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Source link: http://archive.mises.org/8107/there-is-still-no-such-thing-as-a-fair-tax/

There Is Still No Such Thing As a Fair Tax

May 15, 2008 by

Although I believe that taxation is theft, I would gladly support any tax reform plan as long as it substantially lowered tax rates or the total amount of taxes collected. I am not a critic of the FairTax because it doesn’t do enough; I am a critic of the FairTax because it cannot be considered an incremental step toward lower tax rates or lower overall taxes. It is not even a step in the right direction. The FairTax is a cure worse than our diseased income tax system. FULL ARTICLE

{ 35 comments }

fundamentalist May 15, 2008 at 8:46 am

I completely agree with everything Vance writes about Boortz’s “Fair Tax.” It’s mostly a shell game. But I have often wondered about the benefits of a national sales tax compared to an income tax. The sales tax must be added on to the purchase and not “imbedded” as Boortz wants in order for consumers to know how much tax they pay, otherwise, it’s just pure deceit. I wonder if people would oppose state spending/taxing if they were confronted with its cost daily. The whole justification for taking the income tax out of workers’ pay before they received their pay was so that workers wouldn’t notice; in other words, the motivation was deceit.

Second, would a national sales tax reduce consumption and encourage savings? Maybe. It’s hard to know on which side people will land when the changes are made. But consider the fact that when people would borrow to purchase a car or house they have to borrow the amount for taxes as well. That might discourage such purchases, or at least encourage savings for larger downpayments.

Jeremy May 15, 2008 at 9:58 am

Sure, taxes are basically bad, and what we need is to dramatically reduce the size of gov’t and taxes.

But, a flat sales tax is far better than our current system. Who cares if it is fair or not? It encourages saving and discourages consumption.

Higher saving = more capital formation, lower interest rates (all things equal), and higher real long term growth.

Higher consumption = lower capital formation or capital cannibalization (see: today’s America), higher interest rates (all things being equal – of course the Federal Reserve keeps them far lower than what the market would set them at most of the time through expansion of the money supply), and lower real long term economic growth.

Not a very tough choice.

Alex May 15, 2008 at 10:22 am

In Canada there is a federal goods and services tax of 5% together with provincial sales taxes. A couple of years ago, the federal tax was 7%. In Ontario with an 8% provincial sales tax plus a 7% federal sales tax, this was a 15% tax added on at the cash register. This 15% tax provided a great incentive for households to purchase as much as possible in the United States and bring the goods into Canada. A 30% sales tax in the U.S. compared with the now 13% sales tax in Ontario and only 8% total sales tax in Alberta would provide a considerable incentive for Americans to escape the tax by spending as much as possible in Canada (or perhaps Mexico). How would this revenue loss be dealt with?

magnus May 15, 2008 at 10:33 am

How would this revenue loss be dealt with?

Step 1: Demonize anyone who dares to buy goods at the lower price; label them as traitors and/or terrorists;

Step 2: Impose intense criminal penalties, since that’s what criminals/terrorists deserve.

lpcowboy May 15, 2008 at 12:47 pm

While the proposal advocated by Boortz has several flaws, a basic retail sales tax has the potential to eliminate overhead associated with the income tax, which I’ve seen estimated at 7%. I think such a tax should be implemented such that:

* Workers recieve their whole paycheck
* No prebate is distributed
* The tax is not embedded, but explicit like state sales taxes
* Services are not taxed -only retail goods like w/ state taxes
* Necesseties like food probably shouldn’t be taxed (as with state taxes)

These changes could probably be addressed within the fairtax movement, rather than launcing a seperate retail sales tax initative.

Besides eliminating overhead, it would be in everyone’s interest to get the rate down, rather than banter about having people with high incomes collect more tax.

Bob May 15, 2008 at 1:54 pm

One advantage of this FairTax is that it seems it would provide everyone with a “fair” opportunity at tax evasion. Here in Quebec with the approx 13% sales tax there are already many many stores who will sell for “cash/no tax”.

This FairTax could be a great opportunity for counter-economists gaining ground in the USA as anyone could participate in tax evasion without changing their job just by purchasing from local, unregistered businesses.

Though, what I fear is the massive regulations that the Federal Government would try to employ to restrict precisely this kind of activity.

EnEm May 15, 2008 at 2:12 pm

Let’s cut to chase here. If Vance says “there is no such thing as a fair tax” then I take that literally to mean that taxes, any taxes, per se are unfair. The very concept and act of taxing is unfair and unjust.

Recalling Galt’s speech in Atlas Shrugged……….”In any compromise between food and poison, it is only death that can win. In any compromise between good and evil, it is only evil that can profit”. But if Vance is willing to tolerate “a little” taxation then that’s akin to Vance responding to an IRS thug who wants to rob him of everything with a ‘compromise deal’ to the effect that the thug can rob him, but just a little.

Every human endeavor can be privatized. Every thing can be privately owned. Business is not the government’s business. Business and economics depend on the rulings of the Free Market. And that other den of thieves, the Federal Reserve, should therefore be eliminated as well.

There can be no compromise on opposite principles in any shape of form.

Walt Maken May 15, 2008 at 5:19 pm

There is much more to the IRS “tax” matter than meets the eye. There are important “root” and “trunk” matters connected with IRS “taxation” that constitute the “huge elephant in the room” that no one wants to talk about. I encourage downloading and studying the following good-faith request I recently sent to a local federal district “judge”. http://waltmaken.googlepages.com/WalterHerbertRice20080510.pdf . It can also be downloaded from http://waltmaken.googlepages.com/waltmaken'srule60(b)(4)motiontovacate . I encourage others to ask the same or similar questions of other federal “publilc officials”.

After you’ve studied the above referenced document, your comments and questions are welcomed. WaltMaken@gmail.com .

Deacon May 15, 2008 at 5:24 pm

#######
#######

Let’s see here. We’re to discuss taxation
while the U.S. is irremediably bankrupt,
as each dollar bill represents not any
wealth accumulation but debt accumulation;
that is, the U.S. government is taxing
debt instruments having a deficit value of
thousands of dollars for each man and
woman and child in order to “pay-off” ever-
rising unfunded mandates…debt!

It’s like deck hands on the sinking Titanic
heatedly debating how best to arrange the
deck chairs so they won’t appear to be in
such disarray.

Got gold and silver and food?

#######
#######

Silas May 15, 2008 at 5:27 pm

okay, someone tell me real quick: Did Vance come up with an argument *this time*, which isn’t equivalent to one of these:

1) FairTax proponents are poopy-heads.
2) Something other than the FairTax is bad.
3) Some bad policy will be passed later.
4) Taxes are bad.

(For extra credit: why are 1-4 not valid responses?)

Inquisitor May 15, 2008 at 5:46 pm

EnEm, I couldn’t agree more. :)

Glynne Sutcliffe May 15, 2008 at 7:09 pm

Yes. And In Australia all of the negatives you itemise are already in evidence. I am not an accountant, or economist. Pages of figures leave me shading my eyes. So I am in no position to analyse the chicanery. But why don’t you check out what has happened down here, and rescue us from the infamous GST(Goods and Services Tax). I will try and read the remaining two thirds of your article when I have the time free to think deeply enough. But congratulations on tackling the issue.

Nicholas Gray May 15, 2008 at 7:51 pm

We here in Australia were also promised that up to seven other taxes would be removed, but I think most of them are still there! Our Goods and Services Tax also had exemptions for food, because our Upper House, also called a Senate, was not in the government’s control, and they had to bargain.
As for thieves taking things, if you can bargain a thief into only taking a little, that is preferable to doing nothing! Standing on your principles, Enem, would mean you let him take the lot when you don’t need to!
Bargain until the thief has left, then put in (better) burglar alarms, and work towards the goal of a thief-free society. Otherwise you’ll be like Ararat, who wouldn’t bargain, and wanted all his demands met at once, and so ended up with nothing!

EnEm May 15, 2008 at 7:56 pm

Thank you.

Allen Young May 15, 2008 at 8:27 pm

05/15/08pm I propose several actions. Some may seem drastic.

1) All federal taxes on corporations should be abolished. Because it is the case that successful ones manage to shift those taxes off onto their customers, including taxpayers. By hiding those costs in the prices they get.
2) All withholding of taxes should be abolished. Each pay day, each interest day, each dividend day – each taxpayer must write a check to the IRS, address an envelope, and mail it. The IRS trains an army of nasty collectors, who pursue laggards. Very soon taxpayers begin to ask: “Is this money, my money, being spent for some thing I imagine benefits someone?” Never should spending and taxes be hidden from those who have to pay.
3) Congress may be in D. C. only for 90 calendar days – every other year. Members found to be in D. C. at any other times immediately forfeit their “seats”. And, cannot run again.
4) Each congress person must prepare her/his own Form 1040 – without any paid help. Same penalty as above.
5) No congress person can propose, advocate, or vote for any legislation that benefits only her/his own district. I. e. “pork”.
Allen Young, Houston

P.M.Lawrence May 15, 2008 at 10:41 pm

For a country with a GST/VAT, a good step in the right direction is a Negative Payroll Tax or NPT (see Professor Kim Swales’s work here and here, or mine here and here). Of course, it is not so constructive to bring in a GST/VAT to carry an NPT if you don’t have one already; you would have a much trickier job reducing the burdens of other taxes to justify that, and there are other better carrying taxes anyway. And you should still aim at phasing the the NPT out too, letting individuals build up their own personal resources to do the job instead without going through the state system.

For a country with income taxes and/or payroll deductions to support the old, a good approach is to open up an age related wedge, with income tax etc. only being payable up to a cut off age which is gradually brought forward, while benefits are only received after a cut off age which is gradually pushed back. That would leave an ever widening gap in which people could save for their own later support until the state system was phased out completely (see my work on this).

An even better but more complicated refinement would be to convert income tax etc. to a SAYE (Save As You Earn) system, taking pro rata from income until individuals reached an age related cap, which would fall to zero around retirement. Then they could draw down their holdings as the cap fell below what they had saved, and the cap itself could be lowered as the outstanding commitments of the old system washed out. Nobody would be hurt by excessive demands, but it wouldn’t materially penalise those who worked more.

Marc May 15, 2008 at 11:25 pm

Thanks for an interesting article, Mr. Vance, I found it enlightening. I conclude from the information that the Fair Tax is designed as a cloak of it’s true costs. The whole convoluted prebate-inclusive-exclusive-retail-exempt-etc-etc is pure hogwash. They call it a retail sales tax, so most folks assume it’s just like the state sales tax we all know and love, but in fact it is not, unless you calculate it at 30%, not 23. Average radio listeners and TV watchers see or hear “23% sales tax”, and assume it means “23% sales tax”, which, clearly, it does not. Truly an Orwellian moment. Skip all the math problems, it is not necessary.

pp May 16, 2008 at 12:02 am

AWEF

Owen May 16, 2008 at 1:23 am

fundamentalist:

Your paranoia doesn’t change the fact that payroll taxes are the cheapest and least ableto be avoided ways of collecting taxes. That is why they are collected that way.

From my perspective I don’t like any taxation. I think sales taxes are very economically distortive.

The only non-distortionary tax is one based on unimproved land values.

BWM May 16, 2008 at 2:47 am

A) Saying that the Fair Tax allows workers to keep 100% of their paycheck is not wrong. For one thing, it’s correct; 10 dollars an hour for 40 hours will be 400 dollars. This isn’t hard. Secondly, regarding the adjustment, it’s false to claim that ALL businesses will convert ALL of the saved money into lower prices and not give a dime to workers. Some might, some might raise wages, and many will probably do a bit of both. But to complain and say that BOTH possibilities are dubious or dishonest is sheer propoganda, because one or the other WILL happen, unless you attempt to argue that the companies will simply keep all the money, which to any free market economist is an absurd argument.

B) Businesses would have a higher compliance cost? No, they wouldn’t, because they keep a portion of the tax to cover the cost. Not only that, but quite simply, the costs are lower in general.

The rest of the article is, strikingly, irrelevant. It’s complaints about the Fair Tax not being good enough, about how it can be altered and corrupted, attacking word choice, etc. I don’t like how it’s calculated inclusively, but the math is right. Comparing the new FEDERAL Fair Tax to the FEDERAL, LOCAL, and STATE Income taxes is a non-argument; the local and state taxes are taxes levied and controlled by local and state governments and have absolutely nothing to do with federal tax reform. It’s mentioned here solely to create a new way to attack the Fair Tax, like it’s their fault state governments tax people (would it be better if the Fair Tax obliterated state’s rights by attacking their taxes too?) No, the plan doesn’t lower taxes; what it DOES do is eliminate massive amounts of fraud, avoidance, shifting costs, and dollars fleeing our shores. And it’s being opposed here because it’s not good enough. Fact is, it eliminates massive amounts of confusing taxes, replaces it with a simple and transparant system, and benefits business immensly (while counter-acting the effects of foreign tax schemes like the VAT tax on out business, which helps US). Boortz wants to lower taxes; he goes on about it constantly. The problem is that, while the Fair Tax will be very hard to get passes, a total elimination of massive amounts of taxes WITH an elimination of tax structure is flat-out impossible, and a waste of effort to pursue. Once we have a drastically easier system to understand and monitor, and proof of how effective saving the country money is just by eliminating compliance costs alone, THEN we can push to lower the Fair Tax rate. “The perfect is the enemy of the good”, and if you are waiting for the perfect tax system to simply be enacted in one fell swoop, you are wasting your time.

fundamentalist May 16, 2008 at 8:16 am

Owen: “Your paranoia doesn’t change the fact that payroll taxes are the cheapest and least ableto be avoided ways of collecting taxes. That is why they are collected that way.”

That’s nonsense. It’s no cheaper than any other way of collecting taxes. You’re just showing your ignorance of history. The people who designed the income tax knew that people would oppose it and stated that their intent was to make it as invisible as possible, in other words, to cheat people by taking their money in ways they wouldn’t notice.

Owen May 16, 2008 at 8:33 am

That is paranoia fundamentalist. Payroll taxes are much cheaper to collect and harder to avoid than almost any other tax.

Anyway, what you don’t understand is that ayroll taxes are not taxes in themselves but merely a withholding collection system. After it is collected your tax return will show whether you get a refund or must pay more.

Because the average persons income tax liability is highly correlated to their salary, it made sense to the government to colelct this at source because when you wait for people to pay at the end of the year it causes both the government and the person trouble because often they spend the money instead of saving enough for taxes.

You might then ask – why tax incomes? Well governments found this to be the EASIEST way to tax people because if you tax in any other way you run the risk of people not having earned enough to pay that tax. This is the same for both sales taxes and capital gains taxes – they are easy and reliable because the money has definately been earned to collect.

So in summary you are wrong.

ToeKnee May 16, 2008 at 11:45 am

There are so many things wrong with this article, I can’t stand it.

1. The FairTax is designed to be revenue neutral so that it can get passed. It’s a two-step tango: first simplify the current code. Then lower the tax rate.
2. This form of taxation is more voluntary in that you can save and spend less money, thus paying less taxes. This is entirely different than income taxes automatically being withheld.
3. The FairTax greatly diminishes compliance costs and fraud. You didn’t sufficiently address either of these.
4. The perfect is the enemy of the good, and Vance is preventing a great tax reform. People like Vance help ensure the continuation of the current abomination.
5. Boortz says it’s progressive because it is progressive and because calling it that helps ensure it gets passed.
6. You can’t criticize the FairTax because of potential changes that Congress might make to it. That’s outside of Boortz’ control. The duty is on us to make sure that Congress doesn’t raise the rate or reinstitute an income tax or exempt certain items.

There are many others, but I must go to lunch. The FairTax is a huge improvement and should be passed.

ToeKnee May 16, 2008 at 11:45 am

There are so many things wrong with this article, I can’t stand it.

1. The FairTax is designed to be revenue neutral so that it can get passed. It’s a two-step tango: first simplify the current code. Then lower the tax rate.
2. This form of taxation is more voluntary in that you can save and spend less money, thus paying less taxes. This is entirely different than income taxes automatically being withheld.
3. The FairTax greatly diminishes compliance costs and fraud. You didn’t sufficiently address either of these.
4. The perfect is the enemy of the good, and Vance is preventing a great tax reform. People like Vance help ensure the continuation of the current abomination.
5. Boortz says it’s progressive because it is progressive and because calling it that helps ensure it gets passed.
6. You can’t criticize the FairTax because of potential changes that Congress might make to it. That’s outside of Boortz’ control. The duty is on us to make sure that Congress doesn’t raise the rate or reinstitute an income tax or exempt certain items.

There are many others, but I must go to lunch. The FairTax is a huge improvement and should be passed.

Scott D May 16, 2008 at 5:27 pm

“1. The FairTax is designed to be revenue neutral so that it can get passed. It’s a two-step tango: first simplify the current code. Then lower the tax rate.”

What’s stopping us from lowering the tax rate now? And how will things be any different by changing the collection method?

“2. This form of taxation is more voluntary in that you can save and spend less money, thus paying less taxes. This is entirely different than income taxes automatically being withheld.”

My choices are: spend money now and pay taxes, or spend money later and pay taxes. Oh, except for the wealthy who will be able to leverage their extra income to generate greater wealth.

“3. The FairTax greatly diminishes compliance costs and fraud. You didn’t sufficiently address either of these.”

I’m sure that the black market will address it. The higher the tax, the greater incentive there is to avoid it. This is why, where states choose to tax consumption, a VAT is used instead of a sales tax.

“4. The perfect is the enemy of the good, and Vance is preventing a great tax reform. People like Vance help ensure the continuation of the current abomination.”

Let’s say I offered you a choice: I would shoot you in the arm or the leg. Meanwhile, I exhort the benefits of getting shot in the arm. It won’t impede your walking, smaller arteries, so less chance you’ll bleed to death. In fact, you might actually start to feel more healthy because the injury to one arm encourages you to use and develop the strength in your other arm.

Vance is just arguing that we shouldn’t be shot at all, that choosing one over the other doesn’t really improve our situation, and that the supposed “benefits” of choosing to take it in the arm are lies.

“5. Boortz says it’s progressive because it is progressive and because calling it that helps ensure it gets passed.”

The middle class will get the brunt of it, don’t you worry.

“6. You can’t criticize the FairTax because of potential changes that Congress might make to it. That’s outside of Boortz’ control. The duty is on us to make sure that Congress doesn’t raise the rate or reinstitute an income tax or exempt certain items.”

Yes, well “we” sure did a great job getting our government to pull the troops out of Iraq. “We” also did great getting Bush impeached for his numerous violations of the Constitution. Somehow, I don’t think “we” will have much choice in these matters, once we’ve formally handed power over. What this last argument is really about is expanding government power to tax, when it will do everything possible to raise taxes over time.

ToeKnee May 16, 2008 at 7:09 pm

1. “What’s stopping us from lowering the tax rate now? And how will things be any different by changing the collection method?”

What’s stopping us is mostly Congressional Democrats who repeatedly vote against lowering taxes of any kind and Republicans who do the same or vote to expand the size and scope of our federal government. What’s stopping us is that somewhere around 30-40% of people do not pay any income taxes now. They don’t feel the tax burden and have no incentive to lower it. What’s stopping us is that not enough people understand economics or vote with the idea of lowering taxes and reducing the size of government as their top priority.

What will change is how much you pay and when you pay it. There will be no capital gains tax or dividends tax or estate tax. This means it will be substantially easier to earn, create, and maintain wealth. If you invested at all in the stock market or real estate or trading or anything, you’d know this. Do you invest at all? If so, in what vehicles?

The method is critically important in terms of its consequences. Taxing consumption instead of production incentivizes saving and production. Hence an economic explosion would result.

2. “My choices are: spend money now and pay taxes, or spend money later and pay taxes. Oh, except for the wealthy who will be able to leverage their extra income to generate greater wealth.”

Yeah, spending money later means your investment principle will have more time to grow. Choosing the timing is a huge advantage. Also, EVERYONE can use their extra income to generate greater wealth. The wealthy are already wealthy by definition. It’s the lower and middle classes that will benefit the most from being able to grow their wealth tax free. You’d basically have an unlimited Roth IRA. It would be fantastic.

3. “I’m sure that the black market will address it. The higher the tax, the greater incentive there is to avoid it. This is why, where states choose to tax consumption, a VAT is used instead of a sales tax.”

There would be some fraud, but it would be lower than current tax evasion according to all the studies that have looked at this issue. Briefly, here’s why: in the current tax system, it only requires one person to commit the evasion. Under the FairTax, at least two people would have to conspire to commit the fraud, which means it’s more difficult. Additionally, a very small percentage of companies constitute the majority of retail sales. That is, Wal-Mart, Target, chain restaurants, etc. sell most of the final goods. These massive companies wouldn’t risk their entire business just to help some stranger. Finally, the counter to this fraud is to send in government officials pretending to be customers and try to ignore the sales tax. Any retailer who agrees is busted. Simple, easy. Much more so than our current audits. Are you kidding me?

4. “Let’s say I offered you a choice: I would shoot you in the arm or the leg. Meanwhile, I exhort the benefits of getting shot in the arm. It won’t impede your walking, smaller arteries, so less chance you’ll bleed to death. In fact, you might actually start to feel more healthy because the injury to one arm encourages you to use and develop the strength in your other arm.

Vance is just arguing that we shouldn’t be shot at all, that choosing one over the other doesn’t really improve our situation, and that the supposed “benefits” of choosing to take it in the arm are lies.”

I agree taxes are bad. I want them lowered as much as you do, if not more. The problem is you are not addressing the issue. This objection is outside the scope of the FairTax. You can’t jump straight from our current horrific system to no taxation or very low taxation. It must be a gradual process and the FairTax is a great improvement for a plethora of reasons. It rewards investment and encourages efficiency. It helps prevent the government from picking favorites and trying to manipulate our lives through the tax code. It gets everyone involved in paying taxes so they know exactly how much they are really paying in taxes.

That’s the biggest advantage right there! The embedded payroll and fica and medicare taxes are so insidious that very few people even know precisely how much they are paying in taxes!!

So you want to lower taxes? Great, me too. The best way to do that is expose exactly how much everyone is paying in taxes and arouse their anger. Shove it in their face and get the masses to agree with us. They need to see the numbers and be appalled. Then they will demand that government cut the waste and lower the rate. Don’t you see?

5. “The middle class will get the brunt of it, don’t you worry.”

Big spenders will get the brunt of it no matter what class they come from. People who repeatedly max their credit cards and don’t pay them off will get the brunt of it. Savers and investors may not pay any taxes at all.

One thing’s for sure: trust fund babies who inherited everything without ever working will pay the most. Every time they buy a yacht or merlot or diamond watch flat screen tv, they’ll pay a tax.

6. “Yes, well “we” sure did a great job getting our government to pull the troops out of Iraq. “We” also did great getting Bush impeached for his numerous violations of the Constitution. Somehow, I don’t think “we” will have much choice in these matters, once we’ve formally handed power over. What this last argument is really about is expanding government power to tax, when it will do everything possible to raise taxes over time.”

Again, shedding the light of truth, exposing how much taxes are actually being paid, reminding people every time they make a purchase of just how big our government is, and getting everyone to see the burden and feel the outrage is our best hope for change, and not Barack Obamar style change.

I am really surprised and disappointed that so many people from a Libertarian website can’t see the benefits of this tax reform. By not supporting it, you are helping maintain the status quo.

The question is not, “Would no taxes be better than the FairTax?” Rather, the question for now is simply, “Would the FairTax be better than the current tax system?” The answer to both is most certainly yes. But we must answer this second question before we can move to the second.

If you like please email questions longer replys to wllmart@yahoo.com

newson May 16, 2008 at 11:28 pm

as others in this post have mentioned, here in australia a “goods and services tax” was introduced in order to broaden the tax base, and reduce reliance on income tax. the federal government devolves the gst revenues to the states. this was supposed to see the end of many pesky state imposts, and an overall simplification of the previous wholesale sales tax regime.

instead, as others have said, the states kept most of their imposts and the gst revenues!

to ToeKnee and other supporters of the fair tax, the gst is subject to evasion, like any other impost. small retail transactions, no. but larger services, yes. client and provider simply transact in cash. where the cost in purely labour, this involves no complication. but even when materials (on which gst has been paid) are involved, there are many scenarios where it’s more profitable for the professional to wear the gst (10%) in order to evade income tax (highest rate 49%+).

vat regimes in other countries are subject to widespread rorting.

finally, the gst compliance burden is astronomical. the tax act has ballooned, and our equivalent of the irs is still madly recruiting to keep up with the admin burden.

touching the tax system is a bit like operating on michael jackson. sure, he’s terrible now, but would another nose job restore him to his old self? think hard before reaching for the knife.

P.M.Lawrence May 17, 2008 at 2:25 am

“One thing’s for sure: trust fund babies who inherited everything without ever working will pay the most. Every time they buy a yacht or merlot or diamond watch flat screen tv, they’ll pay a tax.”

No, they wouldn’t. They wouldn’t have to pay any of that in the countries they would move to. (It’s called “capital flight”.)

BWM May 17, 2008 at 11:45 pm

“I’m sure that the black market will address it. The higher the tax, the greater incentive there is to avoid it. This is why, where states choose to tax consumption, a VAT is used instead of a sales tax.”
No, they choose a VAT tax for the exact same reason as the income tax; it’s invasive, it gives them control, and it’s involuntary in the extreme. The black market will not be a big deal; most people don’t LIKE black markets. They occur in history usually because of BANS, like making alcohol illegal, not mere taxes. People are going to stop going to big, air-conditioned, well-stocked, restroom-housing Wal-mart to go shop out of truck beds in the middle of the forest? Will no one ever build their own, personalized house again? Will no one ever go to a restaurant?

“Let’s say I offered you a choice: I would shoot you in the arm or the leg. Meanwhile, I exhort the benefits of getting shot in the arm. It won’t impede your walking, smaller arteries, so less chance you’ll bleed to death. In fact, you might actually start to feel more healthy because the injury to one arm encourages you to use and develop the strength in your other arm.

Vance is just arguing that we shouldn’t be shot at all, that choosing one over the other doesn’t really improve our situation, and that the supposed “benefits” of choosing to take it in the arm are lies.”
And he’s wrong. Two tax systems, each with identical revenue generation, but one with hundreds of billions of dollars of additional compliance costs. It’s like getting shot once, or getting shot twice; both suck, but those are your choices.

“Yes, well “we” sure did a great job getting our government to pull the troops out of Iraq. “We” also did great getting Bush impeached for his numerous violations of the Constitution. Somehow, I don’t think “we” will have much choice in these matters, once we’ve formally handed power over. What this last argument is really about is expanding government power to tax, when it will do everything possible to raise taxes over time.”
Your own argument works against you. If we CAN influence Congress, the Fair Tax is far more likely to be doable than the “eliminate 90% of taxes all at once” plan, and if we CAN’T influence Congress (which is roughly your argument), then EVERY good tax plan is stillborn and why are you fighting?

To the people who compare the Fair Tax to other consumption taxes; there’s nothing inherently WRONG with doing that, but it should be kept in mind that they are still drastically different from the Fair Tax. I’m not an expert, but I don’t think I’d be wrong in saying that many of them still have huge compliance costs, expensive audits, easy fraud, and then hide the ultimate tax burden. The whole point of the Fair Tax is not to touch the AMOUNT of taxation, but to bring it to light, for one thing, and reduce all OTHER costs regarding the tax to the lowest possible rate. Messing up the Fair Tax, state taxes, desiring a lower overall tax burden, etc, are all good points but unrelated to whether the Fair Tax should or should not be implimented.

Brent May 18, 2008 at 2:31 pm

The FairTax is a stupid idea, though I enjoy reading Vance’s criticisms, it really isn’t worth extended argument.

One day, I’m sure we’ll get a VAT and/or GST. When it’s time comes, it will be bipartisan and it will come atop all the taxes we already pay. The party gangs will have run out of room to increase the current taxes and they’ll need to tap a new source of revenue… I’m sure they’ll call the new tax a “fair tax”.

Ookla May 24, 2008 at 11:01 pm

Tis true that governments cannot be supported without great charge, and it is fit everyone who enjoys a share of protection should pay out of his estate his proportion of the maintenance of it.

– John Locke

The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ….[As Henry Home (Lord Kames) has written, a goal of taxation should be to] “remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.”

–Adam Smith

Taxes are what we pay for civilized society.
–Oliver Wendell Holmes Junior

Taxes are not theft. You are protected by the police, you drive on roads, you’re rights are protected and contracts enforced by the courts, and you are obligated to pay for services rendered. It is a social contract that you agree to by working and using public resources. You are free to re-negotiate the contract or leave. The idea that taxes are theft is not only absurd and inane, but is one of the primary failings of libertarian thinking.

Doug Hartlove May 25, 2008 at 5:52 pm

Daily Article | Posted on 5/15/2008 by Laurence M. Vance http://mises.org/daily/2961

This is the first article by Mr. Vance that I have read. In summary the article is very long, lists criticisms of little or no value – mostly aimed @ trying to discredit Neal Boortz & by extension Congressman John Linder, & worst of all misses the central point re the FairTax as it relates to federal spending. Although Mr. Vance says he is not vested in profiting from the current income tax system the points below show that he probably does have some hidden agenda in maintaining it.

Throughout the article Mr. Vance constantly points out the error in the FairTax Book re the removal of embedded taxes of 22% on average & keeping 100% of your paycheck, free of federal taxes, resulting in retail prices being virtually the same after enactment of the FairTax. Although this is in error in the FairTax Book the important point that Mr. Vance never mentions is that purchasing power will be unchanged or even increased for many people after enactment of the FairTax. This purchasing power parity results from a combination of increased paychecks (no more withholding of income or payroll taxes for individuals) & reduced prices (no more corporate income or payroll tax payments, or cost of compliance) before the FairTax is added. Why keep beating the error to death & not concentrate on the important point that purchasing power is maintained under the FairTax?

There is the usual intellectual dishonesty in the article re the FairTax rate. The FairTax is not just another sales tax but rather is a sales tax that replaces all the IRS taxes & payroll taxes, & that is why the rate is expressed as an inclusive rate – the same inclusive way as the taxes it replaces. Suspicion of ulterior motives is confirmed when someone expresses the income tax rate inclusively as 25%, for instance, but insists that the FairTax rate is 30% (without mentioning that this is an exclusive rate). A 25% inclusive income tax rate corresponds to a 33% exclusive income tax rate – since it is the same dollar figure either way you express it, you can only conclude that someone who mixes & mismatches inclusive & exclusive rates has another point to make other than clarity.

Mr. Vance gets hung up on the term progressive saying that implementing a progressive income tax system comes right out of Karl Marx’s Communist Manifesto & that the prebate makes the FairTax highly progressive & therefore undesirable. This distraction ignores the fact that more people initially ask how the FairTax effects the poor rather than how it effects themselves. America is so rich that “white guilt” would not let the FairTax get out of the starting gate without the prebate ensuring that no one pays tax on the basis necesities of life.

Mr. Vance finally gets to the central point to understand about the FairTax @ the end of the article re how the FairTax relates to federal spending – although he misses the point completly when he states “the need of the hour is clearly to rein in government spending, not change the way the government raises its revenue — or give it more revenue as the FairTax would do. ‘The real issue,’ as Congressman Ron Paul has so often said, ‘is total spending by government, not tax reform.’”

Of course the problem is government spending & the way you rein it in is through the transparency of the FairTax in which everyone will clearly see how much of their money goes to support the federal govenrment. The current taxation system is not transparent and includes embedded taxes in everything we buy although we don’t even know we are paying these embedded taxes. Politicians thrive on dependency and an opaque tax system. The FairTax is transparent – everyone will know as it is raised or lowered, just like our recent increase in the NJ sales tax from 6% to 7% (a 16.7% increase).

The main problem some politicians have with the FairTax is that it transfers too much power from government to the people to suit them. They view the tax code as not only a means to raise revenue for the operation of government, but also as a tool to be used to redistribute income and manipulate the economic activities of Americans. With the FairTax it would be difficult for any politician to run for office on the promise of raising taxes. Today Congress can raise taxes because it can persuade a large number of people that somebody else will pay.

It is the heigth of impractacality for Mr. Vance to think that there is any chance that Congress will act on what he calls “the real issue” – namely Congress cutting spending. Congress actually cutting spending is something that has never happened – ever.

The true costs of running government will become visible for the first time under the FairTax as everyone sees what portion of their spending goes to finance government spending. People may start to take a closer look & when they do the earmarks & pork barrel spending that politicians thrive on to get reelected will disappear. Not only will the FairTax put tax attorneys & tax lobbyists out of business – it will also put career politicians out of business in effect creating term limits because the great powerful jobs will no longer be in Washington. I think that the 23% rate will fall to say 19% & then to 15% until it ultimately falls to zero & there are no taxes. Government is then paid for by user fees & philanthropy & if we need a tax maybe it could be an excise tax of 5% to 15% as it was in 1789. The FairTax is the bridge to whatever vision Americans can have for our country.

Oops May 30, 2008 at 3:54 am

“The maintenance of a government apparatus of courts, police officers, prisons, and of armed forces requires considerable expenditure. To levy taxes for these purposes is fully compatible with the freedom the individual enjoys in a free market economy. To assert this does not, of course, amount to a justification of the confiscatory and discriminatory taxation methods practiced today by the self-styled progressive governments.”

– Ludwig von Mises

chris April 14, 2009 at 8:03 pm

This guy does a good job if discrediting some points the Neil Bortz makes…obviously people can’t keep 100% of income AND have prices fall by 22%. But all of his criticisms lack substance.

The fact remains the fair tax has a larger tax base than the current system (which i think he fails to mention) which would allow people to play a lower percentage than they currently pay (after factoring in the rebate). This fact alone is a reason to adopt the fair tax, nobody cares if Bortz is wrong about prices falling, what matters is how much we pay.

Secondly, because of the larger base, corporate retained earnings are untaxed, as well as capital gains and dividends. That will certainly be a huge economic boon. Again it doesn’t matter if the #s Bortz quotes are correct or not, what matters is the fact that by removing these taxes the economy will grow faster than under the current system.

Third this guy makes it seem like paying the fair tax on houses or cars is somehow VASTLY different than the current system. We currently buy homes and cars out of our AFTER TAX INCOME. There is no “deduction” for the principle on your home or car payments. How is this different than the fair tax? To make the purchase of cars, homes, or even medical care exempt from the fair tax, would be the equivilent to giving “deductions” for these things under the current system, which obviously we don’t do. Either way you look at it you will pay taxes on the home or car you buy. It is disingenuous to suggest that the fair tax taxes these things for the first time in history. If he is really trying to be “objective” then why even bring this up…answer: he has an agenda.

To conclude, I wish that people who make comments on the fair tax (ie. Bortz) will get thier facts straight first, because all it does is give ammunition to anti-fair tax guys like this one who spend all their time debunking factually incorrect statements despite the fact that these statements arent relevant to the overall discussion about the fair tax being much better than the current system.

Chris April 14, 2009 at 8:32 pm

So Scott D says “The middle class will get the brunt of it, don’t you worry.”

Now Scott I did a few calculations for your benefit
On the left i list a few typical “middle class” incomes. In the middle column I list the tax-inclusive rate adjusted for the rebate (and I use the INCLUSIVE rate so that we can compare it to the current rates). In the right column I list the current tax rates you pay, including the income tax, social secuirty and medicare taxes, and adjusting for a standard and personal deductions……Just for you Scott…check it out.

Income….FT……Current

10,000 ….0%……1%

25,000 ….13.2% ….15.7%

40,000 ….16.9% ….18.3%

60,000 ….18.9% ….22.9%

80,000 ….19.9% ….25.4%

100,000 …20.6% ….27.2%

Notice Scott that the middle class does not “get the brunt of it”, the middle class actually benefits tremendously.

Now when doing those calculations I didn’t adjust for the employer contribution to payroll taxes which I would estime employees bear about 70% of the tax burden. So if you adjust for those taxes as well, you will find that the rate you are actually paying currently (right hand column) would go up, and the fair tax rate (middle column) would go down because your income would go up. Causing the spread between those rates to increase even more.

Bottom line, the fair tax would tax the middle class less than the current system.

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