« PNM Theory is Critical Theory (That's a good thing) | HomePage | Superchick »

Sunday, April 02, 20061144037700

The FairTax: A Rallying Point for 2006

Brendan is a long time friend of mine. I've known him long since he helped me out against The Nation Master entity, and I've checked his blog -- I Hate Linux -- regularly since before tdaxp was born. I am now proud and delighted to announce he has allowed me to host his review for The FairTax Book After reading Brendan's column, I strongly support the tax reform he proposes.




What would you say if I told you that there is currently legislation in front of the House Ways and Means Committee with 52 cosponsors that would not only eliminate the federal income tax, but also remove the need for the IRS, allow you to take home your entire paycheck without Social Security and Medicare deductions, and make April 15th into just another spring day?


Sure, I might sound crazy, but The Fair Tax act of 2005 (HR 25) sets out to do exactly that. But why?

Let's face it, the current income tax system is a nightmare. Every year millions of American taxpayers (both individuals and businesses) spend countless time and money on making sure that they are paying no more than they owe, while countless others take the easy way out and just file the short form in order to save time, but end up paying far more than they owe because they didn’t spend the time or energy to take the deductions that they are entitled to and instead overpay. To add insult to injury, even tax professionals like H&R Block have made mistakes with their own taxes. If its so easy for experts make mistakes, what does that say about the potential unnecessary complexity of the current system?

Really the only people who understand the existing system are our legislators and the lobbyists in Washington who derive power from manipulating it with the end result of those without lobbyists having to pay that much more to make up the difference. It is time for that to end.

Before going into some of the details of the FairTax, take note of the image to the right of Congressman John Linder (R-GA), the author of The Fair Tax Act of 2005 (HR 25) holding it in comparison to the existing income tax code. 132 pages vs 50,000+ pages. Quite a difference isn’t it?

In addition to my belief in the FairTax, the reason I write this is because of my concern for the upcoming 2006 elections. Even with the new found interest in abortion and immigration reform in this country, neither in the President’s State of the Union, nor in the Democrat’s rebuttal, nor any other serious political debate so far has put forth anything new of merit that can be part of a platform for either side to rally around in order to maintain or regain control this fall. I believe that the FairTax can and should be that platform.

National Sales Tax

In short... the FairTax which replaces the entire federal income tax as well as other payroll taxes with a simple embedded national inclusive sales tax of about 23% on new products and services at the retail level that would show up on your receipt every time you buy a CD, TV or even loaf of bread.

At first glance 23% may seem pretty high, but consider the increased price you are already paying due to the income and payroll taxes being paid by every single company in the production chain and ending with the end consumer. With the elimination of those taxes not only would drop prices significantly, but you would end up with more of your money with every payday. As a result with the 23% sales tax being added onto a product whose price has dropped due to not having the supplying companies pay any federal taxes, it pretty much ends in a wash for you as the end buyer.

Exemptions & Prebates

Under such a system some might be concerned about a lack of exemptions for things like medical care as exists under the current tax system. It doesn’t exist. That’s right, under the FairTax system, all new goods and services fall under the tax. Without such a blanket system covering all areas of business we end up in a similar situation to what we have today... high priced Washington lobbyists campaigning for our elected officials to exempt their clients from certain taxes because of the importance of their clients business and its contributions.

Again, under this system, no new product, service or person is exempted from the tax, including the poor who today pay little or no income tax and in order to allow the poor to continue to remain tax free the prebate was created in order to resolve this issue which results in the federal government mailing a check every month to every head of household for the amount of tax that they would pay during the month up to the poverty level.

This way, not only do the poor not pay the tax, but no one does up to the poverty level.

Compliance Costs & Missing Deductions

If you aren’t already sold on the FairTax, think for a moment of the cost that US tax payers end up paying for tax compliance. Not only do many businesses and individuals hire professionals to help guide them through the process to make sure that they don’t pay more than they owe... this is still an expensive process in terms of both time and money.

Let’s not forget that the bureaucracy that is the IRS requires massive funds in order to do its collections and enforcement, how much? For their 2005 budget [pdf warning] they requested over $10 billion. Don't you just love the concept of paying them in order to enable them to do their much loved work?

Retirement

Under our current system workers and employers pay further taxes under the names of Social Security and Medicare. Under the FairTax these line items on our pay stubs disappear, but the programs don't. Instead, both draw from the same general fund that the FairTax creates.

Let's not forget that on every payday when you take home all of your earnings and you are free to invest and save it for things such as retirement, a child's college education, a house or anything else you want... all without any tax consequences whatsoever. Instead of the difficulty of using pretax dollars or hassle of reporting yearly income due to interest as you do today, you simply pay the embedded tax the day you spend it.

End Benefits

I have only scratched the surface on what experts predict would happen after the FairTax went into effect, a larger list of benefits includes:

  • Offshore tax-shelters and foreign based businesses no longer provide the same benefits and appeal as they do today, bringing billions of dollars currently offshore back into our economy
  • Workers keep 100% of their paychecks
  • Interest rates fall between 25-35%
  • Voluntary rather than compulsory tax system
  • Tourists and illegal workers not currently paying taxes would pay taxes to our tax system every time they buy new in this country
  • Higher rate of savings and investment
  • Cost of tax compliance drops by 90 percent
  • Thousands of IRS agents and tax lobbyists become unemployed (darn!)
  • Gross Domestic Product increases by almost 10.5 percent in the first year after enactment
  • Companies and individuals no longer have to consider the tax implications of financial decisions
  • Revenue neutral as far as the federal government is concerned

The Book & More

In large part due to lack of time and not wanting to overload you when reading this I have not written everything there is to know about the FairTax, including answering many of the questions you likely have by this point. If you have interest in learning more, I suggest you read the book or stop by www.FairTax.org to learn more.

The book, written by CongressmenJohn Linder and talk-radio host Neal Boortz, the pair set out to answer many of the questions related to theFairTax with regards to what it is, what would happen after its implementation, as well as a bit of history on how we reached the chaotic tax system we enjoy today. First published in August 2005, it debuted as a #1 New York Times best seller and its updated andpaperback edition to be released in May expected to be greeted with similar attention.

www.FairTax.org is the primary online presence of the grassroots work spearheaded by the Americans for Fair Taxation group in order to provides news related to the campaign, as well as material to help us achieve our goal.

Now that you've learned the basics of the FairTax, I encourage you to explore more of it on your own, read the book, ask questions, tell others about it, and call your congressperson and ask them to join in the campaign to destroy the existing tax system and replace it with a more fair tax, namely the FairTax.

Comments

I prefer:

A negative income tax:
(http://en.wikipedia.org/wiki/Negative_income_tax)

or negative consumption taxe: (http://econlog.econlib.org/archives/2003/09/libertarian_red.html)

When the technology is feasible in 10 or 20 years, I like a straight Transaction tax:
(http://www.apttax.com/).

Purpleslog
http://purpleslog.wordpress.com/2006/04/03/tdaxp-on-the-fairtax/

Posted by: purpleslog | Monday, April 03, 2006

If Mr. Boortz cared that much about people, he'd be giving the book away.

Instead, he's just making a Swiftboatload of cash giving Republicans wet dreams about how much money they'd save purchasing everything online.

I've been to the FairTax website and had a fairly libertarian friend try to explain to me how 23% of an item's cost is corporate tax, etc. and why the cost would decrease that much. I failed to be swayed.

Perhaps Brendan or TDAXP could explain how this isn't just a brilliant marketing scheme to get 49% of America purchse-level excited with those two magic words "lower taxes"

Posted by: aaron | Monday, April 03, 2006

Three reasons why this is a bad idea:
1. It would lead to a vast black market of cash and barter to avoid the tax.
2. Sales of new autos, houses, and other big ticket items would fall precipitpously as the lower and middle class opted only for used merchandise.
3. Seemingly small tax increases of a tenth of a per cent would be slipped into the mix as tax avoidance creates decreasing revenues.

Posted by: Jimmy J. | Monday, April 03, 2006

While a 10% bump in GDP in one year may be a bit extreme, rationalizing the tax code would have benefits. I am also sympathetic to the claim that all should be able to live in "frugal comfort," so replacing the entitlements with a small yearly payment (say, 10k) is attractive to me.

However, this would be a disincentive to work, and France's experience with such disincentives has not been good.

A transaction tax is unfeasible, because according to the plan they tend to make the bulk of its money off financial transactions --- which could easily be moved oversees.

Aaron, Brendan did explain his position. Perhaps you could explain your objection (other than fear that, somehow, Republican operatives are behind it)?

Jimmy, sales of conspicuous consumption items would fall -- and this is a benefit of a sales tax. Money spent on conspicuous consumption is wasted -- it is money invested which truly grows the economy. Decreasing consumption and increasing investment should be a goal of the tax system, and replacing the income tax with a sales tax would be a brilliant way to do this.

Posted by: Dan tdaxp | Tuesday, April 04, 2006

No, Brendan did not explain the portion I don't get, else I'd not have asked... It's not like he made a bunch of diagrams with arrows that point to themselves!

I understand that built into the cost of your product or service is all the taxes that the company pays... But if our compay hires or lays off a dozen people, our service price does not increase or decrease by (12 * (their corporate tax burden) / customer base )

Rather, according to what you wizards tell me, a market sets a price for an item... And if prices have been where they are forever, what prevents collusion? If Kia and Saturn and Hyundai are competing for the Ford Taurus' marketshare, why is the Taurus still the same relative price?

I don't buy store-brand cereal because I don't care for it and I don't have to. But if the cost of everything goes up 25%, the economic voodoo corporations should do in Boortz's tax dream doesn't happen, and the companies are all too lazy to lower prices by ((num_employees / tax_amount) / revenue ) , then all I see is a wonderful gain by people with black market connections and people whose purchases account for an insignificant amount of their current tax burden.

So suffice to say, it is not enough for Mr. Boortz, who I've read and disagreed with a number of times, to say "things will get cheaper cuz companies won't be paying taxes simply because things will get cheaper because companies won't be paying taxes"

Posted by: aaron | Tuesday, April 04, 2006

I had planned to be a little more active in responding to comments and criticisms here but have failed to do so so far due to time issues.

I must ignore work for just a few minutes and reply to one of Aaron’s concerns. You worry that prices would not come down and that it is only Mr Boortz saying so... are you not a believer in the capitalist system? Do you not believe that companies, trying to find a competitive advantage will end up passing cost savings on to the consumer? Sure collusion is a possibility, even ignoring the tax implications a companies motive at the end of the day under any tax system is the same... to make money.

Allow me to quote a bit from The FairTax book, specifically chapter 5 which is titled “The Embedded Costs of Our Tax Code” which discusses this very issue, and at the end of page 58 we have this bit:

“We actually have a real life-scenario to present to you that illustrates how quickly prices will fall once the embedded taxes are removed. We take you to December 31, 1995. The U.S. Congress was engaged in some budget disagreements that caused an expiration of the federal airline ticket tax. At first, all the airlines tried to hold the tax prices steady. The expiration of the airline tax made for extra profits in those prices–money the airlines needed desperately. In just a matter of days, the wall started to crumble. All it took was one small airline trying to create a competitive advantage by lowering ticket prices. One by one the other airlines followed, and in short order the tax cut went into the consumers’ pockets, not the airlines’. What happened when the airline tax was reinstated? The prices went right back up. There’s your real life proof of our theory: If the pressure to reduce prices will compel an industry that’s struggling to survive to lower ticket prices, then there’s no doubt the same pressure will work with businesses that already have a healthy profit margin.”

Posted by: Brendan | Tuesday, April 04, 2006

That's all well and good in an intensively competitive market like the airlines. But that's pretty much a luxury good. What about breakfast cereal? Kellogg's is already happy to charge $5.00 for a store-brand $2.00 cereal. Why wouldn't they continue to charge $5.00 when their Boortzed price point ought to be $3.85?

Additionally, I am skeptical as many companies do not have nearly the tax overhead to make up for the 23% jump. Let's say your local meat locker sells beef at $1.89 / lb. With the 23% tax, it's now $2.32 / lb. Now, we get rid of all the payroll taxes, etc. for the two employees. I find it highly unlikely that their taxes come up as that 23% increase on every pound of meat they sold that year.

Instead, I think it would do two things:
1. The meat locker can't compete, because John Morrell saves real money with the abolished tax, and really can lower their prices by 0-23%.
2. Goods made by companies that don't gain competitive advantage by the tax relief become more expensive, thereby pushing them out of the market. Pretty soon the only companies that are selling goods are ones with great economies of scale... The already successful Big Brands.

So, again, who stands to benefit? My grocery bill will go up, but I'm not going to get 23% more pay. Where will the prebate come from? Last year's taxes? Mr. Boortz and Linder have had people doing their shopping for them for too long if the best example they can come up with is airline tickets.

Let's look at it this way... Airline tickets are not a commodity, but let's take something that practically is, gasoline. Let's say the government drops the $.30 or $.40/gal tax ( I don't recall it offhand ). Now, a company who wanted to sell more gas would set his price a bit lower than the other companies, right? So why doesn't gas go down to the same price as Flying J, Casey's and Mr. Nifty? Because demand is practically inelastic. People are still buying their gas at Shell and BP, even though the price is higher.

I'm no economist, although I'm always interested in the topic. Again, all I seek is an effective explanation. I don't think the airline tax is a good one.

Additionally, I'm not here to argue the ethical implications, although I have been :) Again, I want to understand how the reduction in employee payroll tax and corporate taxes will make up for a sudden 23% spike in the cost of all goods.

Perhaps if you can explain it well enough to sate me, and Dan buys me pizza, I could become a Republican convert. With DeLay's resignation, the party's looking better and better. Get rid of Frist, Santorum and O'Reilly/Limbaugh and I might sign up.

Posted by: aaron | Tuesday, April 04, 2006

The tax-avoidance/blackmarket problem makes the "Fair Tax" unfeasible -- in the absence of government intrusiveness that will make the current IRS look benign. If you want a national consumption tax, a VAT is the only practical way to go :-). I favor simplification of our current tax scheme, though, largely because I favor progressive taxation. Even with the proposed rebate, the fair-tax scheme hits the wrong people if we value the principle that those who benefit more from the social contract should pay more into it.

Posted by: Dan Nexon | Tuesday, April 04, 2006

Some general comments:

Brendan & Aaron:

Price is determined by supply and demand. It is not directly determined by producer's cost. Cost serves to increase or decrease the supply.

Brendan's airline analogy is flawed, because the air-travel market has been profoundly warped by government regulations. The US air market is much, much more "big government" than Europe's, for example. Airports are publicly owned, failing airlines are historically bailed out, etc. Fortunately the Bush administration is beginning to reverse, but there's a long way to go.

Likewise, Aaron's example is flawed. He criticizes premium (that is, "name") brand cereal for being expensive, but then notes the widespread availability of cheaper substitutes ("off brand" cereal). That would be like saying the car industry is broken, because BMW costs an arm-and-leg, so how can people afford cars?

Further, Aaron's auto industry example supports Brendan's contention. The entrance of Japanese automakers have depressed real prices and increased quality, leading to a sustained, real decreases in prices for similarly good vehicles. One would expect companies which price irrationally (say, the great Michigan companies). to suffer the consequences. They are. [1]

Jimmy & Dr. Nexon:

A black market already exists in other taxes. I don't see it necessarily being worse for sales. Though Dr. Nexon's idea of a VAT may allow a functionally similar "fair tax" with less room for cheating.

I think "the principle that those who benefit more from the social contract should pay more into it" is precisely the wrong way to enter the taxation debate. Tax policy should not be a mechanism to punish (take) from those who "most benefit" -- rather, it should be a way for providing for the general welfare and national defense. Its also a rhetorical flourish which falls apart on examination, as it would be insane to tax someone whose life is saved by subsidized medicine at a higher marginal rate (even though they are benefiting more from the social contract than someone who merely makes a few extra bucks), and the word "more" is used in a non-standard way for common English (to indicate a percentage rather than a quantity).

[1] http://www.suntimes.com/output/business/cst-fin-delphi31.html

Posted by: Dan tdaxp | Tuesday, April 04, 2006

Dan: that's the difference between social insurance and fee-for-service.

And the current problems with sale-tax avoidance demonstrate how bad things would be if we financed everything through a sales tax system that focused on point-of-retail-consumption purchases. That's one of the basic reasons why virtually no state adopts a national sales tax and most opt for some form of VAT (in conjunction, usually, with other sources of revenue).

Your frame of "punishment" is interesting but mispecified. But we'll have to draw the lines of the debate there, because we're not going to convince one another. I'm just making my position clear: I object to the Fair Tax on both pragmatic and normative grounds.

Posted by: Dan Nexon | Tuesday, April 11, 2006

Dr. Nexon,

I was going to say "I don't know why protection of property rights would be fee-for-service, but healthcare would be social insurance" but you answered that for me: it's a normative categorization.

There's often too little plain talking in blogging. I think we see where our views are different, and that is good because that will allow us to build better analogies in the future.

A VAT, especially if it replaced the income tax, would be a fine source of revenue.

Posted by: Dan tdaxp | Tuesday, April 11, 2006

Insufficiently progressive.

Posted by: duck1 | Monday, April 17, 2006

Duck1,

What is "sufficient progressivity"? And why are you requiring it?

The first aim of economic policy should be to grow the economy, and increase the general welfare. If this is best accomplished through progressivity, then the tax code should be so progressive. If a lesser degree accomplishes this better, then that degree should be hewn to.

Posted by: Dan tdaxp | Monday, April 17, 2006

WILL H.R. 25 END EXISTING PAPERWORK AND RECORD KEEPING ?

Neal Boortz makes that very claim over, and over, and over, and does so based upon a number of erroneous assumptions, a major one which he feeds his audience quite religiously … imagine the savings to business and industry when the costly and time consuming record keeping under income taxation is ended by H.R. 25. But this happens to be wishful thinking at best, and at worst, an outright lie if made by one schooled in constitutional law.

If H.R. 25 were adopted, and its language followed to the letter, and even if the 16th Amendment were repealed as promised, not only would the misery of present taxation remain very much alive [the costly and time consuming record keeping for paying taxes calculated from income], but an additional rule book would be created under H.R. 25 leaving the American people and businesses with two rule books to follow___ the one created under H.R. 25 and the rule book for paying taxes calculated from income. Let me give you the particulars.

There is nothing in H.R. 25 to prohibit Congress from laying “excise taxes“. Excise taxes can be laid upon a wide variety of things such as the privilege of being a corporation and can be laid upon countless other “privileges“ created by government, and can be laid upon certain occupations, callings, events, etc.

When such a tax is laid and the amount of tax to be paid is calculated from “income“, it is not laid upon “income“ [an income tax as such], but rather, it is laid upon the privilege of being a corporation, or is laid upon a certain occupation, or event, and the amount of tax to be paid is calculated from profits, gains, salaries, and other “income” realized under the privilege, occupation, event, etc. See: FLINT vs. STONE TRACY http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=220&invol=107 in which the SCOTUS explains all this in detail!

Along with this kind of excise tax, which calculates the amount of tax to be paid from profits, gains, salaries, and other “income” comes a tax code with allowable deductions, exemptions, and manipulative legislation to indirectly control choices and decision making just as we now suffer under income taxation.

So, even if the 16th Amendment is repealed, with the wording suggested by the primary promoters of H.R. 25, it will have no effect in relation to excise taxes which may still be laid and require nothing more than uniformity among the states.

In spite of all the Fair Tax talk about repealing various sections of the IRS Code and closing it down as portrayed on the cover of the Fair Tax Book, the misery now suffered under income taxation, the Internal Revenue Service and the IRS Code, would remain very much alive because of a failure to provide adequate protection with regard to excise taxes, and that failure leaves a glaring loophole which defeats the number one feature of H.R. 25, and does so even if the 16th Amendment is repealed.

If H.R.25 is adopted the loophole left invites Congress to simply erase the word “Internal” from “Internal Revenue Code” and replace that word with “excise“, as in “excise Revenue Code,” and, likewise erase the word “Internal” from “Internal Revenue Service” and replace it with “Excise“, as in “Excise Revenue Service“, and, go about its business inflicting the same time consuming and costly misery upon Corporations as now done, but in addition, these corporations will also have to abide by and follow an additional rule book with all its new regulations for record keeping as stipulated under H.R. 25!

Truth is, H.R. 25 doesn’t ”eliminate” squat as Boortz portrays on the cover of his book, and it especially does not even attempt to stop Congress from calculating a tax from corporate income. H.R. 25 leaves a sleeping loophole by which Congress may decide at its pleasure, especially a socialist dominated Congress, to enact, say a small tax upon those wealthy evil corporations and scoundrels who make millions of dollars a year and bleed the poor working people, such as was alleged about Leona Helmsley who they sent to jail for an alleged tax fraud, but actually contributed more in taxes than any twenty average working people in New York.

Regards,

JWK___ a proud supporter of our founding father’s ORIGINAL TAX PLAN http://usafoundingfathers.blogspot.com/2006/03/founding-fathers-original-tax-plan.html



"In matters of Power, let no more be heard of confidence in men, but bind him down from mischief by the chains of the Constitution"--- Jefferson

Posted by: john w k | Tuesday, May 16, 2006

Well, the self anointed fountain of the ``painful truth``, Neal Boortz, [a radio talk show host who is promoting H.R. 25, the alleged fair tax] has revealed himself to be ignorant and void of truth when it comes to a knowledge of our Constitution!


Last week when a caller correctly asserted on Neal`s show our Constitution provides a rule that no religious test shall ever be required as a qualification to hold any office or public trust, Mr. Boortz was found to be totally ignorant of such a provision in our Constitution.


Likewise, Mr. Boortz also shows his ignorance of our Constitution in promoting H.R. 25 as a legislative act, which, if adopted by Congress and enforced, would violate another fundamental rule and protection of our Constitution. It would violate the constitutionally guaranteed fair share formula requiring a general tax among the states [which H.R. 25 is] to be apportioned among the states so each state contributes an amount of a total sum being collected under the tax in proportion to its allotted number of votes in the House of Representatives.


Our Founders Fathers agreed by their ratification of our Constitution that those states paying the lions share of the tax burden to fund the Constitutionally authorized functions of the federal government, would have a proportional voice equal to their financial contribution in determining how their money would be spent. Of course, socialists and the friends of big government dread the founding fathers` fair share formula as it boils down to a rule requiring representation with proportional obligation!


H.R. 25 is ``conceptually identical`` to the Marxist income tax because it intentionally seeks to calculate the amount of tax to be paid from wealth, property and financial success within each particular state ___ a political philosophy advocating from each state according to its ability, rather than an equal per capita tax apportioned among the states as the founding fathers intended by our Constitution’s fair share formula articulated in Article 1, Section 2, cl. 3.


If Neal Boortz was a supporter of our Constitutionally limited Republican Form of Government as he repeatedly claims to be, and supports the concept of taxing consumption, then he, at the very least in promoting H.R. 25, would demand a provision be attached to H.R. 25 requiring the rule of apportionment to be observed when laying the H.R. 25 tax among the states. And, without such a rule being applied to the tax, he would have no alternative to not supporting H.R. 25 as it violates our existing constitutional rule of fairness___ it violates our Constitutional guaranteed fair share formula articulated in Article 1, Section 2, Clause 3.


For an example of Congress abiding by the rule of apportioning a general tax among the states see Act of Aug. 2, 1813 apportioning a tax of $3 Million and each state’s share of the tax. http://memory.loc.gov/cgi-bin/ampage?collId=llsl&fileName=003/llsl003.db&recNum=94 H.R. 25 violates this rule!

For related information see: MESSAGE TO FAIR TAX RALLY PARTICIPANTS http://www.sierratimes.com/cgi-bin/ikonboard/topic.cgi?forum=2&topic=956

Regards,

JWK, a proud supporter of our founding fathers’ORIGINAL TAX REFORM PLAN http://usafoundingfathers.blogspot.com/2006/03/founding-fathers-original-tax-plan.html

``If the Constitution was ratified under the belief, sedulously propagated on all sides, that such protection was afforded, would it not now be a fraud upon the whole people to give a different construction to its powers?``___ Justice Story

Posted by: john w k | Sunday, July 09, 2006

Fair tax does everything but wash your dishes and cut your toenails. Its virtually FREE -- it fixes EVERYTHING -- it doesnt hurt ANYONE.

H O G W A S H.

You fairtax fans should learn the truth in -- if it sounds to good to be true, its too good to be true.

Here is the truth.

Yes, consider the Fairtax - the actual effects and premises. Will the fairtax have the effects as advertized?

I wish fair tax would work as advertised, because we sure need something to replace this lunatic tax code, which taxes earned income — aka work — up to 300% higher than my profits on Chinese stocks, or any stocks.

But Fairtax isnt it. I wish it were.

Fairtax wont work as claimed.

And thats because its based on at least one math fallacy, and several political miscalculations.


One fallacy -- Fairt tax puts a tax on the federal government, to PAY the federal government.

Thats like me paying myself $10,000 a day to cut my own grass. I can write the check - and deposit it in that same account. But at the end of the month, I dont have $300,000.

Thats the same thing that fairtax would encounter if it had the federal goverment pay the federal goverment a huge sales tax on all purchases.

Fairtax law could mandate that the US Navy writing a check for 4 billion, as the “sales tax” portion of a 12 billion dollar aircraft carrier. And the Treasury can deposit the check.

But he Treasury doesnt get 4 billion. It gets zero.

And thats what the net effect would be on all taxes on the federal goverment purchases. The aircraft carries, NASA space shuttles, tanks, jets, B1Bombers, pencils, submarines, whatever. It would all be taxed -- and it would all not create a dime of net revenue to the federal government.

Since Fairtax depends on the government “paying” that tax, fairtax will have to adjust its rate, when this fallacy is apparent. When its clear that it can not possibly tax the federal government to pay the federal government — the tax rate would have to be adjusted up, to about 40%.

So then the Fairtax would be 40%. What happens then?

Maybe we could all pay 40% more for everything. That is — unless we have high unexpected expenses.

What if we get cancer? Thats very expensive disease, and 20 million Americans are dealing with it at any one time.

A tax on cancer surgery? Chemo? Rehab? Hospital bills? Kindey transplants? Open heart surgery?

Keep in mind, the tax on medical care would have to be 40% - - not 23% because of the fallacy explained above. And even at 23%, that could easily be a 40,000 tax on one cancer patient.

What about nursing home patients? They are taxed 2,000- 4,000 per month. Thats 25 - 48 thousand a year — just in TAX on ONE nursing home patient.

What do you think these patients will do? I think many would be very upset, and very vocal.

THere are 60 million Americans who have over 2$0,000 a year in medical cost. We estimate 600,000 patients have medical cost of over half a million. Thats a "fairtax" of 125,000 dollars - on one patient!

And it wont matter if they have insurance - insurance wont pay these extra costs. This will be paid for by the person, their family or friends, or the government.

What will these 60 milion people do? I got a sneaky suspicion, many of them will complain loudly. And Congress will pay attention, and correctly give health care an exemption.

That would make the fair tax rate go up even more — to 55% or more.


Plus - fair tax taxes RENT. Won’t renters be surprised! Wont car dealers? Wont new homes sales?

They will be looking at 55% sales taxes, when the other exemptions we mentioned above take effect.

Fairtax is just not practical. Im sorry, I wish it were. When you use real math -- and look at the real effects -- you will see the fairtax can not work.

Lets get a tax system that stops punishing works -- earned income. Lets tax all income types the same. Lets get a simple tax system, and then require 2/3 vote in both houses to change any part of the tax code. But first, get it simple, and tax all income types exactly the same.

Posted by: Mark Curran | Wednesday, February 06, 2008

Post a comment