The FairTax

[Hosnon]

DU,

I've just read, reread, and rereread The FairTax Book by Neal Boortz and Congressman John Linder. So far, the idea seems very promising (at least, from the book, which is to be expected as it advocates the tax).

So what are the major criticisms of the tax? I'm trying to get a more comprehensive grasp on the concept. To me, I am concerned about the accuracy of the numbers provided regarding the size of the embedded tax. And that is key to the concept.

Thanks in advance (I'm going to have to post and run so feel free to hash it out without me...I'll check back in later).

[4dsc]

1. Its not fair

Just another regressive tax scheme!!

[ProdigalJunkMail]

2. have you read the book or the bill? nt

[depakid]

3. Just goes to show the lack of BASIC economic knowedge in America

The law of diminishing marginal utility is a fairly simply concept- yet my guess would be that some 85% of Americans don't understand it- which is why they fall for regressive schemes.

[Hosnon]

4. The tax doesn't seem to impact the poor very negatively at all.

There is a built in rebate for necessities on top of receiving more income out of your paycheck. Again, it seems like a pretty good idea.

What, if anything, am I missing?

[zalinda]

6. It does when you live paycheck to paycheck

or have to borrow to keep afloat at times. Rebates aren't any good for the poor, because they need ALL the money they earn just to keep a roof over their heads, food in their bellies and heat and lights in their homes.

zalinda

[Hosnon]

13. They will have all they earn; in fact, more, if I understand the FairTax correctly.

When the embedded tax is eliminated with the elimination of the income tax (this is a pillar of the FairTax and one of the points I want to look into further), the price of goods and services will drop accordingly (Boortz and Linder claim the tax is roughly 23%).

With the added FairTax (roughly 22%), the price of goods and services will basically remain the same. As a result, prices stay roughly the same while people bring home more money (i.e., their entire paychecks).

Also, the government would rebate the tax on necessities (e.g., food). Boortz and Linder have a chart and, as an example, a married couple with no children would receive about $350 per month.

As a result of all of this, prices stay the same while incomes go up from the elimination of the income tax and the rebate.

That is the basic rundown. There are many places where I have questions and many places where other people have pointed out problems.

[papau]

9. Very true -"fair tax" equals screw the non-rich as investment inome is not taxed n/t

n/t

[TahitiNut]

33. Nor is there a sales tax imposed on corporate stock ... which *IS* property.

I have never yet heard one of these misguided zealots propose a tax on the sale or exchange of corporate stock. Buy shoes and pay sales tax - but buy a shoe company and pay none. Insane.

[Hosnon]

34. Yeah, the idea that only retail sales get taxed creates that situation.

And I have a big problem with that. And I'm beginning to see other problems.

Thanks, of course, to DU. I read the book and it paints the idea as holier than Jesus.

[TimBean]

37. shoes take resources from the earth

ownership of a shoe company's profits take nothing from the earth.

[TahitiNut]

40. Sounds like a sophistry to me.

:shrug:

[TimBean]

42. interesting opinion

[TheFarseer]

5. Bad bad bad idea

1. The wealthy will be able to stock pile money, never paying a dime on all the investment income they make. The poor will pay a much higher percentage of their income in taxes, while the wealthy will be able to pay almost nothing percentage wise.

2. The percentage the tax will have to be is vastly underquoted. Most experts believe it will have to be upwards of 50% in order to collect the same kinds of revenue we are collecting now. Of course they will gloss this over by saying we can cut out the "pork". Hey, why don't we just do that now! We wouldn't need a national sales tax to do that!

3. People will try to do anything to get around paying the tax. People who are able to will buy overseas to avoid the tax, underground backmarkets will be created and people will avoid buying anything new. This place will look like Cuba with everyone trying to keep 50 year old cars alive.

I wish I could write more but I have to get to work.

[Imperialism Inc.]

7. Some counter points.

First there is a very misleading segment of the book that many people don't know about. This money magazine article explains it.

Just how fair is the 'FairTax'?

...snip...

Toward the end of The FairTax Book, there's a handy little box summarizing what the authors say will happen if we make the switch to a sales tax. Here are the first three points:

* We start collecting 100 percent of our earnings in every paycheck.

* We all get virtual raises, since payroll taxes are no longer siphoned From our checks.

* We all start receiving monthly prebates equal to the amount of Consumption tax we would be expected to pay on life's basic necessities.


....snip....

Part of the problem is the way Boortz and Linder are using the idea of embedded taxes. In an eight-year-old study paid for by AFFT, Harvard economist Dale Jorgenson noted that because the taxes paid by everyone in the chain of production are embedded in the cost of goods, prices could decline an average of 20 percent if all those taxes were scrapped. The FairTax Book devotes an entire chapter to this idea.

What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed. Say your salary is $100,000 a year today, but you take home $80,000 after taxes.

Your company is still paying that extra $20,000. In a FairTax world, it will save that money, and be able to lower its prices accordingly, only if it can reduce your salary to $80,000. In other words, your take-home pay is the same as before. Sure, you'd get to "keep 100 percent of your paycheck," as Boortz and Linder repeatedly write, but it would be a smaller paycheck. That's kind of a big thing to leave out.

I pressed the point with Boortz and Linder. Boortz denies that the book intentionally overpromises. The introduction, he notes, emphasizes that "this book isn't about saving a penny in taxes." But he concedes that the book is confusing about this, and vows to correct it in later printings. Fair enough.

====

The second point I want to make is about redistribution of tax burden. Many believe (me included) that the fair tax will result in the tax burden being redistributed from rich to the not so rich.

1) The plan claims it will be revenue neutral. i.e. the amount the government brings in now will be the same amount it brings in under the fair tax.

2) People in the upper tier of income are now paying somewhere around 30-33% of their income in taxes.

3) The fair tax is only 23% so the upper tier will be saving 7-10% in taxes.

4) It is actually even worse because they pay the full 23% only if they spend every last penny on non-exempt items (investments are exempt).

5) Because of #4 even if the rate is actually more like 32% the upper tier will be paying less in taxes.

6) See #1. If the plan is revenue neutral and the rich are paying less who is making up the difference?

7) Note that "answers" given about the pre-bates given to lower income people are completely irrelevant. It does nothing to eliminate the fact that the rich will pay less leaving a gap that someone will have to make up.

This blog puts forward basically the same objection and provides a source for the effective tax rate figure I used.
====

My personal view is that the fair tax is a scam.

[Hosnon]

14. Exactly what I was hoping to find! Thank you! I'll check it out this afternoon. (nt)

[ProfessorGAC]

8. It Is NOT Revenue Neutral

The number they propose for the fair tax simply doesn't work to bring in enough revenue to keep the deficits and debt from going higher.

The cheat the math to make it work. It's pretty simply mathematics. You can do it yourself. You'll see.
The Professor

[papau]

11. But if they say "60% sales tax" they will scare people :-) and we can always have deficits to

offset lack of revenue :-)

[ProfessorGAC]

12. Exactly

And then nobody can mention that when debt reaches a proven %GDP the economy tanks. (See Brazil; Argentina; the USSR; 1950's UK, etc.)

But, Shhhhhh! Let's not mention that.
The Professor

[redqueen]

15. I love your posts.

:hi:

[Hosnon]

17. What is that percentage?

Just curious...I'd never heard that before. At least, not in that way.

[papau]

24. The percentage varies based on the standard of living you start at

The key concepts are "productive portion of GDP" (manufacturing, agriculture, construction, mining, public utilities, and transportation sectors because they involve adding value to "nature" by extraction and changing the "common - the free to all stuff) rather than our selling the same thing to each other over and over again) is the only "wealth generation"--- plus

the concept that debt means debt payments are at a minimum the interest on the debt, and

the idea that a system is bankrupt when the debt-servicing requirements exceed its wealth generation, so so you have less wealth over time. The "you" getting hurt here is, if the debt is held by foreigners, the whole nation which gets poorer, or when the debt is domestically owned, only the non-rich in the nation because they are not the ones buying the debt that must be financed

As "wealth generation" is net of the cost of your current living standard, the way you stay ahead is to accept a poorer and poorer living standard. The economy goes to hell when folks see that hard work gets them nothing and they stop trying to work hard.

Then you have a revolution.

Short term National Debt increases that produce infrastructure increases that produce GDP increases are in effect investments with a good return. Bush wars are not a good investment

[Hosnon]

16. Where would I start? I assume with the dollar amount of all retail goods

in one year multiplied X% which must equal the current revenue of the federal government, right?

Or, in other words, the current revenue of the federal government divided by the dollar amount of all retail goods sold in one year.

[wuushew]

10. How the hell have you been a member since 2004 and not seen any fair tax threads?

The topic comes up at least once every two months.

[Hosnon]

19. I don't understand why you are asking that other than you think I am

a troll or something.

I have seen the threads and I have been against the FairTax. However, I was recently asked to read the book by a friend and, as an open minded individual, I did.

At first glance, all of my primary reasons to be against it were dealt with to some degree in the book. So, I'm doing more research on the subject.

I guess a certain percentage of these type of responses can be expected.

[LSK]

18. it is completely unfair as the poor and middle class would pay higher % of taxes

Lets say you make $50k per year. You are likely to spend most of it just on goods and services to live, such as food, gas, clothes, a few CDs and books and such.

Now lets say you make $500k per year. How much can you possibly spend? Ok maybe you can still spend most of your income on goods, but I would be running out of ideas on what to buy soon.

Now lets say you make $5million per year. There is no way you are spending all of that on retail goods, so now you have a massive amount of money that is NOT TAXED.

So if you do simple math, the poor are paying a higher percentage of the taxes compared with their income than the rich.

[LSK]

20. in addition, how high would the retail taxes be to PAY OUR BILLS

We have a nearly $10 trillion debt, in addition to our massive deficits. How high would the fair tax have to be to support our budget?

[Hosnon]

21. I agree. I had not immediately noticed that. However, any state sales tax is the same, right?

And if the system would work better for everyone, I would not necessarily be opposed to it simply because those will less money paid a higher percentage. Again, only if it worked out in their favor in the end (e.g., I pay a higher tax rate than you but we both end up economically better under that system than the current system).

[zalinda]

23. State sales tax is tricky, ask any small web site business

There are various rules for each state, almost none seem to be the same. Some states you charge tax on only the goods, some want you to charge for goods and shipping. Some want you to charge on it's destination, some you charge from where it's shipped. And then you have all the different percentages. Here in NY, you charge a flat rate for the state, but add on a percentage for the individual counties. Doing ANY kind of sales tax that is mandated across the country, would be the death nell for many micro businesses, as most do their own books. To just keep up with all the rules, they would have to hire a tax expert, because the government doesn't like it when you fudge on sales tax.

zalinda

[Hosnon]

25. I meant in that state sales taxes tend to be regressive, just as the FairTax would be.

Seven percent of a dollar impacts me more than it does Warren Buffett.

Am I correct that the FairTax and sales taxes are similar in that regard? And if so, then why isn't the same criticism made against the latter?

[zalinda]

28. Sales tax is a way for states to get money back

from the federal government. Is it a fair tax, no, but it is as fair as a tax could be under the circumstances. Sales tax is not levied on food, and for a few weeks during the year, here in NY, tax is not levied on clothing.

But, even so the Fairtax is and never will be fair. Will everyone have to either save ALL receipts, or carry around a card declaring how poor they are? Talk about invasion of privacy. And while poor people will be humiliated to carry around a poor card, it won't be long before rich people will buy one of these poor cards, so they can get tax breaks they so "richly deserve".

And, what about those who have yard sales, are they to then be deemed tax collectors? Small businesses are already have tons of book work to do, now this would add another layer. And then of course, there are small businesses, or you could call them micro businesses, those businesses that are run by a single person, who is making enough to keep the wolves from the door. Some years are better than others, how would they be taxed? How about kids who provide services like babysitting and yard work, would they have to become agents for the government?

And let's be clear, poor people can only afford cheap crap, which they have to buy over and over again. Or they have to buy used stuff, which will need repair until it can no longer be fixed. How should this be taxed? Where is the cut off on being poor, lower class, middle class, upper class and rich? If you live in New York City would you be taxed the same as Syracuse New York, where the cost of living is at least half, if not more.

Fairtax is a rich people's wet dream. You want taxes to be fair, close the loop holes for corporations!

zalinda

[Hosnon]

31. I think we are talking past one another.

A charge often levied against the FairTax is that it is regressive, that is, it taxes those with less money more based on the diminishing value of each additional dollar. My question is: isn't that how all sales taxes work? In my state, we have 7% sales tax. If you have $5,000,000 saved and you buy a $500 t.v., the $35 tax is not that bad. However, if you have $500 saved, the $35 tax is a much higher percentage of your money.

A FairTax doesn't seem to be any more regressive than any sales tax. Thus my question: why aren't sales taxes criticized similarly?

And I think the name is definitely a misnomer. It's probably more of a marketing pick than anything else: "Ooooh...it's fair! See! It says so in the name!"

As for your other points, I'll try to regurgitate from the book as best as possible. How much of a rebate one gets will be determined by the size of the household and federal cost of living figures. Providing such information would be no more intrusive than the current system of filing income tax returns. And everyone would get the rebate...everyone...including Bill Gates. All citizens would be refunded the amount of the tax levied for basic living necessities. For a married couple with no children, the book quotes a value of roughly $350 per month. Again, this is the same regardless of individual wealth. The book does introduce the idea of a FairTax Card but everyone would have one so the rich wouldn't have much reason to buy them from the poor.

As for the collection of the tax, it would be only on retail sales and only once. You wouldn't save your receipts to calculate the tax. In the same way that businesses turn in state sales tax, they would turn in the federal sales tax. And since the tax is levied only once at the retail level, things like yard sales would be exempt.

Finally, as to paperwork, my mom is a small business owner and says she would love to simply turn over the tax to the government rather than doing all of the other income tax related paperwork.

Hope that explains from where I'm coming. There certainly seem to be holes and I am looking deeper into the concept.

[Tactical Progressive]

22. Conservatives looking out for the little guy.

Gosh, I believe that.

[Hosnon]

26. I think it's more of an attempt for the authors to say:

"We're not screwing the little guy!"

Not them saying that it will be a great help to the little guy.

[dansolo]

27. Does the FairTax address FICA?

Currently FICA taxes are capped at somewhere around $80,000-$90,000 (I believe). There is no FICA taxes collected on income earned above this level. Is that factored in with the FairTax, or is it conveniently ignored? If they are endorsing a flat tax, then the cap on FICA should be eliminated, or FICA should be completely eliminated and funds for Social Security and Medicare should be taken out of the general funds, meaning that the sales tax rate would need to be even higher to cover those costs. Either way, this is a really bad idea.

[jmowreader]

29. The whole concept of the FairTax dooms it to failure

The so-called "FairTax" is a single-rate federal sales tax on new goods and services. Used goods are not taxed.

So let me see...

A used $45 million Gulfstream is tax-free; a new $185,000 Cessna is taxed at 23 percent. (Assuming, of course, that the effective rate is 23 percent like Boortz claims, and not 65 percent like reality claims.)

A $5 million mansion on 250 acres that's been lived in already is tax-free; a $35,000 manufactured home on a quarter acre is taxed at 23 percent.

A year-old Suburban is tax-free but a new one is not.

Automakers could survive the FairTax. They've already got the Program Car deal set up and working well--lease returns, rental returns and so on provide a steady stream of quality used cars. This will continue, and as far as I can tell a lease would also be tax-free because Leases Are Not Purchases and are therefore exempt from taxation.

OTOH...

the construction industry will disappear. Completely. The only activity will be in house flipping and renovations--why would ANYONE buy a new house when a larger old house is less expensive because it's not taxed?

the luxury goods manufacturing industry will disappear, and for the same reason.

the richest man in America will be the chairman of the US branch of Cash Converters, which buys and sells secondhand goods.

You guys who've been looking for the way to kill Wal-Mart? Well...here ya go.

[Hosnon]

32. Very good point...I heard something like that a year or so ago but couldn't exactly

remember how it went.

If only new sales are taxed, the market for new goods will certainly suffer. We would perhaps become a nation that simply shuffled old goods back and forth.

Thanks!!!

[TimBean]

35. Could that be a good thing

maybe this country needs to learn how to re use goods instead of living in a disposable world were we throw things out and buy a new one on sale at scam mart.

Used clothing stores, the salvation army, thrift stores would become much better off. What's wrong with the richest guy in the world being a man who facilitates people getting what they need, without having to tax the earth to have it produced. Now your average wall street executive will have to put some serious consideration into buying a brand new car every two years just like the rest of us!!

Personally, I don't think a society based on consumption can last too much longer until we have to consume ourselves.

[Hosnon]

36. Good point. There are many advantages to cutting down on production and

consumerism in general.

However, if we are trying to raise government revenue through consumption, this may be a built-in flaw.

[jmowreader]

38. Tim, come at this from another angle

Boortz' tax scheme revolves around the purchase of new goods. This is what's supposed to keep the government afloat.

Now...if EVERYONE stops buying new major end items in favor of non-taxed used ones, and restricts their purchases of new items to reasonably inexpensive things, how in hell are we supposed to have a government? Which, contrary to what the freepers will tell you, we actually need one of.

Let me throw another deal-killer out for you: Boortz plans to use state revenue departments to collect this national sales tax. I can hear fifty secretaries of state screaming "unfunded mandate!" even as we speak. Also, there's a hell of a lot of paperwork merchants must do to collect and report state sales taxes; the paperwork for a national sales tax would be even more onerous. Of course, they won't be getting reimbursed by the government for doing this.

[TimBean]

39. There will always be activity going on to support the government

There are people out there so rich they wouldn't mind paying extra and getting it "brand new". Personally, I buy used whenever I can (clothes at a hip thrift store, cars ALWAYS used, libraries instead of bookstores, quality furniture off of craigslist.) I do this partly for the money savings but also knowing that my not buying a new couch is one less couch that needs to be produced for me, or one less couch that fills up our landfills. For some people it takes economic incentives and this I understand.

But understand that there will always be people who buy new, no matter what. People buy new cars even though it loses a third of its value as soon as it leaves the lot. Doesn't make sense to me, but those people with extra money to throw around, the ones who are causing the strain of new products needing to be created can fund the government that deals with that strain.

[indypaul]

30. Another example of so called "fair" taxes.

Written by those whose definition of a fair tax is
one that is paid by others. "Don't tax you, don't tax
me, tax the guy behind the tree."

[ima_sinnic]

41. if the greedhead scumbucket Boortz is behind it, run away screaming

--Boortz is a misanthropic, me-first, whiny-voiced selfish pig who thinks women, anyone "on welfare," and students should not be allowed to vote because "they benefit from government programs." (Of course he has never answered my numerous questions about the filthy rich CEOs who benefit from government perks and loopholes).

If he is proposing a "fair" tax, you can bet your last hard-squeezed fifty cents that it is anything BUT fair. It is designed to keep him--he who whines about "government schools" and other such "bed-wetting liberal" schemes that rob him of the only thing in life he cares about at all, every last little dime that he can keep his greedy, selfish paws on--from paying as little tax as possible.

He owns a small plane--did he use it for anybody's benefit during the Katrina aftermath, the way Al Gore chartered a plane at his own expense to lift hospital patients out of NOLA? Of course not--if people drowned or starved in NOLA, it was their own lazy, shiftless, worthless fault.

There is no way in hell Boorish Boortz is going to propose a tax scheme that is "fair" to anyone except himself and those of his ilk who sit around on their pompous, dumbass fat asses all day long spewing rabid garbage about Hillary Clinton (his other obsession in life besides $$$$$) and making obscene amounts of money doing it. He is a hate-filled shithead. I hate him with every fiber of my being, even more than I hate Limpballs.

The so-called fair tax is a giant SCAM that no decent, humanity-loving, progressive, enlightened, compassionate and fair person would even consider.

And by the way--the phony "libertarian" boortz hates the government--who does he think is going to administer this humongous program of "rebate checks" mailed out every month??? aye-yi-yi--talk about a boondoggle and a bureaucracy. what a fucking waste of taxpayer's money! How does one "qualify" for rebates? Do we have to fill out a bunch of paperwork, revealing income, employer, assets, etc. etc.?? What a load of BULLSHIT!! sheesh! And you think "welfare" is a bureaucratic nightmare ...

And there is no way in hell sales taxes are going to fund the highways and other infrastructure, emergency, and other public services that government is supposed to fund. But of course that's just fine by him. If you want a fire put out, you better have your subscription to the local fire dept. paid up. Same with police--you'll need to hire your own security guard, I guess, because there just ain't going to be any "civil servants." Look for a $2 stamp to mail a half-ounce letter.