University Economists review "FairTax"

Americans for FairTax ^ | current | University Economist listed in article

[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 nation’s 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 economy’s 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 can’t 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-

[Principled]

He didn't even come up with that. It's a segment of an oft-seen cut-n-paste.

Notice he'll escape without (being able to) defending his assertion.

[Principled]

Didn't you know they're all kooks? In fact, the millions and millions of people who support the nrst are all kooks. Our founding fathers were kooks. The federalist papers are kooky ideas written by kooks too.

[Final Authority]

Simple answer to you and the other farttaxers. BS. BTW, the pre-index argument is the silver dagger into the heart of the dark monster that the farttaxt certainly is.

You can't make claims on purchasing power based on alleged facts not yet placed in evidence.

[Taxman]

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!

[FreeKeys]

BTW, the pre-index argument is the silver dagger into the heart of the dark monster that the farttaxt certainly is.

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
 

also see:  FairTax FAQ #17

<<<<<<<<<<<>>>>>>>>>>> Find all 35 ways to LISTEN|to|BOORtz over the web  including evenings and weekends -- HERE: http://FreedomKeys.com/boortzcast.htm <<<<<<<<<<<>>>>>>>>>>>

[Final Authority]

Simple answer, BS. A retail product now selling for $100 will cost that $100 plus any sales tax. That is exactly the way it works now between two states, one with and one without sales tax. It will be no different with a NRST.

How do you deal with the prospect of paying a pre-index payment of 23% of the trillions in private accounts made with post tax money? The farttaxers can't and that is indeed the dagger into the heart of this socialist plan to make everybody sign up for their government basic income guaranty, aka, prebate.

BTW, stuff the graphics and the copy and paste.

[phil_will1]

"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.

[phil_will1]

To: Eaglewatcher
Excellant post!
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!!

[phil_will1]

"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.

[FreeKeys]

How do you deal with the prospect of paying a pre-index payment of 23% of the trillions in private accounts made with post tax money?

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.

[phil_will1]

"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?

[groanup]

How do you deal with the prospect of paying a pre-index payment of 23% of the trillions in private accounts made with post tax money?

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.

[Principled]

Simple answer to you and the other farttaxers. BS.

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?

[Principled]

A retail product now selling for $100 will cost that $100 plus any sales tax.

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.

[Principled]

...this socialist plan to make everybody sign up for their government basic income guaranty, aka, prebate.

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.

[FreeKeys]

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.

Sorry 'bout the overkill, folks, but Terminal "Authority" [snicker] needs a spanking:

CLICK ON THE GRAPH TO SEE A CLEARER VERSION OF IT:

And check out the charts on THIS page, and on THIS, THIS and THIS one.

   "Never mind the low wages and harsh living conditions of the early years of capitalism.  They were all that the national economies of the time could afford.  Capitalism did not create poverty -- it inherited it.  Compared to the centuries of precapitalist starvation, the living conditions of the poor in the early years of capitalism were the first chance the poor had ever had to survive.  As proof -- the enormous growth of the European population during the nineteenth century, a growth of over 300 percent, as compared to the previous growth of something like 3 percent per century."-- Ayn Rand

   "Economic growth was non-existent during the centuries 500-1500 -- and per capita GDP rose by merely 0.1 percent per year in the centuries 1500-1700. In 1500, the estimated European per capita income was roughly $215; in 1700, roughly $265." -- Andrew Bernstein

---

|  THE FIXED QUANTITY OF WEALTH FALLACY  | The fixed quantity of resources fallacy  |
| THE FIXED QUANTITY OF RESOURCES FALLACY  | "The Sweatshop Scam"  |  more | more |

---

As Robert A. Heinlein said, "Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded -- here and there, now and then -- are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right thinking people. Whenever this tiny minority is kept from creating or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty."

In a modern open-market capitalist society, entrepreneurs get rich and the poor get better off as a result -- OF COURSE they're not going to get as rich as fast (duh). So, of course the gap thereby gets wider -- but the top AND BOTTOM of the gap both rise to levels much higher than before. The gap is widening?? Well, hooray for everyone’s sake! ESPECIALLY the poor!

If the rich weren’t free to "get ever richer," developing or investing in ever-increasing productivity, the poor would NEVER have any chance to improve their conditions at all, let alone to obtain their ever-increasing access to the latest tools of that expanding productivity, making every hour of their labor ever-more valuable. And YOU wouldn't EVER have the chance to read this or anything else brought to you by advanced technology. 

Freedom incents the creators to empower YOU and as many other people in the world as possible. There's little an entrepreneur likes better than a bunch of ever-richer loyal customers. Remember, the wealth you see around you didn’t always exist; it was and is CREATED wherever the right CONDITIONS OF FREEDOM (including the rule of natural law evenly applied, with the rigorous protection of individual rights including property rights and respect for contracts, effective prosecution of the perpetrators of force and fraud, and the ease of engaging in trade without the interference or "permissions" of politicians and bureaucrats) are established and guaranteed._

Now recognize the true nature and scope of evil and wherein it really lies. And don't be too limp a wimp to to call viciousness viciousness even if all your friends and neighbors fawn like groupies over any mantle of global "compassion" in which the evil appears to be cloaked.

-- all from THIS PAGE -- all typed and produced over the YEARS, as part of my contribution to the cause of freedom, by ME. So I copied and pasted it today. SO, Mr. "Authority", SUE ME,
and, uh...click THIS:

K|$$ MY @$$ ! 
(354KB)

[snowsislander]

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

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... ;-)

[pigdog]

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.

[n-tres-ted]

Thanks for the post. Nice find!!

[Principled]

...prices are what the market will bear, not what it costs a producer

...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.