Posted on 09/29/2005 10:29:26 PM PDT by Sprite518
A good quick read...
There are essentially three tax reform proposals being considered by Congress. There’s Rep. John Linder’s (R-GA) FairTax, the flat tax, and the politically (though not popularly) preferred method of incrementalism.
Before we dwell on the differences between the flat tax and The FairTax Book co-authored by John Linder and myself, let’s acknowledge one political reality illustrated by the success of both The FairTax Book and Steve Forbes’ Flat Tax Revolution: the people of the United States are ready for bold and decisive tax reform NOW. They don’t want the incremental approach. The FairTax Book would not have debuted No. 1 on the New York Times Bestseller List if people were disinterested in wholesale tax reform.
Pleasantries aside, let’s illustrate the superiority of the FairTax plan over a flat tax. Flat tax advocates propose a flat 17% tax on all earned income with just a few allowable deductions. Nice try, but we’ve been there --- done that.
In 1986 Congress passed what was essentially a flat tax. The main difference between the 1986 effort and that proposed by Dan Mitchell, Steve Forbes and others was that the earlier effort set forth two flat tax brackets: one at 15% and the other at 28%. It’s now 2005, some 19 years after this attempt at a flat tax … and the tax code has been amended nearly 10,000 times.
A flat tax leaves politicians room to tinker, to manipulate the tax code for the benefits of large campaign donors or specific constituencies. As we’ve seen, with a flat tax it is all too easy for the political class to decide to add just a “small” surcharge to high income taxpayers; after all, the surcharge will only affect a small percentage of taxpayers, and the money can be used to buy votes from an even larger percentage! Under the FairTax, the national retail sales tax, there is no way to raise the tax rates on the rich, or to favor any one particular business group. The FairTax treats each and every citizen exactly the same, playing no favorites among people or business entities. You can’t raise the rate without raising it for everyone, nor can you offer one particular product a break since the tax is applied universally. Nobody, rich or poor, has to pay the FairTax on the basic necessities of life, because the prebate* is applied universally.
The FairTax would constitute the largest transfer of power from government to the people since the Revolutionary War. The flat tax takes no power from government. The FairTax is a revolution. The flat tax is an idea that’s been tried before, and found wanting.
*Prebate? Read The FairTax Book … you’ll love this idea.
Flat Tax by Daniel J. Mitchell
The internal revenue code is a disgrace, both morally and economically. In a competitive global economy, America can no longer afford a loophole-ridden, class-warfare tax system.
There are two main contenders to replace the IRS – the flat tax and the FairTax. Both are great ideas since they are based on the principle that all Americans should be treated equally, meaning no loopholes or special favors. Indeed, they are different sides of the same coin. The flat tax grabs a slice of your income, but only one time and at one low rate – when it is earned. The FairTax, meanwhile, grabs a slice of your income – but only one time and at one low rate – when it is spent.
But while both tax reform plans are theoretically equal, the flat tax is politically superior. First and foremost, the flat tax is more popular. A recent poll showed the flat tax is almost twice as popular as the national sales tax – and the same poll showed that the sales tax is tied with the current system.
Moreover, I'm concerned whether a national sales tax is politically viable. Senator Jim DeMint had an unexpectedly tough race in South Carolina last year because his opponent demagogued against the fair tax. Republicans also may have lost the Colorado Senate race because their candidate was zinged for supporting a national sales tax. And the GOP lost a Senate seat in Louisiana back in 1996 because the candidate backed the wrong tax reform plan.
The flat tax, by contrast, is battle-tested and has been implemented in more than 10 countries. The FairTax cannot match this real-world track record of success. Indeed, there is not a single jurisdiction in the world that has ever replaced an income tax with a sales tax.
This is not just a question of which plan is more politically popular. We also have to think about the long-term impact. Many Washington politicians desperately want a national sales tax – but only as a source of additional revenue, not as a replacement for the income tax. I don't want them to pull a bait-and-switch on us, which is why America should not adopt any national sales tax (or value-added tax) unless the 16th Amendment is repealed and replaced by an ironclad provision that unambiguously prevents an income tax for the rest of time.
Europe's experience should make us very cautious. Politicians promised to lower or eliminate other taxes when they adopted national sales taxes, but in every case they kept their income taxes and used the sales tax revenue to expand the welfare state.
Moreover, it is very difficult to amend the Constitution. We can't even get a two-thirds vote for a watered-down balanced budget amendment. Does anyone really think we can get the votes to permanently preclude an income tax? And how about the challenge of getting 38 states to ratify such a proposal?
There is a downside to the flat tax, of course. Politicians in the future could change the system and we could degenerate back to what we have now. While this is a possible outcome, it is not nearly as bad as the downside of having a national sales tax added to the current income tax!
The FairTax is a great idea. I have testified in favor of a national sales tax, written in favor of a national sales tax, and debated in favor of a national sales tax. But if we actually want to get rid of the IRS and adopt a simple and fair tax system, the flat tax is the only horse that can make it to the finish line.
....of course gov't spending would have to be dramatically cut.
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 replace them with with a national retail sales tax administered by the states.
H.R.25,S.25
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:
The seeds for destruction of the FairTax's 'fairness' are to be found in the 'prebate'. I love Boortz, but he's crazy if he thinks that won't be the lever for income redistribution. We'll just see the tax rate rise and the 'prebate' rise to divert wealth in politically palatable ways (from the few to the many).
If it is a sales tax why isn't the tax rate computed they same way as sales taxes currently are?
When I currently buy an 100.00 item the tax, for a 8.25% rate, will be 8.25%. Under the FT rate of 23% the tax would be 29.XX.
Why call the FT a sales tax if it isn't? I LIKE the FT, it just worries me that they have to play clinton like word games regarding the rate.
Under this regressive "fair tax" system, the phrase "Papers, please" will soon be replaced by an equally fascist "Federal receipt, please."
Sorry folks...this "fair tax" plan isn't.
This will have two net effects: [1] a massive increase in black market transactions...all of which will strengthen organized crime while weakening the economy, and [2] cause a downward spiral in purchases which will cause layoffs which in turn will cause federal bailouts which will require even more taxes to pay off.
This "fair tax" plan is shaping up to be nothing more than national suicide disguised as tax reform.
A tax is a tax is a tax. Uncle Sam is not going to jump at the opportunity to bite off the hand that feeds him, even though taxpayers would just love to get rid of most of the taxes they are already paying, be it state or federal taxes.
EXACTLY SO !
Also, a national sales tax rate set by a blue state politician is going to have a negative effect for red state consumers.
At least somebody is offering something up for discussion. We need to do something because what we have is a farce.
If I am not mistaken the purchase prices of goods would remain the same while the tax would be paid by the business selling the goods.
This tax is only on new goods for sale. Used items would not be taxed. I could see bartering being used more but not a black market.
Another part of this tax is that it captures money from people who would cheat on income reporting by getting it when they buy goods. Examples would be proceeds gained from drug trafficing, illeagal labor income. I am not saying that I approve of the illeagal ways to get money but the tax would be collected from the dope dealers when they went and bought their next Lexus.
I am sure that one book can not possibly contain the total answer to the current Tax code. But I believe it is something that needs to be thought about and talked about.
Flat tax is the only way to go. 15% across the board. No shelters, no loopholes, no exemptions. No modifications to the tax code for 200 years. Government must live beneath its means until the national debt is paid off and then it can only live within its means thereafter. Period. End of story.
And I don't buy this "Congress passed what was essentially a flat tax" in 1986 bullcrap. Whenever someone qualifies something as being "essentially" something, it's typically not. Indeed, it's an absurd oversimplification of what was truly passed by Congress. Moreover, it is patently disingenuous of Mr. Boortz to claim it was any kind of "flat tax" at all. Those of us who were paying taxes at the time remember all too well what we actually got back then: shafted by the tax-and-spend Liberals of both parties.
I paid tons of tax on my income in the 1980's and 1990's. Be damned if I'll sit still for their coming back for another scoop of my savings after I've saved it and paid all sorts of other taxes on it already.
What you forget is that with a Flat Tax, the IRS is still in place and the IRS still has the authority to bend you over and scr... I mean audit you into bankrupcy. Also, the original Income Tax was a Flat Tax, by supporting a Flat Tax you are making the same mistake that was done with Income Tax a century ago.
The Fair Tax/HR-25/National Retail Sales Tax is the only way to go because it abolishes the IRS.
Surprised to hear Neal say that. That comment is going to PO fairtaxers.
You know that you couldn´t pay for your military with 5% taxes, do you?
You think the sales taxes are just going to add themselves up? You think an infrastructure on par with the IRS isn't going to be created to track those sales taxes? You're fooling yourself.
What is the tax rate on this sales tax?
And you can not be audited under the fairtax? The first thing the fairtax bill does is make the consumer liable for the sales tax. If they think you owe sales tax, the new taxing authority can most certainly audit you.
It will also require the tracking of every purchase made on the US portions of the internet.
Something to think about.
Not to mention the loss of deductions for sole proprietorship/(Schedule C) type business.
With the change in bankruptcy laws, we'd be on our way to a new depression.
Some careful thought needs to be done, but aside from a lot of arm waving, jingoistic terminology, and rates that shuffle around like walnut hulls in a shell game, I'm not seeing it.
The bottom line: If it seems too good to be true, it probably is.
Here in Italia...they have the Finanzia Policia...they can stop you within a 100 meters of a business and demand a receipt....if no receipt...a fine on the spot...
flat tax. it's fair.
"fair tax" favors the rich.
Right now this is what is going on in the current system at a lot higher level.
What the fair tax does is transfer the wealth of the country from the government to the people. That is the bottom line. Well besides simplifying the current tax code.
I here it is 23%.
Read up on something before commenting on it. Fair Tax uses a State's own retail sales tax collection organization in place at that State to collect the taxes. Plus states in the bill itself, HR-25, that is abolishes the IRS.
I doubt you know the difference between a personal audit and a business audit.
Since the fairtax bill doesn't specify any differences or state any protections of audits for personal, I have no idea what you are talking about. The fairtax bill gives authority to audit persons it thinks is liable for tax, and since the consumer is liable under the fairtax, the new tax authority could ask you for every receipt for every purchase you made personally.
"Surprised to hear Neal say that. That comment is going to PO fairtaxers."
You missed it, Sprite. The post was pro Fair Tax (Boortz) vs. pro Flat Tax (Daniel Mitchell).
That was Mitchell's quote.
I know this is why the plan is tax revenue neutral. There is no free lunch.
What the Fair Tax does is transfer the wealth of the nation from the Federal Government to the people. It would probably be the greatest shift from government to the people since the American Revolution.
When the FairTax is implemented, and when business and personal income and payroll taxes disappear, your employer is going to have to make a decision. He will either take some or the entire amount he had been withholding for federal income and payroll taxes and add it to your weekly check, or he will readjust your pay figures so that your entire paycheck will be equal to what you used to call "take home pay" before the FairTax. The employer may also decide to do a little of both. Either way, you can see that the amount of money you actually receive as pay – the amount you can put into your bank account – will not decrease, and may actually increase.
Now, let's elaborate on the "keep 100% of your paycheck" line that appears in The FairTax Book. It is certainly true that after the FairTax becomes law there will be no more withholding from your paycheck for any federal taxes. What you earn is what you get. This is not to say that your gross pay will equal what it was before the FairTax.
that comment was by Mitchell.
Yes but you will pay taxes on it if you with drawl it now?
Uh Neal did not say that... That was Daniel J. Mitchell
Just scroll up a little bit, or click the actual link where this post was copied from...
The most important difference between the Fair Tax and the Flat tax is that the Flat Tax is still an income tax and the IRS will still insist on haveing all your sources of income reported. Also, the government will continue to take it's share off the top, leaveing you only what it decrees. You are still a slave under the Flat Tax.
With the Fair Tax, there are no audits or reporting of income by individuals. Your income belongs to you. Uncle Sam only gets a cut if and when you spend it. And he gets it without your name attached. You are free.
If we could all in concert begin to replace the emotion-laden "rich" word with the three which more correctly describe who we are talking about, then the power inherent in the "tax cuts for the rich" mantra will fade. The power will fade because those who have the least to gain from having ENTREPRENEURS, EMPLOYERS, AND INVESTORS targeted as the declared enemy of tax policy are, of course, THE POOR, THE UNEMPLOYED, AND THE EMPLOYED.
23% but it eliminates all other taxes including Social Security and Medicare....
LOL! You guys are cracking me up... Do you just say this stuff on the fly or what??? LOL!
Crack you up??? Its all in your bill. Tax collection nazis would love the way your bill is written.
A recent poll showed the flat tax is almost twice as popular as the national sales tax – and the same poll showed that the sales tax is tied with the current system.
"Moreover, I'm concerned whether a national sales tax is politically viable. Senator Jim DeMint had an unexpectedly tough race in South Carolina last year because his opponent demagogued against the fair tax."
At least Dr. Mitchell accurately described what happened in the SC senate race: "demagogued" is an appropriate term. He could have also mentioned that the DNCC and DNSC put in huge amounts of $$ to aid in the demagoguing, while little money was available to support the FairTax. In spite of all that, exit polling indicated that DeMint won among voters who listed tax reform as a priority by a margin of about 2-1.
The FairTax is an asset to any candidate running on it if they have the resources to explain it to voters and rebut the false accusations of the opposition.
"Republicans also may have lost the Colorado Senate race because their candidate was zinged for supporting a national sales tax."
That is incorrect. To my knowledge, Coors never endorsed the sales tax.
"And the GOP lost a Senate seat in Louisiana back in 1996 because the candidate backed the wrong tax reform plan."
What candidate? What "wrong tax reform plan"? This is meaningless.
"Flat tax is the only way to go. 15% across the board. No shelters, no loopholes, no exemptions. No modifications to the tax code for 200 years. Government must live beneath its means until the national debt is paid off and then it can only live within its means thereafter. Period. End of story."
What is the bill number for that proposal? How many co-sponsors does it have?
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