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Source link: http://archive.mises.org/5726/the-fraudulent-tax/

The Fraudulent Tax

October 9, 2006 by

A close reading of the recent literature produced by the advocates of the FairTax shows that they have backpeddled on many of their most far-flug claims for the merits of the plan. But they still aren’t admiting just how terrible this idea is or how it won’t reduce but increase the tax burden. A true tax reform would repeal, not replace the income tax. The IRS should be gotten rid of, not renamed. Tax reform should reduce taxes, not be revenue neutral. Government theft of the wealth of its citizens should be abolished, not adjusted. And no, the fair tax plan is not a step in the right direction. Full Article.

{ 90 comments }

David St. Hubbins October 9, 2006 at 8:15 am

I’ll admit that I didn’t read every last word of your article, but I believe that the most important thing is getting people to understand how much the government costs them. Right now, they don’t. So even if the fair tax is not perfect, it is a gigantic step in the right direction. While of course I would prefer a tiny, minimalist government, I am not going to let that get in the way of people who are trying to improve things.

Boortz does understand that it is the overall size of government that matters. He is trying to get people to understand what government costs them. He routinely decries all the people who think they don’t pay taxes becuase they get a refund.

George Gaskell October 9, 2006 at 8:57 am

I’m sure Person will be along any minute now …

Person October 9, 2006 at 9:47 am

Yes, George, I will be along any minute now. Because I have never understood the hostility on this site toward a transition to the FairTax. Everyone here seems to forget that taxes hurt in numerous ways, and losing your money to funding stupid programs is only one of them. There is also the deadweight loss due to the shift in activities due to tax advantages, and the hassle in figuring out how much you owe. Neither of these is trivial, and you don’t have to reduce the government revenues to accomplish either. Every argument (and I use that term loosely) that I’ve seen against the FairTax is of the form of one of the following:

1) The FairTax won’t remedy injustice X of the current system.

2) Something other than the FairTax is bad.

3) [Some personal attack against anyone who doesn't want to abolish all taxes.]

To which I reply:

1) So? No one reform will fix everything.

2) Then oppose that other plan, and concede that the plan as written is a good idea, and that you’re against all reform because “it’ll just get watered down in committe”.

3) Please.

I’d be glad to oppose it once someone gives me an actual, well-formed reason. Any takers?

Mark Brabson October 9, 2006 at 10:07 am

Fairtax versus income tax arguments miss the prime issue. That being the reduction of the entire Federal Government to 3% of GDP. You can rearrange taxation all you want. The bottom line is that the income of this nation is being sucked dry and capital formation badly damaged, among many other things.

The cure is simple. Reduce spending. By any means possible. Slash, cut and destroy federal programs and agencies. Get government down to 3% of GDP. At this point, the Federal income tax could be abolished totally. No corporate income tax. No fairtax. Government at that level could be funded on tariffs, tonnages, imposts and excises and the occasional user fee.

George Gaskell October 9, 2006 at 10:07 am

the plan as written is a good idea

1. The benefits of the plan as written are, at best, so trivial as to be inconsequential, and even if we were to assume that they will materialize AND that they can be measured, to tout them as (a) real and (b) significant is to perpetrate a fraud.

2. The way in which the plan is being PROPOSED is politically stupid to such a magnitude that it makes me concerned for the future of the human race.

Person October 9, 2006 at 10:17 am

George, do you have a clue what you’re talking about? Seriously. The benefits are trivial? So, removing all taxes on investment (capital gains and dividends) until the money is spent on consumption is “trivial”? (That would, in essence, “401k” all investment accounts, for those of you who, unlike someone here, have a clue.) Eliminating the hours of work, and the armies of preparers, is trivial? Do you not understand the sigificance of this labor opportunity cost? Do you not understand the long-term damage of capital taxation?

Please, try to be informed next time you post. Thanks.

Mark Brabson October 9, 2006 at 10:33 am

I do have ONE reform that I would love to make to the current system. Eliminate withholding. Make all taxpayers pay on a quarterly basis. Make taxpaying truly painful, as taxation should always be. Writing a $2500.00 check four times a year might just communicate to the citizenry that all those government freebies are not truly free.

Don B October 9, 2006 at 10:41 am

I suspect most folks who read this blog would agree with this statement from the article:

“The income tax should be repealed, not replaced. The IRS should be gotten rid of, not renamed. Tax reform should reduce taxes, not be revenue neutral. Government theft of the wealth of its citizens should be abolished, not adjusted…”

Unfortunately, those are not, as I understand it, options that are currently on the table. We should continue to fight for them, argue for them and buld the intellectual capital in our culture to achieve them–of which the Mises Institute is a critical part. But to automatically ignore or ridicule what may in fact be “less bad” public policy options seems self flagellating and martyristic rather than productive. We are a long way from the right policy solutions, or any meaningful enlightened revolution or Galt style strike. Why suffer any heavier yoke than needed in the meantime?

PR October 9, 2006 at 11:00 am

Make all taxpayers pay on a quarterly basis. Make taxpaying truly painful, as taxation should always be.

I’ve had a similar idea. Only instead of quarterly, make it a single payment due once per year… preferrably on election day.

David Spellman October 9, 2006 at 11:02 am

All we need to do is repeal two ammendments to the constitution: the 16th (income tax) and the 17th (direct election of senators). That would restore State control over the Federal government and require the Federal government to beg the states for money.

The original constitution foresaw our current dilemma and was intended to prevent it. Our great grandparents made a stupid mistake to remove the protections and the Federal government has grown wildly out of control since 1913.

Allen Kamrava October 9, 2006 at 11:20 am

One should never falter in the fight to abolish all taxes … however, one thing that always interested me about a national sales tax was that socialists/collectivists would have to answer universally to everyone for the taxes they require. That is to say, increased taxes hurt everybody across the board, not just the productive members of society. Increased taxes and thus, increased government programs should then gain a larger resistence – if the theory holds.

If they truly change maintain the status quo, but make taxation more apparent to the idiots (e.g. college students, union workers, …) that demand their continual increases, maybe that’s not such a bad thing.

I’m not an expert on this topic, at all, nor would I pretend to be … just a thought.

Kel Kelly October 9, 2006 at 12:03 pm

I still have a problem calling taxation theft. It is in fact theft from those who don’t want to pay it (like me). But most people implicitly vote to be taxed by voting for the same people (Democrats/Rebublicans) every time who prove that they like to tax. If it was really theft for most people, wouldn’t they vote against it, or hit the streets in protest? Many even verbally state that they want to pay “their fair share” or that they don’t mind paying “a little more” to help the poor, etc. We have high taxes because people think it’s somehow neccessary or helpful. So the problem is not the govenrment per-se, it’s the people who vote for keeping the government as it is. What has to change is the minsdset or knowledge of the people

George Gaskell October 9, 2006 at 12:13 pm

removing all taxes on investment … until the money is spent on consumption is “trivial”? (That would, in essence, “401k” all investment accounts, for those of you who, unlike someone here, have a clue.) Do you not understand the long-term damage of capital taxation?

Compared to a multi-trillion dollar annual federal budget, plus all the federal money that is off-budget, plus the effects of manipulation of the money supply and credit, a shift in the mode of taxation that is otherwise revenue-neutral is trivial.

Eliminating the hours of work, and the armies of preparers, is trivial? Do you not understand the sigificance of this labor opportunity cost?

Compared to the number of people whose work is diverted into economically unproductive activities as the result of the federal government having a multi-trillion dollar annual budget, plus its off-budget expenditures, plus having the power to manipulate the money supply and credit — which includes direct government employees, contractors, aid recipients, and private businesses that exist to take advantage of market-distorting laws and regulations — the size of the “army” of tax preparers is trivial.

Even if you manage to prove that the deck chairs are one centimeter out of alignment, doing so doesn’t change the fact that the ship is sinking.

Why suffer any heavier yoke than needed in the meantime?

It’s not heavier, Don. It’s revenue-neutral.

Mike Tennant October 9, 2006 at 12:17 pm

Kel,

Just ask yourself this question: How many of those people who say they want to pay their fair share or don’t mind paying a little more would actually pay if there weren’t penalties attached to nonpayment? I think it’s fair to assume that the percentage would be extremely small. Therefore, while these folks may mouth nice rhetoric, in reality they’re only paying because they’re forced to pay, which makes it theft. Whether people have voted for the thieves or not is irrelevant.

The problem is the government per se. It produces nothing of value (i.e., that enough people would pay for willingly to keep it afloat), so all it can do is steal resources from the productive private sector.

Person October 9, 2006 at 12:20 pm

Alright, I want to open this up to others: Do George’s comments really warrant further response, or would it be a waste of everyone’s time to keep dignifying them. I’m serious. I mean, obviously, I think it would be a waste of time to keep encouraging him by wasting my time to respond to him, but I want outside opinion on this.

Mike Tennant October 9, 2006 at 12:28 pm

Person,

One might reasonably ask the same question about responding to your comments.

Person October 9, 2006 at 12:35 pm

No, one couldn’t.

Matt October 9, 2006 at 12:59 pm

How about the fact that the sales tax is optional? If I don’t have to pay taxes on the amount of money I save, I might just save more. This will reduce current consumption, starving the government of revenue. Plus, there will be ways around it, such as driving an old car longer, using up all the toothpase, etc. (I always thought there was an environmentalist angle to the FAIR Tax, because it encourages conservation and thriftiness.) But the main point is that it is voluntary. If we withold spending, the Fed’s lose revenue. They can’t get more except by raising the taxes- on everyone. Will that suddenly become politically popular?

Curt Howland October 9, 2006 at 1:50 pm

“No, one couldn’t.”

This “one” does, every time.

“How about the fact that the sales tax is optional?” and… “starving the government of revenue.”

At which point, they change the tax.

After all, say the demigogs, capital gains and interest is income that the rich didn’t even work for. Why should they get such special treatment?

Don B October 9, 2006 at 2:14 pm

Heorge,

it’s heavier in the sense that the income tax codes is a greater economic burden than the national sales tax, revenue neutral or otherwise.

Tim Kern October 9, 2006 at 2:36 pm

Mr. Vance’s article says, “The question is therefore not one of paying higher or lower taxes, but instead: Will I have more money remaining from my paycheck to save, invest, or spend on vacations and luxury items under the FairTax plan after I pay my bills and make my necessary purchases?”

Consider the price of freedom. On that count alone, it is worth a lot to me to abolish the IRS, its intrusion, its bookkeeping expenses and requirements, its ambiguities; its ability to write (interpret at will and enforce at will) its own rules, try its own cases, and make up its own punishments. I would love to see all the IRS employees turned out into the real world, stripped of their arbitrary power and forced to make an honest living doing something other than snooping and threatening — at our expense.

If you do even a little research into the idea of “government-sponsored terrorism,” you’ll see that the IRS meets most criteria: arbitrariness, capriciousness, sadism, intimidation of its own “watchdogs,” insulation and protection from legal retribution, torture and/or murder (illustrated by their institutional glee in inciting the occasional suicide to make their point and reassert their power) — pick a topic, and when you realize that the IRS is a velvet-glove terror organization working on behalf of (yet largely independent of) our elected government, you, too, may wish to see a system that eliminates it.

The absolute amount of tax we pay may indeed be secondary to the methods and systems used to extract it. Consider also the ancillary benefits of not keeping books just for the IRS, of not hiring tax accountants and lawyers, of not paying for tax courts, of not paying IRS employees, of eliminating many FBI employees, of not funding tax prisons, of many fire-sale and bankruptcy expenses, etc. Trickle-down benefits would also accrue to the states.

“Fair” tax or not, if it rids this nation of the worst element of our secret police and largest source of citizen subjugation, it’s certainly an improvement. (The government needs the data collection and citizen-monitoring and intimidation done by the IRS, and that is why our rulers will never get rid of it.]

[The fact that you would probably never say the things I've written (not so much because you disagree but because you fear disruption of your life and business by IRS actions or threats) merely illustrates your own understanding of the IRS, and underscores my point.]

Kel October 9, 2006 at 2:49 pm

Mike,

I agree with your view on government as a waste of resources – no issue there. But Government as an entity does not function without the approval of the people. If you say the problem is government per-se, then you are saying the government is a detached, self operating, self-governing entity. It is not. It could be torn down immediately, or prevented from growing as it is, were we all only to vote for (against) it.

You can try to fight the government itself, asking it to quit doing what it likes to do, but you will get nowhere unless you change the minds of those who allow the government to exist as it is – your neighbors. Asking the IRS to please go away will not work. The politicians themselves will certainly not entertain the idea, they need the IRS to collect your funds so that they can hand them over to others who want your money and thus voted for the politician to get it. You can only get rid of the IRS by convincing the people voting for the politician that THEY will be better off if they do not steal your money. It is your fellow voter who is stealing from you – it is they, who is the government.

As far as what they would do if not forced: ask yourself this? why do they only do it if forced but vote consistently for someone to force them?

George Gaskell October 9, 2006 at 3:18 pm

why do they only do it if forced but vote consistently for someone to force them?

Indoctrination in government-run schools that teach that voting is a civic virtue, that the nation-state is something other than a thug and a parasite.

Other than that, it’s a combination of self-defense and a desire to foist costs they would otherwise bear onto others.

Jennifer Greer October 9, 2006 at 3:22 pm

Such criticism of the FairTax plan might be short-lived. FairTax.org is in the process of obtaining a trademark on “FairTax,” meaning they’ll completely control where, how, when, and IF the word gets used. Why are they doing this? Ask Genie Hayes–employee of FairTax.org–she says it’s so they can yank anti-fairtax websites since the FairTax will probably be a fairly big issue in the upcoming elections. She ADMITTED OUTRIGHT that they want this trademark so that they have the legal power to squash criticism. I wish more people were aware of this fact. I’ve tried to spread the word, but I’m only one person. Even if you support the FairTax, you should support the First Amendment more.

Sasha Radeta October 9, 2006 at 3:45 pm

We already buried the “Fair Tax” (or insane 23% revenue tax- regardless of profits) proposal on this blog. No need to argue with an intellectually deceased idea.

http://blog.mises.org/archives/004428.asp

http://blog.mises.org/archives/004464.asp

http://blog.mises.org/archives/004436.asp

Sione Vatu October 9, 2006 at 4:25 pm

Sasha is correct.

BTW a careful examination of proposals such as FT (can’t bring myself to type fair in front of that other word) that have actually been implemented in other parts of the world demonstrate the intellectual bankruptcy of the idea. The promised gains to the individual were not attained. Things got a lot worse.

FT is indeed dishonest (a fraud). It is promoted to the public at large in a dishonest way (fraud). The results of it in practice are INCREASE of coercive legalised theft as the govt and its little helpers further encroach into every business, into every home, into every individual’s freedoms (it’s worse than a protection racket- a crime). If you doubt it go check out what occurred here in New Zealand or Australia etc.

Something that is not often discussed; data is collected on every activity. This is information you are required to provide on your documentation to the state to show how your payment was calculated. Manipulation and data-mining of this material makes the govt far more “efficient” at spotting opportunities to squeeze yet more. The possessor of all this information is indeed gaining substantial powers of control.

FT indeed.

Sione

M E Hoffer October 9, 2006 at 4:40 pm

“Something that is not often discussed; data is collected on every activity.” !

This is the actuality. Most in “Gov’t” would rather have the Data, the fuller set, the better, than the Revenue.

It, the Data, fuels their “Intelligent Design” fantasies.

The “Consumption” Tax, as Sione rightly points out, puts the “Gov’t” Everywhere and Anywhere, all the Time.

Mark Brabson October 9, 2006 at 5:09 pm

I would concur in comments against the term “Fair” Tax. No tax can ever be fair and in fact, all taxes are abominable. I don’t think I could enunciate the term “Fair” Tax aloud without choking over it.

Again, I am not speaking to the actual merits of consumption tax versus income tax, but call the consumption tax what it is.

Better yet, lets dump the income tax altogether and force the government to survive on tariffs, tonnages, imposts, excises and user fee’s like it was originally meant to.

Eric October 9, 2006 at 5:41 pm

What’s never calculated is the effect on those just about to retire. It would amount to double taxation – a lifetime of paying on income, and now the remainder of their lives paying a second time as they spend what little was left. To be practical, it would at least have to be phased in for seniors. The statement that it would be in any way tax neutral is a joke. The ARP would have a stroke if such a swap were made. And just imagine how newly retired people would be searched leaving the country with untaxed income.

The entire idea is a big scam to get some publicity or so some politican can say he’s doing something. No government this corrupt will ever change for the better – the only hope is that something radical causes the government to collape – like say a Katrina like event destroys D.C.

Don Lloyd October 9, 2006 at 6:07 pm

Eric,

What’s never calculated is the effect on those just about to retire. It would amount to double taxation – a lifetime of paying on income, and now the remainder of their lives paying a second time as they spend what little was left….

This seems a strange criticism of a plan that would wipe out any deferred tax liability on IRA’s, 401k’s, unrealized capital gains and SS benefit payments, not to mention the infinite complexity of unstable marginal tax rates applied to one kind of income due to the level of other kinds of income.

Regards, Don

Al October 9, 2006 at 7:15 pm

“Taxation is theft.”

Perhaps. If I am provided goods and services I don’t want, and forced to pay for them on pain of having my life confiscated in part (my labor and its fruits) or in whole (shot down), I am being robbed.

There are things, mostly services, that I don’t cheerfully want, such as protection from crime, but am willing to accept as a need and thus expect to pay for. I do benefit from paved and well-engineered roads, else I’d be landlocked or at the mercy of a landlord.

If government would restrain itself (what dog restrains itself without training?) to governing, I’d be a lot closer to happy.

What is the purpose of government? It is to take people’s rights away from them. First, at the lowest level, it takes their property, which is obtained by labor. Labor is time, time from one’s definitely limited life time, that has been traded for other things of value. Second, government takes people’s liberty. Either it demands direct service (prohibited by the thirteenth amendment and similar provisions of state constitutions except as punishment for crime duly convicted), or it takes one’s life.

Government, then, is in the business of killing, restraining and confiscating. Our problem is getting it to restrict these activities to punishing those who violate the rights of others.

How is government to be funded? I surely do not expect other persons to carry out the functions of government at their own expense. They must be supported as they devote their time to public service.

At first, the federal government was funded by imposts, customs, excises and the sale of public lands (stolen from their inhabitants). For a long time the resort to other taxes was restricted to paying for various wars. When the debt incurred by those wars was paid off, the tax was repealed.

Thomas Jefferson wrote that if he could obtain but one amendment to the constitution, it would be to take away from congress the power to borrow money. Opponents objected that it would be difficult to pay for wars. He responded that if a war was justified the people would willingly pay for it. He went on to write that wars would be reduced greatly by such an expedient as forcing congress to levy taxes to pay for any war at the time of the war, thus reducing wars by nine out of ten.

The greatest item on the to-pay list is the interest on the public debt. Now, this debt is purely fictitious, as is the “money” demanded to pay it with, but the people can obtain it only by sweat. Why does the congress not simply issue the money directly by authorizing the treasury (the government’s bank) to pay the expenses of government by issues? Some might object that such is unconstitutional, but the present system of issuing the currency, then giving it to a consortium of private banks, then borrowing it back from the bank, is not only as unconstitutional as issuing bills of credit directly, but much more harmful.

If all the currency that has ever been borrowed from the federal reserve banking cartel was returned to it, the interest would remain unpaid. In fact, it is impossible to pay both interest and principal as all the federal reserve currency outstanding is borrowed.

The federal debt cannot be paid. First, it is irrelevant that some of it has been lost or destroyed. Tough. If you borrow my lawnmower and then it is stolen or you just lose it, you still owe me my lawnmower. So, the outstanding federal reserve currency cannot all be returned to the bank. Second, the accumulated interest would be left unpaid. The “debt” must be repudiated as based on fraud. Congress can simply order the treasurer to issue a single bill denominated, say, $86,498,651,907,241.88, or whatever the total outstanding debt with interest is calculated to be, give it to the chief cashier of the federal reserve bank, and suggest spending it. Cancel all the paper trash already out.

The framers of the constitution were wise to forbid the issuance of paper money. Unfortunately, their successors were not so wise.

Mark Brabson October 9, 2006 at 7:39 pm

Al:

If the U.S. had stuck with commodity money, we would have had a solid wall to stop government from excessive borrowing. In a non-inflationary economy, there is simply only so much commodity money available to be borrowed, at which point the government MUST stop. However, once the Federal Reserve was established and the dogs of inflation unleashed, the pit of debt became truly bottomless, as the government could simply expand credit to fill their trough.

Which illustrates another point that MUST go hand in hand with any tax retrenchment. The Federal Reserve must be abolished and a solid market monetary system allowed to evolve, with 100% reserve banking. It won’t help one bit to retrench on taxation, if the Federal Government can simply drink from the teat of credit expansion.

iceberg October 9, 2006 at 8:01 pm

George and Person,

Can’t we all learn to disagree when it comes to strategizing towards a [Austrio-] libertarian society? The constant bickering over policy should be left to people who think politics is a virtue and not just a pretty facade for the coercive violence inherent in the system.

Nitpicking over the economics is what we are here for anyway.

Vance,

You wrote “And what about the prices of imported goods? They would have no reason to drop at all.”

I can think of several reasons why it would be subject to the same price drops- the corporate taxes paid by the following entities would dis-contribute towards the price: the cargo ship transport company, the loading docks company, the trucking industry, the fuel and energy industries powering those vehicles and equipment.

Wait, there are more: the corporate taxes of the importers and distributors buying the foreign goods, and the taxes for the retail store too. All those lower costs of production (remember, Mises also says that tranportation is a part of production) will ultimately allow the price of goods to be lowered, even when imported.

Eric October 9, 2006 at 8:48 pm

Don,

Most people about to retire have expectations of a tax liability based on current law. If the system were pulled out from under, many would suffer. I’m not saying that some won’t be able “play” the new system, but most people ready to retire who even have all these tax deferred accounts were expecting to pay little or no income tax upon retirement – by withdrawing smaller amounts in retirement.

For example, I am 60 and I own my house, so I don’t have to pay huge amounts for interest mortgage, nor will I need an expensive auto to commute to a job, nor pay high insurance rates. Also, I don’t have kids to support etc. My point is that after years of planning, I would have to completely re-figure how to live with a government that has turned into a criminal gang, as Rothbard correctly calls them. But I’m not worried about changes to the tax system as discussed – what is much more likely is that we will have both an income tax AND a sales tax. And if that isn’t enough, we are surely going to have the inflation tax – and that does worry me, as I don’t know that I can overcome that if DC keeps going like it is now.

But at any rate, can you see the political fights that would occur. Besides, the system works great for the politicians the way it is now. And the IRS would probably fight any attempt to close them down anyway. Like the drug war and the DEA, these parasites won’t let up.

M E Hoffer October 9, 2006 at 8:56 pm

Who honestly believes, after the USGovt has built up unfunded liabilities of ~U$D 56 Trillion, the vast majority of which, on their watch, that “they” have actually earned any “retirement”, whatsoever? (That’s just the Financial side of the equation)

George Gaskell October 9, 2006 at 9:22 pm

There are things, mostly services, that I don’t cheerfully want, such as protection from crime, but am willing to accept as a need and thus expect to pay for.

Then, in the final analysis, you do, in fact, want them. Your ambivalence is not significant in an economic sense.

I do benefit from paved and well-engineered roads, else I’d be landlocked or at the mercy of a landlord.

The question is not whether you are basically satisfied with the current roads, but whether the existing government roads are better than the roads we would have in a free market.

In any event, you wouldn’t be landlocked or at the mercy of a landlord, any more than people were in the many centuries before the modern nation-state took over the transportation-construction industry in the mid 1800s.

What is the purpose of government?

To benefit itself. To do so at its current level, it has learned to convince its victims that they are not victims, but beneficiaries.

Our problem is getting it to restrict these activities to punishing those who violate the rights of others.

But even if it is so limited, it violates the rights of others by funding itself through taxation, which you have already concluded is a criminal act that must be punished.

How is government to be funded?

Out of its own pocket (of rightfully acquired assets), or by charging fees to voluntary customers. In other words, to cease to exist as the modern nation-state.

I surely do not expect other persons to carry out the functions of government at their own expense.

Even as recently as the 17th century in England, prior to the disastrous affair with that Cromwell fellow, the crown was expected to run the ordinary expenses of government out of its own pocket. As bad as that was in many ways, it was better than what we have today.

I recommend this article: http://mises.org/journals/scholar/jewell.pdf

George Gaskell October 9, 2006 at 9:27 pm

Can’t we all learn to disagree when it comes to strategizing towards a [Austrio-] libertarian society? The constant bickering over policy should be left to people who think politics is a virtue and not just a pretty facade for the coercive violence inherent in the system. Nitpicking over the economics is what we are here for anyway.

That’s my point — that getting drawn into a petty political debate over such trivial matters as the mode of federal taxation is to misunderstand the magnitude of the crime that is being perpetrated right in front of us via a multi-trillion-dollar budget (that doesn’t even count a great many expenditures), not to mention the Federal Reserve and other credit-manipulating mechanisms.

Ken Howe October 9, 2006 at 9:40 pm

Dear Mr. Vance;
The FairTax is not perfect, there are no perfecct tax plans. What the fairtax does is very good for all of us.
1. IT reduces the lobbying effects of special interests who try to game our tax code.
2. It is a gradual change from slavery (of the inciome tax)to freedom as the tax on consumption is voluntary.
3. It makes transparent the cost of government.
4. Can you imagine the hell a politician would go through by proposing an increase in taxes when those costs are visible and open? That can be best described as political suicide.
5. It eliminates political arguement of class envy.
Overall it is the best plan I have encountered in twenty years of looking. If I am elected I will co-sponsor the bill.
Kenneth Howe
Libertarian Candidate
Michigan”s Sixth district.

eric October 9, 2006 at 11:48 pm

Kenneth,

1. Since the law won’t be written and passed as you would write it, you can’t predict what new lobbying effects would occur. Every group will loby for it’s own exemptions. Food for example, will be lobbied to be tax free, then every other special interest will loby their case. It’s naïve to think you can design a law like you would design a computer program, for example.

2. No tax is voluntary. Unless you’re dead, you require trade to stay alive. A tax on trade can become as onerous as one on income. You are again assuming that only things that YOU believe to be voluntary would be taxed. But if they can’t raise the money they want, they’ll tax whatever they want, even what you think won’t be taxed.

3. It makes transparent how much poorer you are perhaps.

4. The income tax began at 2% and once hit 92%, yes I can imagine. It’s just a number.

5. The poor will loby to tax luxeries at a higher rate. They will then get suckered, as usual (since the rich are smarter) as the rich use the laws to harm their competitors. Oil will want taxes on nuclear etc. The poor will pay higher prices to support what would amount to internal tarrifs.

And most of all, whatever name you give your law, you can be assured that once the 100,000 pages of it are written (and you never read it natch) and it’s voted on, the civil servants will make it do what they want it to do. Give it up. Unless you’re a politician. Then go ahead and get your piece of the pie.

Chris Marshall October 10, 2006 at 2:44 am

FairTax will not eliminate the huge army of enforcers that presently enforce the US Tax Code, it will merely turn that army into a conscript army.

Every businessman will have to collect tax, and keep and submit the records of his business to the government for this to work. These will go to whatever the IRS replacement is called, the regular “cadre” that back the conscripts.

All of this will mean vast amounts of unproductive effort for businesses, and it will drive smaller, marginal operators out of business, because large firms have economies of scale in administration.

As for this notion that it will lighten the burden, no revenue neutral plan lightens the burden. A revenue neutral plan by definition rules out lightening the burden, it merely alters the burden.

Lightening the burden means reducing taxes, nothing more, nothing less

Chris Marshall October 10, 2006 at 4:43 am

As to transition costs, these will be massive, more so for small business.

The principle reason is that business software, forms, and documents will have to be changed over.

An instructive example can be found in Britain’s compulsory change over to the use of metric units for selling goods.

Everyone had to get new scales calibrated in metric, and staff had to be retrained to recognise metric. It is OK for most to convert Imperial to Metric, but shop staff serving customers have to recognise weights.

Easy enough for the big retailers. On the other end of the scale, small shops and market stall operators had the choice of breaking the law, or going out of business.

The so-called “Fair-Tax” will have exactly the same effect. Wal-Mart will be able to move over quickly. Mum and Dad’s Grocery will close down.

And for all of this, taxes will not be reduced (revenue neutrality).

Anyone who doesn’t think the unFair Tax will create a huge transitional burden for small business is advised to look at Australia and the introduction of the GST.

Dan Coleman October 10, 2006 at 7:43 am

Person,

You wrote:

I’d be glad to oppose it once someone gives me an actual, well-formed reason. Any takers?

Here are a few:

* The FT does not touch state tax rates, nor does it give provisions to stop the sales tax from being raised very high (90%+ isn’t unthinkable). There is reason to think that it will continue to allow great injustice. You may say “so?”, but, while no reform can cure all ills, I fail to see exactly what the FT is solving. (Boortz’s strongest original points have, in my opinion, been dealt with in the last 2 articles by Vance. 1. It’s really a 30% tax rate, which is as much as income taxes take away currently; 2. Boortz double-counted when dealing with wages.)

* Boortz says: Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart, would fall by an average of twenty percent.

But Mises says: The ultimate source of the determination of prices is the value judgments of the consumers. Each individual, in buying or not buying and in selling or not selling, contributes his share to the formation of market prices. But the larger the market is, the smaller is the weight of each individual’s contribution. Thus the structure of market prices appears to the individual as a datum to which he must adjust his own conduct. What is called a price is always a relationship within an integrated system which is the composite effect of human relations.

Prices are determined between extremely narrow margins; the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying.

The contradictions between Boortz and economic thinking are very fishy. How many central planners have, like Boortz, assumed that producers would do x? It reminds me of Krugman, who always insists that universal health care would cost only as much as the current system–and probably less(!).

Finally, I have one point that leads to a question: I don’t think it’s very fair to claim that part of the victory of the FT is to eliminate Social Security and Medicare. . .why not simply eliminate them without trying to tack on this massive (and questionable) tax reform? Let me hear the merits of the FT in its own right–why should a libertarian accept this reform, especially in light of the problems raised by Vance?

Dan Coleman October 10, 2006 at 7:46 am

The Mises quote is two paragraphs, not simply the one that is italicized.

Buck Steele October 10, 2006 at 11:49 am

Here’s a HUGE benefit for me personally that nobody has mentioned. Last year, due to my wife’s illness, I ran up some huge debts. Now, repayment of those debts would not be taxed. I could devote a much larger portion of my paycheck toward settling those debts, since I can’t buy much at all at the retail level for some time.

I believe that the Fair Tax is orders of magnitude better than the current system, but I’m sympathetic ONLY to the arguments against it I read in here…principally that taxes are just Bad. Still, if we did implement this huge improvement, I DON’T believe that the rate would go up year after year; that would be policial suicide…which is part of the “political” genius of the plan. In fact, this may be the one mechanism that we could use to get the size of goverment at least down into single digit percentages of GDP.

Steve October 10, 2006 at 2:45 pm

People,
You are missing, thru no fault if your own, the central point about the federal income tax and that is that most Americans, engaged in private enterprise activities, are not liable to pay the tax. There is a growing body of evidence supporting this position and I urge all of you to see http://www.losthorizons.com for the details. Don’t be misled, the NRST will void your current constitutional right of tax protection that is contained in current tax law and as is spelled out in the Internal Revenue Code. For too long, we have been mis-led, lied to, confused by gov’t. and special interest propaganda about federal income taxes. See http://www.losthorizons.com, get the facts, see the evidence and then , and only then, make an informed decision about this important issue.

Steve October 10, 2006 at 3:06 pm

Need A Crash Course In The Reality Of The Income Tax?

Read What A Few Of The Experts Have To Say:

“No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
United States Constitution, Article 1, Section 9

So, federal capitations (taxes on normal, private-sector earnings) are prohibited…
(Learn about “capitations” here– they aren’t what you probably think)

“The income tax is, therefore, not a tax on income [earnings] as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax.”
F. Morse Hubbard, Treasury Department legislative draftsman. House Congressional Record March 27th 1943, page 2580

“…the requirement to pay [excise] taxes involves the exercise of privilege.”
United States Supreme Court, Flint vs. Stone Tracy Co. 220 U.S. 107 (1911)

So, the tax is an excise on the exercise of privilege, not a tax on money…

“PRIVILEGE: A particular benefit or advantage enjoyed by a person, company, or class beyond the common advantages of others citizens. An exceptional or extraordinary power of exemption. A particular right, advantage, exemption, power, franchise, or immunity held by a person or class, not generally possessed by others.”
Black’s Law Dictionary, 6th Ed.

“The right to follow any of the common occupations of life is an inalienable right…”

“It has been well said that ‘the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property’.”
United States Supreme Court, Butcher Union Co. v. Crescent City Co., 111 U.S. 746 (1883)

”Included in the right of personal liberty and the right of private property- partaking of the nature of each- is the right to make contracts for the acquisition of property. Chief among such contracts is that of personal employment, by which labor and other services are exchanged for money or other forms of property”
United States Supreme Court, Coppage v. Kansas, 236 U.S. 1 (1915)

So, working, earning money, being paid, etc., in the private sector are NOT privileges…
(Tell me you really didn’t need a court to point that out to you…)

“We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it…”

“[Taxation of "income" is] in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it” (That is, if the “income” tax ever comes to be administered as something other than an excise, or on something unsuited to an excise, the rule of apportionment must be applied.)
United States Supreme Court, Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916)

“The provisions of the Sixteenth Amendment conferred no new power of taxation . . .”
United States Supreme Court, Stanton v. Baltic Mining Co., 240 U.S. 103 (1916)

“The Sixteenth Amendment, although referred to in argument, has no real bearing and may be put out of view. As pointed out in recent decisions, it does not extend the taxing power to new or excepted subjects…”
United States Supreme Court, Peck v. Lowe, 247 U.S. 165 (1918)

The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still subject to the rule of uniformity.”
Howard M. Zaritsky, Legislative Attorney, American Law Division of the Library of Congress, Report No. 80-19A, entitled “Some Constitutional Questions Regarding The Federal Income Tax Laws”, page CRS-5 (1979)

So, the 16th Amendment has nothin’ to do with nothin’ about any of the foregoing…

“We must reject… …the broad contention submitted in behalf of the government that all receipts– everything that comes in– are income…”
United States Supreme Court, So. Pacific v. Lowe, 247 U.S. 330, (1918)

Just so. What is called “income” in the internal revenue laws (that is, what is taxed under those laws) is NOT “money” or “receipts” or “earnings”, etc.. It is the exercise of federal privilege, which is measured, for purposes of determining the tax, by the receipts brought in by that exercise. Thus, it is only receipts resulting from the exercise of federal privilege that are relevant to those laws and the related taxes.

Now Get The Book That Explains It All:
‘Cracking the Code- The Fascinating Truth About Taxation In America’ at http://www.losthorizons.com

Nick Bradley October 10, 2006 at 7:15 pm

As an ardent FairTax supporter in the past (and still am to a certain extent), let me say a few words:

First, there is a great reason that the 23% number is used. It is to compare a tax-inclusive rate to a tax-exclusive rate. We could compare the tax-exclusive 30% number to a tax-exclusive income tax number: How about a 39% tax rate for the 28% tax bracket. The decision was made to prevent opposition from leftists who would claim that the income tax is cheaper. Let’s throw in the 15.3% we all pay in Social Security and Medicare taxes as well. So if we want to look at the exclusive rate for somebody in the 28% bracket, we’re looking at 75%!

I concur that taxation is theft. But the end of taxation is NOT going to happen barring secession (even then it’s highly unlikely a new state would do away with taxation). I have used the analogy that I would rather have my blood drawn with a syringe than a razor blade.

I have always diagreed with claims that goods will cost the same because the tax is already embedded in the price of goods. I don’t buy it; the money has to come from somewhere. Now, I do believe that prices would come down a little bit. And I do believe that productivity would rise so dramatically that the price of goods would go down a lot.

I disagree with the FAIRTAX name. No taxes are fair. Theft is not fair. We should call it what it is: a progressive Sales tax.

Another point on the FairTax rate. Not everybody will be paying 23% (30% exclusive). Nobody will pay taxes on consumption up to the poverty line (roughly $25k for a family of four). So, if your family of four makes $50k (near the average) and you consume 100% of your income, you will pay a 11.5% (13% exclusive) rate. In addition, nobody will spend 100% of their income on taxable goods. Savings, investment, and education are not taxed. Your car payment, mortgage, loans, etc. are only partially taxed; you pay taxes on the difference between your interest rate and the overnight fed funds rate. So in reality a family of 4 making $50k would pay no FairTaxes at all if they consumed less than 50% of their income.

Now, for utilitarian arguments:

taking taxes is always better downstream than upstream. Let the investors invest and the producers produce, then the Gov’t takes their money. It has more time to grow before “harvest”, so to speak.

There is at least $500 Billion dollars that US Corporations are holding overseas because they do not want it to be taxed; the US is one of two countries (the US and Libya) that tax overseas profits. That money would come home.

Foreign investors would pour their money into the US. As long as they are not consuming anything while in county, they do not have to pay ANY taxes . Just look at how Ireland boomed when they slashed corporate tax rates to 10%!

Savings will be encouraged by the FairTax, promoting a lower time preference amongst the population. Other positive externalities will come from higher time preferences (see Hans Hoppe): lower crime, less out-of-wedlock births, etc. etc.

The broken Health Care system, which has grown out of the employer-provided health plan system (via the tax-deductability of providing it) will be gone. Health Care would then be purchased by individualsl no more communal policies.

To see more of my views on the FairTax, check out a paper I wrote quite some time ago on the matter:

” How the FairTax Will Renew America”

Paul Burgener October 10, 2006 at 8:12 pm

(sigh) Do you von Mises folks really think you can drop the federal budget in just one step? Face it. The federal budget grew gradually over the years. It’ll take years and several steps to reduce it back down.
Step 1: Get the percentage of the economy that the federal government sponges, in front of every man’s, woman’s, and child’s face, every day. Do this by printing it on each and every retail sales reciept. How can this be done, you ask? Pass HR25, the John Linder FairTax.org bill. Paul Burgener, Newport News, VA

Paul Burgener October 10, 2006 at 8:12 pm

(sigh) Do you von Mises folks really think you can drop the federal budget in just one step? Face it. The federal budget grew gradually over the years. It’ll take years and several steps to reduce it back down.
Step 1: Get the percentage of the economy that the federal government sponges, in front of every man’s, woman’s, and child’s face, every day. Do this by printing it on each and every retail sales reciept. How can this be done, you ask? Pass HR25, the John Linder FairTax.org bill. Paul Burgener, Newport News, VA

Paul Burgener October 10, 2006 at 8:12 pm

(sigh) Do you von Mises folks really think you can drop the federal budget in just one step? Face it. The federal budget grew gradually over the years. It’ll take years and several steps to reduce it back down.
Step 1: Get the percentage of the economy that the federal government sponges, in front of every man’s, woman’s, and child’s face, every day. Do this by printing it on each and every retail sales reciept. How can this be done, you ask? Pass HR25, the John Linder FairTax.org bill. Paul Burgener, Newport News, VA

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