In all of Neal Boortz’s books on the FairTax (see my recent article “The Flat Tax Is Not Flat and the FairTax Is Not Fair“), he maintains that, in order to be “revenue-neutral,” the rate would have to be 23% (figured inclusively–the tax is included in the price of the product), which is actually 30% (figured exclusively; that is, normally–the tax is added to the price of the product). Yet, FairTax proponent Laurence J. Kotlikoff, a professor of economics at Boston University, in a 2006 article I was just made aware of called “Is the United States Bankrupt?” (Federal Reserve Bank of St. Louis Review, July/August 2006, 88[4], pp. 235-49), says the rate needs to be 25% (inclusive) or 33% (exclusive).
So which is it? And yes, it really matters. Since the FairTax would be paid on the purchase of goods like a new car and on services like heart surgery, the extra 2% could amount to a great deal of money.
But as I have shown in my articles on the FairTax, even the 25/33% rate would be too low. With a federal budget approaching $4 trillion, we need low tax rates (“Low rates are good tax policy”–Neal Boortz) more than we need fair tax rates. Anyone for the LowTax?
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“revenue neutral” doesn’t exist. I try (and do I try) to explain to my colleagues at the high school where I teach that tax policy assumes a static analysis methodology. It is based on the mistaken notion that people’s behavior will not change given different levels of taxation. And hey, I’ve got a beautiful bridge in New York to sell ya!!
I’d have to reason that none of the aforementioned have bothered to read Human Action.
And why should the purpose of a tax policy be to support the current massive leviathan anyways. Anyone who dares to call themselves “conservative” ought to support tax policy is anything BUT be revenue neutral. Thankfully I don’t (call myself conservative) at least not for a long long time.
The Fairtax comes from the resignation that if taxes are never going to be low, they might as well be out in the open.
“Anyone for the LowTax?”
Not I… Anyone for the NoTax?
I favor a flat rate of around 15% beginning at gross incomes of $25,000 for singles/couples and maxing out at around $35,000 for marrieds with kids. It’s simple and its “progressive.” Witholding should be voluntary and it should be coupled with at a minimum, an overhaul of the monetary regime that allows private banks to create “gold” deposit accounts as well as issue legal tender specie in competition with FRN’s. I don’t particularly care if this results in federal deficits. If 90% went to service interest on indebtedness, the required reduction in “services” would be a side benefit.
So what if we pay the same (in notional or subjective terms). Any argument for a fair tax begs the question. What is fair about harming my neighbor by stealing his property in order to fund more coersion against him?
Until we come up with magic fairy dust that causes all taxation to disappear, I would say that the Fair Tax is a much better solution than the Income Tax.
Would a lower Fair Tax rate be better than a higher Fair Tax rate? Of course.
Would a lower Income Tax rate be better than a higher Income Tax rate? Of course.
But for any given amount collected, collecting it via the Fair Tax would be better than collecting it via the Income Tax, except for the single point, 0%. If we are collecting no taxes, collecting it via income tax is no worse than collecting it via the fair tax.
BTW, when discussing Federal taxes, we normally figure them inclusively. If you earn 100k/yr, and are in a 25% tax bracket, you pay 25k and keep 75k.
Until we come up with magic fairy dust that causes all taxation to disappear, I would say that the Fair Tax is a much better solution than the Income Tax.
The “magic fairy dust” to which you refer already exists — it’s the gooey gray matter between your ears.
As long as you consider the extraction of money at the point of a gun to be a legitimate mode of human interaction, or anything other than institutionalized theft (i.e., slavery), then, yes, taxes will always be with us.
“â€â€â€Arthur
The Fairtax comes from the resignation that if taxes are never going to be low, they might as well be out in the open.â€â€’
I think you got that upside down, if taxes are not out in the open then they will never be low. As long as you can hide the taxes and let large number of people and businesses avoid or think they are avoiding taxes while others pay then there will never be the support needed to lower taxes.
The complexity of the tax code is also a wonderful way to make politicians more powerful, and the more crooked they are the more powerful they will become since selling tax code breaks is a great way for a politician to get both money and power.
It also gives government in general a perfect way to get their fingers into almost any part of the economy or even individual actions since what you can tax you can destroy and special taxes are great for destroying those you target while letting your buddies get a free pass.
Rob Mandel is correct. This is a stupid argument against the Fair Tax. It ranks right up there with arguments agains Austrian economics saying today’s “free market” is failing. What free market? What revenue neutral tax?
Interesting perspectives here and I wonder if anyone thought to step back and consider the true meaning of “revenues” and “taxes”. According to the Tax Policy Center “Individual income taxes and payroll taxes now account for four out of every five federal revenue dollars”. So can someone explain to me the rationale for the debate around taxation when “revenues” collected are, in fact, extorted/confiscated from individuals through collusion between the state (federal, state and local) and the employer. What choice does the individual have in contesting the amount or rate demanded by the nefarious henchmen of the modern state?
http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm
I second Marks suggestion – NO tax!!!
ABOLISH the IRS
ABOLISH the FED
While we’re at it, re-instate the Articles of Confederation!
What’s really needed is to cut government expenditures. If the government spends money on something, that thing will be paid for, whether through taxes, deficits, or debasement of the currency. And of these, taxes are most obviously painful to the general public, and least corrosive to the overall economy. So bad though taxes are, they’re better than the other ways of funding government. The Bush administration’s tax cuts and tax rebates did a lot to make the economy less sound, while appealing to conservatives and libertarians who thought of cutting taxes as a primary goal . . . and thus making Bush’s unsound fiscal practices appear to be a product of libertarian principles.
These arguments (23% or 30%, 25% or 33%) seem to me to be beside the point. No matter what the rate needs to be to be “revenue neutral”, we’re already paying it. The actual rate is so well hidden, that we can’t even decide what it is.
From the other side, if 23% (or 25%) is “too low”, then it’s a tax cut (which is good, right?). If it’s 30% (or 33%), then people will finally see how much is being confiscated by the government (and hopefully, be outraged).
We can argue that taxes (and spending) should be cut, but it seems that for all the years of arguing for it, nothing is happening to actually make it occur. Maybe a gimmick like the Fair Tax could help focus the argument on the issue. What is being done now, certainly isn’t working.
There’s always the (illegal) option of just not filing. You could change the W-4 that you have on file with your employer to have 10 deductions (the most allowed before they have to report it to the IRS), so you get the least amount taken out of your paycheck. And then just don’t file a tax return.
http://www.entrepreneur.com/tradejournals/article/109581644.html
“…we estimate that more than 11 million taxpayers are either filing their returns late or not at all.”
How many of those people do you think they ultimately come after? And the more people that don’t file a return, the less likely it is they will come after you, and the less money they have to come after you. IRS agents don’t work for free.
Another option is the Tax Honesty movement.
http://www.davechampionshow.net/
http://www.nontaxpayer.org/
They maintain that most people don’t even have a legal obligation to file and that the IRS and Congress knows this, but allows people to pay it even when they don’t owe it.
A legal option is to take action on your Austrian beliefs. If you believe that every fiat money empire will eventually fall and that wealth redistribution (through welfare and such) is morally wrong, then help to hasten the demise. Follow Ayn Rand’s Atlas Shrugged example, and stop producing. Convert your wealth out of dollars, go on the government dole, and be a further burden on the government until it breaks.
Living on welfare is pretty comfortable now with all the benefits given…section 9 housing payments, food stamps, and so on. Plus, you’ll have lots of extra time to do whatever. Maybe study up and learn some new skills, write a book, or some software, while you wait for the U.S. to bankrupt itself.
http://files.ali-aba.org/thumbs/datastorage/lacidoirep/articles/PTL_ACF1DA3_thumb.pdf
“In fiscal year 2005, 549 non-filing investigations
were initiated which resulted in 316 indictments for
which 280 taxpayers were sentenced for an average
prison term of 34 months. Although these may
seem like impressive numbers, and non-filers are
often subjected to increased scrutiny when identified,
in fact criminal treatment is reserved for the
most egregious cases.”
What we need is a “fair” tax of a flat nature that will encourage investment and economic growth, and the hell with these static revenue projections. Eliminate government pensions and make them participate in the awful SS system.
ROFLMAO
Wouldn’t a “Fair Tax” result in an immensely large underground market? Every tax seems to have it’s weakness to non-compliance probed; just like if I were to pay cash for an electrician to prevent a paper trail, I can’t believe that there wouldn’t be some torpedoing of a 23% (or 25, or 30 or whatever) final tax.
Quote from David: “Wouldn’t a “Fair Tax” result in an immensely large underground market?”
You say that like it’s a bad thing.
Maybe this is the wrong question. Why tax income? I accept that taxes must be raised – I want a police force for instance; and a system of law that is publicly administered.
But why tax labour/income? Why not some other vital necessity? What about carbon? We could all pay our taxes through our energy bills, with the taxes raised at the pit or well head (or on import).
Everybody would pay tax at nearly their exact rate of consumption, the tax system would be enormously simplified, the climate would benefit, we would conserve our dwindling supplies of oil, we would all benefit from a massive kick start to a new energy industry. Meantime I am struggling to think of a downside.
Maybe some sharp Austro-economist out there can tell me what the intrinsic difference is between taxing income and carbon, if taxes remain the same overall? Or is it just the coal and oil lobbies that have got our balls in a vice?
Maybe this is the wrong question. Why tax income? I accept that taxes must be raised – I want a police force for instance; and a system of law that is publicly administered.
But why tax labour/income? Why not some other vital necessity? What about carbon? We could all pay our taxes through our energy bills, with the taxes raised at the pit or well head (or on import).
Everybody would pay tax at nearly their exact rate of consumption, the tax system would be enormously simplified, the climate would benefit, we would conserve our dwindling supplies of oil, we would all benefit from a massive kick start to a new energy industry. Meantime I am struggling to think of a downside.
Maybe some sharp Austro-economist out there can tell me what the intrinsic difference is between taxing income and carbon, if taxes remain the same overall? Or is it just the coal and oil lobbies that have got our balls in a vice?
@SailDog
If carbon is taxed, then people would change their behavior, and use something else (as you indicated a new energy industry). So tax revenues would eventually go down to zero as the entire country switched off of carbon.
If you come from the perspective that you want government funded services (police), then this would not meet your goal.
Also, this would cause oil and coal companies to go out of business. Which would put many people out of a job. Some people would consider that a downside.
All true, but that is the intention. Reducing carbon will be slow and will take a very long time. It is too convenient; and too energy dense to avoid using. Renewables just cannot compete when the playing field is so tilted in favour of carbon. Jobs lost in coal and oil will be made up for in the renewables sector. Taxing carbon internalizes total cost – and is therefore economically justified.
Carbon prices can be raised as volumes drop in a virtuous circle. Once taxing carbon becomes inefficient a consumption tax such as VAT can be introduced, but the carbon tax must be left in place and the consumption tax must be as broad as it possibly can be. No exclusions, such as food in the UK and Australia.
Of course the levels of overall taxation is another issue. I think it should be as low as possible, with minimal intrusion by government. But that is the essence of politics and is another discussion.
The concept is silly. Consider cars. A new car buyer would pay a 35% sales tax. Buy a “program” car with 10,000 miles on it and pay no tax? New cars would be cheaper than used cars on a pre-tax basis.
A person buys a new house and pays the tax. The next owner doesn’t. Markets would become very interesting.
The average embedded tax on any item you buy is approximately 23%, with the enactment of the Fair tax these taxes would be repealed and replaced with a single 23% inclusive retail consumption tax on new goods.
That in itself is a virtual wash, but in the process we eliminate payroll taxes, social security taxes, capital gains taxes, and corporate taxes.
If you have a viable alternative, I’d love to here it. As it stands, your argument basically defends the abymsal tax code that is the status quo.
The Fair Tax may not be ideologically pure but by any estimation it is improvement over the onerous system we currently have.
I agree with Jon Kines on the most part. My exception is that I think Fairtax is near perfect. for any own who wants the real information about fairtax. go to
http://www.fairtax.org/
site/PageServer?pagename=about_main
It is not a VAt, it is not a Flat tax, it is not a Sales tax. Fairtax includes a consumption tax that allows US citizens to see how much tax they are actually paying(transparent, not like all the hidden taxes now) and removes the penalties currently on saving and production and eliminates the hold that Lobbyists have on our government officials. How can that be bad. Why do people like what we have now so much as to try to demonize a great alternative. All the arguments against Fairtax seem to be based on too little information. Please see the link above. You may read for days if you are so inclined.
I agree with Jon Kines on the most part. My exception is that I think Fairtax is near perfect. for any own who wants the real information about fairtax. go to
http://www.fairtax.org/
site/PageServer?pagename=about_main
It is not a VAt, it is not a Flat tax, it is not a Sales tax. Fairtax includes as a component, a consumption tax that allows US citizens to see how much tax they are actually paying (transparent, not like all the hidden taxes now) and removes the penalties currently on saving and production and eliminates the hold that Lobbyists have on our government officials. And fairtax is sooo much more, all good, How can that be bad. Why do people like what we have now so much as to try to demonize a great alternative. All the arguments against Fairtax seem to be based on too little information. Please see the link above. You may read for days if you are so inclined. The more you read, the better you will like it.
Again, dear naysayer Vance leaves off part of the equation.
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