http://www.townhall.com/columnists/JerryBowyer/2008/01/09/questions_for_the_fair_tax_crowd
Questions for the Fair Tax Crowd By Jerry Bowyer Wednesday, January 9, 2008
Why do you think that a sales tax is less prone to corruption and complexity than an income tax?
When the income tax was originally promoted by William Jennings Bryan and other populists it was labeled as being fairer, since it would not hit the poor. When initially implemented it was very simple. However, over time special interest groups were able to lobby for exemptions, deductions, and other special treatment. Why would a sales tax not undergo the same process? Does the fair tax somehow magically abolish selfishness?
Are sales taxes, where they are currently in operation, simple and free from special interest lobbying?
The Europeans have a sales tax, called the VAT, which is extremely complex. Why wouldn’t that happen here? States have sales taxes, which, even despite their low rates still have long lists of items which are exempt or not exempt, and they still have people who cheat on them. If this happens at low rates, why wouldn’t it happen at much higher rates? Does moving the concept from Europe to the U.S., or from the State level to the national level, somehow render the legislative process more pure? If so, why is our income tax so riddled with complexity and special pleading to begin with?
Does it apply to non-profits?
If so, then they’ve become taxable and it would discourage charity. Also, wouldn’t churches become taxable? Aren’t there constitutional issues here? If not, then the tax advantage of non-profits disappears. If they’d be taxed the same way as businesses, wouldn’t this remove a great deal of tax encouragement for non-profit enterprise and shift talent and treasure away from that sector?
Are used goods, non-taxable?
If so, this means less goods production, more yard sales, eBay stuff, etc. Won’t this hurt traditional retailers and goods producers? Why wouldn’t this encourage evasion through rehabilitation? After all what exactly constitutes New vs. Used? If I repair a car, it’s used, but what if I upgrade it? New engine, but old chassis, is that new or used? Computers, too. New hard-drive, but old CPU; is that new or used? How does this not get complicated?
What about the transition period?
Before the sales tax takes effect, won’t there be a buying binge? Afterwards, won’t there be a buying drought? If so, doesn’t that cause a debt spike to finance purchases before the ‘sale’ ends? The implications for banking and currency policy are way too complicated for me to foresee.
Isn’t it true that the rate is not really 23% but 30% at least, because it’s tax-inclusive?
And even this does not count dynamic effects in which changed behavior and evasion narrow the base and raise the rate.
How do we determine the interest portion of mortgage payment?
If non-specified, business will simply give big discounts on price and then make up for it in the interest calculation, as interest is deemed non-taxable. These calculations are highly malleable and can become very complex. Homes will be financed with low-ball prices and high interest rates, and sup-prime mortgages will skyrocket.
If a cap is put on excludable interest, then at what rate? Federal rates? That makes the Fed a tax-setting agency and hyper-politicizes monetary policy.
One man, one vote, one tax bill.
No rates, no schemes, no nonsense.
Simply equally under the law.
Other issues to consider. The fair tax rate automatically adjusts based on the needs of social security. In other words, the rate will go up as social security costs increase. Also, much of the revenue generated by the fairtax is the government taxing itself. I have news them, that is not revenue.
I wish the author would have mentioned at least what section of the FairTax bill he is discussing here.
The word "mortgage" does not appear in the FairTax bill at all, so this cannot be a mortgage-specific provision in the bill, and I don't see where in the general provisions about interest where this "reasonable" rate applies to anything about paying mortgage interest, so I don't think he is correct about having to pay FairTax on the interest paid each month on mortgage loans made at a relatively high interest rate.
But he does have a good point about that this is indeed a viable tax avoidance mechanism: you buy something at a large markdown from the market value (a circumstance which I did see mentioned in section 804, but that is in reference to a leaseholder option to buy at the end of a lease term, not to original initial purchases at a discount when compensating financing is provided by the seller), and then the borrower pays an interest rate enough above prevailing rates to compensate the seller who is doing this self-financing.
That would indeed seem to be legitimate tax avoidance under the FairTax since the seller could then try to offload the mortgage for a premium over the principal. Whatever premium he can generate there is not subject to the FairTax, and thus whatever value you created by agreeing to these terms is untaxed by the FairTax.
WOW it seems the Fair Tax proposal is the BIGGEST POWER GRAB attempt since hillarycare!
It has never occured to Mr. Bowyer that there is nothing to keep the Congress from raising the max tax rate right now to 100%...other than we still are an armed population.
It also probably has never occured to Mr. Bowyer that the defination of a slave is someone who turns over 100% of the fruits of his labor to someone else...and as things stand right now....just in income taxes alone, we who work, and in fact pay income taxes, are anywhere from 15% to 38% slaves.
I want to be free once in my lifetime. I really don't care if the tax system is a "fair tax" or a simple NRST.....freedom being the objective here....and I don't want to become a criminal just because I don't "volunteer" to pay up.
Under the Fair Tax....you don't have to pay if you don't want to....just don't buy anything new!
I too am on the fence about the Fair Tax. Clearly the current system has got to go. Way too many attempts at social policy through taxes has warped it seriously out of shape.
However, like the Bowyer, I see that there are a lot of unexplained things in there. The current FAQs are insufficient.
I’d love to believe it is the right way forward, but for now I am skeptical.
“short-bus fairtaxers ping”
Bump for later reading.
No, the apologists who responded to me did not even remotely deal with the problem of the interest portion of mortgages.
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The “expert” who wrote this column is so totally clueless (probably intentionally) that he is worried about deducting his interest on his home mortgage from his income tax when THERE WILL NO LONGER BE AN INCOME TAX ... cranks and crackpots like this are just attempting to “muddy the waters” on what is a very simple concept...
I am a Grandfather X2 and I will never understand this.
If non-specified, business will simply give big discounts on price and then make up for it in the interest calculation, as interest is deemed non-taxable. These calculations are highly malleable and can become very complex. Homes will be financed with low-ball prices and high interest rates, and sup-prime mortgages will skyrocket.
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Hey Brainiac ,, if you’re willing to sell me a new Cadillac for $12,000.00 at 100% interest for 72 months or a new 3000 sq/ft home with a pool and a 3 car garage for half price I’LL TAKE IT...
And before the first payment is due I’ll refi at my local CU at 6% and pay you off... (businesses will refi at GE Credit or simply float a bond issue).
You have no faith in the free markets correcting for such shenanigans do you? I guarantee that Boeing will sell only one plane at 75% off before they get burned and never do that again.
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Does it apply to non-profits?
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Without having to worry about losing their tax exemption churches will regain freedom to speak to the issues of the day ,, they will also have greatly increased donations as their parishioners will become wealthier ....
It should be noted that tax ememption for property tax and such is not a federal issue and would not change...
The FairTax would be good for non-profits.