Posted on 01/13/2008 5:16:11 AM PST by Man50D
In a piece published on January 9th for Townhall, economics writer Jerry Bowyer posed some common questions about the FairTax. The FairTax would replace personal income taxes, payroll taxes, capital gains taxes, corporate income taxes, and the death tax with a national retail sales tax. The FairTax has become a prominent subject for discussion as Mike Huckabee, its leading advocate among the presidential candidates, has risen to the top of the national polls.
In politics, as in life, “context” (which could also be called, “basic point of view” or “the framing of the issue”) trumps “content” (in this case, the specific factual questions asked). However, let me first address the “content” of Mr. Bowyer’s questions.
Q. Why do you think that a sales tax is less prone to corruption and complexity than an income tax?
A. There are three major reasons that the FairTax would be less problematic than an income tax:
1. It applies to actual transactions where money changes hands, rather than “income”, which is a concept so abstract as to be almost ethereal. Most of the 60,000-page U.S. tax code deals with the definition of “income”. 2. There would be only about 20 million entities that would need to file FairTax returns, compared with 140 million who must file income tax returns now. 3. At the proposed 23% (inclusive) rate, the FairTax rate is much lower than the current 35% top tax rates on personal and corporate income. The lower the rate, the less incentive for avoidance, evasion, and special pleading.
Q. Are sales taxes, where they are currently in operation, simple and free from special interest lobbying?
A. Nothing in the manifested universe is perfect, but sales taxes are, in practice, simpler and less prone to special interest lobbying than income taxes. Right now, the huge Washington lobbying industry on K Street gets half of its revenue from lobbying the income tax code.
Q. Does it apply to non-profits?
A. The FairTax applies to retail sales of new goods and services. If a non-profit sells new goods and services, it will collect the FairTax on them. However, in general, charity involves giving things away, not selling them. Also, the FairTax would eliminate the payroll taxes that non-profits pay under current law.
Q. Are used goods, non-taxable?
A. Yes—the FairTax applies only to sales of new goods and services. However, the nation as a whole obviously cannot replace newly-produced goods with used goods. If I sell you my car, I don’t have it anymore. All of the new parts and labor that would go into “rehabilitation” and “refurbishment” of used items would be subject to the FairTax. This having been said, the FairTax would shift U.S. GDP from current consumption toward investment and exports. Most economists would applaud such a move.
Q. What about the transition period?
A. People respond to incentives, and there would be an incentive to delay income and accelerate spending ahead of the FairTax effective date. This could well result in a short-term increase in debt. However, debt will be easier to repay under the FairTax because people will have more take-home pay. This aside, America has been around for 232 years. There are many things that could be done to ease the transition, and it makes no sense to avoid a change with huge long-term benefits because of one-year transition effects.
Q. Isn’t it true that the rate is not really 23% but 30% at least, because it’s tax-inclusive?
A. Yes and no. Both the FairTax and the income tax can be stated as either an “inclusive” or an “exclusive” rate. For an “apples to apples” comparison with the rates of our existing tax system, the 23% “inclusive” FairTax rate is the correct number to use.
Q. How do we determine the interest portion of mortgage payment?
A. Interest above the rate on 10-year Treasury bonds is subject to the FairTax. This will prevent suppliers from discounting prices and making it up with high interest rates on financing. The 10-year Treasury rate is a market-determined interest rate that is not targeted by the Federal Reserve.
Having addressed the “content” of Mr. Bowyer’s questions, I would like to turn to the more fundamental issue of “context”.
A “contextual” question that shapes a person’s entire experience of life is, “Is the glass of life half empty, or is the glass of life half full?” Think about the people you know and you will see that this is true.
The analogous political question is, “Is the glass of America half empty, or is the glass of America half full?” The FairTax is an expansive, optimistic, “half full” concept. It has a natural appeal to people for whom the glass of life, and the glass of America, is half full. The FairTax speaks to “possibility” rather than “fear”.
I do not know Mr. Bowyer personally, so all I can say is that his questions about the FairTax struck me as coming from a “half empty” point of view. This was not surprising to me. Most “elite opinion”, including virtually the entire Mainstream Media, has embraced the “the glass of America is half empty” point of view and has dedicated itself to proving this position right.
The FairTax is about America’s future. When it comes to matters pertaining to the future, facts and logic cannot bridge the gulf between hope and fear, the chasm between “half empty” and “half full”. All we can do is to pose the question to the American people and let them decide.
You have absolutely no idea what you are talking about.
Here’s a link to Title 26 of the US Code:
http://www.access.gpo.gov/uscode/title26/title26.html
Here’s a link to the Code of Federal Regulations, Title 26:
http://www.access.gpo.gov/cgi-bin/cfrassemble.cgi?title=200726
Call me when you’re done reading and digesting all of them.
(pssst! people already do that- but don’t tell anyone, it’s a secret.)
Reminds me of the bumper-stickers in the 70's usually seen on VW's -- I'm "peddling" as fast as I can.
I always wondered if they were traveling salesmen? Just didn't make sense otherwise.
Right now what is it -- only 1% of taxpayers are eligible for the 35% top rate? And you know that 1% is doing their damnest to avoid it.
Compare that to 100% of the taxpayers eligible for 30% of every purchase. And the author claims there will be less avoidance!?
At birth you are required to get a SSN.
Start school and your address and guardian addresses follow you for the next 12 years correllated to your SSN.
Get a job and your address and income are correllated to your SSN.
Buy a home and your credit and loan data is correllated to your SSN.
Everywhere you turn your identity is recorded.
Where do you plan on hiding your identity in a normal, routine life in the US in the 21st century?
The only people the Feds can’t find are illegal aliens.
The FairTax as written may not be the answer to the tax problem, but it is a step in the right direction. That direction is to tax the use of money rather than the labor of creating wealth or income.
I read an article by a proponent of a consumption tax in the early 90’s that I no longer have. However, his position, as I remember, was to tax every transaction. Receive a paycheck, deposit a paycheck, withdraw money, pay bills. However, the rate he proposed for Texas, as an example, was 1/4% which would eliminate all current sales, property, business and other taxes and create twice the then current tax revenue. That would mean an individual would pay no more than 1% of their income, at the most.
There would be no IRS tax forms to complete. The federal bureaucracy would be moved to the current state comptroller’s office for collection as it does state sales tax.
Consumption tax has too many advantages to dismiss. Every form of it should be studied and analyzed to provide a platform for elilminating the yoke of slavery imposed by having one work to pay the Boss (the Feds).
Oh, by the way- business related goods for use or consumption in doing business are indeed taxed, unless you plan to resell them at retail. That’s the only tax-free purchase you’re allowed to make.
At least, that’s how the sales tax works in FL.
It has NOTHING to do with what the welfare recipent actually bought.
Buying something for use in your business does not make it exempt from sales tax. Buying something that you resell to another business is exempt.
People already evade income taxes by falsely claiming business expenses and mischaracterizing personal transactions. The Fair Tax addresses how taxes are collected; it cannot and does not address taxpayer morality.
Hey, if you’re going to use the inclusive 35% rate when spaking of the income tax, plase use the comparable inclusive FT rate of 23% for consistency’s sake. Thanks.
Either that, or quote the income tax rate in exclusive terms.
Do you have a reply to my post 47?
I think that you do. The earlier version of a national sales tax failed to produce promised revenues because of massive evasion and avoidance.
Thanks for setting me straight on this one. I’m so glad that there’s no fraud in the current income tax system.
Under the FT, the states will still cry and whine over internet sales. The FT has nothing to do with State or Local taxes, as you likely are aware.
So, what’s your real concern with the FT? The system we have in place sure ain’t working like most think it should. Do you have an alternative solution?
Taxing income is regressive, especially a graduated income tax model in which higher rates apply to higher income. Taxing consumption (the FT, for instance) provides a degree of control over when/where to pay the tax. If you don’t want to pay the tax, don’t make the purchase.
As a supporter of the FT, it’s my opinion that it would be a better model than the current one; lower compliance costs, more personal control, and I don’t have to tell the government how much I made, where I made it, and how much of it I saved/spent.
OTOH, I don’t care for the prebate concept. I’d rather see a slightly lower FT rate and no prebate to fool with. I see the prebate as a tool to infiltrate my privacy, again. I also don’t agree with the interest rate index outlined in the legislation. I can accept using the T-bill rate, but I think that should be just one component of the broader process of setting the limit, beyond which the FT would apply to the interest paid.
In short, there is still work to be done on the FT model, but even in its current form, it’s light years ahead of the BS system we are working with at present. And, regardless of the system in play...TAX reform without SPENDING reform is a task half done.
Yes. See above.
Oh, I see. You’re equating the luxury tax to this. Delusonal doesn’t begin to describe that leap of logic.
And your point? There’s no telling how I might spend a prebate check, and I’m not a welfare recipient. I might decide to restock my ammunition supply. Or, put some money down on some new bling for the significant other...
How is that germaine to the discussion?
In the interest of full disclosure...I’m no fan of government largesse in any form. I’m not a supporter of the prebate, either.
True. Plus Medicare and Medicaid reform. And eliminating the Department of Health and Human Services, eliminating the Department of Education, eliminating the Department of Commerce, eliminating the National Endowment of the Arts, eliminating the National Endowment for the Humanities, eliminating the Department of Agriculture, eliminating the Department of Housing and Urban Development, and eliminating the Department of Transportation.
Of course, once we did that, a Steve Forbes-type flat tax of 10% should be enough to cover all government spending. Cutting spending should be the priority -- not a "fairer" or "easier" way of stealing $3 trillion from the taxpayers.
Non sequitur. Welfare is welfare, regardless of how you "spend" it.
High federal sales tax on retail items versus high federal sales tax on retail items. Keep whistling your way through the graveyard.
You do not think that businesses will sell stuff out the back door when they can charge the same price they used to sell it for and not pay taxes on the associated labor? Inventory shrink will be out of control. Every farmer will suddenly have a dramatic yield reduction and the products will go to the black market. I will run ALL of my night shifts off the books for inventory reporting. Sell the stuff at the flea market or using Amway type schemes.
I haven't even begun to get creative on ways to beat this foolish system. Here's another one. All of my employees get a pay cut that gets them into the prebate level. They all collect prebates and I pay them cash for the balance of the amount they used to make plus some more. Since I no longer have an obligation to report the details of how my business has been run there are no records for the Government to subpoena. Works for me!!!!!
I pay people to know the tax code just like I pay engineers and to know their field. My current accountant is an ex-IRS enforcement guy. We win every time they question something. Why? Because the IRS is full of slugs. All of those slugs will work in your precious new "unFair tax" agency.
Yes the IRS code is a large package. So what? the actual effect on the average Joe is minimal. Besides Jackson-Hewitt will do my taxes for $30 bucks and they got me a great refund!!!! How many time have you heard that? Do you think Joe Sixpack will support this program when you tell him his food is going to coast 30% more at the grocery store? Not likely.
Yes. Most States are that way I believe.
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