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.
Or sales taxes actually paid. Welfare.
High federal sales tax on SOME TARGETED retail items IN ADDITION TO HIGH INCOME TAXES, vs. high federal sales tax on all retail items, with no income tax.
Like I said, you’re being disengenuous and you know it. It’s a weak argument and a bad example.
So, in your opinion, why did the luxury tax “fail”, as you put it?
Bowyer's question about mortgage interest seems like a red herring.
I'm no expert, but here is how I undestand it. Under the Fair Tax, the tax is imposed when the house is purchased. The seller has to remit the tax to the government. The amount of the tax is included in the list price of the house. The amount of mortgage principle and interest would be calculated just as they are now and would not be taxable.
Your experience is a lot different than mine. FL, which is funded without an income tax, is WAY better to deal with than the incompetents at the IRS.
By the way, the FL Dept of Revenue will do spot audits from time to time, looking for sales tax fraud. They’ve always been efficient, since it’s a lot easier to detect than income tax fraud.
I guess CA is a different ballgame.
State sales tax income is based on a percentage of the retail price. On a $100 retail item in Illinois, for example, my state collects $6.75 today.
Under the Fair Tax, the retail "cost" of the item drops to $77 and the Fair Tax of $23 is added, making the retail price I pay at the checkout the same as before. Now, does my state apply their 6.75% tax to the $77 or the $100?
I think you see where I'm going. If I buy a computer for business under the Fair Tax, I avoid the Fair Tax. But doesn't the state lose money?
OMG. You relly don’t know much about the Fair Tax. Please read Boortz’ book and visit the FairTax.org Web site. Many of your misconceptions have already been addressed.
You know, I never thought of that!
If anything, this illustrates the multiple levels o ftaxation upon taxation that we pay out. The price is inflated in order to absorb the tax costs of producing, mrketing and selling the item, then the state levies a sales tax on that already taxed item.
Makes me wonder how many other ways we’re getting screwed and we don’t even realize it.
This is probably the single most important point of the Fair Tax. It cojoins the tax suppression efforts of the traditional lobby interests with individual taxpayers. The only objective will be to seek the minimum rate. Imagine the universal uproar and the constituent pressures that legislators would feel with any increase in a base tax rate above the initial 23/30% (for all you incluseive/exclusive debaters) tax rate. Not to mention the immediate market effects.
I agree that the keystone to any tax plan requires a balanced budget ammendment. We should no longer allow our governemnt to spend more than we allow them to collect!
Read it and asked the “experts†here on FR several questions. Pipe dream and foolish inexperienced nonsense on how businesses work. The one major question that is critical to businesses is UNANSWERED relating to accumulated depreciation it is critical part. The book is written for populist hate of the IRS. Believe me in a few years everyone will hate the unFair Tax Agency just as much as the IRS. If a man made it I can beat it or find someone who can - except that this ting will be still born in Congress.
Some of those lobbyists work for the FairTax group, in fact, the Argus Group wrote the FairTax bill.
Who paid for it?
Only if you are in the business of selling computers to others. If you keep it, you would owe the tax, even if you use it in your business.
Under the current income tax system, you would get a deduction for the computer. But, the Fair Tax is not an income tax, so deductibility is irrelevant.
Your concern about the state sales tax is wll founded. It the state imposes sales tax on the list price, you are paying double tax, i.e., the state sales tax is applied to the list price, which includes the Fair Tax. Maybe states will change their laws to avoid the double taxation, but don't count on it.
That is correct.
And far more destructive.
I am retired and pay no income tax. A 23% consumption tax is a deal breaker for me. I will vote Democrat for the first time in my life rather than vote for a tax increase for me.
I was being consistent. I was comparing the perceived benefits of tax avoidance.
Avoiding income taxes gives a perceived benefit of 35%, does it not? I earn $10 million. I owe $3.5 million. If I cheat I benefit in the amount of 35% do I not?
Under the Fair Tax, the item costs me $100. That includes $23 in Fair Tax, does it not? If I cheat, I only pay $77, correct? That means I avoided the 30% in sales taxes that were added to the price.
Now, if you want me to use 23% I will. But only if you stop calling it a sales tax. Calling it a sales tax means that if I cheat I save the sales tax which is 30%.
It's about perceived savings.
ALL of that personal income information would still have to be reported for Social Security earnings purposes, it would ONLY be eliminated for the income tax purposes.
What is your question? What about it makes it so critical?
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