It would take another article (here is the original and discussion on it) to respond to all the bogus claims of the FairTax supporters. However, I would like to settle once and for all, as simply as possible, the dispute about the FairTax percentage–whether it is 23 percent or 30 percent.
I live in Florida. The sales tax rate is 6 percent (some counties have an extra penny but that is immaterial). If I buy something for $1.00, I pay an extra 6 cents, for a total of $1.06. Since the proposed FairTax is not an excise tax that the seller must pay no matter how much he sells the product for, but is in fact a sales tax that is added on to the price of a good, if I buy an item under the FairTax system for $1.00, I will pay an extra 30 cents, for a total of $1.30. That is a 30 percent sales tax rate. Boortz and his FairTax supporters want us to take the $1.30 and say that since 23 percent of that is 30 cents then the FairTax rate is 23 percent when in fact it is really 30 percent.
I am still with Murray Rothbard: “There can be no such thing as ‘fairness in taxation.’ Taxation is nothing but organized theft, and the concept of a ‘fair tax’ is therefore every bit as absurd as that of ‘fair theft.’”
One basic problem with the FairTax people is that they don’t consider taxation by the state to be legalized theft.
And what makes FairTax supporters think that all merchants will price their goods with the sales tax included in the price? That will make their goods appear more expensive than they really are. I suppose that FairTax supporters will want the state to mandate that all prices include the federal sales tax. That brings up the other basic problem with FairTax supporters–their view of the state. But that is the subject of another article.
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Person,
The Fair Tax cannot be passed forward to the consumers. I suggest you read the item Paul Edwards linked to earlier. In the essay, Rothbard demonstrates that a general sales tax will be passed backward through the various stages of production until it rests, ultimately, on land rents and labor. In other words, the incomes of individuals are reduced, while, at the same time, the supply of goods is decreased. In addition, you now have a very powerful incentive for evasion, and, due to the structure of the Fair Tax, an initially easy method of doing so. In order to “stop” the evasion, the government will be forced to strictly monitor the inventories of all final goods sellers and the daily activities of all service providers. It isn’t difficult to realize that, as the expected revenue fails to materialize due to black-market activity, the level of repression will rise, the rates of the Fair Tax are raised, and that the actual income tax reappears to compensate.
Not you, nor any of the Fair Tax proponents have answered these objections.
You mock the arguments of those who point out that the policy will be corrupted, but you are wrong to do so. The practicality of the policy is extremely important, and by ignoring the real problem with taxation, its level rather than its mode, you waste your time and energy.
Person,
I’m sorry, but it’s you who needs to grow up and realize that whatever the supposed merits of the FairTax, your admission that it would eventually be corrupted renders it an exercise in futility, all the more so in view of the fact that the government’s current tax system, as oppressive as it is, has still left tens of trillions, and counting, in unfunded liabilities.
Which is to say that the FairTax will simply be the NextTax and that your support of it only puts you in league with the forces you are presumably fighting.
Person,
That’s a new one, telling someone to “stay out of the debate” if they don’t debate the way you want them to. What a bunch of arrogant bs.
I supported a consumption based tax like the un”FairTax” through a good part of the 80s, it was upon deeper analysis and the realization that a virgin can’t reform the whorehouse that I realized how bad it was. Sasha and others have pointed out some of the technical issues and more have pointed out the other problems. No one has yet to even come close to debunking these issues. Before we even begin to talk about tax reform, we MUST talk about spending reduction and abolishment of the income tax. When these issues are addressed, we can talk about how to improve the governments thievery.
This is my last word on the FairTax. Even if everything the FairTax supporters say about the FairTax is true, I still object to the FairTax because I don’t think it is fair that the government impose a 23 percent tax on the purchase of new goods and services. FairTax people think it is. I think it is legalized theft. FairTax people think it isn’t. We can argue all we want about the method the state should use to collect taxes, but it is all a waste of time as long as FairTax supporters think that the state taking a 23 percent cut on all transactions of new goods and services is a fair thing. I consider it highway robbery. Good day.
This is my last word on the FairTax. Even if everything the FairTax supporters say about the FairTax is true, I still object to the FairTax because I don’t think it is fair that the government impose a 23 percent tax on the purchase of new goods and services. FairTax people think it is.
No, they don’t. They simply consider it better than the current system.
So that’s it? You’re going to end with a slanderous lie? Fitting. Your article presents no reasons to believe the FairTax is worse or as bad as the present. All you have to fall back on is “taxes are bad”. Well gee, thanks for the update. But maybe after you learn marginal analysis, you can learn why some bad things are worse than other bad things, and then you would have a case against a specific change in policy.
But as long as you can just slander people who disagree with you, why bother? If that’s all you have, I’ll interpret that as your face-saving way of saying “I can’t defend my own position.” I think that’s a good enough note for me to leave on.
Person,
As I posted before, you are asking the wrong questions. You are not tackling the root of the problem; therefore, this whole argument is pointless. You can argue about how the “Fair Tax” proposal makes things more efficient or lowers implicit and explicit costs, but these discussions just serve to keep our eyes off the root of the problem. That is, taxes are theft.
By getting people to ask the wrong questions the discussion is moved far away from the real problem at hand. It doesn’t matter how inefficient income taxes are or how inefficient the government is in collecting them. These issues just serve to make us forget what taxes really are.
Do we really want an efficient tax system? I would much prefer it to become more inefficient so that I can keep more of my money.
By asking the wrong questions all sorts of policies are enacted. It’s like saying that school vouchers are a step toward liberty when the government controls the strings. Or that “privatizing” social security is a better policy than the current one when the government can tell you where you can invest your money. These are policies that just change the rules of the game, but never get the state out. How can changing the rules of the game be beneficial in the long-run? It just changes the winners and losers.
That’s why tax credits for education move us closer to liberty than school vouchers. One takes the state out of the picture, the other keeps it in.
The “Fair Tax” keeps the state involved, income tax credits do not.
Taxes can never be “fair.” Or as Murray Rothbard said
So even in his second attempt, Laurence M. Vance gets it wrong. He says that he is “still with Murray Rothbard”, but it seems Mr. Vance is with him only in launching some catchy lines. When it comes to the essence of this discussion and economic theory, Mr. Vance is with Neil Boortz. He falls into Boortzian trap of “passing costs forward”. This strange phenomenon only exists on internet blogs and in state-run school system.
As soon as you know it, someone tries to initiate fruitless and irrelevant discussion about the percentage that customer actually does not pay, and displaying total ignorance of the real danger with the “FairTax” (merciless revenue tax that applies to every seller regardless of profitability).
Well, I understand that Mr. Vance has a problem with this idea, since he didn’t think of it first, but what’s the deal with opening second, identical blog?
Person,
You have demonstrated that you are particularly uncivil and ungracious. You are not achieving any of your stated goals by acting this way.
Nevertheless, in an attempt to blow away some of the frustration and anger you seem to have regarding our opposition to your favored proposal, I’ll try to encapsulate my own difficulty with it.
You are acting as though the sole issue presented is this: Is a 30% retail transaction tax better, however slightly, than the current income tax system? You want everyone to fall in line, and answer the question as you pose it.
This is an age-old rhetorical device. You want to frame the issue in the way that most favors your preferred outcome. It serves your purpose of getting support for your proposal, because you believe that if you can show that the FairTax is one iota better than the current system, you will have made an airtight case for adopting it.
However, yours is not the only question raised by a discussion of tax reform. In the real world, outside of your rhetorical constraints, there are better, more important questions to answer.
There is at least one other, equally valid, way to frame the issue, one that includes considerations of the difficulty of getting measures passed in the real world, where realistically we will only have one opportunity for a long time, perhaps many decades, to make a significant change. It is this: how do we solve the problems of the current tax system?
The answer to this larger, more relevant question is simply: government spending is all-important. The problem of government spending is analagous to the problem of “the Titanic is sinking.” The problem of filling out income tax forms is analagous to “the chairs on the deck are all wonky.” The problem (and corresponding measure of improvement) that you are promoting is, in the context of the Big Picture, completely insignificant.
In a fiat money regime, ALL government spending IS taxation. Once you understand this concept, asking whether you’d prefer an income tax or a transactional tax is like asking whether you’d prefer the bullet to the front of your head or the back. It really makes no difference.
Even if we confine the scope of our inquiry to the narrow issue that you ahve presented, for the life of me, I cannot fathom why the FairTax does not openly advocate for a repeal of the 16th Amendment. You blithely dismiss the complaint that as long as this Constitutional rule exists, we are just one Congressional majority away from having both an indirect transactional tax AND a direct income tax.
This is a significant problem, a fatal flaw really, and one that you have wholly refused to even acknowledge. You keep using phrases that indicate that the transactional tax would be “better.” Well, it would ONLY be “better,” even according to your own limited and confining method of measuring improvement, if it actually REPLACES the income tax. It does not.
George_Gaskell:
If I’m frustrated, it’s because no one has really presented a good reason to oppose the FairTax. I currently think it’s a good idea. I’m open to changing my mind if I see a good argument against it.
I haven’t.
You say, that I have “wholly refused to acknowledge” the argument that “taxation bad”. No, I haven’t. Search for the words “third”, “fourth”, and “fifth”, because I numbered each time I addressed this. Saying “taxation bad” and “legislation won’t change anything” is an argument against the FairTax, but not incredibly relevant, because it equally applies to all taxes, and all legislation. But if that’s your argument, you shouldn’t complain about the FairTax because all taxes are equally bad; what difference does this one make? You just want me to admit that “Yeah, yeah, it’s all going downhill, there’s nothing we can do to change it because it’ll all get ripped out in commitee or reversed later. We should just secede from society and go live in a cabin.” Well, that’s not going to happen.
Insofar as you actually have an argument, it’s “if the FairTax passes, we will eventually have both taxes”. Well, your entire argument rests on it, and your support for that position is “I assume it will happen.” Don’t assume it. Tell me why it *must* happen, and our efforts to stop that when the income tax tries to come back must fail. But before you do that, also show why seceding from England was a bad idea because “we would just end up with today’s government”. “But our government is much less oppressive today than if we hadn’t…” nope, sorry, your worldview dismisses all such arguments, so you can’t use that one.
Person,
Seceding from England was of course a good idea, and had Lincoln upheld the right to do so as set forth in the Declaration of Independence, we wouldn’t be having this conversation because subsequent history would have been altogether different, the centralization of power that began with Lincoln’s War providing the impetus for a welfare-warfare colossus that would not otherwise exist. And simply put, that is why you should be working not to “secede from society and go live in a cabin” but to secede from the colossus, as this is the only means whereby our society can return to its roots and, with 20-20 hindsight, embark again on the road to freedom.
Not possible, you say? Perhaps. But consider how Antony Mueller concludes this excellent piece (http://www.safehaven.com/showarticle.cfm?id=4289&pv=1) on the trade deficit:
“The graph is presented in order to demonstrate that the collapse tends to come in a seemingly abrupt fashion. In other words: while the margin of creditworthiness seems quite comfortable for a considerable period of time, it is only a small step from being still highly creditworthy (a to b) to enter into bankruptcy (b to c). Once the debt levels move beyond the threshold of creditworthiness, the collapse destroys the value of the pledged assets. In the final consequence, the borrower’s currency and its pledged assets, i.e. its government bonds, will become junk.”
We’re talking economic meltdown here, and while a period of martial law will likely follow (as an extension of the PATRIOT Act), it is only a matter of time before one or more states (probably of the “donor” variety: http://jonathanjo.castleblack.net/archives/000092.html) say enough is enough and go their own way, the last straw being the imposition of the “Emergency Recovery Act” (formerly the FairTax) to counteract the “market failure” that the collapse will be blamed on (just as it was it was blamed for the 1929 collapse).
So there you have it: (1) the reason why the FairTax will be in addition to, rather than a replacement for, the income tax and (2) the reason why secession is not only possible but probable.
You’re a formidable opponent. Why don’t you join us in opposing something worthy of a…Person such as yourself.
Person,
Your analogy about seceding from Britain is completely flawed.
If the “Fair Tax” is enacted, we are still not seceding from the income tax. We are merely enacting a new law without repealing an old one. The colonists didn’t secede from Britain to tell them that they could still have their government here in America. That would be ludicrous. The colonists seceded from Britain to get rid of the British government.
That’s why it is perfectly legitimate to oppose the “Fair Tax” on grounds that we WILL end up with a consumption AND income tax.
You can’t argue in a vacuum. And this is what you are trying to do with this argument. Your terms for the argument are completely divorce of reality.
An intervention government does not arrive overnight. It creeps up over time. Read The Road to Serfdom or Crisis and Leviathan! Liberty is not obtained by more laws, but by less. Regulations beget regulations and laws beget laws.
Everyone is an entrepreneur. Some better than others. Your terms for the argument takes away this forecasting, which renders the outcomes of the debate meaningless.
Now if you want to still argue in a vacuum so be it. Let’s have that debate. But remember the outcome is meaningless because you are limiting the terms of the debate. So here we go.
The consumption tax might increase savings; thereby, lowering interest rates. But so would lowering the current marginal tax rates. So which one is better? I don’t know, that’s completely subjective. Of course a greater pool of savings will increase the capital stock, but let’s not treat capital as a big homogenous blob like the neo-classical economists do (and that’s a whole different argument). Also, a huge pool of savings will allow the government to borrow even more money to finance its spending. So who will get the capital? And let’s not assume that the government will just stop inflating the money supply because they have a huge pool of savings to grab from. Hmm…what else? Oh yeah, the collection of taxes. Do we really want business to collect the taxes. They are more efficient than government. I would much rather have a lifetime, inefficient bureaucrat collect taxes than an efficient business.
OK…avoidance. Which tax will be easier to avoid? The income or consumption tax? My bet is the income tax. How do you avoid consumption? Savings? That doesn’t seem like a clear substitute to consumption. At least with the income tax there are ways to hide income. How do you hide from consumption? I suppose the underground economy. So which one is better?
Oh…I’m sure there is more to discuss, but arguing in a vacuum is completely useless.
Person,
I forgot to add. On page 74 of The FairTax Book Boortz says “when passed and signed into law the FairTax will repeal: The individual income tax, The AMT, corporate and business taxes, etc.” He also says on page 75, “The FairTax is a replacement for (emphasis in the original) — not an addition to — our current federal taxes…it is simply a tax replacement.”
So if Boortz can use the argument that their WON’T be two taxes (consumption and income), why can’t one argue against the tax because we think it WILL end up that way?
Oh…and how can the income tax be repealed when the 16th Amendment isn’t? Oh yeah…I forgot this isn’t supposed to enter into the debate. It’s funny how they can use it to promote their plan, but people can’t use it to argue against the plan.
This pretty much says it all: http://www.jpfo.org/fairtax.htm
David
Fantastic article! It presents many of the arguments made in this discussion, but adds many more. Of course the first argument against it is that we WILL end up with both an income and consumption tax.
Since “Person” doesn’t believe this is a valid argument, let’s look at the actual language of the proposal:
Sounds like an income tax to me! Even though the Fair Tax people say the income tax would be abolished they’ve written an income tax into the language of the proposal. And couple this with the fact that the 16th Amendment will not be repealed, I think it fair to say we WILL be saddled with an income and consumption tax!
But let us play on “Person’s” terms of debate.
The article points out what most readers of the Mises site already know. That is inflation! Since the government continues to print money year after year, inflation is certainly going to continue. (Hasn’t the dollar lost 95% of its value since the inception of the Federal Reserve?) The national sales tax is not indexed for inflation.
The article gives a nice example:
And in keeping in line with the housing example, this “Fair Tax” will only tax “new homes” not existing homes. This could have a devastating effect on the housing industry because new homes will be 30% more expensive than existing homes.
Finally, the “Fair Tax” puts everyone on welfare because of the basic necessities rebate the government will give each household each month. This paints the government in a positive light because they are “giving” citizens money back.
Of course this is much more in this article, but some of the other arguments run outside of “Person’s” debate limitations.
Thanks for the link to this fantastic article!
The only real merit of the FairTax plan is the reduced compliance costs. But that could also be had with a flat income tax. FairTax has the downside of double-taxing pre-FairTax savings, and in general it will have more unpredictable effects on the economy because it is such a drastic change. A flat income tax could avoid this and still give many of the benefits. So why do FairTax supporters so ardently prefer a sales tax over a flat income tax?
Here’s what I don’t get:
In order for the family making 100k a year to pay 23k in taxes, he has to spend every penny he earns. First off, this doesn’t make a very good case for the middle class being able to save up a nest egg. Secondly, this number is inaccurate because an avergae family of 4 would recieve a $25,600 poverty level spending limit bonus. This means that their taxable spending isn’t 100k but 74.4k. This generates 17.1k in revenue, not 23k. But besides that, the problem is that this mentality is applied to the upperclass.
A person who makes 10 million dollars a year would normally owe about 4 million of it in income tax. Assuming the millionaire spends every penny of his 10 million, his fairtax would generate only 2.3 million dollars. In order to generate 4 million in taxes, he’d have to spend 17 million dollars, which is more than he even made.
But that’s not the real kicker.
The real kicker is that as the income of the family goes up, there comes a point where the percentage they spend begins to go down. A family making 60k a year could easily spend that 50k just paying for car and apartment rent, kids college tuition etc. But in the case of the man making 30 million a year, where the bulk of taxes are collected, there’s just no way he’s going to spend even close to that percentage of his income. Lot’s of these guys spend less than 10 million a year (which is a pretty absurd amount to spend anyways) and save the other 20 million. If they’re spending 10 million, they’re contributing 2.3 million in taxes, whereas an income tax of 40% takes 12 million from them. Who makes up the 9.7 million dollar difference, and can you show how it works and defend your numbers?
Lastly, assuming the supply-side idea that all this money pumped into the economy generates more wealth, which translates into more spending and thus more tax revenue, let’s look at the family making 60k. His normal income tax contributes $9,000. Let’s say trickle down theory works, his business does better, and as a result the family makes 10 thousand dollars extra, from 60k to 70k. This is a pretty impressive pay increase. Average Joe saves 8k of that money (since this system is supposed to encourage people to save their nestegg), and then spends everything else, all $62,000. Because FairTax doesn’t tax until you spend above the poverty line ($25,600 for his family of four), his taxable spendings are $39,400. His generates revenue is then $8,372, still short of the $9000 mark the regular old income tax would bring in.
I just don’t see how this system can work, unless we start relying on export taxes to carry the weight.
Keith,
The national sales tax is not indexed for inflation.
Nor is there any reason it should be. There is only one rate, so 23% is 23% no matter how the purchasing power of the dollar is depreciated by monetary supply inflation.
While the prebate tracks the poverty level, there are no higher rates to be pushed into by monetary inflation.
Regards, Don
Don,
“Nor is there any reason it should be. There is only one rate, so 23% is 23% no matter how the purchasing power of the dollar is depreciated by monetary supply inflation.”
Your statement is exactly why it should be indexed. When prices rise from monetary inflation, people will be forced to pay more dollars in taxes. But what happens to someone that has an income that doesn’t rise with inflation? Monetary inflation does not cause an increase in ALL prices at exactly the same rate. If it did there would be no reason to inflate. For example, if the government increased the money supply and all prices and wages went up by exactly 5% and at precisely the same time, then there would be no reason to inflate. Nothing has changed in the real economy. All input and output prices went up 5% and ALL wages went up 5%.
And this is why the government does inflate, because input and output prices NEVER go up exactly at the same rate. This allows some to benefit and others to lose from monetary inflation. Of course, the government is usually the one who gets the newly created money before prices start to rise for other people in the economy.
So back to the point. As prices rise in the economy people will end up paying more nominal and real dollars from the consumption tax if their wages do not keep pace with inflation. For example, I have not received a COLA or raise over the past three years. Certainly prices have gone up over the past three years. Therefore, I would be paying more for my current consumption (even if my consumption remained the same) and the taxes I pay on that consumption would be higher; thus, decreasing my overall standard of living.
All that being said, this is just one of many reasons why the “Fair Tax” should be opposed.
Keith,
Your statement is exactly why it should be indexed. When prices rise from monetary inflation, people will be forced to pay more dollars in taxes.
That’s what already will happen. If a pre-tax price goes from $100 to $200 because of monetary supply inflation, then the add-on tax will go from $30 to $60. Why would you want something different?
Monetary inflation does not cause an increase in ALL prices at exactly the same rate. If it did there would be no reason to inflate.
No. This is like saying that a counterfeiter derives no benefit from his product. He has no reason to care about the pattern and timing of price changes.
Regards, Don
Don,
That’s what already will happen. If a pre-tax price goes from $100 to $200 because of monetary supply inflation, then the add-on tax will go from $30 to $60. Why would you want something different?
If my take home pay is only $1000 a week (let’s leave the rebate out of the discussion) and does not go up with inflation then I only have $740 ($1000-260) left over compared to $870 ($1000-130). It now takes me $130 more dollars to by the same good and I have less money left over. Clearly I’m worse off.
No. This is like saying that a counterfeiter derives no benefit from his product. He has no reason to care about the pattern and timing of price changes.
Precisely…because not every price rises by the same percentage and at the same time. If I make $1000 a week and spend $900 for a basket of goods and then the government doubled my weekly salary to $2000 a week (by printing more money) and prices doubled exactly when they gave me the new money, then it would now take me $1800 to by the same basket of goods. I’m still spending 90% of my income. I’m no better off! But this isn’t what happens, therefore, monetary inflation benefits some at the expense of others. This is why the government inflates.
Don,
Since we are discussing on the Mises.org site I thought I would use a few quotes as examples for me previous comments.
Simply, if the prices for final goods and services rise faster than a person’s wage, then they will be forced to pay higher prices and more in taxes, which will render them worse off. The “Fair Tax” does not take inflation into account.
The reason why a counterfieter gets to benefit from his counterfieting is because he gets to spend his newly created money before prices rise. So as the government counterfeits (inflates the money supply) they benefit from this newly created money and anyone else who gets it first. Thus, the consumption tax will not hurt them as much, but it will hurt the person who didn’t get the newly created money and now has to pay higher prices for final goods and services (as the new money filters through the economy) AND an increase in the amount of money they have to pay in the form of a consumption tax.
Keith,
The reason why a counterfieter gets to benefit from his counterfieting is because he gets to spend his newly created money before prices rise.
No, he benefits because he has his newly created money to spend at all prices. He just benefits less at higher prices.
That inflation is a problem is a given. I don’t see why the sales tax, with a given percentage rate, is a special problem. The normal income tax has bracket boundaries at specific dollar amounts which are attempted to be adjusted for inflation.
The Alternate Minimum Tax, (AMT), is not adjusted for inflation and this is a major problem since Congress doesn’t want to give up any revenue.
Regards, Don
Don,
Inflation and the sales tax are not a special problem; but it is a problem and needs to be addressed by the “Fair Tax” proponents. The income tax brackets are adjusted, but the national sales tax isn’t indexed for inflation. This is an issue.
Now as far as the counterfieter question.
No, he benefits because he has his newly created money to spend at all prices. He just benefits less at higher prices.
What do you think causes prices to rise in the economy? He spends his newly created money at all prices, but these prices don’t account for the inflation that will occur AFTER his counterfieted money circulates through the economy. He doesn’t pay the higher prices, he creates them. Increasing the money supply increases the price level. Prices don’t just magically rise.
Keith,
The income tax brackets are adjusted, but the national sales tax isn’t indexed for inflation. This is an issue.
Because the sales tax is a percentage, and not a specific dollar amount, it is already adjusted from the start. The amount of the tax, and the remainder, are both constant in real, inflation-adjusted dollars.
What do you think causes prices to rise in the economy? He spends his newly created money at all prices, but these prices don’t account for the inflation that will occur AFTER his counterfieted money circulates through the economy. He doesn’t pay the higher prices, he creates them. Increasing the money supply increases the price level. Prices don’t just magically rise.
Yes, he always benefits as long as his paper and ink costs aren’t too high and he doesn’t get apprehended. He creates the higher prices as he spends his product. The mainstream would call counterfeiting a ‘negative externality’, as the counterfeiter doesn’t fully experience the costs that he creates. Mises would call it an autistic exchange as the counterfeiter exchanges one state of existence for another preferred one, independent of the cost or benefit on any other party.
Regards, Don
Don,
I guess you don’t understand the argument. If my wage doesn’t increase, but prices do then I end up paying more for my purchases and more in taxes AND will have less left over for everything else. My real wages have decreased, so it takes more dollars to purchase the same amount of goods and I have to pay more in taxes.
Since prices do not rise in uniformity in the economy, this will happen for most people.
Here’s an example from a great article on the “Fair Tax.”
How can the national sales tax not hurt people living on fixed, non-inflation adjusted incomes?
Keith,
I guess you don’t understand the argument. If my wage doesn’t increase, but prices do then I end up paying more for my purchases and more in taxes AND will have less left over for everything else. My real wages have decreased, so it takes more dollars to purchase the same amount of goods and I have to pay more in taxes.
Yes, but the ‘more dollars’ are depreciated dollars.
How can the national sales tax not hurt people living on fixed, non-inflation adjusted incomes?
The sales tax hurts everyone, and the inflation hurts everyone that doesn’t have an inflation aadjusted income, but the two hurts are not made worse in combination. There is no further adjustment that can be made that will not end up being a tax cut in real terms.
Regards, Don
Submitted on behalf of Dr. Laurence J. Kotlikoff
Professor of Economics, Boston University
Consultant, FairTax.org
Reviewing Laurence Vance’s Book Review
“There’s No Such Thing as a Fair Tax”
In his Ludwig von Mises Institute December 13, 2005 review of The Fair Tax Book by Neal Boortz and Congressman John Linder, Laurence Vance identifies what he believes are 3 “lies” in the book and 17 “problems” surrounding the FairTax. Being a fan of both the FairTax and Congressman Linder as well as a student of consumption taxation, I offer here a point-by-point response.
First, the alleged lies:
“Lie” #1 – “Taxes would be voluntary under the FairTax.”
Vance argues that everyone needs to buy goods and services and, therefore, everyone is, in fact, forced to pay the FairTax. This is obviously correct. But declaring that Boortz and Linder are “lying” on this point is wrong. The authors were simply saying that the public would have more discretion in the timing and amount they pay in taxes than under the current system. Today, income and payroll taxes are paid as soon as we earn money. Under the FairTax, no tax would be due until we spend what we earn.
Yes, calling the FairTax “totally voluntary,” as the authors do, is pushing literary license, but not beyond common practice. Indeed, the IRS touts the voluntary nature of our current tax system stating that “The U.S. income tax system is built on the idea of voluntary compliance. Compliance is voluntary when taxpayers declare all of their income. Taxpayers also voluntarily comply through obtaining forms and instructions, providing complete and correct information, and filing their income tax returns on time.”
No impartial reader of the book would come away thinking that the FairTax represents, in effect, the establishment of a voluntary charity for the government.
“Lie” #2 – “The FairTax rate would be 23 percent.”
Vance claims that the FairTax’s rate is really 30 percent. He’s both wrong and right at the same time. The tax-exclusive rate we’d pay at the store would, indeed, be 30 percent, but the rate that matters – the tax-inclusive rate – would be only 23 percent.
To see this, consider spending $1.00 under the FairTax on a good or service (e.g., a candy bar) whose price is 77 cents in the absence of the FairTax. In spending the $1.00, one pays 77 cents for the good or service and 23 cents (30 percent of 77 cents) in taxes. Hence, the $1.00, whether it represents a dollar of income or wealth, ends up delivering only 77 cents of consumption and, consequently, is being taxed at a 23 percent rate.
By analogy, the same can be said for the income tax. If wages of $1.00 were taxed at 23 percent, the taxpayer would have only 77 cents left to spend on consumption. Suppose we were to tax everyone’s wages at 30 percent, but also subsidize their wages at seven percent. Anyone looking at such a tax structure would say there is a 23 percent effective tax on wages.
In describing the FairTax rate as 23 percent, Boortz and Linder are quoting the rate in terms that are not only economically honest, but also permit ready and appropriate comparison with our prevailing income and payroll tax rates. Let’s assume taxable income of a sole-proprietor was $72,000, so that that taxpayer pays taxes of 28 percent plus 15.3 percent payroll taxes for a combined tax-inclusive rate of 43.3 percent. Unless Vance wants to refer to the 43.3 percent as actually a 77 percent rate, he really can’t compare that rate to the FairTax.
Vance owes the authors an apology on this one.
“Lie” #3 – “The FairTax would abolish the IRS.”
Vance reiterates what the FairTax legislation states, namely that a federal agency would be required to oversee and ultimately enforce the collection of the FairTax. If one were to call this agency the IRS, the IRS would not, in fact, be abolished. But here, again, the authors are engaging in reasonable literary license in suggesting that the FairTax would abolish the IRS.
Whether or not the tax collection agency retains the initials I, R, and S, it would be completely different from the current enforcement apparatus. For starters, we’d no longer have more than 100,000 government bureaucrats enforcing 17,000 pages of federal tax law. Second, we’d no longer have to file individual income tax returns. Third, the IRS would no longer be in a position to know virtually every detail of our financial affairs. Fourth, tens of thousand of accountants, tax attorneys, and lobbyists would no longer spend their working lives trying to decipher, comply with, modify, and avoid tax laws and IRS regulations.
So the FairTax would abolish the IRS for all practical purposes. And, more importantly, the nation would save $250 billion plus in direct compliance costs and an even larger sum in efficiency costs from eliminating the current federal tax system. Yes, the FairTax would entail collection and efficiency costs, but much lower ones. State governments, most of whom are already collecting and administering their own state sales taxes, would be charge and compensated for collecting the FairTax.
“Problem” #1 – “The FairTax hides the amount of tax being paid.”
Vance claims that the FairTax hides the amount of sales tax being paid. Not so. The receipts one would receive in making purchases would clearly indicate the price of the commodity purchased as well as the amount of FairTax imposed on that commodity. In my $1.00 expenditure example, the receipt would say Snicker’s Bar 77 cents and Tax 23 cents.
In contrast to the FairTax, the current tax system makes it very hard to understand the extent to which we’re being taxed. The current tax system constitutes not one tax system, but four – the payroll tax, the federal personal income tax, the corporate income tax, and the estate and gift tax. The later three tax systems are extremely complex. Even the payroll tax is very hard for most workers to appreciate. How many workers, for example, understand that they are, in fact, paying the employer as well as employee portions of the 15.3 percent FICA tax?
The complexity of our tax system makes it extremely difficult for any of us to understand the full extent to which we are taxed on working and saving. The need, in the end, to guess what incentives we’re facing further distorts economic choices. The costs of these distortions are significant. Indeed, they may far exceed the roughly 2 percent of GDP direct costs of complying with the current tax system.
Thus, Vance has the issue of hidden taxes completely backwards. The FairTax is the most transparent of any tax system. The current tax system, in contrast, is specifically designed to and thrives on hiding its provisions.
“Problem” #2 – “The FairTax is progressive.”
Leaving aside the rebate, the public generally views sales taxes as regressive. They reach this conclusion by comparing sales tax payments with current income. Since someone with zero current income still has to buy food to eat, the ratio of that person’s sales tax payments to his current income is infinite. In contrast, the ratio of sales taxes paid to income in the case of someone with a $1 million in current income is much smaller. So the “poor” person with zero income is paying a much larger share of his current income than is the rich person in sales taxes.
The problem with this analysis is that people don’t pay for their consumption simply out of their current income. (If they did the person with zero current income would starve.) People also pay for their consumption out of their private wealth and out of the welfare benefits, Social Security benefits, unemployment benefits, and other government transfers provided by the government. Indeed, the “poor” person just mentioned might well be billionaire Warren Buffet. How so? Well Warren’s current annual income could be zero because he’s experienced capital losses on his investments during the current year. This wouldn’t prevent him from using his billions in assets to pay for steak dinners over the course of the year in his favorite Omaha restaurant.
Rather than consider progressivity on an annual basis, economists consider progressivity on a lifetime basis by comparing the present value of remaining lifetime tax payments to the present value of remaining lifetime resources. Remaining lifetime resources includes the present values of future labor earnings and government transfer payments as well as the amount of current net financial and tangible wealth.
From a lifetime perspective, a sales tax (with no rebate) is viewed as neither progressive nor regressive, but rather as proportional. The reason is that the present value of a household’s remaining lifetime spending must equal the present value of its remaining lifetime resources. If it didn’t, the household would be able to spend more over its lifetime than it earns.
Because spending equals resources on a present value basis, taxing spending is equivalent to taxing resources. And doing so at a proportional (fixed) rate means you are taxing resources as a proportional rate. This is what the FairTax does. But the FairTax adds in a rebate, making it not proportional, but progressive overall.
So Vance is right. The FairTax is progressive. But this is a plus, not a minus. Unlike Vance, the vast majority of Americans, including the vast majority of the rich, favor a progressive tax system.
“Problem” #3 – “The FairTax is an income redistribution scheme.”
Under the FairTax households with the same demographics will receive the same rebate. But as a share of remaining lifetime resources, the FairTax is progressive, as indicated above. But this is not a problem. Any tax system acceptable to the public must be progressive.
“Problem” #4 – “The FairTax creates new tax collectors.”
Totally incorrect. Today, everyone who files an income tax return, more than 200 million taxpayers, is a tax collector. The number of taxpayers will diminish by more than 90 percent. And they will be the same tax collectors as today. In one fell swoop, the FairTax reduces the number of taxpayers at the same time it vests everyone in the tax system, by making the price of government explicit. Here Vance argues that baby sitters and similar providers of personalized services would need to collect the FairTax and mail it into the government. This is true, but it’s no different under the current system. Anyone who is self employed is required to pay self-employment tax as well as federal income tax above a certain level of income.
Although the baby sitter will go from being a “taxpayer” to being a “tax collector,” nothing real will change. Apart from the change in words, the baby sitter is in the same position of having to mail a check to the government.
“Problem” #5 – “The FairTax creates new taxes.”
Wrong. Today, we tax returns on capital, we tax sales of capital assets, we tax labor earnings, we tax estates, and we tax gifts. All of these taxes are eliminated by the taxation of the final retail sale.
Yes, currently, there are no federal taxes directly levied on the purchase of most final goods and services. But at the same time the FairTax would institute these direct taxes, it would also eliminate direct taxation of the labor and capital income received by American taxpayers. Hence, the FairTax destroys old taxes at the same time it establishes new ones. Depending on how one quantifies labor supply and saving, the FairTax could be said to reduce, on balance, the number of taxes. In any case, counting up the number of distinct taxes seems like a silly and inherently arbitrary way to evaluate the FairTax. The important point is not the number of things being taxed, but the number of rates used to tax those things. Under the FairTax all goods and services will be taxed at one and only one rate – 23 percent.
“Problem” #6 – “The FairTax creates new taxpayers.”
I sure hope so. I hope the 40 percent or so of Americans who pay no income tax today have to pay the FairTax and see that they too are vested in our government. I hope that criminals who have illegally amassed wealth in the past will pay lots of sales taxes when they spend these holdings.
What about churches and other non-profits? Their tax treatment is as it is today. They’ll pay no taxes on their income, and charge no FairTax when those sales are substantially related to their exempt function. On the other hand, if they sell consumer goods or services, they’ll have to charge and remit the FairTax on these sales.
Plus, individuals will be able to donate to their church or favorite charity tax-free.
“Problem” #7 – “The FairTax makes it easier for the government to raise taxes.”
Quite the opposite. Politically, if there is only one tax rate that everyone needs to think about and keep track of, there will be lots of interest in that one rate as well as opposition to raising it. One key objection to the FairTax is that it is too visible, meaning that it exposes the true costs of the government. This is at the same time its major strength and weakness. Exposing the true cost of the government ensures downward pressure on the size of government. But doing so makes politicians who like to hide taxes wary. Moreover, as the public digs in its heels on raising the single rate, as I suspect it would, federal expenditures would have to be restrained to live within the 23 percent rate budget. I.e., the 23 percent FairTax rate has the potential of establishing a global budget for federal expenditures, something that should be wholeheartedly supported by Vance.
Vance suggests that the rate would have to rise over time to adjust for growth in the economy. This is (excuse the pun) off base in that the FairTax tax base will itself rise with growth in the economy. Hence, revenues will keep pace with overall economy-wide growth without requiring a rise in the tax rate.
The major point he also misses is that the FairTax is global tax reform. When the U.S. is the only industrialized country in the world with a zero rate of tax on savings and investment and productive enterprise, other nations will have to follow suit or lose their citizens’ investments to the U.S.
“Problem” #8 – “The FairTax makes it easier for state governments to raise taxes.”
The states may adopt the FairTax’s broader sales tax base, but would likely cut their rates in so doing. What Vance ignores is the competition across states in attracting business and workers. This competition explains why state tax rates are relative low and are likely to remain low.
“Problem” #9 – “The FairTax has unknown and potentially huge Transition costs.”
Saying so doesn’t make it so. There is no reason to expect significant transaction costs. The inventory transition valuation issue raised by Vance can readily be sorted out.
“Problem” #10 – “The FairTax makes exceptions while claiming to have none.”
Totally incorrect. Unlike today, where the tax code is used as an effective second appropriation committee, the FairTax taxes every form of consumption expenditure that can readily be taxed without exception. The FairTax exempts educational expenditures, but educational expenditures are viewed by economists as a form of human capital investment, not a form of consumption.
“Problem” #11 – “The FairTax has a great potential for fraud.”
This is the major concern about the FairTax raised by economists and tax practitioners, but it is not based on rigorous analysis. There is every reason to believe the FairTax would reduce noncompliance from its current $300 billion level.
First, much of the $300 billion stems not from fraud, or the intentional violation of a known legal duty, but rather from mistake. The FairTax eliminates virtually all potential for innocent mistakes, and it makes it much more difficult to claim that noncompliance arises from mistakes; i.e., the simplicity of the FairTax removes the plausible deniability of fraud.
Second, the vast majority of sales of consumer goods and services and all of the sales of expensive consume goods and services is done in retail stores, whose sales tax payments could readily be monitored. As for the other transactions, we’d have the entire IRS or, whatever you’d want to call it, available to enforce this single tax. By setting very high penalties and using ad campaigns to indicate that cheating on the sales tax hurts everyone, collecting the FairTax should be straightforward.
Third, the FairTax reduces the effects of all known factors on fraud. The three factors that economists have shown to affect compliance are marginal rates, likelihood of being caught, and penalties. The FairTax enhances all three:
1) The FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax’s reduction in average tax rates on the working age population reflects the broadening of the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. Consider, as an example, a single household earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 16.2 percent under the FairTax.”
2) The likelihood of being caught increases dramatically when the collection points decrease from 140 million to 20 or so million.
3) The FairTax imposes significant penalties on those who would commit tax fraud.
“Problem” #12 – “The FairTax will turn thousands of Americans into criminals for not collecting the tax.”
Thousands, if not millions, of Americans now cheat on their income taxes. And we have more than 150 tax penalties, several of which are criminal today. But we do perform audits and fine people for not paying. The same would occur under the FairTax. People who cheat would get caught and pay penalties. However, the FairTax has several provisions enhancing taxpayer rights.
“Problem” #13 – “The FairTax does not repeal the 16th Amendment.”
The FairTax cannot repeal the 16th Amendment, which has to be done in a separate piece of legislation. So, Vance’s point is that we must live with the income tax? Not so. The FairTax does repeal Subchapters A and C of the 1986 Internal Revenue Code that implement the income tax. Vance’s concern here is that the income tax will be restored and that we’ll end up with both the income tax and the FairTax. But if the popularity of the FairTax will, I believe, preclude that from ever happening.
“Problem” #14 – “The FairTax doesn’t repeal federal excise taxes.”
True. But not a problem. We want to retain some flexibility to tax goods, like cigarettes, the consumption of which can impose significant costs on society at-large, at higher rates. These taxes serve a different purpose than general revenues. They are in effect taxes on externalities.
“Problem” #15 – “The FairTax doesn’t lower taxes.”
Wrong. The FairTax dramatically lowers marginal rates and completely eliminates the double taxation on returns to savings and investment. And over time, the FairTax will stimulate growth and permit much lower rates of taxation than would otherwise be the case.
“Problem” #16 – “The FairTax doesn’t address the root problem that the government has no fundamental right and should have no power to tax us.”
The government has the rights we the people have given it through the Constitution. This, again, is a Vance problem, not an American problem, but he should read the Tenth Amendment of the United States Constitution, which is part of the Bill of Rights. It states: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. If Vance wants to strike that Amendment, he has a long way to go.
Problem # 17 – “The FairTax makes welfare universal through the prebate.”
Wrong. The FairTax simply declines to tax Americans before they have met their own sustenance in life. Nobody is taxed on the necessities of life under the plan. And nobody is required to pay for the cost of the government until they have met their own needs. I don’t consider that welfare.
Dr. Laurence J. Kotlikoff
Professor Kotlikoff: don’t waste your time. Vance will respond, if he responds at all, by saying:
1) So what, my friends and I have made better arguments elsewhere, you didn’t respond to those.
2) You’re a statist.
3)Taxes are bad.
Thanks for the input, but don’t delude yourself into thinking it will be seriously considered by the people you’re refuting.
Shouldnt any FairTax legislation include repealing the 16th amendment, substantial and detaied plans for a meaningful reduction in govt spending (so that 23% or 30% wouldnt matter, something along the lines of 10% maybe) and safeguards that would prevent the reinstallation of a federal income tax before any libertarian would grudgingly support it?
additionally, it seems that if govt is still taking in the same amount of money, or even more if what Boortz and other FairTax supporters are saying – then freedom is being diminished.
Wow, I almost forgot about this thread. Cool, reading back on how I dominated this thread. So, does anyone yet have any argument against the FairTax other than 1) Something other than the FairTax is bad, 2) The FairTax doesn’t fix everything, 3) The FairTax might be changed later, or 4) Taxes are bad? I don’t think I’ve seen one even to this day.
A spammer discovered how to beat the system. A pox on anyone who buys from him.
All discussions about the income tax ignore the plain fact that the Social Security tax is and always has been a capped income tax which is used to pay current budget needs. Change the official income tax to a sales tax and the working class will still be paying an 8% income tax.
Instead writing articles about how taxes are bad, why don’t Libertarian authors write articles on all the tax loopholes and corporate strageties to LEGALLY reduce taxable income and receive the most tax refunds from the government.
Here a joke to cheer up some grumpy Libertarians regarding this article:
—–
The only thing that the IRS has not taxed yet is the penis. This is due to the fact that 40% of the time it is hanging around unemployed, 30% of the time it is hard up, 20% of the time it is pissed off and 10% of the time it is in the hole. On top of that, it has two dependents and they are both nuts.
Effective January 1st, 2002, the penis will be taxed according to size.
The brackets are as follows:
10 – 12″ Luxury Tax $30.00
8 – 10″ Pole Tax $25.00
5 – 8″ Privilege Tax $15.00
4 – 5″ Nuisance Tax $3.00
Males exceeding 12″ must file under capital gains.
Anyone under 4 inches is eligible for a refund.
PLEASE DO NOT ASK FOR AN EXTENSION!!!
—–
From: http://www.lotsofjokes.com
The primary problem with any federal tax is the existance of the federal government. No fed, no problem. Thus I propose dissolving the federal government, recanting the Constitution, and reverting to (now) 50 sovereign stated united by the Articles of Confederation.
Billwald, boy did you hit the nail on the head, especially in light of Lew’s post the other day on the LRC blog that showed a map of the United States, with each state named after its DGP equivalent of another country:
http://farm1.static.flickr.com/161/350816052_0a392a0d28_o.jpg
What more do you need to know than that “Russia” is perfectly capable of governing itself, as is “Bangladesh,” or any of the rest?
And what more do you need to know about the “FairTax”?
Dont worry about 23- or 30%. for fair tax. Thats like asking if the magic pills will get you 100 miles a gallon, or 1000,
The answer is — neither. Its poppycock,
Fairtax can not possibly work. It would have to be at least 60% — and here is why.
For one thing — it pretends to tax the federal government, to pay the federal government Boortz writes “the federal government itself becomes a major taxpayer†Page 148.
This is a farce, it can not happen. Its like me saying I will tax myself 10,000 dollars a day. Oh, I can write a check for it, I can even deposit my own check in my own account. But at the end of the month, I dont have 300,000.
Incredibly, Fairtax thinks they will have 300,000.
For example, when the Fairtax makes the US Navy pay 4 billion in “sales tax†on a 12 billion dollar aircraft carrier — the Navy can write the check, The Treasury can even cash the check But the Treasury isnt a dime ahead. The treasury had to issue the money to cover the check.
This fallacy — one of many in Fairtax — means the 23% will have to be 35%.
Another major fallacy — Fairtax pretends it will be able to tax health care. That means cancer patients, stroke victims, nursing home patients, kidnes transplant patients — all of them will get huge tax bills. One cancer patient could easly get a tax bill for 50,000 in sales tax on their surgery and chemo,.
A single nursing home patient could easily be charged 25,000 in sales taxes per year. The parents of a child with luekemia could be charged 50,000 sales tax on expensive drugs and care.
The outcry from these folks will be like nothing US history has ever seen before. Congress would quickly exempt health care expenses from a high sales tax.
So the rate would have to be adjusted up — to 55%. Then auto manufactures willl have to get an exemption, or go out of business. New Home sales — will get an exemption. The 55 will go to 70.
The whole thing is a farce. Each of these groups will get exemptions BEFORE fairtax could be enacted. Therefore, it could not be enacted. No one is dumb enough to try a sales tax of 70%.
Dont worry about 23- or 30%. for fair tax. Thats like asking if the magic pills will get you 100 miles a gallon, or 1000,
The answer is — neither. Its poppycock,
Fairtax can not possibly work. It would have to be at least 60% — and here is why.
For one thing — it pretends to tax the federal government, to pay the federal government Boortz writes “the federal government itself becomes a major taxpayer†Page 148.
This is a farce, it can not happen. Its like me saying I will tax myself 10,000 dollars a day. Oh, I can write a check for it, I can even deposit my own check in my own account. But at the end of the month, I dont have 300,000.
Incredibly, Fairtax thinks they will have 300,000.
For example, when the Fairtax makes the US Navy pay 4 billion in “sales tax†on a 12 billion dollar aircraft carrier — the Navy can write the check, The Treasury can even cash the check But the Treasury isnt a dime ahead. The treasury had to issue the money to cover the check.
This fallacy — one of many in Fairtax — means the 23% will have to be 35%.
Another major fallacy — Fairtax pretends it will be able to tax health care. That means cancer patients, stroke victims, nursing home patients, kidnes transplant patients — all of them will get huge tax bills. One cancer patient could easly get a tax bill for 50,000 in sales tax on their surgery and chemo,.
A single nursing home patient could easily be charged 25,000 in sales taxes per year. The parents of a child with luekemia could be charged 50,000 sales tax on expensive drugs and care.
The outcry from these folks will be like nothing US history has ever seen before. Congress would quickly exempt health care expenses from a high sales tax.
So the rate would have to be adjusted up — to 55%. Then auto manufactures willl have to get an exemption, or go out of business. New Home sales — will get an exemption. The 55 will go to 70.
The whole thing is a farce. Each of these groups will get exemptions BEFORE fairtax could be enacted. Therefore, it could not be enacted. No one is dumb enough to try a sales tax of 70%.
Mr. Curran presents two difficulties preventing the FairTax from working. The first, the fact that the federal government is itself taxed has already been dealt with. To refresh memories where necessary, the government is required under the FairTax legislation to pay the same tax as all purchasers of goods and services pay in order to keep it simple and in order to avoid giving the government a competitive advantage over private industry. The affect of assessing sales taxes on government purchases has already been factored into the 23 per cent rate and does not mean it must go to 35 per cent as Mr. Curran claims.
The second difficulty Mr. Curran presents is the problem of tax on medical expenses. Specifically he uses the deathly-ill-child-with-cancer example to assume that Congress will exempt medical expenses and thus require a huge increase in the tax in order to fully replace all the other taxes it supplants.
The short answer is that there will be many reasons for exempting one expense or another from the national sales tax. All of these must be resisted. Perhaps a super majority requirement for Congress to change the code would be one way to avoid exemptions.
The longer answer would be to advise/remind Mr. Curran that the actual price increase to be expected as a result of the 23 per cent sales tax remains to be seen. There seems little question that squeezing out all the embedded taxes in the system will reduce costs significantly so it is entirely possible that the tax will have little impact on prices. Still the cost of medical treatment is high anyway. It will probably always be a temptation to legislators to tinker with the system.
Such efforts must be resisted constantly; they will if successful lead to the same sort of system we have today.
Mr. Curran presents two difficulties preventing the FairTax from working. The first, the fact that the federal government is itself taxed has already been dealt with. To refresh memories where necessary, the government is required under the FairTax legislation to pay the same tax as all purchasers of goods and services pay in order to keep it simple and in order to avoid giving the government a competitive advantage over private industry. The affect of assessing sales taxes on government purchases has already been factored into the 23 per cent rate and does not mean it must go to 35 per cent as Mr. Curran claims.
The second difficulty Mr. Curran presents is the problem of tax on medical expenses. Specifically he uses the deathly-ill-child-with-cancer example to assume that Congress will exempt medical expenses and thus require a huge increase in the tax in order to fully replace all the other taxes it supplants.
The short answer is that there will be many reasons for exempting one expense or another from the national sales tax. All of these must be resisted. Perhaps a super majority requirement for Congress to change the code would be one way to avoid exemptions.
The longer answer would be to advise/remind Mr. Curran that the actual price increase to be expected as a result of the 23 per cent sales tax remains to be seen. There seems little question that squeezing out all the embedded taxes in the system will reduce costs significantly so it is entirely possible that the tax will have little impact on prices. Still the cost of medical treatment is high anyway. It will probably always be a temptation to legislators to tinker with the system.
Such efforts must be resisted constantly; they will if successful lead to the same sort of system we have today.
I don’t care what the rate is to make the FairTax revenue-neutral. If it takes 65% then it would just show American taxpayers the ridiculous amount of tax we are actually paying right now. That’s just it, isn’t it? It is a near mathmatical impossibility to calculate the amount of tax we each currently pay. Not so under the FairTax.
30% exclusive or 23% inclusive, I don’t give a crap.
Think about it. Once it’s on the table just how much the Fed gov’t currently needs to fund all of its communist social programs and BS world poverty fighting, we’ll again have an understanding of the stupidly huge size our Fed gov’t has grown into. Then the American public will start screaming at Congress to stop wasting our money. Start actively using the accountability office to reduce fraud. Reduce government size.
Do you realize there are over 300,000 Fed government employees each carrying government credit cards? The Government Accountability Office just released a report showing nearly 41 percent of roughly $14 billion in credit-card purchases, whether legitimate or questionable, did not follow procedure.
I’m sick of paying for my elected officials’ $300 haircuts and such.
Plus, this system will be soooo much cheaper to run, for the gov’t and the public. Virtually no compliace costs at all, versus the $250 billion the public and corporate sectors spend per year JUST TO COMPLY.
It will be just another Sunny Day on April 15th. Yes New cars will cost more than old cars, the’ve always have. Once everyone is used to the fairtax, (out-of-site) out of mind. Full paychecks. Supply and Demand will take hold and prices will drop. Sellers selling new product will pass the tax being simply the medium, because it’s not a sales tax, it’s a consumption tax. Everyone pays into it. The only tax arguement the Dems and Repubs can argue about is the percentage rate. Scrap the IRS(behemoth). I will choose weather I want to be taxed purchasing the Candy Apple or the Apple. This will become the norm and then become irrelative at a special interest level and The Dollar I earn becomes the dollar I keep and the purchase price I see is the purchase price I pay. Income tax will be a fairytail to tell the children.
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