption, regardless of the gimmicks in the system.”

I’m not sure I understand your point, but if you are suggesting that taxes “balance out” in proportion to consumption under the current system, then I would suggest otherwise. Because of all the “loopholes” under the current system, there are numerous examples of inequities. A friend of mine is a CPA who does some very high end tax returns. He told me that he sees cases all the time where a transaction can have entirely different tax consequences depending on the legal form of the entity involved.

I have often thought that if someone attempted to write a book describing the inefficiencies, inequities and illogical aspects of the Internal Revenue Code, it would be longer than War and Peace.