This letter is from a fellow Fellow FairTax volunteer. It makes some excellent points. It is nice that the media is starting to talk about the FairTax, but I do wish they would do their research and get it right. This letter goes a long way in setting them straight:
To: The Editor of the Wall Street Journal
Regarding: Article "The Huckabee Contradiction" December 5, 2007; Page A24
Dear Editor,
I'm responding to the comments made in your December 5 article on Huckabee where you say, "the fair tax would be worth consideration if we were writing a tax code from scratch. Realistically, we're not. The plan would require repealing the Sixteenth Amendment that allowed a federal income tax, and the chances of that happening are approximately zero."
The problem, plain and simple, is that the tax code has been manipulated for too long to benefit those who can afford to fund the 35,000 lobbyist army that descends on Capital Hill, year-in and year-out.
The solution, plain and simple, is that THE EXISTING TAX CODE MUST BE COMPLETELY SCRAPPED! No flat-tax or band-aid fixes will ever be true reform . A flat will simply revert us back to where our tax situation was 40-50 years ago, and any further tinkering with the tax code will just be more of the same abuse that we've endured over the past three decades.
The only answer to real tax reform is not reform at all, but replacement! The FairTax(sm), H.R. 25, is the only tax plan ever proposed that can and will lead us to eliminate the 16th Amendment, and here are just some of the reasons why:
A 23% consumption tax (calculated the same way as income tax today) on NEW goods and services will eliminate/replace all forms of personal and corporate income taxation, including inheritance tax, capital gains tax, AMT, and payroll tax.
No individual or business will ever file a tax return again. IRS forms and tax schedules will become a distant memory. The IRS as we know it will be obsoleted and eliminated, no longer needed to enforce a bloated, incomprehensible tax code that penalizes every hard-working American for their success with a graduated Marxist income tax that only the rich can afford to circumvent by paying a mere 15% in capital gains tax.
The simple monthly FairTax prebate will ensure that no household will pay taxes on their basic necessities of life up to the poverty level (as set by the US Dept. of Health and Human Services), making the FairTax the ONLY tax plan that will completely untax the poor while lowering the overall tax impact on middle income families. But the wealthier you are, the more you'll consume and the more you'll contribute to the federal revenue. That's fair.
Under the FairTax, anyone earning income under the table will no longer be able to get away without paying taxes, whether they are here legally or otherwise. No flat income tax proposal or "simple" reform plan will ever do that.
In addition, the FairTax will once-and-for-all prevent Social Security and Medicare from going bankrupt by providing a far more stable source of revenue (consumer spending vs. wages). Remember, consumers include EVERY living, breathing human being on American soil, including the 50 million+ visitors annually that come here to tour, go to our universities, or to fill temporary work visas.
Finally, in case you haven't seen it, Section 2.f. of H.R. 25 (attached here for your convenience), actually calls for the repeal of the 16th Amendment:
"SEC. 2. CONGRESSIONAL FINDINGS. (f) FINDINGS RELATING TO REPEAL OF PRESENT FEDERAL TAX SYSTEM.—Congress further finds that the 16th amendment to the United States Constitution should be repealed."
You can argue over the word "should" if you like, but all of the above will be a nail in the 16th Amendment's coffin, and there are many more to the FairTax than I've listed here. Rest assured, there will not be a soul in America that will want to revert back to the income tax once the FairTax is put into place.
Once the FairTax is enacted, the grassroots that helped make it a reality--the same grassroots that have been here long before Huckabee--will immediately turn attention to permanent repeal of the 16th Amendment. And we will prevail.
Until then, until you actually have a plan to replace the income tax, there's no chance for the 16th Amendment to be repealed.
THAT'S why the FairTax is the ONLY plan that will make the 16th Amendment history.
Best wishes,
Greg Dutton, Arizona Volunteer State Director
Americans For Fair Taxation
National Web Site: http://www.fairtax.org/
State Web Site: http://www.azfairtax.org/
Online Petition: http://www.fairtax.org/action/petition.aspx
eMail: StateDirector@AZFairTax.org
Phone: (480) 763-9791
Fax: (480) 718-8182
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20 comments:
And here's another one . . .
To: wsj.ltrs[at]wsj.com
Date: Wed, 5 Dec 2007 15:47:41 -0500
Subject: The Huckabee Contradiction, December 5, 2007; Page A24
From: Roger W Buchholtz
WSJ,
You have done some homework on the issue of the FairTax but you need to stay after school or attend summer school before you are ready to graduate. I complement you, as your demonstrated knowledge is superior to most that I have encountered in the media, however, you have missed some key concepts that cause your conclusions to be flawed.
You express a concern that the 16th Amendment must be abolished before the FairTax could be adopted or we could be saddled with both an income tax and a national sales tax. The concept you have missed is that we already have a national sales tax. Today's sales tax is hidden from the public (and, apparently the writers of the article) in the prices of all goods and services produced in the U.S. As Dr. Alan Greenspan and Dr. Milton Friedman have said on many occasions, "Only people pay taxes". When we tax businesses it is just a dishonest way of taxing citizens, as businesses have no alternative but to pass the cost of taxes and tax compliance costs on to consumers in the price of their products, just like any other cost of doing business. In essence, these imbedded taxes constitute a hidden sales tax.
According to a study by the former Chairman of the Harvard Economics Department, Dr. Dale Jorgenson, the average imbedded tax/hidden sales tax rate currently is about 22%. So, in essence, we already have a sales tax rate on all goods and services of 22% plus our cumbersome, loophole riddled and liberty robbing income tax, regressive Social Security and Medicare taxes, and confiscatory death and gift taxes.
The FairTax would replace all these taxes with a simple, visible, retail sales tax with no loopholes. Due to monthly payments to all households in the amount of what the tax would be on expenditures up to the poverty level, the effective sales tax rate for a family of four spending $27,380 per year on new goods and services (defined as poverty level by the US government) would be 0%. (Used goods are not taxed under the FairTax.) The same family spending $75,000 per year would have an effective tax rate of 19%. The FairTax "prebate" payments untax the poor and cause the FairTax to be progressive. Because the FairTax eliminates "business" taxes, this expense and tax compliance costs would no longer be imbedded in prices, thereby, lowering the cost of goods and services produced in America. Since the FairTax eliminates income taxes, citizens would have all of their paycheck to purchase products that would then cost less, so when the FairTax is added to the retail price the product would cost about the same as it does today. The big differences are:
• There will be no intrusive income tax forms to file and no records to maintain (except for retail sales tax records by some businesses)
• Between $500 billion and $700 billion will no longer be wasted annually in complying with the current Internal Revenue Code
• American labor and capital will be able to compete without today's ~20% competitive disadvantage caused by taxes imbedded in the price of all goods and services produced in America
• Companies and jobs will flow to America and we will have the industrial and technological ability to defend our freedom
The article expressed a concern that compliance with the FairTax would be a problem. A look at the research on the compliance of the current tax code and comparing that with compliance under the FairTax answers this concern. Under the current system I can understate my income and/or overstate my expenses all by myself, whereas, under the FairTax I need to have a seller to conspire with me to cheat. I doubt there will be many sellers willing to go to jail for me. This is especially true since well over 80% of all retail purchases are made from large companies, and because the sale of used goods aren't taxed under the FairTax. The FairTax would bring into the tax base the under-the-table labor and illegal activities such as drug dealers, prostitution, gambling, etc. because when they spend their money they will pay a tax like everyone else. The number of collection points will be reduced by the FairTax from today's 120 million to about 12 million and all that must be looked at are retail sales. The FairTax provides for the states to actually collect the tax, along with the state sales taxes. It will take a MUCH smaller "IRS" to monitor the states as the states collect a simple retail sales tax at 90% fewer collection points.
Apparently, Mike Huckabee understands the current tax code and the FairTax considerably better than the writers of "The Huckabee Contradiction". I encourage the writers stay after school tonight and visit FairTax.org for some extra credit.
Roger Buchholtz
MI FairTax Director (volunteer)
P.O. Box 141 / 5620 Clato St.
Kalamazoo, MI 49004
phone/fax: (269) 345-0950
cell: (586) 530-3298
That's a great letter too, Ian. Thanks for sharing with us.
It appears as though you are in good hands so I am postponing my comment entry on your blog. This gives me even more time to GET the FACTS CORRECT before opening my mouth. I am prioritizing to Ken Hoagland's request from yesterday. Emails are pouring and trying to keep up. Good luck and am keeping up with you site. Thank you for keeping things straight on your blog sit. BettyBoop
It seems that the "free lunch" virus has spread up to Michigan? Mr Buchholtz makes many good points, but as for the price issue, he fell short of complete accuracy.
It just isn't correct to assert that prices will remain about the same. Yes, the business income/payroll taxes and compliance costs will be removed and the cost of a product or service can be reduced. But, removing the employee share of income tax costs (income tax and payroll tax withholding), does not change business costs. It does give everyone more money to spend. So, business costs can go down around 10%-12%, adding the Fairtax essentially raises prices by 15%-20%, and most folks will have at least that large an increase in cash to spend. Their increased purchasing power offsets the price increase. And everyone is reasonably happy?! Real prices remain about the same.
But, you need to know that one set of consumers won't be so happy. Governments at all levels are treated as consumers, and the only offset to the price increase is the governments savings due to payroll tax elimination. For instance,the $1 trillion in state and local consumption in 2007 will be taxed by $270 billion so expect state and local tax rates to rise by 25-30% in order to pay the federal sales tax..
Is it really "transparent" to hide a large share of the revenue needed to fund the federal government in higher state and local taxes? Bad idea, my friends! If there is really any real concern over government competition with the private sector, as AFFT claims is the reason to tax governments, there are far simpler legislative means to head off such unfair competition. (See HJR 23, authored by Ron Paul, for example).
I took the liberty of sending this discussion along to Roger Buchholtz, and his reply follows...
"Dutchman 3 Has raised some good questions that are easily answered. I'll save him the time of doing his homework and provide the answers here.
"1) Will things cost about the same after the FairTax is implemented? He says "no" then he explains that 'Real prices remain about the same.' when purchasing power is considered. This was essentially what I was stating without getting into all the details.
"2) He expresses a concern that the cost of things purchased by the government will increase because government will have to pay the FairTax. He does point out that government will save a considerable amount because the cost of Social Security and Medicare taxes would no longer be added to government payrolls. What he missed is that the government, like all individuals and businesses,today is paying a hidden sales tax that averages 22%. This hidden sales tax is the cost of imbedded taxes that are passed on in the cost of all goods and services produced in America. That cost is eliminated when the current tax system is replaced by the FairTax.
"In summary, the cost of goods and services purchased by the government will decrease, therefore, when the FairTax is added to the new lower price the government will be paying about the same as before. The only difference is that the tax the government (and everyone else) is paying is visible rather than hidden in prices.
"He suggests that Ron Paul has a better idea; however, Ron Paul supports the FairTax and has said so on numerous ocassions."
"I recommend visiting FairTax.org and MichiganFairTax.org for additional information."
16th Amendment. Sponsor of FairTax plan, John Linder states:
[Yes, the FairTax plan does foresee the repeal of the 16th Amendment, but, no, procedurally the repeal cannot be included in the text of H.R.25...If the FairTax is enacted, I expect that the Congress and states would promptly begin consideration of legislation to repeal the Sixteenth Amendment. To make certain that occurs, however, I am in favor of adding language to H.R. 25 during the 111th Congress that includes a sunset provision, meaning that either we succeed in repealing the Sixteenth Amendment within 5 years after the implementation of the FairTax or the FairTax goes away. In my view, we simply cannot risk having both a national income tax and a national sales tax in place at the same time.]
Please note that Linder is in favor of ADDING LANGUAGE TO H.R.25 DURING THE 111th cONGRESS...REPEALING THE 16th AMENDMENT.
Ian,
1. If Buchholtz and others, mean that "real prices will remain about the same". then say so. It's very misleading to say that prices will remain the same. And, purchasing power for many Americans will be greater under current law.
2. Buchholtz still doesn't get it as regards the impact of the Fairtax on governments at all levels. One more time, repeat after me, the 22% embedded costs of the income tax system include employee payroll and income tax withholding amounts. In fact, two thirds of the Jorgenson 22% embedded costs are employee withholding and that money belongs to the employee, not the business owner. Business costs can be expected to go down 10% including compliance costs, and after tax prices will go up 17% on average.
Now, people will get an effective payraise by keeping all their paycheck, so as mentioned above, their purchasing power will offset the tax in many cases. But the government doesn't pay income taxes and won't get the same "pay raise". Governments can only use payroll tax savings to offset the sales tax, so there will be a significant net cost
on all governments. You can expect state and local government taxes to rise by 25%-30%. Is it really transparent to hide 25% of the cost of the federal government in higher state and local taxes? I don't think so!!!
And, as for the added cost to the federal government, it's just a big shell game. Fairtaxers maintain that it's a wash because the taxes are paid from one pocket and the revenue comes back to the other pocket. If you buy into that scam, then maybe you ought to suggest that tax rates on federal government consumption should be increased to 200%, and the rest of us wouldn't have to pay any federal tax. Doesn't anyone understand how rediculous that is??? Governments can't tax themselves into prosperity. The Fairtax rate was increased about 5% to pay for the prebate, and should have been raised another 6% to pay for taxes on government consumption at all levels.
BettyBoop,
You wrote: "Please note that Linder is in favor of ADDING LANGUAGE TO H.R.25 DURING THE 111th cONGRESS...REPEALING THE 16th AMENDMENT."
That's not correct. Linder is in favor of adding language in HR25 that sunsets the Fairtax if the 16th Amendment isn't repealed. There is no way he wants to snarl up HR25 with a Constitutional Amendment. Either I misread your post or you misunderstood his statement. Repealing the 16th will be a separate action from the Fairtax legislation.
Your condensed version of Linders statement creates confusion IMHO.
Roger replies...
"This is my last attempt to answer Dutchman3's questions. I find it tedious to play with words when the meaning is obvious and the research is readily available:
"1) I doubt if people will care whether prices remain exactly the same or whether some increase in income and some decrease in prices will result in them being able to buy the same products with about the same portion of their income. Their purchasing power remains the same. Semantics are fine if you have the time to be exactly precise but only Dutchman3 seems to care. Hopefully, Dutchman1 and 2 and 4, 5 6,etc. understand the concept and are not hung up on semantics.
"2) Dutchman has again failed to consider the imbedded taxes that constitute 22% of the price of all goods and services government units purchase. In addition, it is doubtful that employers (including government units) will give to employees the portion of the employees' Social Security and Medicare that the employer currently pays. It is more likely that the employee will keep the portion that is currently being deducted from their paycheck and the employer will keep the portion the employer is paying.
"I think Dutchman3 would be well served to evaluate the dynamic impact of the FairTax on the economy and the resulting impact on government revenues. There is considerable research included in the Jorgenson and other studies that can be reviewed on the FairTax website.
"The greater worry is that the economic growth, predicted by all studies, that will follow enactment of the FairTax will cause government revenues will be excessive and result in an expanded role in citizens affairs."
Roger Buchholtz
And, what is crucial to think about is what happens if FairTax does not replace the tax code, and politicians are left to their mischief!
Ian,
1. I'm sorry that Roger finds it tedious to deal with words, but part of the reason grass roots efforts fail to connect is the inability to state their case in terms every American can understand. For instance, you call the Fairtax a 23% sales tax, when it is really a 30% sales tax at the cash register. You say prices will remain the same, when you really mean real prices will remain the same. You say the Prebate makes the Fairtax progressive, when everyone else knows that sales taxes are regressive by rigid definition. And you put great emphasis on the purchase of "used" goods, when you really mean goods for which the Fairtax has already been paid. Good luck on reeducating the entire American public on common terminology.
2. There is no such thing as an "imbedded" tax. Jorgenson's study said that there was an average of 22% in costs of the income tax system "embedded" in producer costs. And Jorgenson didn't include business compliance costs in his study. I totally agree with Rodger that employees will keep their withholding amounts which is precisely why only one third of the embedded costs can be removed by the businessman. Which led me to the conclusion that, pretax prices can go down by around 10% including compliance costs, and after tax prices will most likely rise by at least 17%. Simple math, and I'll stand by that outcome until someone shows me I'm wrong.
The impact on governments is huge in that governments aren't getting a "payraise" to offset the higher prices, so, since governments don't pay taxes, only people pay taxes, guess what? The governments will have to initiate a "payraise" through higher taxes in order to pay the sales tax on government consumption.. Rather than hash out the details here, if anyone wants to read my study on both the Fairtax price impact and the Fairtax impact on governments at all levels, please send me an email. (vanlinda@comcast.net). I might add that there have been no such studies done by AFFT or anyone else to my knowlege. Prices seem to be the "third rais" of the Fairtax, and rightly so.
Cheers!
Hey Dutch, you're like a mouse in a maze - a mazing.
Naysayers railing against the FairTax become, ipso facto, defenders of the INCOME TAX system. Prof. Larry Kotlikoff believes that the current tax system IS bringing the country to nothing less than an "economic meltdown" by virtue of the invisibility of actual taxes paid. If Americans do not understand the true cost of their government, they're unlikely to hold Congress accountable - thus the enabling mechanism to continued profligate spending.
Even with the foregoing notwithstanding, do FairTax naysayers really believe:
• Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?
• That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.
• It's better to have theIRS fishing through citizens' income transactions (complete with audits, interest, penalties, and threats against individuals, families, businesses as well as confiscation of their homes, property, and bank accounts) rather than - Gawd forbid - issuing a gov't check to an individual (while pretending that Social Security payments disbursement logistics really can't work for "prebates")?
• That an monthly advance tax rebate is the same thing as "being on the dole" ? (Only lobbyists, special interests, and business deserve "handouts" ? - the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all.)
• "Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)
• It's far better to have a gargantuan tax collection "service" in Washington, than to have 50 decentralized, smaller, leaner state collection agencies collecting taxes from fewer sources?
• That the work by notable economists (paid tens of millions of $'s by Americans for Fair Taxation) doesn't carry weight because it was paid for by private funds instead of some gov't / quasi-gov't enterprise?
• That FairTax's backing by many economists doesn't carry any weight because (the Brookings') Wm Gale's testimony before the President's Commission on Tax Reform is - somehow - above all that?!
(NOTE: The Commission/Gale made up their own "consumption tax" requirements, as if that constituted a legitimate rebuke of the FairTax plan. Dr. Kotlikoff has requested - but never received - Gale's technical "modus operandi" which would definitively explain just how Gale's conclusions can be reconciled with Kotlikoff's well-documented technical work.
Let us work, together, to end the enslavement of the Tax Code and to restore Liberty to America's working families.
America's working families are paid because the companies they work for sell goods and services. Let's pay for government the way America's families are paid - when something is sold!
Ian, you're running true to form. When you can't rebut a Fairtax criticism, just vilify and insult the criticizer and flood the ethernet with nice sounding BS. Works every time, except with mice like me.
The key issue on this exchange was prices and the impact on governments. AFFT has never done a price study, nor an impact study, so I challenge you to rebut the simple fact that prices will most likely rise by a minimum of 17%, and governments at all levels will have to raise additional revenue to pay the tax on their consumption. Pretty simple task for someone as learned as you seem to be. Please tell me, Ian, why don't you believe that retail prices will increase significantly?
Good luck!
To Dutchman3: I am having difficulty understanding much of your responses and needed to dissect a few of your statements to help me understand you better. Here goes from one of your earlier comments. Maybe 2 or 3 days ago.
(1) [D3]But, you need to know that one set of consumers won't be happy.
(betty) As with all other things, 'you cannot please all the people all of the time because we don't all think alike. The FairTax is meant to help the majority and not to necessarily make one happy.
(2)(D3)Governments at all levels are treated as consumers, and the only offset to the price increase is the government's savings due to payroll tax elimination.
(betty)Governments ARE concumers, period. I don't understand what is meant by 'the price increase.' Prices stay the same under the FairTax with an inclusive tax in the price tag. The difference here is that the tax doesn't go direct from payroll to IRS. It is paid 'direct' from individual states to the Treasury and then to the government. The federal government in turn allocates the same revenue as is currently allocated to the different trust accounts such as: the general revenue, old age/survivors, disability, hospital, Medicaid, and social security, etc. The government does not save via payroll tax elimination. The only savings I can see likewise, is that government is really not saving, but, is cutting their descretionary spending by 18% under the FairTax plus paying their share of 'Tax to Pay.'
Employers submit employees' wage reports under the FairTax so your social security benefit does not change from what it currently is except for the cost of living increase that applies in 2009 and beyong. For example:
Gen Rev. 64.83% of total
tax rate equal to 14.91%
Social security to 27.43% of total tax rate equal to 6.31%
medicare 7.74% of total tax rate equal to 1.78%
FairTax revenues equal 100% of total, total FairTax rate (23%).
(3)(D3)...state and local tax rates rise by 25-30% in order to pay the federal sales tax.
(betty) Your focus actually appears to be concerned with an increase in your state sales tax and really, not much to do with the FairTax. The FairTax is revenue neutral so why on this earth would the states raise current state sales tax? One tax is not dependent upon another! It may be that your state will increase state tax in that it has been an infrequent occurrence to help stabilize economic conditions in your region. Maybe it is time for you to concern yourself with the economic and environmental conditions in your state alone.
The first few months to a year may well be difficult for some to swallow the FairTax such as yourself. It nearly appears that you have convoluted your own FairTax plan. Change can be difficult as you muster up the negative and put aside the positive. Life is not all peaches and cream and the FairTax didn't mean for it to be. The FairTax is here to help progress, not hinder progress. Please visit my blog site
http://fairtaxfocus.blogspot.com/
and download the Plain English Summary of the FairTax Act for 2007 (36 pages). It is simply written for all to understand. Thank you for your time Dutchman3. Always, betty.
My email: betwhit88@gmail.com
Betty,
Thanks for your interest and questions. And I do appreciate your cordial tone- no "mouse in a maze" comments.
Responding to your questions/comments, the consumers I suggested wouldn't be happy are of course governments. And they won't be happy with the 17% cost increase caused by the Fairtax. Now, you don't seem to agree that prices are going up, so instead of repeating myself, please read the price discussion in the next thread. I'm also emailing you a copy of my price study as well as the fairtax impact on governments study. And by the way, governments do indeed save 7.65%when the payroll tax is eliminated.
The government is an employer and HR25 requires governments to pay the Fairtax on all government payrolls. Worse yet, the tax is levied on the burdened cost of payrolls, and that will add a bunch to the total cost of the sales tax.
The increase in state and local taxes has everything to do with the Fairtax. By taxing governments, the Fairtax rate was reduced by around 6%, and state and local governments will have to either raise taxes, reduce spending, or "tax the tax", although the latter would violate one of the stated goals of the Fairtax, namely to prevent double or cascading taxation. What a Hobsons choice for the states! And, due to the immense cost of the Fairtax to the state and local governments, there is a fourth choice. It is very likely that the states will haul the federal government into court and make the case that parts of HR25 are unconstitutional. I think you already understand that one sovereign power (federal) can't tax the other sovereign power (states) under our republican form of government.
Please read the stuff I sent you, and I hope you will have more questions.
Regards,
Hank
FairTaxers (I like that word) are aware that repeal of the 16th Amendment needs to be separate from the FairTax Act. Representative John Linder's statement means that he is willing to insert a section into the FairTax Act to MAKE CERTAIN that the repeal comes into existence.
Always, betty
Dutchman, are you familar with the paper "A National Retail Sales Tax: Consequences for the States"? It studies the FairTax affects on the states and concludes the states would pay $346.2 billion in NRST to the federal government, "an amount about 50 percent greater than current state and local general sales tax revenues".
Fred, no, I had not seen that study, but it certainly is interesting. In addition to confirming that there will be increased state and local costs due to the Fairtax, it sheds some light on the expected reaction of state financial officials when the federal government tries to horn in on what has been strictly a state revenue collection baliwick. I think the chances of states becoming "cooperating states" are slim and none.
Thanks for the reference!
I've been reading comments both pro and con for the fair tax and it really comes down to how are consumers really going to react? All the arguments to this point reflect current spending patterns and revenue generation. Let's take a look at what will happen in the real world if this is enacted. Since consumer spending accounts for nearly 2/3 of our economy this is what's going to happen with the fair tax.
1. People hate paying taxes! They aren't going to continue to purchase new goods as they do now. Yard sales and used goods will become the new weekly trip to Walmart. This is where the prebate check is going to go and not to purchase brand new goods. This will hurt the economy and reduce tax revenue.
2. Nobody is going to build a new home if they pay 23 or 30% tax. No new home construction means thousands of laborers will be out of work.
3. If interest is taxed (credit cards/loans) there will be an incredible reduction in spending from credit cards thereby reducing tax revenue even more. New auto sales will plummet which will put even more auto workers out of work.
4. MOST IMPORTANTLY - when the fair tax begins to bankrupt the government, what do you think will happen? Government programs like SS, Medicare and the prebate check will be dropped first. Then comes the EPA, FCC, FDA and so on. Can anyone say unsafe drinking water and/or contaminated food - no money for inspections? OR, the sales tax rates would have to be increased which will make the economic situation even worse.
As far as which rate is the actual rate (either 23% or 30%) doesn't matter. The rate will have to be exclusive, which is what we have now with current SALES TAXES. An inclusive rate is just another way of hiding the real tax rate.
The fair tax, as much as I'd like to get rid of the IRS, just cannot work in its current format. I'm not completely opposed to a fair tax but there needs to be some serious changes before it truly is "fair".
Anonymous,
I share many of you concerns. Some time ago I wrote to the Chairman of AFFT in Houston with the following suggestion.
"Mr. Chairman, let me assure you that I also believe that adopting a national consumption tax would be preferable to the current income tax. There are many compelling arguments to do so. I simply don’t agree that the Fairtax and HR25 are the way to get there. To make my point, let me close by discussing what I call “Fairtax-Lite”.
In my opinion, your group that put HR25 together badly overreached. You taxed governments at all levels in order to reduce the sales tax rate and reduce government competition with the private sector, but incurred the strong possibility that that portion of the legislation will be found to be unconstitutional under the doctrine of intergovernmental tax immunity. State and local taxes will have to be increased significantly in order to pay the federal sales tax. You added payroll taxes to the mix and created a large class of an estimated 30 million Social Security net non-contributers, all of whom will still qualify for full pension and health care benefits. You treated all current retirees very unfairly by forcing them to resume paying into the trust funds with their sales tax dollars. You completely untaxed businesses, a major political mistake even though quite sensible. You added gift and death taxes to the mix to be eliminated, and left yourself open to political criticisms that you are unfairly reducing the tax burden on the wealthy. You adopted a prebate, the largest cash grant entitlement in the history of the country at a time when entitlements are squeezing out discretionary spending, including critical Defense spending. You adopted an inventory tax credit which will contribute to a very large federal budget deficit in the first year of Fairtax implementation. You excluded education tuition, thus allowing the “camel’s nose under the tent flap”. That precedent would certainly encourage future politicians to try to exclude such things as medical expenses, home ownership or anything else they might consider equally important to education tuition. And finally, you chose a “cold turkey” implementation schedule. The Congress is basically conservative and far prefers evolutionary change to revolutions such as the Fairtax.
Fairtax-Lite is a broad based 14% national sales tax with (1) no exclusions, (2) no prebate, (3) no government taxation, (4) leaves payroll taxes and gift/estate taxes alone, (5) no inventory tax credits, and (6) implements the plan over five to ten years. If you are really serious about getting rid of the income tax and the IRS, I suggest that Fairtax-Lite has a far better chance of gaining Congressional approval than HR25."
Is Fairtax-Lite perfect? No tax plan is ever perfect,but it's got a lot fewer moving parts than the scheme proposed in HR25. Do I think anyone will pay attention? No, the income tax tinkerers will continue to tinker---until the federal budget train wreck happens!!
Concerning the aforementioned May, 2005 Fox / Murray study on FairTax's effect on the states, it is notable that the first listed source cites one Wm. Gale - whose former commentary on the FairTax acts to support the status quo, as if the income tax is functionarily disciplined which, of course, is impossible with its foxes (politicians, lobbyists) guarding the hen house (minimum taxes, controlled spending, fairness for all) regularly gaming the tax code and increasing its complexity for gain of the few at cost to the many). At the outset, Fox / Murray agree with Gale that the FairTax threatens the states' income tax extraction games,
"... and depending on state policy decisions, there may be marked differences in the ability to target relief through the tax code to specific groups."
Do these authors intend that "specific groups" means income groups? For if they do, we've already seen how the FairTax is less regressive than the current income tax system (p.3, para. 3 and p.2, para. 4). Perhaps the authors intend "specific groups" to mean special interest groups? The goal of many (especially "liberal") politicans is to cater to special interests in order to capture them as constituent voting blocks who are dependent on continued syphoning of taxpayer dollars to their members' benefit. This is increasingly repugnant to the average working American who often finds it difficult to meet the needs of his, or her, own family in an environment where federal and state business income taxes substantially contribute to trade inequities resulting in the loss of American jobs! Thus, the Sovereign are continually degraded by features of Congress's income tax policy. The most rapidly-growing needs-based "special interest" group has become the Citizens! You see? Congress has nearly all the power; and We, the People, have become We, the Serfs, robbed and enslaved. Getting the federal government's hands out of our family paychecks is the single most important reason to replace the income tax with a consumption tax, the FairTax.
Pretty simple, eh? Apparently not to nearly half of the American population who, like victims of kidnapping and domestic violence,have fallen in love their Abusers, their Congressional representatives who, over the decades subsequent to 1913, have turned freeholders into miserable, complaining, dependent serf's who are pitted against each other, as special interests, seeking favor at the Court of the Royal Tax Code. We, the Serfs suffer from the following psychological debilitations:
"Cannot-do" syndrome: These are citizens deepest in the throes of government dependency, their lives consisting of one government-employee interaction after another. These Serfs no longer believe they can be successful, they acquiesce to a whatever government subsistence is available.
"Will-not-do" syndrome: These elites are more like "mental Serfs" whose attitudes support the Lords' tax collections from other Serfs. These are people who were born "rungs up on the economic ladder," to paraphrase a Huckabee metaphor. They have had privilege for which they feel social guilt; but that doesn't deter them from sheltering their income to sustain their own lush lifestyles, further exacerbating their guilt. To soothe their guilty consciences (i.e., "to have their cake and eat it too)," many of these types become activists for social justice. And their common modus operandi is to lobby the Lords to slice up the other Serfs' "cakes" and feed it to those who have been socially oppressed (by people like them!) These types are the supporters of organizations like MoveOn.org, and of people like Al Gore, who want to increase Six-Pack Jack's paycheck deductions for any number of "URGENT" reasons. (Ever notice how everything is MORE URGENT than the economic meltdown for which Congress's spending is responsible? MORE URGENT than the markets meltdown that is just around the corner because Congress's favorite buddies, Wall Street, needed a way around the DTCC in clearing "promises to deliver" stock cert's (naked shorting)? LESS URGENT than Congress's own paycheck increases and exceptional retirement benefits?)
Now, on to the assertions of Fox/Murray: Their "Conclusion" states,
"While many desirable macroeconomic consequences would follow from adoption of a national retail sales tax, there would also be serious effects on state and local government finances. Absent the IRS, it would be more difficult to maintain viable income tax systems [No. 1 below]. And the costs of financing state and local government services would rise sharply [No. 2]. State and local tax bases would be substantially broadened if they conform to the NRST base; nonetheless, higher rates would be necessary to replace existing revenues and to finance costs of paying the federal tax on state and local government service delivery. Together there seems to be little in a national sales tax that states and localities would find palatable."
While the authors don't bother articulating the "many desirable macroeconomic consequences [that] would follow from adoption of a national retail sales tax," those they consider "serious" boil down to these two:
No. 1: "Absent the IRS, it would difficult to maintain viable income tax systems."
For the same reasons of transparency, elimination of tax codes (and lobbyists that attend it), it would be in a state's (i.e., the taxpayers') best interests to model and enact a state FairTax. (In fact, there are several states that have already begun initiatives to move in this direction. The one I'm best familiar with is the Michigan FairTax.) A more fundamental and important benefit of an "absent IRS" is the restoration of We, the Serfs to We, the People. Under FairTax, We once again enjoy our constitutional right (under the 4th Amendment) to be "secure in our ... houses, papers, and effects, against unreasonable searches and seizures"
No. 2: "...costs of financing state and local government services would rise sharply."
According to Kotlikoff, et al,
(p. 674) "That reasoning strongly implies that the FairTax simultaneously maintains the real value of federal government spending and of consumer spending, while reducing the real value of state and local government spending. After all, why else would the states ‘fiercely oppose’ the FairTax? That this reasoning is muddled can be seen in the fact that the real value of state and local government spending cannot fall unless (1) the real value of federal government and consumer spending rises or (2) the FairTax brings about a fall in real national income. Because the author eliminates (1) as a possibility and because there is no reason to expect (2), there is clearly a slip in logic."
With what little power that is left us, We, the Serfs, must take action to throw off this tyranny in order to restore "government of the People, by the People, and for We, the People."
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