Skip to comments.Santa Claus, the Tooth Fairy, and the Fair Tax Proposal
Posted on 04/20/2005 1:25:07 PM PDT by CHARLITE
I know you're tempted not to read this article.
I know this because there is nothing (except maybe an all-night marathon of Al Gore documentaries) more mind-numbingly boring than reading an article about taxes.
Since my column on taxes is not competing as an alternative to "The Internet, Al Gore, & You," I must instead resort to begging each of you to indulge me for a brief moment of your time.
I always thought that only grumpy old men cared about taxes. I vividly remember many days during my childhood, watching my Dadnormally as cool as a cucumberemerge red-faced from his office, grumbling under his breath about what the IRS could do with his Standardized Form 1040.
Like most members of Generation X, my only concern was how to go about obtaining my next pair of Air Jordan's, so I always chalked dear old Dad's anger up to being crotchety and old.
Then I graduated from college, got my first real job, and was rudely given a preview to what my first prostate exam will feel like twenty-five years from now, courtesy of the IRS.
Now each April I find myself resisting the urge to sit on the front porch and complain about taxes (in between yelling at the neighbors to "keep their dadgum dogs off my lawn and telling their kids to turn the music down.")
Tax time always leaves me feeling kind of violated, like I've just finished an annual onenight stand with the government, where they take my money, give me nothing in return, and then I wake up in the morning not respecting myself.
But this year, Georgia Congressman John Linder wants to change that.
Congressman Linder has introduced H.R 25, nicknamed "The Fair Tax Proposal," which would "repeal all corporate and individual income taxes, payroll taxes, self-employment taxes, capital gains taxes, estate taxes, and gift taxes - and replace it with a revenue-neutral personal consumption tax," according to his website.
It was initially called the "Snowball's Chance In Hell Act," but lawmakers felt that might be considered a little too negative.
In a nutshell, this bill would replace the current tax system with a 23% national sales tax, which would give taxpayers more control over how much they paid in taxes. If you spend more, you pay more.
According to Americans For Fair Taxation (http://fairtax.org), included in the bill is a rebate payment that would go to every American household to replace the sales tax paid on necessities. Those in poverty, the bill's proponents say, would effectively not pay any tax under the new system. They also estimate that prices for goods would fall some 20-30% because the cost of producing goods would no longer be taxed.
Under the bill, a person making a gross annual salary of $40,000 a year would bring homeget this$40,000 a year. Linder's bill would also eliminate the Legalized Crime Division of the federal government (you might know them as the Internal Revenue Service).
Linder has dubbed the bill "The Fair Tax Proposal."
I, on the other hand, would join millions of crotchety old men everywhere in dubbing it "The Greatest Piece of Legislation Ever."
People from every political persuasion would win with the Fair Tax.
Conservatives and libertarians should be ecstatic because the Fair Tax would pry their money from the cold, dead hands of the federal government.
Conservatives could use the spare change to buy more militarystyle assault weapons. And libertarians, think about how much medical marijuana you could buy with all that extra loot!
If liberals were capable of happiness, they too could rejoice because the "rich" in this country would finally be forced to pay "their fair share." Just think about how much the executives at Halliburton would end up paying in taxes as they consume and plunder the Earth's resources!
Unfortunately, liberal happiness would be short-lived, once it was explained to them that abortions are not considered necessities and therefore, not immune from taxation.
Honestly, I'd like to believe passing the Fair Tax is possible.
I'd even go on the road with Congressman Linder to lobby for the Fair Tax Proposalthat is, if I could keep from laughing at the impossibility of it all.
(I laugh to keep from crying.)
Of course, I also still believe in the Tooth Fairy, Santa Claus, and private retirement accounts for Social Security.
But while we're being delusional, I've given some thought as to what lengths I would go to get this bill passed in Congress, only to realize theres not much I wouldn't do.
In the spirit of Compassionate Conservatism, I would offer help to displaced members of the IRS, by passing out maps to the nearest unemployment office.
I could be Ted Kennedy's designated driver.
I'd even play Spin the Bottle with Nancy Pelosi, knowing full well that a French kiss from San Fran Nan could be waiting for me at the end of every spin (its a disgusting thought I know, but French is the only way liberals do it these days.)
In the insanity brought on by having too much of my own money, I might even check the little box on next year's tax return to donate $3 to the political party of my choice.
These are just hints of the insanity the Fair Tax Proposal could cause.
Taxpayers of the world, unite! Join my army of angry, old, overtaxed men in contacting members of Congress to urge them to pass H.R. 25, The Fair Tax Proposal.
Just don't take it personally when your call or e-mail to Washington is met with bouts of hysterical laughter.
Thank you for indulging me in passing along Congressman Linder's gallant crusade for financial justice, and my personal attempt to unite with crotchety old men across the country.
I promise my next article will not be about the benefits of AARP or the terrific Early Bird Special at Golden Corral.
About the Writer: Matthew Holmes is a North Carolina based columnist. His articles have been featured in the North Carolina Conservative, ChronWatch.Com, World Net Daily.Com, News Max.Com, Opinion Editorials.Com, and other media outlets. He can be reached at email@example.com
Didn't the Deer Hunter have a similar scene?
Absolutely true! Bears repeating often!
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25), offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer for additional information:
I second the article except for the part about snowball's in hell. This thing, or some close variation, has a chance.
LOL! Isn't Soros one of the guys who speaks in favor of the estate tax? IF so, this should please him to no end.....make all that money that he has taxable.
I don't know what you've been doing in your spare time until getting here today, but it certainly wasn't spent reading anything factual about the FairTax or in understanding anything about economics.
Enjoy your stay. It may be a short one.
If I have saved a million dollars and been subjected to the current tax system on that million dollars and then FAIR Tax is implemented and I spend the million dollars, am I going to be taxed again on that million dollars or not?You are. Economist consider switching to a sales tax a tax on current wealth. That million would be your current wealth.
I've run the numbers, and I would be paying far more than I do now. With the assumptions in the fair tax act, ie. the cost to manufacture something will come down, so the cost of goods will be lower, is the grossest of assumptions.
Foreign manufacturers are not about to accept a lower standard of living so that we can enjoy a tax cut.
ie. the chill in the retail sector with the 23/30% addition to the cost of items not including High ticket stuff like cars, boats, etc. will be felt all the way to the bank.
ie. the pure unknowns.
ie. the first system must be completely dumped including various amendments to the Constitution of the United States of America, before allowing another means of taxation to the government that is taxing us now.
ie. allowing any exception or exemptions to any tax scheme is to allow a race war between the perceived haves and have nots to determine the direction congress will manage the "system" in the for and unforseeable future.
There is oh so much more.
AG just posted this yesterday from Laurence Kotlikoff (I guess you don't read AG's cut and pasties either).This will sure hack George Soros off. First, his money was taxed as income. And now it will be taxed AGAIN when he spends it. Good thing I don't yet have much accumulated wealth that would be double taxed under this scheme.I don't know what you've been doing in your spare time until getting here today, but it certainly wasn't spent reading anything factual about the FairTax or in understanding anything about economics.
The Case for the 'FairTax'
By LAURENCE J. KOTLIKOFF
Wall Street Journal, March 7, 2005; Page A18
Our tax code is a mess for a reason. Special interests pay for special favors. And with 17,000 pages and counting, there's plenty of places for our politicians to hide the kickbacks. Meanwhile, all the exemptions, deductions, exceptions and special provisions reduce the tax base, which means higher tax rates and smaller incentives for individuals and companies to produce income. And whether the tax breaks are set in fine print or spelled out in bold type, they generally favor the rich, making our tax system less progressive than is generally believed.
No tax system is perfect, but ours is so awful that fundamental reform is the only option. Fundamental reform is not just a necessity; it's also an opportunity to stop taxing income and start taxing consumption. My colleagues and I have been studying income and consumption taxation via computer simulations for some time now. We've found that switching from taxing wage and capital income to taxing consumption can significantly improve economic efficiency and growth. What's more, it can make our tax system much more progressive and generationally equitable.
* * *
Efficiency means different things to different people. To economists it means equating the extra output workers and savers generate for society with the extra compensation they receive for their sacrifice. Government taxation throws a wrench into this equation, setting the private return from working and saving below the social return and leaving the public supplying too little labor and capital.
When tax rates get really high, people stop working and saving altogether. At that point, everyone can see the system's nuts. But even moderate tax rates can cause major economic distortions. Unfortunately, our tax rates, particularly on labor earnings, aren't moderate. They're high. This is true despite recent federal tax cuts. Add together all the federal and state personal income, payroll, excise and sales taxes, and you quickly reach effective wage tax rates of 50% -- and not just for the rich and middle class. For the poor, the rates reach this level thanks to their loss of welfare and health-care benefits as well as tax credits from earning more money.
The bottom line is that our tax rates remain far too high and continue to generate a very large efficiency loss from taxation. The introduction of a consumption tax would broaden the tax base, significantly reduce tax rates, and improve economic efficiency. The efficiency gain comes not just from lowering rates; it also comes from effectively taxing something whose supply can't be distorted. That something is the existing stock of wealth.
Democrats need to listen up here. Their view that taxing sales is regressive is just plain wrong. Taxing consumption is effectively the same as taxing wages plus taxing wealth. The logic is simple if you consider the most straightforward way of taxing consumption, namely via a retail sales tax. In this case, when people spend their wages or their assets on goods and services, they pay sales taxes, meaning they end up with less to consume. This is no different from having the wages and wealth directly taxed, but facing no sales tax.
But what about saving one's wages and wealth and spending these funds plus accumulated interest in the future? Doesn't this avoid the consumption tax? No. You end up paying consumption taxes not just on the original sums, but also on the accumulated interest. The same holds if you save your wages and wealth and give it to your kids. When they spend it, they pay consumption taxes on both P&I. In present value it's the same as taxing the wages and wealth immediately. Thus a retail sales tax, with its effective wealth tax component, is highly progressive compared, for example, to taxing just wages.
Over the years, we've moved pretty darn close to just taxing wages by reducing capital gains and dividend taxes and expanding tax advantaged retirement accounts. In the process, we've not only reduced overall progressivity. We've also shifted the tax burden from the elderly, who receive most of the capital income, to the young, who earn most of the labor income.
The FairTax proposal, which awaits Congressional passage as H.R. Bill 25, would greatly rectify this intra- and inter-generational inequity and do marvelous things for our economy. The FairTax (details at www.FairTax.org) replaces not just the federal and corporate income taxes, but also the federal estate and gift taxes, and the highly regressive FICA payroll tax with one simple and fully transparent federal retail sales tax. In addition, the FairTax provides a highly progressive rebate to each household of their sales tax payments on consumption expenditures up to the poverty line.
Assume H.R. 25 becomes law. Overnight, people would move from paying, to the feds and states, roughly 50 cents per dollar earned on their supplies of labor and capital to roughly 30 cents. Because the relationship between tax rates and economic distortions is non-linear, this would reduce the excess burden of our tax system by roughly two-thirds! A very conservative estimate of this annual saving is 2% of GDP or about $250 billion for the coming year. Add in the aforementioned $250 billion in wasteful tax compliance, and we're talking big bucks.
But this is still small potatoes compared with the gains in economic growth associated with adopting the FairTax. Over the next few decades, the FairTax would likely raise U.S. GDP by 15% relative to its alternative value. Here's why. The FairTax generates much bigger incentives to work and save. It also redistributes from rich older spenders to younger savers. While it's not widely known, America's biggest spenders are actually the elderly, and for good reason. They know they have fewer years left to spend their resources and, consequently, are consuming their resources at more than twice the rate of the young.
What about the poor, both young and old? Wouldn't they be worse off under the FairTax? No. The FairTax's rebate would leave poor young households paying a zero net sales tax. And it would leave poor elderly households better off thanks to both the rebate and Social Security's automatic adjustment of benefits to any increase in prices.
The FairTax would also relieve the tax burden on middle-class workers. Since the FairTax generates a goodly portion of its revenues by effectively taxing wealth, it can afford to have a lower effective tax on wages.
Is a sales tax the best way to tax consumption? Notwithstanding some enforcement concerns, my answer is yes. The flat tax, propounded by some, purports to tax consumption. But read its fine print or talk to its sponsors. You'll find special transition rules that eliminate any effective taxation of existing wealth, leaving the rich, particularly the rich elderly, completely off the hook. The same simulations showing efficiency gains and enhanced economic growth from consumption taxation, show the reverse from moving to wage taxation. Thus, the flat tax, as it would likely be implemented, is a loser on both economic and moral grounds.
Fundamental tax reform is long overdue. Consumption taxation is the way to go. The FairTax is a reform every Democrat who cares about equity should love. And it's a reform every Republican who cares about efficiency, transparency and growth should champion.
Mr. Kotlikoff, chair of the economics department at Boston University, is co-author of "The Coming Generational Storm," out next month from MIT Press.
www.fairtax.org get informed, it is obvious that you know nothing about HR25/S25You should get informed (see #17) but you obviously can't do it on FairTax.org. That's just marketing BS.
Are you sure Soros paid taxes?
IF it's in a retirement plan, you never paid income taxes on it in the first place. Now, do you really have a million dollars saved or are you just blowing smoke?
Versus Your Nightmare's BS.
Or you could give some of it to charity, pay college tuition, give it to me, or invest it all tax free. The choice is yours. Unlike under current tax law.
Now, are you really going to inherit big bucks, or are you just blowing smoke again?
A switch to a sales tax is a tax on current wealth.
Any consumption tax is a tax on current wealth as it only tax on the basis of what is spent out of wages earned whether current or delayed taken from investment or savings to purchase from businesses paying taxes.
That is true of a flat tax on wages earned and business earnings, and VATs as well as any full income tax which levy taxes both consumption as well as production.
The plan is working!
Yep getting the IRS out of the life of the individual household certainly is.
|I discussed the importance of abolishing the income tax because of its tendency to form a habit of servility in the souls of a people that accepts it.
Servility of soul is bad not only in itself, it is also an open door through which will soon walk the abuses of ambitious government power.
Leaders who find themselves with governmental power over a servile people will be quick to conclude that such a people exist to serve them.
"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.
Not true. You pay college tuition with post tax dollars (except for tuition deduction which is miniscule). You can give money away tax free under the fair tax. Not so under current tax law, except for limited amounts each year.
Even investment is tax deferred and when taxed, is taxed at one half of the proposed Consumption tax.
Not so. Most individual's investments are in tax deferred retirement accounts. This money is taxed as ordinary income when it is pulled out under current tax law.
Tell me something, do you live where there is no sales tax currently? If so, you are currently being double taxed on your money: once when you earn it and again when you spend it. The difference is that under the fair tax you will not be taxed on your earnings; wages, interest earned, etc. Only when you buy something new, not pre-owned, and services provided by someone. Want to pay less under the fair tax, buy pre-owned goods and fix things yourself or you could turn to the barter system.
You can give money away tax free under the fair tax. Not so under current tax law, except for limited amounts each year.But what happens with the receiver purchases things with the gift? It's taxed.
Not so. Most individual's investments are in tax deferred retirement accounts. This money is taxed as ordinary income when it is pulled out under current tax law.But retired people under the income tax are taxed at a much lower rate than they would be under the FairTax. In 2002, the median effective tax rate on the elderly for the taxes the FairTax replace was 5.4%. That's significantly less than the 23% FairTax rate.
Wrong, you can't buy $10,000 worth of stuff because you have to pay sales tax (unless you live where there are no sales taxes). Also, if you buy gas, tobacco, etc. there are taxes that are built into the price (federal and state).
With the FairTax, if I get a $10,000 gift, I can only buy $7,700 worth of stuff. It's real value is $7,700.
Unless you buy pre-owned goods, then you pay no taxes. Also, if you deposit the money into an interest earning account under the current system you will pay taxes on the interest, but not under the fair tax.
I still have a choice where to spend my money to save taxes.
Wrong, you can't buy $10,000 worth of stuff because you have to pay sales tax (unless you live where there are no sales taxes). Also, if you buy gas, tobacco, etc. there are taxes that are built into the price (federal and state).State sales taxes and excise taxes aren't repealed by the FairTax so they don't enter into the equation.
Unless you buy pre-owned goods, then you pay no taxes.Right, I forgot we will all driving Pintos and wearing jeans with patches on the knees.
Also, if you deposit the money into an interest earning account under the current system you will pay taxes on the interest, but not under the fair tax.But the interest gained is taxed when spent.
I still have a choice where to spend my money to save taxes.You mean Canada?
well, except for the hidden taxes that are passed on to me via corporations and employers, but since those taxes are hidden I can pretend that they are not there. I mean no corporation or employer would pass on a tax just because they can. I'm sure that they pay those taxes fully and wouldn't even consider making that money up via me...sure.Riiiight, the hidden taxes...
No. I mean I can spend or not spend. I can give to charity or pay college tuition. I realize that the money will be taxed when spent, but I don't have to spend it. I don't have any choice but to pay income tax, or estate tax.
You're wasting your time on him.
Ah, but they do if you want to claim that you are not being double taxed on your "wealth".
Right, I forgot we will all driving Pintos and wearing jeans with patches on the knees.
Listen butthead, I have bought many pre-owned cars, as do many other people, and the oldest ones have been no more than 6 years old. My house is a pre-owned home, like many people buy, do you own a home? Did you have it built or did you buy an existing home (pre-owned)? Many people buy clothes from Goodwill, Salvation Army, etc. that are still in great shape. To make such comments shows your true intelligence.
But the interest gained is taxed when spent.
Waaa, and that is worse than the current system where you pay taxes on the intrest and then pay sales taxes when you buy something with it?
you confuse me.
you post against the fair tax and then direct me to an article that is in favor of the fair tax?..you must be one of those trust fund babies.
HR25 is a progressive tax, wealth will be taxed...and right now it isn't. The trust fund babies are not taxed. The truly wealthy are not taxed under our current system. Remember Teresa?--15% I live in her state and my tax bracket is more than twice hers and I do not even come close to having her wealth.
...the truly wealthy, those that fear the fair tax, are living off of trust funds and loopholes and frankly the rest of us are sick of carrying their (your?) weight
Ah, but they do if you want to claim that you are not being double taxed on your "wealth".Usually double taxation is considered being taxed by the same entity twice not that I pay two entities taxes.
Waaa, and that is worse than the current system where you pay taxes on the intrest and then pay sales taxes when you buy something with it?You don't pay federal sales taxes currently. We really aren't discussing state taxes because they don't change with the proposed plan.
you must be one of those trust fund babiesDamn, you found me out. I could own all of you!
HR25 is a progressive tax, wealth will be taxed...and right now it isn'tWealth has been taxed. That's the point.
The truly wealthy are not taxed under our current system.Sure they are.
Remember Teresa?--15%15%? I thought the wealthy weren't taxed.
Ok, we will leave state taxes out and replace them with the "corporate" (cost of doing business) taxes that are passed on to you when you buy goods and services. They will go away with the fair tax and they are being paid by proxy to the federal government. You do pay federal taxes on gas, so those still make you paying taxes to the same entity also.
"A switch to a sales tax is a tax on current wealth."
That criticism could be levelled at all consumption taxes, not just the FairTax. Therefore, it is interesting to see the point brought up by someone who claims that he favors a consumption tax.
"A switch to a sales tax is a tax on current wealth."
A switch to a consumption tax would also greatly expand the economy and significantly increase the value of equities. Guess who would benefit the most from that?
"You really need to understand real values. Today, if I get a $10,000 gift and pay no income taxes on it, I can buy $10,000 worth of stuff. It's real value is $10,000. With the FairTax, if I get a $10,000 gift, I can only buy $7,700 worth of stuff. It's real value is $7,700."
Of course, you ignore the fact that if that $7,700 worth of "stuff" were produced in the USA, it would have cost approximately $10,000 under the current tax system.
"That's significantly less than the 23% FairTax rate."
As you know the EFFECTIVE rate of the FairTax only approaches (but never quite reaches) 23% only for relatively high consumption levels. In fact, those consuming exactly at the poverty level will have a 0% effective rate - and that doesn't count the benefit of seeing pre-tax prices of US produced goods decline. In effect, there is an INCREASE in purchasing power up to the poverty level.
That criticism could be levelled at all consumption taxes, not just the FairTax. Therefore, it is interesting to see the point brought up by someone who claims that he favors a consumption tax.Explain to me how $100,000 in a bank right now would be taxed under a flat tax.
"Explain to me how $100,000 in a bank right now would be taxed under a flat tax."
You are right. I guess a flat tax isn't a consumption tax after all, is it?
Of course, you ignore the fact that if that $7,700 worth of "stuff" were produced in the USA, it would have cost approximately $10,000 under the current tax system.And you ignore the fact that the only way prices can drop like that is if wages are reduced. And since wages can't be reduced across the board, price almost certainly won't be going down.
As you know the EFFECTIVE rate of the FairTax only approaches (but never quite reaches) 23% only for relatively high consumption levels.They would have to be very poor to approach an 5.4% effective rate under the FairTax.
In fact, those consuming exactly at the poverty level will have a 0% effective rateThat's not true. People consuming exactly at the poverty level will have a higher than 0% effective rate. It's closer to 4%.
that doesn't count the benefit of seeing pre-tax prices of US produced goods decline.But they won't. Are you still singing that tune?