Give the “Fair Tax a Fair Chance”
Holding down the tax chair at NCPA is somewhat different from what I'm used to. During my 36 years at the Fed, and especially my 14 years as a policymaker on the FOMC, I thought of taxes primarily as half of fiscal policy, which has more to do with how tax receipts stack up against government spending than with the efficiency of the tax regime. During most of my tenure, government spending exceeded tax receipts and produced a deficit. The perennial question was what the deficit would do to the economy. Would it spark inflation? Would it pull us out of recession? Did it really matter?
My early training and subsequent reading led me to conclude that the economic impact of a federal budget deficit depends mostly on how it is financed–with existing money, new money, or new money plus new bank reserves, which means further monetary expansion. In other words, the impact of fiscal policy depends primarily on how it is financed, and on monetary policy. The other relevant factor is the state of the economy–how close we are to full employment of labor and other productive resources, or how much slack we have. The financing and the condition of the economy determine the impact of a deficit, which really means that monetary policy is more important than fiscal policy.
In general, I shared the profession's preference for a balanced budget over time, with helpful deficits during economic weakness matched by helpful surpluses during more exuberant times. This ideal almost never happened, of course, so a lower bar led us to measure the deficit as a percentage of total GDP and forgive those that didn't break through historical benchmarks.
When I came to the Dallas Fed in early 1991 and was briefed by its excellent economists, I asked our public finance specialist whether there was a good rule of thumb for good tax policy. I don't remember her exact words, but the answer was that taxes should have broad coverage and low rates. They should distort economic activity as little as possible. Balanced budgets over time and cycles were preferable to chronic deficits. The main evil of deficits was that they represented negative saving, which had to be offset elsewhere to finance adequate investment.
While I considered deficits to be important, I was persuaded by Milton Friedman's argument that the magnitude of government spending relative to the size of the economy was more important than how it was financed, whether by taxes or debt. In other words, the size of government was more important to economic performance, and especially to individual liberty, than the size or percentage of the deficit. I also accepted the Friedman proposition that deficits were not necessarily a bad thing if they caused the politicians to curb spending. The problem with higher tax revenues to balance the budget was that, in practice, they would just be spent to make government bigger. They would just feed the alligator.
Some, but not much, attention was paid to whether the existing tax system was a good system and whether it should be scrapped in favor of something radically new and different. The most common reform proposals, which sounded good to me, were versions of the flat income tax. I recall Dick Armey coming to the bank to explain his flat tax proposal and emphasizing that taxes could be reported on a post card. I remember thinking that it sounded like a good idea, but in the back of my mind I couldn't help thinking about the old line that, if something sounded too good to be true, it probably was. I must now reevaluate that thought in view of the successful adoption of flat-tax systems by several eastern European governments. Who would have thunk it?
The most radical tax reform proposal during my time was conceived by two friends of mine-the national sales or national consumption tax, more recently called the Fair Tax. In many respects, it made the most sense of all the reform proposals, but it was so radically different that I had a hard time imagining it as a practical alternative to the flat income tax. I participated in a discussion of the national sales tax with Milton Friedman, who pronounced it a good idea-the ideal solution, perhaps-but he too worried about its practicality.
That was several years ago, and I've been surprised by the growing national support for the Fair Tax. It's still a long- shot reform, but not as long a shot as it once seemed. In thinking about that, it occurred to me that Friedman's qualification was not very Friedman-like. He was a well-known advocate of economists limiting themselves to "positive" economics and leaving the normative aspects to practitioners, i.e., politicians. Economists should not concern themselves with practicality or the political appeal of sound economic proposals. They should give the politicians their best possible proposals and let them worry about implementation.
So, here's where I am now. Both the flat tax and the fair tax are big improvements over the current mess. The fair tax is probably superior to the flat tax if it could be implemented. Fortunately, the world is not holding its breath waiting for me to decide. But if you are interested in the topic, as you should be, I recommend that you learn more about the fair tax and decide for yourself. Start with their excellent web site, http://www.fairtax.org/. I recommend it to you and ask that you not–as they use to say in my church–"harden your hearts" against it. Please, give the fair tax a fair chance!
July 25th, 2007 at 1:36 pm
Bob,
I would like you to consider a lesser known (my fault) solution to the tax code mess. The Automated Payment Transaction Tax (APT), as authored by Dr. Edgar Feige (a student and colleague of Milton Friedman form the Univ of Chicago), Economics Professor Emeritius at the University of Wisconsin-Madison, is a solution that achieves al the benefits of Fair Tax yet none of the negatives - and there are several large ones. I have faced several Fair Tax supporters in debates without any signficant negative being argued against APT. I wonder if you have considered this plan which is detailed for the lay person at http://www.apttax.com. however, links are there to Dr. Feige’s papers themselves.
The problems I see with the Fair Tax are outlined in this paragraph I use to introduce Fair Tax adovocates to APT:
How about a new idea that does everything the Fair Tax does but does not kill retail sales with a 23+ state% tax on everything; does not create a whole new (under)world of commerce in “used” goods; does not create a bureaucracy to issue monthly checks to everyone and does not double tax money and home equity already saved in the “old” system. Instead, APT gives virtually every individual and business a big tax break while providing the funds the gov’t needs. All of the advantages of ridding ourselves of the IRS, providing economic stimulus, and increasing foreign competitiveness while replacing ALL forms of Federal taxation and excise fees.
I would appreciate your critical review.
July 25th, 2007 at 9:36 pm
The Fair Tax is much simpler, and does not create a situation in which business taxes are passed on to the consumer, and, it is transparent.
OPERATION: OFF THE FENCE!
July 25th, 2007 at 10:15 pm
While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan (*), its acceptance in the professional / academic community continues to grow (**). Failure to enact the FairTax - choosing instead to try to “flatten” a NON-FLATTENABLE income tax system - will result in an IRREVOCABLE ECONOMIC MELTDOWN. (*** Impossible, you say?)
Here is why the FairTax MUST replace the income tax. It’s:
• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn’t cause less-than-optimal business decisions for tax minimization purposes
• FAIR, loophole free and everyone pays their share
• LOW TAX RATE, achieved by broad base with no exclusions
• PREDICTABLE, doesn’t change, so financial planning is possible
• UNINTRUSIVE, doesn’t intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards, rather than penalizes, work and productivity
Its benefits are as follows:
FOR INDIVIDUALS:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy “at retail” - not “used”
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of “pre-FairTaxed” retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or “pre-bate”
• “Prebate” is “advance payback” for monthly consumption to poverty level
• FairTax’s “prebate” ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of “parasitic” Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates
FOR BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at “cash register”
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore “tax haven” headquarters can now return to U.S
• No more “favors” from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets
FOR THE COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations “set up shop” in the U.S.
• Tax system trends are corrected to “enlarge the pie”
• Larger economic “pie,” means thinner tax rate “slices”
• Initial 23% portion of price is pressured downward as “pie”
increases
• No more “closed door” tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow
(*) Tax Panel Rebutted
(**) Econs’ Open Letter to Congress (Lists every tax that FairTax will eliminate, together with the power they represent to pol’s and lobbyists.)
(***) Listen to an interview where Prof. Kotlikoff elaborates on the Meltdown In Progress!
The time for sitting around, pontificating, is over. We have NO CHOICE but to demand Congress Scrap The Code - NOW!
August 29th, 2007 at 6:55 pm
I sent the note below to the Wall Street Journal in the hope that they would print it and draw at least a comment or explanation. I believe there is a fatal flaw in the potential IMPLEMENTATION of the FairTax, if not necessarily the concept itself. Someone please tell me why I’m wrong!
———————————
I read with interest Bruce Bartlett’s article disputing the RATE
of the proposed, so-called “FairTax.” I don’t feel qualified to
dispute the calculations of even an ex-deputy assistant secretary,
and I haven’t studied the the FairTax enough to be anything other
than agnostic as to its merits. My question is to how, if it all,
it can possibly be implemented even if it’s decided that some form
of a consumption tax good for the country.
At any given moment there is a large group of people within a
few years of retirement (in either direction). At the moment, it’s
the tens of millions strong, politically powerful “baby boomers.”
Are you going to tell this group (or any group) “Sure, you spent
your whole life paying income taxes. You saved for retirement,
probably inadequately, on what was left over. Thank you! And,
now that you’re retiring and have no more income to pay tax on,
we’re going to raise the price of everything you buy with those
inadequate savings by 30%.”
I suppose one way to do it would be by a gradual introduction.
But then FairTax would become JustAnotherTax and we’d end up
with the worst of both worlds.
September 24th, 2007 at 10:27 am
To Richard Factor,
Right on the money! When I mentioned this double taxation of savings (including home equity and one’s entire post-tax portfolio) to a pro-fair Tax congressman he said they could exempt savings — so here we go again, exemption will require everyone else to pay more. Then there needs to used an organization, like the IRS by a different name to audit indivdiual and define what is “savings” just like there will need to be a “used” item police as people try desparately to avoid the 30% tax for a BIG reward if successful.
With APT as described at http://www.apttax.com the rate is sooooo low their is no incentive to evade except for truly huge transactions and foreign transactions which will be monitored carefully but are way above the 99.9999% of the individual citizen’s domain.
I know it’s a new idea — but it is worth your time to understand the best tax solution. There is life beyond tired old Fair and Flat! These exist to give politicians a place to hide when tax reform comes up. That’s why there are so many sponsors, yet no movement in Congress, even during all those Republican years. Let’s face it and move on to something that wasn’t technically possible when Fair and Flat were born — yet today is very possible.
October 18th, 2007 at 12:31 pm
While the national sales tax plan has advantages the fact is that at the rate proposed, it would result in a massive behavioral change. At some point, we see where legislation has unexpected consequences. Obviously, prohibition is an example as was the Luxury Tax. While we want to believe that others will simply conform to what we consider to be acceptable behavior, there are limits. When it comes to taxation, we have many data points that indicate a 23% sales tax would results in the creation of a massive economic underground. As supporters of the national sales tax indicate, there would be an initial decrease in retail sales followed by a return to more normal levels. What they fail to want to acknowledge is that would be followed by a third stage. An increasing large percentage of retail sales would go off the radar. More products and sales would move out of traditional retail channels into channels not currently required to collect sales tax. Obviously, this would include Internet outlets. As retail sales plummeted, tax revenue would do the same. That would require the formation of some government agency to enforce sales tax collection. During this period, organized crime would become involved much as they have in situations where discrepancies in state sales taxes have created profit opportunities, http://www.cato.org/pubs/pas/pa468.pdf . This isn’t knocking the national sales tax but a realization of the impact such a rate has on human behavior. If you don’t think this would happen, you haven’t studied your history. There is an alternative that uses a national sales tax as a component but only at a 5% rate. Please look at http://www.americantaxplan.com. It is a three prong approach based upon spreading the pain wide and thin plus asking all that benefit from our great economic engine to contribute
November 11th, 2007 at 3:40 pm
Any discusssion of a fair ta or national sales tax should consider the variety of states with their own sales tax - would that stay the same ?
To see tha variety in sales tax rates that currently requiring sales tax filing look and see even drugs being taxed.
November 27th, 2007 at 7:33 pm
I hope you don’t mind, but I’m reprinting my review of the Boortz/Linder FairTax book below, for consideration:
I read this book cover-to-cover with a highlighter in hand. I wrote in the margins, and I ran the numbers. Also, in addition to reading the House Bill (H.R. 25) this book is promoting, I spent hours reviewing data on the FairTax site and both of the author’s websites. Unfortunately, I found numerous assertions in this book that are contrary to basic economics, empirical data, human nature and grade-school arithmetic. Here are just a few examples of what I’m talking about:
1. The authors claim that taxpayers who currently cheat on taxes are less likely to cheat under the FairTax plan:
The authors claim that their 23% FairTax plan is revenue-neutral because the federal government will collect the same amount under this tax (essentially a 30% federal sales tax) as it collects under the current income tax structure. This 23 percent figure was calculated by assuming that taxpayers who cheat on their taxes today will not cheat under the FairTax plan. In fact, since the FairTax is to be applied to both products AND services (ex: haircuts, car repairs, child care, doctor visits), and because the immediate savings from avoiding this tax would be so great, it’s possible that more people, otherwise honest, will find ways to avoid paying this tax. At least two states, Florida and Massachusetts, actually tried imposing state sales taxes on services and later rescinded these taxes because they turned out to be counterproductive. Also, I found studies online that indicated that when sales taxes exceed 10%, efforts to avoid such taxes increase. So, contrary to the author’s assertions, there seems to be significant evidence that taxpayers are very likely to seek ways to avoid paying the sales tax proposed by the FairTax plan. If so, the FairTax rate proposed by the authors would not be revenue-neutral, as they claim. (FYI - If you look at the actual H.R. 25 bill, the 23% figure is fixed only for the first year and adjusted every year thereafter).
2. The authors claim that employers will increase salaries by the amounts saved when the FairTax replaces the employers’ share of payroll taxes:
Currently, in addition to the amounts taken out of paychecks, employers must contribute an amount equal to 7.65% of each employee’s gross pay for Social Security and Medicare. The authors write that when their FairTax eliminates these employer contributions, management will pass the savings to employees by giving them a corresponding 7.65% raise. Although employers aren’t required to provide such pay raises, the authors believe that business management is generous and, as a result, will forgo keeping any such savings to benefit the company, stockholders and themselves. Experience and common sense tells us that this assumption is unrealistic. Generally speaking, management is likely to retain any such savings for the company and such pay increases are unlikely to materialize for most working taxpayers.
3. The authors claim that when the FairTax eliminates corporate taxes, businesses will reduce prices significantly to pass the savings on to consumers:
According to this book, when the FairTax eliminates corporate income taxes, prices overall will drop by more than 20%. The truth is, once again, that business is likely to keep any savings realized in order to increase profits. Business doesn’t lower prices when they save money on taxes, payroll or anything else for that matter. Prices are influenced by supply and demand, not “embedded taxes” as the authors believe. When demand rises, then prices rise; when demand falls, then prices fall. This assumption also ignores the numerous businesses with no profits (at least on paper) or thin profit margins, and therefore, realize no tax savings to pass on to consumers.
4. The authors claim that the FairTax is not regressive:
The authors write that the word ‘regressive’, is a “buzzword” used by opponents of the FairTax to manipulate the debate. Despite the authors’ attempts to redefine it, ‘regressive’ is an economic term with a precise definition - when a tax is regressive, the higher one’s income, the lower the proportion of that income that actually goes to paying the tax - and vice versa. Either an apple is “red” or it isn’t. And, either a tax is “regressive” or it isn’t. The FairTax is regressive. Low income workers will pay a larger percentage of their income in taxes than middle class workers, and middle class workers will a larger percentage of their income the high income earners. (Critics might reply to remind me about the FairTax prebate — which I’m happy to discuss.)
5. The authors don’t make apples-to-apples comparisons when comparing proposed FairTax rates with current income tax rates:
Most people don’t know the difference between their household’s “effective” tax rate, “average” tax rate and “marginal” tax rate (i.e. tax bracket). Each term has a specific definition that the authors, no doubt, are familiar with. An individual’s or family’s “effective” tax rate is always lower than both their “average” tax rate and their “marginal” tax rate. Keeping this in mind, I noticed that the authors frequently used “effective” tax rates when discussing the FairTax plan. On the other hand, when giving examples about the current income tax structure, they always either referred to “average” tax rates or tax brackets - again, higher figures. For apples-to-apples comparisons, readers need to familiarize themselves with the distinctions between these three terms (which the authors don’t define) and then compare their current “effective” tax rates (via their income tax returns) with their projected “effective” tax rates under the FairTax plan. With such comparisons, most households are likely to find that they would pay more under the FairTax plan - not less.
6. The authors confuse estimated income taxes with actual income taxes:
The authors ask the readers to look at their paychecks to determine how much they pay in federal income taxes. However, the amounts deducted from our paychecks are estimates. These estimates are reconciled when we file our tax returns and are frequently too high (resulting in tax refunds). That’s why it’s important for readers to look at their tax returns to determine their “effective” tax rates, not their paychecks as the authors suggest.
7. The authors misrepresent the FairTax plan as being revenue-neutral by including money that the government pays to itself:
Interestingly, the FairTax plan does not exempt the federal government from paying federal sales taxes when it purchases goods and services from the private sector. As a result, the government would effectively pay taxes to itself. When portraying the 23 percent figure as “revenue-neutral”, the authors include government collections from itself as revenue. That’s like taking a ten dollar bill out of your left pocket, putting it into your right pocket, and then claiming, “I just made ten bucks”.
8. The authors assert that billions spent to comply with our income tax structure would be injected into the economy under the FairTax:
The implication here is that money spent on tax-prep software (e.g. TurboTax), tax-prep professionals (e.g. H&R Block), accountants and tax-attorneys falls into a black hole never to be seen again. Once the FairTax goes online, according to the authors, the black hole will disappear and the economy will immediately be invigorated. Contrary to this claim, employees of organizations like TurboTax and H&R Block, accountants and tax-attorneys also purchase houses and cars, go on vacations and dine out. The authors could have limited their argument to the fact that expenses associated with complying with the income tax system are inefficient, but instead, they hype their tax plan by acting as if such expenditures vanish from the economy only to return with the advent of a consumption tax. Of course, that’s entirely false.
9. The authors claim that replacing our income tax with a consumption tax will put the tax lobbyists on Capitol Hill out of business:
Canada has a consumption tax that they call the Goods and Services Tax (GST). Unlike the FairTax proposal, this Canadian consumption tax did not replace the Canadian income tax — it supplements their income tax. Despite this fact, the GST is fraught with complexities (loopholes, exemptions, etcetera) that the FairTax authors claim their consumption tax is inoculated from. In truth, with our current system of campaign financing, lobbyists are just as capable of manipulating a consumption tax as they are of manipulating an income tax.
10. The authors assert that the FairTax is transparent:
The authors point out that the FairTax is transparent because when purchasing a product or service, the amount of tax paid is shown on the sales receipt. Note that under the current tax structure, we can see, by looking at a single line on our tax returns, precisely how much we paid in federal income taxes in any given year and what our “effective” tax rate was for that year (the “effective” tax rate is determined by dividing total taxes paid by total income). On the other hand, unless we’re unusually meticulous with our sales receipts, we’re not going to know these figures under the FairTax. That’s the opposite of transparency.
11. The authors claim that the FairTax proposal would abolish the IRS:
It’s true that the FairTax proposal would eliminate the Internal Revenue Service itself, but the underlying implication is that the intrusiveness and expense of any enforcement agency would not be necessary. In effect, the authors would have us believe that, with the FairTax, we would be able to rely on the honor system. However, no tax of any kind, including consumption/sales taxes, could work without fear of enforcement and punitive action. Otherwise, some of us would pay our taxes, and others would not. While the IRS would be abolished, another enforcement agency would be created to take its place, and of course, any audits or investigations of possible negligence or foul play with a consumption tax would be just as intrusive and distasteful as any audit conducted by the IRS.
12. The authors write that opponents of the FairTax are Marxists, liars, propagandists, uneducated, lazy, manipulative and/or “wallow in envy of those who have more”:
Using such language, scattered throughout this book, is a common radio talk-show tactic (one of the authors is a radio talk jock) intended to preempt readers from listening to or analyzing another point of view. Since any and all who oppose or question this FairTax are dishonest, jealous or stupid, the authors imply, the reader shouldn’t consider anything they have to say.
Recent experience teaches us that we can get ourselves into trouble if we allow ourselves to unquestioningly accept confident assertions and overly optimistic projections. I agree with the authors’ diagnosis of many of the problems with our current tax system, but their prescription, a major overhaul of the strongest economy in the world, could be worse than the disease — much worse. In addition, this plan is being sold using the same approach used by a stereotypical used-car salesman. We deserve better.
November 30th, 2007 at 12:04 am
To respond to Mr Factor’s comments on the FairTax and seniors. I speak on the FT all the time and without a doubt, the group that comes up afterward to voice their support the most is guess who?
Yes, Seniors! Why?
As a group, seniors do very well under the FairTax. Low-income seniors are much better off under the FairTax than under the current income tax system.
Some erroneously believe that people who live exclusively on Social Security pay no taxes. They may not know it, but they are paying hidden corporate income taxes and employer payroll taxes whenever they buy anything. Under the FairTax, seniors pay $0.23 out of every dollar they choose to spend on new goods and services.
Plus, seniors, like everyone else, receive a monthly prebate, in advance of purchases, for taxes paid on the cost of necessities which more than pays for all of the taxes they would pay if they received the average Social Security benefit amount and spent it all. If seniors choose to work, they are freed from regressive payroll taxes, the federal income tax on wages, and the compliance burdens associated with each. They pay no more hidden taxes on goods or services, and used goods are tax free. There is no income tax on their Social Security benefits.
The income tax imposed on investment income and pension benefits or IRA withdrawals is repealed. Pension funds, IRAs, and 401(k) plans had assets of $12 trillion in 2004. An income tax deduction was taken for contributions to most of these plans. All beneficiaries and owners of these plans expected to pay income tax on them upon withdrawal, but are not required to do so under the FairTax.
All owners of existing homes experience large capital gains due to the repeal of the income tax and implementation of the FairTax Plan. Seniors have dramatically higher home ownership rates than other age groups (81 percent for seniors compared to 65 percent on average). Homes are often a family’s largest asset. Gains are likely to be in the range of 20 percent.
The FairTax makes the economy much more dynamic and prosperous. Consequently, federal tax revenues grow. This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.
Hope this is clear!
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February 8th, 2008 at 12:15 am
Give Fairtax a chance? I would LOVE it.
Just, be careful what you wish for.
Fairtax is based on the absurd notion that you can tax the federal government to pay for federal government. How rational people can sit there with a straight face, and say that is possible, is beyond me.
Neal Boortz claims (page 148 Fairtax Book) “the federal government itself will become a major taxpayer.”
Thats like me paying myself 10,000 for cutting my own grass. Oh, I can pretend to pay it. I can write a check to myself. I can even deposit that check. I can do that everyday for a month. But I dont end up with 300,000 dollars.
So when Boortz and others are telling you that taxing the US Navy 4 billion dollars on a 12 billion dollar aircraft carrier, they are blowing smoke. Fairtax taxes every dollar of federal government purchases (and state, local, county).
This money simply CAN not mathematically materialize. So the tax rate can’t be 23%. It would have to be 38% to make up for it.
And that kind of sloppy thinking is in all aspects of Fairtax.
FOr another example - fairtax wants a 23% of the 2 trillion dollar health care industry. A fairtax of 23% would be on all healthcare — that means cancer patients — taxed on surgery, on chemo, on hospitalization.
It means a tax on nursing home patients, knee replacements, kidney transplants, open heart surgeris. It means a tax on the parents of a childhood leukemia victim.
It means exrays — taxed. Second opinion — taxed. Lab tests — taxed. ER care — taxed. Doctor visits - taxed. Back surgeries - taxed. Prescriptions — taxed. Diebetic supplies — taxed.
Fairtax can’t collect tax on health care either — the outcry would be deafening. Congress would quickly rescind it, if it ever passed.
So Fairtax CAN not tax government — and wont be able to tax health care. SO the tax rate would have to ve 50-60% on the rest of the economy.
Now, imagine a 50% sales tax on new homes, or new cars, or rent.
Imagine the outcry from those segments.
THis Fairtax can’t work. It would decimate the economy.
February 28th, 2008 at 1:27 pm
Rather than creating another layer of transactional based taxes, why not scrap the bloated corporate and personal income tax code with a simple progressive flat tax on gross income. There would be no deductions or credits. The calculation would take minutes and could be completed on a postcard as Dick Armey suggested! - The issue of fairness would be addressed by starting with a low income (shouldn’t everyone pay somethings as a matter of priniple?) and tax rate percentage with the “progressive” linear increase in rates as income rises up to a final tax rate ceiling when it would go totally flat. - This approach would eliminate all discussion between those who have high mortgage deductions and those who don’t, those who have kids vs those who don’t, those who contribute to charity vs those who don’t, those impacted by the Alt Min Tax and those who aren’t, etc. - On the corporate side it is based on audited GAAP income with no loss carryforwards. You make income, you pay. You don’t make income, you don’t pay. — There are many other great reasons for this like unleashing the talented accountants and lawyers to produce real economic value rather than just trying to dodge the tax man!
March 17th, 2008 at 11:19 am
You want to do as Dick Armey suggested?
Dick Armey is a con man. The “postcard” tax return he proposed was really a con job that was designed to fool stupid people.
Didn’t you notice that ONLY earned income is on Dick Armey’s postcard tax form? Only work, in other words. Money you work for, labor, small business, self employed, thats all taxed. And taxed high.
In fact, if Armey’s BS post card plan was passed, the kid that delivers your paper, if you get one, would pay more tax than Bill Gates and Warren Buffet COMBINED, on their cap gains.
Apparently, you were too mezmerized by the post card to realize what he really did — his real aim — was to just have WORK pay taxes. Earned income.
As horrible as Fairtax is, as absurd as it is, as unworkable as fairtax is, at least its not written by people who want ONLY work to pay taxes. Fairtax is a house of cards and can’t work, but I give it this much — it doesnt screw workers. It screws everyone and would be rescinded in two months, if they ever passed it (which they wont)
May 14th, 2008 at 6:11 pm
Fairtax sure sounds great. I wish it was realistic — or even sane.
The sad truth is, for all its good intentions, Fairtax isn’t even possible, at least at 23 or 30%. It might work at those rates — even though there would be terrible problems with it. But since the real rate would be more like 40 or 50%, fairtax is inherently unworkable.
One big reason the tax rate can’t be “just” 23% is that the Fairtax math that allows them to say 23%, is based on an absurdity. And that absurdity is the federal government paying itself the highest sales tax on earth, and counting it as income.
Fairtax really does count as INCOME that which it pays ITSELF. This is preposterous and absurd. The US Navy, or example, could indeed write a check for 3 billion of sales tax on a 12 billion dollars aircraft carrier. But the US Treasury has to PAY the check. True, the check comes TO the treasury, but its not INCOME. There is no new money coming in, its a bogus phantom transaction.
Why would Fairtax wizards insist the federal government can pay itself a tax? Because if they don’t, they are 800 billion dollars shy on paper. And that would mean the tax rate is more like 45% — not 30%.
If Fairtax admitted the real rate was 45%, no one in their right mind would fall for it. A 45% sales tax on new homes? A 45% sales tax on nursing home patients? Cancer victims?
That would be a 45% sales tax on gasoline. The tax is 18 cents now — under fairtax, the tax on gasoline could be 1.50 or 2.00 per gallon.
Plus, this tax - whatever 23 or 45 - would be the world’s highest sales tax. Thats not so bad, by itself, but Fairtax applies this to rent. Wont renters be surprised! Home owners will miss that bullet — but renters will pay this high “sales” tax on their rent, as long as they rent.
Fairtax can convince some people that prices will drop 23% when Fairtax kicks in. There are many reasons to believe otherwise. But Fairtax can’t convince anyone that prices will drop almost 50%. And thats how much they would have to drop for a 45% sales tax to work.
Prices will actually jack knife up considerably underfairtax, even if the rate is by magic 23%. But as explained, since the math is off at least 800 billion, the rate can’t be 23%.
And regardless of what the rate would be - it would be the worlds highest sales tax. Imagine this sales tax on new homes. Buyers would and could avoid paying 30-40-50% sales tax on new homes, just by chosing existing homes. New home sales would therefore go into the toilet.
Most people can understand that if you tax something very high, people tend to buy less of it. New homes, new cars, big ticket items. Not only would this devestate the economy — and millions of workers — it means that the fewer sales mean less income for the government.
SO when new home sales go into toilet, as they would, the federal government would have to RAISE the rates — the rates that are already the highest sales tax on earth, would get higher.
Its hard to tell how high the rates would have to get, before the public demanded Fairtax be repealed.
Personally, I think the Fairtax leaders have no intention of passing this — or even letting it get studied in Congress. They know its pretty much a farce, and they know it would be a collossal embarrassment to them, if it were to ever pass. So they ACT like they want this to pass — but they are just selling smoke and mirrors.