Is the Huckabee “Fair Tax” Proposal Really Fair?
As a Brit, I’ve been watching the back and forth about Republican presidential candidate Mike Huckabee’s Fair Tax with amazement. The idea is that the entire current Federal tax system is abolished replaced it with a 23% sales tax upon everything, this meaning we don’t the IRS and individual tax returns. The money is collected by the States and handed on so that there simply isn’t a Federal tax collection system at all.
As one who has run businesses under a variety of different tax systems, I see the crucial issue as one of compliance. How are you going to actually make people pay this 23% sales tax? Or more precisely, make sure that they don’t change their behavior so that they don’t pay it?
There is great support amongst economists for consumption taxes. We’ve got to tax something and we don’t want to tax the “good things” unnecessarily. Thus taxing work isn’t something we really want to do, nor is taxing savings. If we only tax that portion of their money that people actually spend then that’s a consumption tax. The way this is usually proposed is that we have something very like the IRS which we report to each year. We tell them our income, deduct what we’ve saved and then pay tax on the remainder: what we’ve spent, or our consumption. We also regard taking money out of savings as income that we have consumed. Think of it as having a giant IRA which holds all of your savings.
Now there are other forms of consumption tax possible but this is the type that the roster of economists the Fair Tax promoters quote in support usually mean. Of the other types of consumption tax we also have Value Added Tax (VAT) and a sales tax, the Fair Tax being one of those latter.
A VAT taxes the value added along the manufacturing chain: the miner pays it on his inputs, collects it on his ore, the smelter pays it to the miner and collects it when he sells the copper to the wire maker. The wire maker collects it when he sells to the computer manufacturer and so on all the way down the line to you, the final consumer, who pays it to the retailer but cannot collect it from anyone else.
Some argue that the Fair Tax is exactly the same as this: the amount paid by the final consumer is the same, all we have done is eliminated the taxation of the business to business transactions along the way. Quite so, and if the tax rate was 5%, or 10% even, this wouldn’t matter very much: indeed the straight sales tax method might even be more efficient.
But we’re not talking about a tax leveled at that rate: we’re talking about one at 23% (at a minimum). Even with a VAT as economist Bruce Bartlett points out, we start to see leakages at those sorts of rates. With a single point of sale tax we’ll see huge tax evasion. For what a VAT does is make each supplier down the chain keen to make sure that he gets the legal invoices showing that he’s paid VAT to his suppliers so that he can offset it against the VAT he collects from his customers, before he sends his check off to Mr. Taxman. The system becomes in a large manner (although you still conduct audits to go and look at a certain percentage of these invoices) self-policing. The Fair Tax does away with that entire process, making it much easier to evade.
Just as an example, here’s how under the Fair Tax, if you were criminally minded, you could make a great deal of money very quickly. Assume that we’re using the current sales tax process to collect it (as is assumed in the plan). You set up shop to sell electronic gewgaws. You’re using a stolen or faked social security number and identification so you have no credit record. When you set up the local sales tax administrators will ask you what your turnover is going to be like. You tell them and they then ask for a deposit against your first few months sales tax collected. Knowing how this system works you low-ball your likely takings and hand over, say, $15,000. Great, you now have a license to sell, you’ve got a short term lease on a shop (or more practically, a website) and you sell calculators, alarm clocks or something for a few days.
Now the trick is to move into something of much higher value: no one is going to be monitoring your business at this point (imagine the enforcement regime needed to monitor every website in the country!) and you go off and buy a couple of truck loads of high-end laptops, or plasma screens perhaps. Yes, you’ve got to invest to make money! Now you’re competing against WalMart, Staples, other big box retailers, but you’ve got a secret weapon. Each truck has 1,500 units on it (say), each unit has a (discounted) retail price of $2,000 before the Fair Tax (imagine). Everyone else is selling at $2,460 therefore, making perhaps $50 a box. But, clever scofflaw that you are, you’re going to sell them at $2,200, a more than 10% discount to everyone else. If you’ve got brand name equipment, with things like warranty being handled by the manufacturer, you’ll have no problems in selling out of your stock in a short period of time. You collect the money, skip on paying the Fair Tax and you’ve got $600,000 profit. Sure, you’ve left $15,000 as the surety and you’ve got to go buy some new fake ID, but you can be back in business again in a few weeks somewhere else.
There’s really only three ways to stop activity like this. The first is to make the sales tax itself so low that the temptation to do this just isn’t there. As we’re trying to fund the entire Federal Government here we can’t do that. The second is to make it a VAT (and for reasons I don’t understand, the Fair Tax folks don’t want to do that) which again reduces the incentive to do this: you’ve paid your supplier the VAT on the value of his sale to you so the amount you can steal is again drastically reduced, making it not worth the candle.
The third is what Laurence Kotlikoff, a Fair Tax defender, seems to propose:
First, the vast majority of retail sales occur in major retail outlets, like WalMart. Second, we’ll have vastly fewer taxpaying entities (14 million rather than more than 100 million) on which to focus our enforcement efforts. Third, we’ll have hundreds of thousands of otherwise unemployed IRS agents, accountants, and tax attorneys to enlist to enforce a single tax. Fourth, we can always compel firms to report, via 1099-type forms, their sales to other firms. This will provide the same records that arise under a VAT. Fifth, the government can stipulate that all retail sellers provide buyers with a written receipt, regardless of whether the transaction is or is not in cash, specifying that the FairTax has been paid.
One and two fail because while we may have that structure of retail sales now we most certainly won’t have that structure if we change the tax system so radically. Unless every roadside watermelon stand has to register we’ve just given them a 23% price advantage against the supermarkets: unless every farmers’ market stall does ditto. This might be a nice way to encourage more local commerce but isn’t what the plan’s promoters are really looking for. We’ll have an explosion of small scale sellers trying to work under the radar of the system. One, two and five fail because we are talking about the criminal possibilities of cheating the system. If we’re going to do four why not actually make it a VAT, so as to get not just the form filling but the economic incentives aligned as well?
But the most laughable suggestion is the third. I’ve always been under the impression that the aim here is to abolish the IRS. So what we’re in fact going to do is abolish the IRS and then hire everyone back again as the FTS (Fair Tax Service)? And the FTS will have to be vastly more intrusive than the IRS ever has been: to beat my hypothetical retailing scam they would need to a) monitor every retail outlet and b) every wholesale order by such outlets. We’re not going to get rid of intrusive taxmen this way, we’re going to be drowning in them.
The final defense of the Fair Tax on the compliance issue is given by Kotlikoff again:
The Fair Tax is, I should add, equivalent to a VAT except for excluding taxation of business-to-business sales, which yields, under the VAT, no net revenue. Virtually every developed country with the exception of the U.S. has a VAT. Since the Fair Tax is a VAT, except for its treatment of businesses transactions and its inclusion of a rebate, no one should view the FairTax with alarm. Collecting revenues by taxing retail sales is a tried and true practice.
A VAT is indeed a tried and true system of taxing retail sales. The things that make a VAT different, the taxation of business-to-business sales, are what make them work as they do. So, yes, the Fair Tax is indeed the same as a VAT except for those things which make VATs work.
Somehow, the argument that it’s exactly the same but we’ve taken out the bit that stops people from evading it isn’t all that strong, to my mind at least, an argument in favour of this particular tax change.
Tim Worstall is an Englishman who has failed at many things. Odd bits and pieces of his writing have been known to turn up in The Times, the book pages of the Daily Telegraph and the Philadelphia Inquirer, he’s been a long term contributor to TCS Daily and also blogs for The Business and the Adam Smith Institute.
Will a Fair Tax encourage purchases very expensive items from other countries to avoid the tax?
The aim is not to abolish the IRS. The aim is to abolish the federal income tax. In the process, the IRS gets abolished.
Secondly, with regard to pretty much the entirety of the rest of your posting, WE ALREADY USE SALES TAXES AT THE STATE LEVEL. You are attempting to convince us that something that already works won’t work.
Thirdly, the federal income tax not only has its own evaders, but it also has a much bigger group of avoiders. Tax avoidance, of course, is what fuels much of the tax accounting industry in America and allows the federal government to play games with who pays what and who gets what — vote buying and political favors to big business supporters.
Thirdly, the FairTax is not a VAT, will not be a VAT, and should not be a VAT. A VAT embeds taxes. No thanks, Europe.
Finally, the title of your post does not relate to its content. The FairTax does not originate with Huckabee. It is one part of his platform. Also, your article seems to be driven by the desire to associate the FairTax with the acronmym VAT as many times as possible, which is deceptive, and to assert that the FairTax is a VAT, which is absolutely false. What does this have to do with fairness of the FairTax, which is the question posed in the title? One might say that the FairTax is so-named because it applies federal taxation to a broader base. How does your post address this issue or any other one that might relate to the “fairness” of a tax system?
We don’t need a VAT and we certainly don’t need the federal income tax system. The income tax was made constitutional by amendment. Our (I’m sorry, I should say ‘my’) forefathers did not intend for an income tax system to exist in the first place. Once again, I remind you that we already have retail sales taxes (NOT VATs) at the state level and they work just fine.
So apparently you think we should admire the Europeans and copy their VAT system. I believe they all also pay income taxes. Do you really want even more paperwork?
One of the main advantages of the FairTax is doing away with the paperwork and the associated costs. The AFFT estimates compliance costs around $265 billion. But if you read deeper into the research you’ll find they did not use other potential areas of compliance cost savings which apparently were not reliable enough for them. If you add up these “guesstimates” the real savings in compliance costs may well be 1 trillion or more. The VAT plus income taxes of Europe sounds like a compliance cost nightmare.
Then there’s the issue of evasion. Switching to the FairTax means that around 86% of those businesses sending in the tax will be big companies like Wal-Mart. Can you tell me why Wal-Mart would risk losing its business license by giving you or me a deal out the back door? Of course they won’t. Currently evasion rates are around 25%. How many of those are just individuals frustrated by the mountain of forms they have to fill out and decide to just take the chance and not file at all?
Personally I think the best way to reduce evasion is rewards for informants. I think there is something to that effect in the bill, but I don’t think it was very high. I’d like to see a reward based on the taxes evaded like 10 times that amount. With all the little voice and video recorders out there now wouldn’t a shady dealer trying to save $100 bucks be worried that who they’re dealing with may be trying for $1000 reward?
You really need to read the rebuttals at the AFFT site fairTax.org to see Bruce Bartlett has been thoroughly discredited. Many of his arguments start from the work President’s Advisory Panel on Federal Tax Reform as do so many other opponents. Let’s look at that report carefully now.
http://www.taxreformpanel.gov/final-report/
Notice, no where do they show their assumptions, equations or calculations. Do you see the colorful graphics? How about the fancy fonts? How about the freaking cartoons? Do you see what it is? A sales brochure!
Now why would anyone believe an undocumented sales brochure put out to sell the ideas of some bureaucrats and thus themselves? This “so impressive” document is the foundation of almost all arguments against the FairTax. Until the Panel releases their methodology, which they have refused to do for years, it is irrational to think of it as anything other than the biased advertisement it is.
Businesses have to register, just like now, to get their supplies tax free. I doubt farmer’s market type businesses are paying income taxes on those sales now.
The FairTax is, thankfully, not a VAT. Our exports will have not one bit of tax or compliance cost embedded in their prices. It will give our products a significant price advantage in world markets since most foreign products still have their embedded income tax and compliance costs in their prices.
This is America. We lead the world, we don’t follow it.
About the Fair Tax and VATs. I’m not sure you’re quite getting my point.
If the Fair Tax was a VAT it would have many fewer problems (at least from my point of view).
It’s one of the questions I ask in the piece: why don’t people want it to be a VAT? It will work better that way. So why the objection to it?
Yes, a VAT is embedded taxation. That’s why it works better: because it’s more difficult to evade.
While no one is claiming that tax evasion will disappear under the Fair Tax, Worstall overlooks two prime characteristics of the proposal that will make evasion decline. First, the number of collection points under the Fair Tax drops from 155 million to 20 million, making the Fair Tax far easier to supervise and administer. The VAT that both Worstall and discredited economist Bruce Bartlett champion is in fact a step backwards towards more collection points.
Second, evasion under the Fair Tax drops exponentially because it takes only one to cheat on an income tax. It takes two to cheat on the Fair Tax – a seller and a buyer. Sellers who cheat under the Fair Tax will be gambling with their registration certificates, which will represent their economic livelihoods.
The evasion argument against the Fair Tax is a non-starter.
~Jim Bennett
Summit, NJ
The FairTax pushes the tax burden to the middle class. It eliminates middle class tax deductions like the mortgage interest deduction. It makes billionaire estates, capital gains, interest income, and huge gifts tax free while putting a 30 percent tax on new homes, 30 percent tax on medical bills like expensive operations, a 30 percent tax on legal services, a new 30 percent tax on FOOD, HEAT, RENT, and everything a poor and middle class person would pay. This “unfair” tax plan would destroy America – for an in-depth analysis of the bill and all it’s dirty little secrets see the FairTaxFraud Institute’s web site at fairtaxfraud.com.
Equating the Fair Tax with Huckabee is like equating the national anthem with me. I didn’t write the music nor lyrics, but I am in favor of the national anthem.
There are several things I hope all Americans, except the complexity-lovers in Congress of course, can agree upon.
The current tax system is full of avoidance possibilities put there to salve one constituency or another. It is way too complicated, costs too much to enforce, can be used for strictly political purposes and gives Congress too much power to control the behavior of citizens. It is also in some aspects incomprehensible, even to experts. It and takes too much time and effort to pay and too much government time, effort, and money to modify, enforce, and print.
In short it is the worst and needs to be drastically changed. The Fair Tax deserves an earnest try.
FairTaxFraud, I don’t think anyone is interested in your No Tax plan. Taxing all earnings from investments at 50% would destroy this country.
Tim Worstall:
The problem with the VAT is it burdens the entire supply chain of every product with the paperwork and associated compliance costs. I see no reason we wouldn’t also keep the income tax in some form and its associated paperwork and compliance costs because the Europeans do.
The FairTax is far more efficient. We don’t need to copy inefficient European ideas. We are already the most productive people in the world. The FairTax will relieve our producers from these insane inefficiencies and allow border adjustments better than the VAT. Once we are on a level playing field with the rest of the world our exports will soar.
I’ll take the risks of evasion. I really don’t think it’s an issue since businesses have so much more to lose.
Economists have shown with their econometric models that GDP will double or more and be sustainable with the adoption of a consumption tax. We need the economic growth that is the main promise of the FairTax to be able to survive the ever escalating costs of entitlement programs.
I think the fact that the poor will pay is a feature, not a bug.
Disabused of the notion that there is a pile of “government money” in Washington, the appeal of sending a buck to Washington to buy you seventy cents worth of something you don’t really want becomes a tough sell.
That is why the politicians and the elites hate the Fair Tax. It becomes obvious that they spend far too much of our money on things we don’t really need.
RE FairTax Fraud: You stated, “It eliminates middle class tax deductions like the mortgage interest deduction.”
The mortgage interest deduction is a deduction from federal income tax liability. Under the FairTax you have NO federal income tax liability. Therefore, to complain that you will lose the mortgage interest deduction under a system in which you don’t pay any federal income tax at all is senseless.
Please go read the FairTax book so that you can make more intelligent criticisms such as, “If we adopt the FairTax and eliminate the income tax system, then people who make their living manipulating the tax system will have to find some other line of work.” That would be an accurate statement.
You could also say, “If we replace the income tax system with the FairTax, then career politicians that have occupied seats in congress for generations will have somewhat greater difficulty playing class envy games with American voters.”
But to lament the loss of deduction when the FairTax would eliminate the very tax from which the deduction would come does not make any sense at all.
Mr. Worstall makes sweeping assumptions which have nothing to do with the current FairTax bill before Congress. First of all, no retailer can come in and decide ahead of time what he is going to sell and pay quarterly. That is not how the FairTax works. Any retailer must be licensed and prove to the state sales tax division what his inventory on hand is and how much he as sold. The sales tax is remitted daily to the state and the retailer keeps .25 percent for collecting as does the state.
Obviously there is no tax system that is perfect however, if you compare the current system with evasion as high as 40% not accounting for the dilatorious affect on business with over 12 Trillion U.S. dollars sitting off shore as a result and the highest corporate income tax in the world driving business offshore. I’d take the FairTax option any day.
Again, a VAT taxes the means of production and only people pay taxes, not businesses or corporations which was clearly spelled out by Alan Greenspan in Congressional committee.
Of course, their will always be people like Mr. Worstall that have the criminal mindset that will think of ways to avoid the tax or game the system. However, under the sales tax, it is much harder to game than the current system which is rife with inconsistencies, benefits the most wealthy and punishes hard work, savings and investments — the life blood of any economy.
For instance, WalMart will not be complicit with you or me to sell you items under the table. If they do they loose their license. Furthermore 45 states have sales tax agencies to monitor this activity already in place.
With the income tax it only takes one person to cheat and as one great American stated “The income tax makes more liars out of Americans than the game of Golf.”
Right now most of our necessities and purchases are from the top big box stores unlike in Europe. 90 percent of all of our purchases is from large companies like Target, Home Depot etc…They will not be cheating as it will be to their advantage to sell and receive their .25 percent for sales.
The FairTax is truly the best system which gives me power over how much I pay government due to my spending habits and since we have now broadened the base to such an extent that it will certainly be an improvement over the current progressive income tax that is strangling the U.S. economy and individual incentive.
The FairTax will unleash productivity and allow small business and large to flourish and will become a tax haven for companies from around the world who will headquarter in America with no corporate income tax.
America is founded on the principels of individual initiative and freedom. The FairTax restores the functional relationship between government and the governed and once again puts the individual in the position of sovereign as it was until 1913.
America became a super power with no income tax. Ever since, we incorporated the progressive income tax we have been growing government exponentially. It is time to bring reason and sanity back and a system that cannot be gamed by the lobbyists, special interests and the politicians at the expense of the people they are elected to serve.
I am sure Adam Smith if he were alive today would approve.
Sincerely,
Lori Klein
So now Bartlett has sucked in a Brit. We’ve all learned about him but I guess the word hasn’t “crossed the pond” yet. You attempt to make a big deal about evasion, but have you looked at the evasion we have today? Even the IRS admits there is over $300 billion owed which it will never collect and that’s just the part they know about and are willing to admit. Remember, with today’s system it only takes one person to cheat. Under the FairTax it takes at least two.
For brick and mortar stores in 45 of the states enforcement will be handled by the states, which will receive a stipend for doing the collection. Asking retailers what happens if they do not pay their sales tax the answer is almost universally “they lock the door”.
Your adoration of the VAT is obvious and my guess is that is all you have been exposed to. Just because you and your brothers in the EU do the VAT is not a great recommendation to me, in fact it is incentive to look for another way.
Attacks on the FairTax
FairTax Act is one of the most researched public policy issues in
History, is cosponsored by 72 members of Congress and endorsed by 5
presidential candidates.
In the last few days before presidential primary elections many articles
are written about the FairTax that contain misconceptions that often
befall individuals that have a less than full understanding of the
FairTax. This is easily overcome by reading the proposed legislation and
looking at the research that has been done on the FairTax. These
attempts to discredit the FairTax are generally motivated by people
trying to discredit presidential primary candidate Mike Huckabee, an
advocate of the FairTax.
With over $22 million spent on research, the FairTax is likely the most
researched public policy issue in history. This research was done by
some of America’s best economists at premier universities and think tanks
by individuals from the political left and right. This research is
readily available at the FairTax website: http://www.fairtax. org.
The articles will state that the FairTax rate is 30%, which is true, but
to compare it to the income tax it is replacing then we would have to say
a person at a 20% income tax rate would really be at a 26% rate, because
he is buying things with after tax dollars. Under the FairTax we would
be buying things with pretax dollars, as we’d be receiving all of our
earnings (no income and payroll taxes). To compare the FairTax to the
income tax the FairTax rate should be presented as a 23% rate.
The important issue is whether we will be at a higher or lower tax rate.
A 2006 study by Boston University economists Dr. Laurence J. Kotlikoff
and Dr. David Rapson concluded that the FairTax benefits all income
groups. Of 42 household types (classified by income, marital status and
age), all have lower average remaining lifetime tax rates under the
FairTax than they would experience under the current tax system, and
those with lower spending levels benefiting most.
Economists generally like this kind of consumption. Like most
economists, most CPA’s know only too well that our current tax system is
broken and impossible to comply with. The more citizens learn about the
FairTax the more they like it.
Some of the articles attacking the FairTax may try to gain credibility by
quoting authors Bruce Bartlett or William Gale who’s statements about the
FairTax have been thoroughly discredited. Their efforts to misrepresent
the FairTax are not taken seriously by most economists due to their lack
of scholarly content and truth. Economists will have different opinions,
but almost all agree that income taxes depress the economy and
consumption (sales) taxes grow the economy. It is not rocket science.
When you penalize productive behavior you get less of it.
Claims are made by some that the FairTax will create an underground
economy. Isn’t this what we have today with all the under the table and
illegal transactions, and hidden economy of illegal aliens. Under the
FairTax the drug dealer on the corner will be paying his taxes when he
spends his money. Illegal aliens will also pay taxes as they consume,
however, only legal households will receive the monthly “prebate” check
each month to offset expenditures up to the poverty level.
The FairTax is so simple that some fear the public will understand it.
It is so visible to the public that some fear the public will learn their
true tax burden. It taxes us so directly that it eliminates the ability
to buy and sell tax favors, so some that benefit from this practice hate
it.
Numerous studies confirm that on average ~22% of the retail price of all
US produced goods and services are “business taxes” imbedded in the
prices. As Dr. Alan Greenspan lectured Congress, “only people pay
taxes.” Taxes, like any other cost of doing business, are added to the
cost of products and are passed on to consumers. This deceptive practice
of hiding our taxes in prices is resulting in the exportation of our
companies and jobs rather than our products, as it places American
business and labor at a ~20% competitive disadvantage.
By eliminating personal and business income taxes the FairTax removes
taxes (and $500 billion in tax compliance costs) from the prices of
American produced goods and services and allows American labor and
business to compete with foreign competitors on a level playing field.
The FairTax would do more than any other legislation contemplated or
possible to revive our economy, reverse our balance of trade, stop the
fall in the value of the US dollar, save our industrial base (that is
necessary for our national defense) and return to us the freedoms we have
lost due to the income tax.
By eliminating the ruse of “business” taxes people will see, on every
sales receipt, their true tax burden for the first time in generations.
This visibility of taxes is the self-limiting factor on taxation and size
and reach of government that was intended by our Founding Fathers.
The FairTax eliminates the buying and selling of tax favors by public
officials and lobbyists that today corrupts our political system. By
this means it transfers power from Washington back to citizens where our
Founders intended it to reside.
FairTax Supporter :
Hey, I like your quick little explanation of the FairTax. You’re right about so many people losing control of citizens and not liking it. They are trying to spread false facts about it. The ONLY thing I like about Huckabee is that he seems to genuinely believe in it. The ONLY good reason he is still out there. I think there is a ground swell of support for FairTax and it makes me happy.
One problem with the Fairtax (which I happen to be in favor of) is that most of the financial services in this country are devoted to avoiding or minimizing the Income Tax and Estate Tax. You didn’t think Warren Buffet and Bill Gates gave all that money to Foundations because they liked to, did you? No, it’s a way they can funnel the money to the right people while avoiding paying the taxes on it.
It’s the same with most, if not all, of the critics. They make their living helping people avoid or minimize the Income and Estate taxes. Eliminating those taxes would eliminate their jobs. Their very well paid jobs. This isn’t a matter of eliminating the jobs of loggers or oil workers, these people matter. They have the money and connections to lobby Congress and obtain sympathetic coverage from the news media.
Their not going down without a fight and have the wherewithal to insure a vigorous one.
I can’tbelieve that such a high tax rateon consumption will not bring about a black market and a sstonben goods market-it will or it will cause the economy to crash as the items we buy will be no longer be purchased because of such a confiscatory rate.
As someone whoo has paaid the high income tax rates all his life and now in retirement is about to be hit on spending -I stand to get hit on both sides. can you spell unfair? or shall I move somewhere else.
Looks to me that Mr.Worstall didnt study HR 25, or at least read The FairTax book.One of his point, regarding “the government can stipulate that all retail sellers provide buyers with a written receipt, regardless of whether the transaction is or is not in cash” is already in the FairTax. Another point what he is missing, when is comparing FairTax with VAT, that under a VAT, all embedet taxes still exist, or under FairTax will be eliminated.This one point, by me, its the most important.Means that all product will have a price drop of 22-30%. If you add the FairTax of 23% basicly the price remain unchanged.
For Mr.FairtaxFraud:
I can bet, that you are just repeting some talking point of sone poilitican who is afraid of loosing his power. I will try to give you just a small exemple. Let say you are one of those “poor”, but even then you have to buy the strict neceseties.Let assume that you are now in the 15% bracket.
Under curent system, in order to buy a $100 product, you have to make $115. And keep in mind that 22-30% of that $100 are enbedet taxes, which make the real price of the product only $70-78.
Under FairTax, the same product will cost you only $100 (no income tax),$72 the real cost + $23 tax.
But…and here is the main ideea, witch most of the critics are missing it. You have a PREBATE. As the FairTax is mentioning, at the begging of the mounth every persone will get a check from the goverment witch will cover the sales tax for basic neceseties. That is like you are not paying sales tax.Bottom line, for you as a “poor” persone is that instead of workinf 10.5 hours at $10/hr, you will work only 7.3 hours. You have a saving of almost 3 hour in witch you can think how to complein about “the rich are not paying ther fair share”.
And the FTS will have to be vastly more intrusive than the IRS ever has been: to beat my hypothetical retailing scam they would need to a) monitor every retail outlet and b) every wholesale order by such outlets.I don’t understand how this is more intrusive. Almost every state already collects sales taxes and in the process monitors retailers along with the IRS. They would be the ones doing the collecting and much of the enforcement as they already do. They would NOT be monitoring household income and deductions, dividends,capital gains, depreciation rates, mileage rates, medical expenses or a whole host of other things that now require exhaustive recordkeeping by individuals and businesses. The present system is far more intrusive than the sales tax will ever be.
This is a most helpful conversation. Don’t yet know where I come down on this one, but I’m becoming better informed through the post and comments.
Don L.
PLEASE read the Full Fair Tax Plan and it’s associated research papers. You will find out that you will be FAR better off under the Fair Tax, than under the current Income Tax and other taxes that the Fair Tax Replaces.
Your First Mistake is not understanding what your current TRUE tax rate is; even if your not paying a dime in Income Tax, it’s estimated that there is an avg. 22% embedded cost in EVERY product and service that you currently buy…directly associated to current Income and other taxes. So, if your in the 15% tax bracket your true tax burden is somewhere in the 33 to 35% range..Minimum, and it only goes up from there. So to say that a 23% retail sales tax is too much, that allows you to take home your GROSS wage, reduces the embedded taxes in products, and stimulates the economy more than anything has done in at least the past 50 years, just shows that you need to become more educated on the Details of the plan.
I hear some retirees repeat the same things that you’ve posted, as if your not being “hit on both ends” Now. How about the Income Taxes that your paying on Savings and Investments? The Fair Tax eliminates these. How about the Death Tax? You’ve paid taxes a minimum of twice already on your assets when you count the embedded taxes on the items purchased, and your family will pay a third time upon your death.
The most important thing you need to consider is that the Current Income Tax is KILLING the American Economy, driving Jobs, manufacturing, Savings, Investment, and much more..Overseas. If we do not do make a REVOLUTIONARY change Very Soon, the United States will change from the leader of the WORLD to …the Leader of the Third World Nations. We’re already WELL on our way.
This is all just coffee-talk unless we can get Huckabee in office! Give to his campaign, he’s America’s only fiscal hope.
This is all just coffee-talk unless we can get Huckabee in office! Give to his campaign, he’s America’s only fiscal hope.
So, you’re argument boils down to, “The Fair Tax might be better for the criminally minded, so we can’t allow upstanding citizens to benefit from it.” Nice.
Truthfully, I agree that The Fair Tax, as championed by Huckabee, is fatally flawed. We don’t need the rebate horse hockey, but we do need to tax the business-to-business transactions like everything else. In fact, transactions are the only legitimate place a government can tax – Income taxes and property taxes amount to institutionalized covetousness by the lawyer-politician class, and are immoral (Like most of the lawyer-politicians themselves) – so EVERY transaction ought to be taxed at a rate not to exceed 5%. No exceptions. Not even for food.
Americans understand sales taxes and have been paying them at the state level forever, so your argument that some gargantuan new bureau would have to appear is fallacious. A federal sales tax would integrate with the current system seamlessly. Oh, and state sales tax should not exceed 5% either, so the total transaction tax (And, that’s what I favor) would be no more than 10%. God asks for a 10% tithe, so how can the government legitimately ask for more? It can’t: When the federal income tax was first imposed, the top rate was 4% because of this very argument: THAT’S how far we’ve slid down this slippery slope.
The IRS is an immoral and anti-American abomination, and must be abolished. By whatever means necessary. LOL!
BTW: The transaction tax would not be a VAT, because a VAT is invisible and variable: You never know exactly how much you are getting reamed for. Ten percent is ten percent is ten percent. Everybody would understand this intuitively, but it ought to be printed on every receipt as well.
dculling wrote >> “This is America. We lead the world, we don’t follow it.”
Amen
I am unconvinced by Tim Worstall’s opinion and his reasoning to support such.
VAT – horrible end of story.
Sales Taxes – Most States have them the infrastructure is in place
Takes two to cheat the Fair Tax
I am amazed but not surprised when people try to take a negative view of the FairTax. The FairTax,”AS WRITTEN” is NEVER used. Bits and pieces are. We all have opinions, but the FairTax is backed by $22 million and 11 years of research by top economists and numerous surveys
of the general public. I don’t think the writer of this article can claim this. Therefore the readers should not but much value on he says.
I think the simplest (and correct) way to solve America’s tax problem is to admit that the system of government we have (that is, republic, not democracy) was planned out very carefully in the Constitution to balance power, not just among the three federal branches, but between the states and the central government. Thus, upsetting that balance (by having a federal government outside the bounds of constitutional law, for instance) we create an unsustainable mess. We must cut spending, programs, and bureaus so much that the federal government is the size it was designed to be and then we will have no need for an income tax or any bizarre form of federal sales tax.
I’m glad someone else knows this counrty was set up as a republic. When is the last time anyone in congress or the media actually said this? Yes,no taxes woud be great. However taking all that power away from congress would be ten times as hard than passing the FairTax. Restoring this country to a true republic will take another revolution I fear.
To all the FairTax detractors, I’d like to quote Albert Einstein,” Only two things are infinite, the Universe, and human stupidity. And I’m not sure about the Universe.”
The Fair Tax will not change our lack of a functioning Constitution. To say nothing of the fact that legislators will never give up their power over our lives through making tax laws.
How we are taxed is unessential. The amount government spends is essential. We once had a Constitution that was not perverted into an excuse for unlimited spending.
Being taxed at one and one half percent without representation doesn’t seem so bad in retrospect.
Phineas Worthington,
It matter very much how we are taxed. Consumption taxes are proven in economic models to grow the economy at the faster rate sort of no tax at all.
I agree we need to cut spending, but that’s a separate issue and has to stay that way. We have to get support of the majority to get it passed which means those who like government to spend money also.
My concern is the prebate. How easy would it be to GAME the system by registering false SSN. How many illegals already have false SSNs that give them Gov’t benefits? Just what we need, millions of prebate $s going to noncitizens. I could imagine those in Washington who want a National ID making it mandatory before the FT becomes law.
JD,
I don’t know how much fraud there is with Social Security. However, that’s really an issue about enforcing our current laws which should be done regardless.
dculling, The argument that a tax can only tax consumption is a myth. All production requires some degree of previous consumption.
If the FairTax is to be passed only the people will get it done. Less than 35% of the population in 1776 wanted to revolt against England. Less than that actually did something about it.
Where is the media on tax reform?
Mark my words come April 12th or so they’ll be talking about filing taxes again. Telling us about changes in the code, tips on cutting your taxes etc. then wait to do it all over next year.
If the FairTax benefits the rich why aren’t these anchors promoting the FairTax? They’re not exactly minimum wage people. The fact of the matter is the media is the source of the division in this country. Biased reporting, personal views, these are the staple of reporting today. What might be good for this country is NOT news. Blood and guts is. The latest drunk movie star. The latest missing person. The latest murder. That’s our news.
Did anyone posting here get asked who they’re endorsing for President? I didn’t. Does anyone care who Caroline Kennedy or Ted Kennedy endorses. Well I guess so. Oh, gee they’re rich they should be endorsing the FairTax also.
The people won’t pass this tax because they are opposed to the very concept of equal taxation. To say nothing of the elite’s contempt for equality.
A national sales tax failed the first time around in the thirties because the progressive tax advocates were the vast majority then as now. That is why the Fair Tax has a sop to the progressives with the prebate.