FairTax bus on the road in Iowa!

Today was the start of our second week of the Dare to be Fair Iowa bus tour. I know that you’ve been anticipating my blogs (haha) but I think I’ve mentioned this before and I’ll do so again, Monday through Wednesday are our “office days” where we finalize details for the upcoming week and that’s why you haven’t heard from

So, this morning started off with a nice drive from Des Moines to Grundy Center for a picnic lunch. Once we got to Grundy Center, we picked up Presidential Candidate, Governor Mike Huckabee, with daughter Sarah and a couple of his aides. When he got on the bus, we showed him our South Carolina rally video (by the way, he’s in it!)…he really enjoyed it. He then proceeded to talk about how he became a supporter of the FairTax--by simply reading the book, twice. As all of you know, he’s one of our biggest supporters! When we got there, we had many people already enjoying their lunch while Governor Huckabee was introduced by FairTax’ Iowa State Director, Mark Lucas. Governor Huckabee explained the FairTax and why he supports it, and why they should support it. This guy was very perplexed by the fact that with the FairTax in place, corporations wouldn’t have to pay taxes—he couldn’t understand why companies “like GM aren’t on board.” It was great to see a supporter come about right in front of our eyes! Just like usual, we asked the attendees to produce their commercial on why they don’t like the IRS in our video booth; we had a great turn out—even the Governor made one!

Ok, we just left our second and last stop for the day: Eldora, Iowa. This was a nice event, with our best turn-out yet. We had Eldora Mayor Bob Jeske with his wife, City councilwoman, Rebecca Jeske, State Representative Poly Granznow and Hardin County GOP Chairman Andy Cable. Mark Lucas spoke to the crowd about the FairTax, where they all seemed to be very excited about the issue. There was this one guy, had a daughter and several of her friends with her, who couldn’t “relax” about the issue. He kept telling them, “No girls, you just don’t understand how great this is!!” As he walked away, one of the girls said to her friend, “Okay, okay, I’ll support the FairTax!” It was great. Eldora thanked us numerous amounts of times for our hospitality and appreciated us stopping by.

I don’t want to leave out Sean Matula, Josh Sanders, and volunteers for advancing to these sites and getting things ready for the bus and its members! We couldn’t do it without y’all!

Oh, I told you last week that I had a story to share with you! Our bus’ home is in Nashville, TN and in order for the bus to get here on time, John Eperson had to start driving later in the day, meaning he didn’t get to see the bus in daylight. Well, as he was driving up here, people kept honking at him and he wasn’t sure why…he starts to think that he may have a problem with the bus- you know, a flat or a broken taillight. Well, when he got to Iowa, he did a quick look at the bus from all angles and noticed that on the back of the bus it reads, “HONK if you want to keep your whole paycheck!” That just goes to show you that we’re not the only ones wanting this to pass! We all thought that was a great story!

From the Tax Reform Panel report...

Box 9.2. Comparing the Treasury Department’s Revenue-Neutral Rate Estimate with Estimates Made by Retail Sales Tax Proponents

In their submission to the Panel, proponents of the FairTax claimed that a 30 percent tax exclusive sales tax rate would be sufficient not only to replace the federal income tax, but also to replace all payroll taxes and estate and gift taxes and fund a universal cash grant. In contrast, the Treasury Department concluded that using the retail sales tax to replace only the income tax and provide a cash grant would require at least a 34 percent tax-exclusive rate.

Some may wonder why the tax rate estimated by FairTax advocates for replacing almost all federal taxes (representing 93 percent of projected federal receipts for fiscal year 2006, or $2.0 trillion) is so much lower than the retail sales tax rate estimated by the Treasury Department for replacing the income tax alone (representing 54 percent of projected federal receipts for fiscal year 2006, or $1.2 trillion).

First, it appears that FairTax proponents include federal government spending in the tax base when computing revenues, and assume that the price consumers pay would rise by the full amount of the tax when calculating the amount of revenue the government would obtain from a retail sales tax. However, they neglect to take this assumption into account in computing the amount of revenue required to maintain the government’s current level of spending. For example, if a retail sales tax imposed a 30 percent tax on a good required for national defense (for example, transport vehicles) either (1) the government would be required to pay that tax, thereby increasing the cost of maintaining current levels of national defense under the retail sales tax, or (2) if the government was exempt from retail sales tax, the estimate for the amount of revenue raised by the retail sales tax could not include tax on the government’s purchases. Failure to properly account for this effect is the most significant factor contributing to the FairTax proponents’ relatively low revenue-neutral tax rate.

Second, FairTax proponents’ rate estimates also appear to assume that there would be absolutely no tax evasion in a retail sales tax. The Panel found the assumption that all taxpayers would be fully compliant with a full replacement retail sales tax to be unreasonable. The Panel instead made assumptions about evasion that it believes to be conservative and analyzed the tax rate using these evasion assumptions.

The FairTax is just a really bad idea, and hasn't been sold honestly to the public. There is no FREE LUNCH.

DEBUNKING THE FairTax:
A Fair Question about Fair Tax
OPEN LETTER TO BOORTZ/LINDER (FairTax)
JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
Fair Tax - Straightening Out Some Confusion
FAIR TAX BOOK- 2nd Ed. Revisions
A FAIRTAX PRIMER

What Will Happen Under a FairTax?

WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.

BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.

PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.

GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).

ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.

GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.

FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)

SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.

Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.

Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?

And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.

What will the Real FairTax Rate Be? [Hint: much higher than the 29.87% they claim]

The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough to fully find the government at today's level.

FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.

Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.

Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.

And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.

Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.

The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.

OK, FairTax opponent, if you're so smart, what do you think we should do to fix the problem?

I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates until we find that we are the Laffer optimal point.

In addition I want to see Social Security privatized, and I am willing to pay extra money to pay for those who were promised this benefit, and never receive a penny of it myself. I also want to see Medicare reformed from top-to-bottom. I also want to see Tort Reform to reduce the exorbitant costs of insurance on our medical costs. And we need to reduce the scope of the Federal Government to its constitutionally mandated responsibilities and get rid of the rest. The Golden Goose that is America is way too fat and needs to be put on a severe diet.

These are what we need to do, incremental improvements in what we already have. This is already working and we should keep at it...even Boortz seems to think so. Boortz (9/20): "...the economy continues to go like gangbusters. We are right in the middle of an historic economic boom. Don't let the mainstream media or the Democrats tell you otherwise...we've never had it so good...

Why is it that folks who oppose fundamental tax reform, including the president's tax reform panel, will go to any length to avoid talking about the actual Fairtax bill but insist on talking about something else entirely. In the case of the presidents panel something they themselves made up and NOT the FairTax at all.

Excerpt from Rebuttal to President's Tax Panel Report

10/20/2006

Hundreds of thousands of FairTax supporters were deeply dismayed and angered to learn that the President's tax panel ignored millions of dollars worth of solid, independent research on the FairTax legislation, research completed by some of the nation’s top economists over the last decade. Despite access to the FairTax legislation and all of the research, the panel itself virtually overnight created an alternate and severely flawed national retail sales tax plan, which they then scored and condemned.

This is exactly the kind of misdirection that the American people see as the hallmark of Washington lobbyists who put their own careers ahead of the clear national interest to develop a simple, fair, and transparent replacement tax system.

The panel failed the American people in the two most fundamental tasks:

1) They failed to define true criteria by which reform should be evaluated; and

2) They failed to grade tax reform plans against those criteria.

Instead of the fundamental reforms the panel was charged with developing, they recommended changes that further complicate an already overly complex tax system, one that is also too expensive to operate and an unfair burden to taxpayers.

We provide excerpts here from the FairTax.org challenge to the false findings of the tax panel and we rebut the main contentions of their report.

Much more here.

That section was written by literal buffoons.

http://www.taxfoundation.org/blog/show/1112.html

First they calculated that a 64% to 87% NRST would be necessary to fund federal government. This shows they are complete idiots. By declaring that the federal government requires that amount of taxation on retail sales and services, they are broadcasting how large they think federal government is.

Never mind that their calculations were flawed, they proceeded to announce that government was as large as 87% of retail sales in the USA. That is an astounding number. Not one of the committee members thought to express horror over such numbers. Nor did they require that assumptions be checked. The entire design of their response was to create a subterfuge of recklessness to underpin their predetermined rejection.

Any reasonable person would have sounded the alarm on such numbers before they were broadcast. Any reasonable person would have rejected the analysis of 64% to 87% excise tax because if it were even close to the truth, the shock of such numbers would have reverberated throughout the Halls of Congress for years and years.

But Congressional offices reacted in disbelief to such numbers and their own academic liaisons reported that those numbers were preposterous.

Second, the committee recommended keeping the Income tax and doing away with mortgage deductions. This recommendation was so politically asinine that the entire two year effort of Mack and Breaux was declared a horrendous boondoggle, a completely wasted effort.

And that is what the IRS wanted. They wanted no change to their code, they wanted it kept as-is including the monstrous Alternative Minimum Tax. And that is what we have today.

So they won the first round with panel tampering. The next round is going to bring them out into the open where everyone can see them and what they stand for.

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