Skip to comments.University Economists review "FairTax"
Posted on 11/02/2005 10:09:04 AM PST by Eaglewatcher
-1- An Open Letter to the President, the Congress, and the American people Concerning Reform of the Federal Tax Code
Dear Mr. President, Members of Congress, and Fellow Americans,
We, the undersigned business and university economists, welcome and applaud the ongoing initiative to reform the federal tax code. We urge the President and the Congress to work together in good faith to pass and sign into federal law H.R. 25 and S. 25, which together call for:
Eliminating all federal income taxes for individuals and corporations,
Eliminating all federal payroll withholding taxes,
Abolishing estate and capital gains taxes, and Repealing the 16th Amendment
We are not calling for elimination of federal taxation, which would be irresponsible and undesirable. Nor does our endorsement call for reduced federal spending. The tax reform plan we endorse is revenue neutral, collecting as much federal tax revenue as the current income tax code, including payroll withholding taxes.
We are calling for elimination of federal income taxes and federal payroll withholding taxes.
We endorse replacing these costly, oppressively complex, and economically inefficient taxes with a progressive national retail sales tax, such as the tax plan offered by H.R. 25 and S. 25 which is also known as the FairTax Plan. The FairTax Plan has been introduced in the 109th Congress and had 54 co-sponsors in the 108th Congress.
If passed and signed into law, the FairTax Plan would:
Enable workers and retirees to receive 100% of their paychecks and pension benefits,
Replace all federal income and payroll taxes with a simple, progressive, visible, efficiently collected national retail sales tax, which would be levied on the final sale of newly produced goods and services,
Rebate to all households each month the federal sales tax they pay on basic necessities, up to an independently determined level of spending (a.k.a., the poverty level, as determined by the Department of Health and Human Services), which removes the burden of federal taxation on the poor and makes the FairTax Plan as progressive as the current tax code,
Collect the national sales tax at the retail cash register, just as 45 states already do,
Set a federal sales tax rate that is revenue neutral, thereby raising the same amount of tax revenue as now raised by federal income taxes plus payroll withholding taxes,
Continue Social Security and Medicare benefits as provided by law; only the means of tax collection changes,
Eliminate all filing of individual federal tax returns,
Eliminate the IRS and all audits of individual taxpayers; only audits of retailers would be needed, greatly reducing the cost of enforcing the federal tax code,
An Open Letter to the President, the Congress, and the American people -2- Allow states the option of collecting the national retail sales tax, in return for a fee, along with their state and local sales taxes,
Collect federal sales tax from every retail consumer in the country, whether citizen or undocumented alien, which will enlarge the federal tax base,
Collect federal sales tax on all consumption spending on new final goods and services, whether the dollars used to finance the spending are generated legally, illegally, or in the huge underground economy,
Dramatically reduce federal tax compliance costs paid by businesses, which are now embedded and hidden in retail prices, placing U.S. businesses at a disadvantage in world markets,
Bring greater accountability and visibility to federal tax collection,
Attract foreign equity investment to the United States, as well as encourage U.S. firms to locate new capital projects in the United States that might otherwise go abroad, and
Not tax spending for education, since H.R. 25 and S. 25 define expenditure on education to be investment, not consumption, which will make education about half as expensive for American families as it is now.
The current U.S. income tax code is widely regarded by just about everyone as unfair, complex, wasteful, confusing, and costly. Businesses and other organizations spend more than six billion hours each year complying with the federal tax code. Estimated compliance costs conservatively top $225 billion annually costs that are ultimately embedded in retail prices paid by consumers.
The Internal Revenue Code cannot simply be fixed, which is amply demonstrated by more than 35 years of attempted tax code reform, each round resulting in yet more complexity and unrelenting, page-after-page, mind-numbing verbiage (now exceeding 54,000 pages containing more than 2.8 million words). Our nations current income tax alters business decisions in ways that limit growth in productivity. The federal income tax also alters saving and investment decisions of households, which dramatically reduces the economys potential for growth and job creation.
Payroll withholding taxes are regressive, hitting hardest those least able to pay. Simply stated, the complexity and frequently changing rules of the federal income tax code make our country less competitive in the global economy and rob the nation of its full potential for growth and job creation.
In summary, the economic benefits of the FairTax Plan are compelling. The FairTax Plan eliminates the tax bias against work, saving, and investment, which would lead to higher rates of economic growth, faster growth in productivity, more jobs, lower interest rates, and a higher standard of living for the American people.
An Open Letter to the President, the Congress, and the American people -3- The America proposed by the FairTax Plan would feature:
no federal income taxes,
no payroll taxes,
no self-employment taxes,
no capital gains taxes,
no gift or estate taxes,
no alternative minimum taxes,
no corporate taxes,
no payroll withholding,
no taxes on Social Security benefits or pension benefits,
no personal tax forms,
no personal or business income tax record keeping, and
no personal income tax filing whatsoever.
No Internal Revenue Service; no April 15th; all gone, forever.
We believe that many Americans will favor the FairTax Plan proposed by H.R. 25 and S. 25, although some may say, it simply cant be done. Many said the same thing to the grassroots progressives who won women the right to vote, to those who made collective bargaining a reality for union members, and to the Freedom Riders who made civil rights a reality in America.
We urge Congress not to abandon the FairTax Plan simply because it will be difficult to face the objections of entrenched special interest groups groups who now benefit from the complexity and tax preferences of the status quo. The comparative advantage and benefits offered by the FairTax Plan to the vast majority of Americans is simply too high a cost to pay.
Therefore, we the undersigned professional and university economists, endorse a progressive national retail sales tax plan, as provided by the FairTax Plan. We urge Congress to make H.R. 25 and S. 25 federal law, and then to work swiftly to repeal the 16th Amendment. Respectfully,
Donald L. Alexander Professor of Economics Western Michigan University
Wayne Angell Angell Economics
Jim Araji Professor of Agricultural Economics University of Idaho
Ray Ball Graduate School of Business University of Chicago
Roger J. Beck Professor Emeritus Southern Illinois University, Carbondale
John J. Bethune Kennedy Chair of Free Enterprise Barton College
David M. Brasington Louisiana State University
Jack A. Chambless Professor of Economics Valencia College
Christopher K. Coombs Louisiana State University
William J. Corcoran, Ph.D. University of Nebraska at Omaha
Eleanor D. Craig Economics Department University of Delaware
-4- An Open Letter to the President, the Congress, and the American people
Susan Dadres, Ph.D. Department of Economics Southern Methodist University
Henry Demmert Santa Clara University
Arthur De Vany Professor Emeritus Economics and Mathematical Behavioral Sciences University of California, Irvine
Pradeep Dubey Leading Professor Center for Game Theory Dept. of Economics SUNY at Stony Brook
Demissew Diro Ejara William Paterson University of New Jersey
Patricia J. Euzent Department of Economics University of Central Florida
John A. Flanders Professor of Business and Economics Central Methodist University
Richard H. Fosberg, Ph.D. William Paterson University
Gary L. French, Ph.D. Senior Vice President Nathan Associates Inc.
Professor James Frew Economics Department Willamette University
K. K. Fung University of Memphis
Satya J. Gabriel, Ph.D. Professor of Economics and Finance Mount Holyoke College
Dave Garthoff Summit College The University of Akron
Ronald D. Gilbert Associate Professor of Economics Texas Tech University
Philip E. Graves Department of Economics University of Colorado
Bettina Bien Greaves, Retired Foundation for Economic Education
John Greenhut, Ph.D. Associate Professor Finance & Business Economics School of Global Management and Leadership Arizona State University
Darrin V. Gulla Dept. of Economics University of Georgia
Jon Halvorson Assistant Professor of Economics Indiana University of Pennsylvania
Reza G. Hamzaee, Ph.D. Professor of Economics & Applied Decision Sciences Department of Economics Missouri Western State College
James M. Hvidding Professor of Economics Kutztown University
F. Jerry Ingram, Ph.D. Professor of Economics and Finance The University of Louisiana-Monroe
Drew Johnson Fellow Davenport Institute for Public Policy Pepperdine University
Steven J. Jordan Visiting Assistant Professor Virginia Tech Department of Economics
Richard E. Just University of Maryland
Dr. Michael S. Kaylen Associate Professor University of Missouri
David L. Kendall Professor of Economics and Finance University of Virginia's College at Wise
Peter M. Kerr Professor of Economics Southeast Missouri State University
Miles Spencer Kimball Professor of Economics University of Michigan
James V. Koch Department of Economics Old Dominion University
Laurence J. Kotlikoff Professor of Economics Boston University
Edward J. López Assistant Professor University of North Texas
Franklin Lopez Tulane University
Salvador Lopez University of West Georgia
Yuri N. Maltsev, Ph.D. Professor of Economics Carthage College
Glenn MacDonald John M. Olin Distinguished Professor of Economics and Strategy Washington University in St. Louis
Dr. John Merrifield, Professor of Economics University of Texas-San Antonio
An Open Letter to the President, the Congress, and the American people -5- Dr. Matt Metzgar Mount Union College
Carlisle Moody Department of Economics College of William and Mary
Andrew P. Morriss Galen J. Roush Professor of Business Law & Regulation Case Western Reserve University School of Law
Timothy Perri Department of Economics Appalachian State University Mark J. Perry School of Management and Department of Economics University of Michigan-Flint
Timothy Peterson Assistant Professor Economics and Management Department Gustavus Adolphus College
Ben Pierce Central Missouri State University
Michael K. Pippenger, Ph.D. Associate Professor of Economics University of Alaska
Robert Piron Professor of Economics Oberlin College
Mattias Polborn Department of Economics University of Illinois
Joseph S. Pomykala, Ph.D. Department of Economics Towson University
Barry Popkin University of North Carolina-Chapel Hill
Steven W. Rick Lecturer, University of Wisconsin Senior Economist, Credit Union National Association
Michael Rizzo Assistant Professor of Economics Centre College
Paul H. Rubin Samuel Candler Dobbs Professor of Economics & Law Department of Economics Emory Univeristy
John Ruggiero University of Dayton
Michael K. Salemi Bowman and Gordon Gray Professor of Economics University of North Carolina at Chapel Hill
Dr. Carole E. Scott Richards College of Business State University of West Georgia
Carlos Seiglie Dept. of Economics Rutgers University
John Semmens Economist Phoenix College, Arizona
Alan C. Shapiro Ivadelle and Theodore Johnson Professor of Banking and Finance Marshall School of Business University of Southern California
Dr. Stephen Shmanske Professor of Economics California State University, Hayward
James F. Smith University of North Carolina- Chapel Hill
Vernon L. Smith Economist W. James Smith Dean of Liberal Arts and Sciences and Professor of Economics University of Colorado at Denver
John C. Soper Boler School of Business John Carroll University
Roger Spencer Professor of Economics Trinity University
Daniel A. Sumner, Director, University of California Agricultural Issues Center and the Frank H. Buck, Jr., Chair Professor, Department of Agricultural and Resource Economics, University of California, Davis
Curtis R. Taylor Professor of Economics and Business Duke University
Robert Vigil Analysis Group, Inc.
John H. Wicks, Ph.D. Professor Emeritus Department of Economics University of Montana
F. Scott Wilson, Ph.D. Canisius College
Mokhlis Y. Zaki Professor of Economics Emeritus Northern Michigan University
An Open Letter to the President, the Congress, and the American people -6-
Maybe we all should fax this to the government and our representatives. How else can we tell them we don't want another round of changes and exclusions to the tax code as recommended by the tax panel?
Of course the resident naysayers will appear and attempt to trash ALL if these learned scholars.
Tax reform ping!
What an undistinguished list of academics. I know several of them. Paul Rubin at Emory is quite bright and is a good political economist, but not a taxation expert. In fact, many of these academics are NOT experts in the economic consequences of tax law changes.
What I read from this list is that the famous economists who work in taxation do not agree with this group on "fair taxation."
...the movement for consumption-based taxation has been hijacked by a group of extremists whose principal interest is abolishing the Internal Revenue Service.21 They believe that if virtually all federal taxes are abolished and replaced with a retail sales tax like those in the states, then the states can simply collect the federal government's revenue for it, thereby allowing for abolition of the IRS...
21 The Church of Scientology originated this legislation as part of a campaign against the IRS because it refused for many years to allow gifts to the church to be deducted as legitimate charitable contributions, on the grounds that it was not a true church. The IRS eventually relented. See Davis (1997) and Starobin (1995) for discussions of the Church of Scientology's role in the sales tax campaign.
Davis, Bob. 1997. "CATS Out of the Bag." World, 12:9 (May 31/June 7).
Starobin, Paul. 1995. "No Returns." National Journal (March 18): 666-671.
Writing science fiction for about a penny a word is no way to make a living. If you really want to make a million, the quickest way is to start your own religion.
~ L. Ron Hubbard
The so called FairTax will allow the rich to grow even richer, creating a form of economic feudalism in America--even more so than our current condition.
Or are you simply reduced to resorting to irrelevant and off-topic ad hominem attacks against the NRST?
That's just what the "Fair Tax" was missing! The endorsement of liberal arts professors!
You called that one...
The rich always have and always will get richer. The reason? They continue to engage in the decision making and initiative that got them rich in the first place.
And the poor? They will continue to be poor because of their decision making.
You're apparently confused. Used items aren't "exempted", they're simply not subject to being taxed a second (or more) time -- "used" is, in and of itself, an imperfect shorthand for "previously taxed".
Its biggest flaw preventing passage is that it takes away great amounts of power from politicians and lobbyists who use the tax code to reward friends, punish enemies, and buy votes.
WRT 13, how about previously taxed income that was saved or invested intended to be spent later with no tax penalty. What is your solution? Should we get a pre-index payment on $trillions in accounts. Wouldn't that be "fair" like a prebate?
HUH? You surely have more to offer.
If anyone 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.
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:
It's not hard when you've watched these no nothings for as long as I have!
You obviously DON'T know them all. Wayne Angell? Undistinguished? LOL.
Your scenario doesn't exist. Taxed income that is withdrawn to be spent IS already having its purchasing power reduced by our tax system.... on EVERY purchase, whether the item has been previously taxed or not.
THere is no reduction in purchasing power.
Notice he'll escape without (being able to) defending his assertion.
The FairTax will allow everyone in America to grow richer!
And, BTW, drive a stake in the heart of the kind of class warfare arguments ignorant fools such as yourself trot out when you run out of legitimate arguments supporting your position!
For myself, I'm willing to go through ANYTHING to shove a "dagger in the heart" (Chuckie Schumer's favorite phrase, BTW) of THE OLD INCOME TAX for the sake of my kids, grandkids and the future of this great country of ours, in case things don't work out quite the way it's hoped (Do you want a COMPLETELY ACCURATE crystal ball? WTFKOFAYA?) Whatever, it will kick the American economy into hyper-overdrive within 2 years if not sooner, and I'm not so mean-spirited as to put everyone else through more hell just so I won't have to suffer that long.
|So when I go to the store to buy a $100 coat, will I now have to pay $123?
The short answer is, No. The longer answer is also No, but it depends on what exactly you mean by the question.
If you're asking whether a $100 coat you see for sale before passage of the FairTax Plan will cost $123 under the Plan, the answer is no because -- as you'll remember from previous chapters -- that $100 price is already inflated by 22 percent worth of embedded tax. Once those embedded taxes fall away, the 23 percent FairTax will bring the price right back to the $100 level.
If you're asking whether a $100 coat you see for sale after passage of the FairTax will actually set you back $123, the answer is no because the FairTax was designed as what's called an "inclusive" tax -- that is, the tax is included in the list price of the product. When you go to the store and purchase an item for $100, in other words, the retailer will get $77; the remaining $23 is paid to the federal government. This is the biggest difference between the FairTax and most current state sales taxes, which are "exclusive" -- that is, added to the price of the merchandise at the time of the sale. Since our current income taxes are figured on an inclusive basis -- that is, they are taken out of our paychecks, not added to them -- it was decided to handle the sales tax in exactly the same manner.
-- "Questions and Objections," The FairTax Book, pages 150-151
"What I read from this list is that the famous economists who work in taxation do not agree with this group on 'fair taxation.'"
The "famous economists who work in taxation" do not agree on much of anything in terms of a single plan that they all support. Therefore, if we follow their lead, the current system will continue to grow like a cancer, the trade deficit will continue to swell and Americans will grow progressively more frustrated each successive April 15.
Of course the resident naysayers will appear and attempt to trash ALL if these learned scholars.
3 posted on 11/02/2005 10:15:18 AM PST by Bigun (IRS sucks @getridof it.com)
"What an undistinguished list of academics. I know several of them. Paul Rubin at Emory is quite bright and is a good political economist, but not a taxation expert. In fact, many of these academics are NOT experts in the economic consequences of tax law changes.
What I read from this list is that the famous economists who work in taxation do not agree with this group on 'fair taxation.'"
Whoa! Bigun's clairvoyant!!
"The so called FairTax will allow the rich to grow even richer, creating a form of economic feudalism in America--even more so than our current condition."
Oh no! Can't have people getting rich in America, can we?
"From each according to his means, to each according to his needs."
Are you sure you are on the right blog? Class warfare is a bit out of place here.
I don't know; you may have a valid question there.
BTW, stuff the graphics and the copy and paste.
I don't take orders from hair-trigger control-freak moderator-imposters who don't even have the balls to put up a profile page.
"You can't make claims on purchasing power based on alleged facts not yet placed in evidence."
Say what? Is this a courtroom? What are your rules of evidence, Your Honor?
Most of those with "trillions" in post tax money have many more trillions in pre-tax money. That pre-tax money is suddenly relieved of any taxes or penalties. So MOST would see a blessing on MOST of their money and a possible decline in the purchasing power on a smaller amount of their money.
Ooohhhh! Good one! Simple, to be sure, but not any answer.
You deny the existence of tax costs in the prices of goods and services today - and you want to be taken seriously?
You are asserting that our income tax system adds no cost whatsoever to prices today. You are wrong, and appear ignorant.
Many costs associated with our income tax (which you refuse to believe exist), will no longer be in prices when they're gone (duh).
It's amusing to see someone actually say that the income tax system doesn't inflate prices.
I believe that you alone, among the millions of individuals who have reviewed this plan (have you reviewed it?) are the single individual who thinks the nrst is socialist.
Are you not aware of the current income tax's ties to marxism?
Further, the prebate (not a BIG), is voluntary. Unlike filing for income taxes - which is mandatory - even if all you're doing is getting a refund.
There is no requirement at all to either file for a prebate nor to receive one. You are free to elect to not file (again, unlike our current income tax).
You really don't know what you're talking about.
Sorry 'bout the overkill, folks, but Terminal "Authority" [snicker] needs a spanking:
|CLICK ON THE GRAPH TO SEE A CLEARER VERSION OF IT:
That's because the coat will cost you $130, not $123.
When viewed from the exclusive rate, which is how sales taxes are charged and how this question is framed, the FairTax rate is 30%, not 23% (which is the inclusive rate.)
And that's part of the point: we certainly want people to understand the huge bite that taxes take out of our economy, and seeing a 30% national retail sales tax will certainly get some attention.
(I am in favor of replacing our income tax scheme with a national retail sales tax, but the FairTax has provisions that I don't care that much for. I can support it and I do since it is still far better than the income tax, but I would much rather see a NRST without a prebate. I think the rate could be far lower than 30% if that were to occur.)
As to some sort of general deflation occuring if we were to remove the income tax (which is what the article is suggesting), that's not likely --- I hope. Deflation, as the Japanese can tell you, and our ancestors could also, isn't all cakes and tea.
Pricing isn't a direct function of seller costs; seller's costs do have some bearing since they set a rough sort of floor, but prices are what the market will bear, not what it costs a producer. If prices were simply based on producer costs, all major brand breakfast cereals would cost far less... ;-)
Stuff the "basic income guarantee" nonsense. You've had it pointed out about a zillion times that the prebate is nothing of the sort.
In addition the thing now selling for $100 will drop in price prior to the addition of the FairTax so it will not be "plus the sales tax" as you erroneously state. It will probably end up at roughly the same price as at present if you ignore the fact that to buy the $100 thing right now you have to earn much more than that to HAVe THE $100 to make the purchase.
With the FairTax, you actually have much more "in pocket" since you no longer have the income tax and withholding removed from your check, but receive it AND you also can obtain the prebate if you wish. YOU'RE MUCH BETTER OFF UNDER THE FAIRtAX.
Also, don't forget that the price of that $100 thing right now has been raised by the effects of cascading embedded tax costs (making you have to earn even more than you should to buy it. That goes away, too, under the FairTax.
That's a whole lot of difference. Your "double taxation" idea is a non-starter, too as several have also pointed out.
Thanks for the post. Nice find!!
...as long as prices exceed costs as a rule.
A business must generate revenue sufficient to pay expenses. The only indefinite revenue stream they get is from sales revenues.
To say expenses play a part in prices is accurate. Connoting that prices do not include all expenses is not.
Luv'd your website and all the work it represents.
Also thought the KMA video was very appropriate.
Good work, trooper!!
That's because the coat will cost you $130, not $123.
Uh, nope, it's now $77 plus 30% ($23) which equals WHAT? Will it have a $77 price tag with people expecting to pay the 30% on top of that, or a $100 price tag with people assuming the federal part of the tax is already included? I'm not sure.
Q: I know the FairTax rate is 23 percent when compared to current income taxes. What will the rate of the sales tax be at the retail counter?
A: 30 percent. This issue is often confusing, so we explain more here.
When income tax rates are quoted, economists call that a tax-inclusive quote: I paid 23 percent last year. If that were the case, for $100 one earned, $23 went to Uncle Sam. Or, I had to make $130 to have $100 to spend. Thats a 23-percent tax-inclusive rate.
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.
Sales taxes, on the other hand, are generally quoted tax-exclusive: I bought a $77 shirt and had to pay that same $23 in sales tax. This is a 30-percent sales tax. Or, I spent a dollar, 77¢ for the product and 23¢ in tax. This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.
-- from FairTax FAQ #47
The $130 number is not correct either for all the reasons just stated in $#38,
In fact, the tax inclusive revenue neutral rate right now is about 19-20% ratjer than 23. that's make the t.e. rate something like 23-25%.
Without the prebate the t.i. rate would be about 3% lower so I really don't think the description "far lower" would be appropriate. This (the 3%) has shown up in several studies BTW and seems to be fairly well agreed-upon.
Wih the removal of the income tax there will actually be (rather than a deflation) a very significant economic boom which helps almost all of us.
Boortz was even forced to do a (half-hearted) retraction as a result of robfromga's findings.
Same with Kotlikoff who regularly testifies before Congress.
Nopy, Looey ... rong again!!!
Nonesuch! The book is certainly not a "proven fraud" nor has Boortz made a retraction.
That's all BS made up by you Squirrels which you all swear to. Next thing we know you'll be reporting alligators in the sewer mains in Kansas City.
Get Real (no matter how tough it is)!!
And an excellent spanking it was even thought we all know it will be completely ignored by the elitist A$$ you intended it for!
B R A V O ! ! !
What a GREAT website! Bookmarked to be regularly visited!
In my view, a fraud is something that is perpetrated to deceive on purpose. I'm 100% certain Boortz and Linder sincerely believe they've found a way to eliminate the IRS and the income tax (which hampers those of us still TRYING to get rich, NOT the rich), and are sincerely trying to get people to even THINK ABOUT getting rid of them.
If you're saying there are things in the book that are UNCLEAR, well, you're absolutely right. But what they've been putting on their respective websites are CLARIFICATIONS NOT retractions, best I can tell. Do YOU want to find a way to eliminate the income tax? Even if you don't, can you find it in your heart to cheer on those who do?
LOL. In your dreams. There was no fraud proven or even suggested. The book had a factual error about an economist's CLAIM which is just that, a claim. Fraud is sometimes in the mirror lynn.
Thankuh verrrruh muhhhh. It's nice to get POSITIVE feedback sometimes.
May I suggest you consider even saving it to disk or some backup medium just in case... ?