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Skip to comments.WHY THE FAIRTAX WON'T WORK
Posted on 02/16/2008 3:30:21 PM PST by xcamel
One solution to the nation's long-term fiscal problems that has gained support in recent years is the idea of replacing all federal taxes with a 23 percent national retail sales tax called the FairTax. Unfortunately, the administrative problems inherent in this proposal make it impossible to take seriously, says Bruce Bartlett, former deputy assistant secretary for economic policy at the U.S. Treasury Department.
For example, under a FairTax scheme: A worker now netting $800 per week would immediately get a $200 raise and start taking home the full $1,000 gross wage that he is paid; instead of paying income and payroll taxes, workers would pay their taxes when they buy things.
The FairTax would impose a 23 percent tax on all goods and services (this is not really correct, but for now we'll accept it at face value for analytical purposes).
Whether he is better off or not depends on what his effective tax rate is: Assuming he spends all his income and no more than that, he will be no worse off if he now pays 23 percent of his income in taxes. That is, his effective tax rate is 23 percent; in this case, the FairTax is a wash, the worker is no better off or worse off in terms of taxes than he is now.
But what if the worker is now paying less than 23 percent of his income in federal taxes? In this case, he is clearly worse off, says Bartlett: The prices of the things he buys will rise by more than his income rises from the elimination of income and payroll taxes. Conversely, if one is wealthy and in a tax bracket above 23 percent, that person would be much better off. His income and payroll taxes would fall by much more than the prices of goods and services he consumes would rise.
Source: Bruce Bartlett, "Why the FairTax Won't Work," Tax Notes, December 24, 2007.
Full PDF report
For more on Taxes
A) The FT is a completely altruistic quest
B) The Govenrnment will magically loose it propensity to tinker
C) All the people you never trusted before will be completely trustworthy now
D) 30,000 Treasury Dept employees will magically disappear
E) You will “Git Yer Hole Paychex”
F) Tax rates never go up
G) Pay rates never go down
H) People just love double digit sales tax rates
I) Used food and personal items are good things
J) Social engineering will magically disappear
K) Believe the rich don’t enough pay taxes
L) Prebates and Prefunds aren’t really welfare
M) Retirees should take a hosing for no good reason
N) Getting $77 worth of goods for $100 is OK with you
O) Paying 30% tax on medical care is a great idea
P) You believe the Government should tell you what a “necessity” is
Q) Bureaucrats will always know what the "right" poverty rate is
R) The rest of the modern world is clueless about tax policy
S) Good tax policy can be pro-re-gressive depending on the argument at the time
T) Revenue neutrality is more important than spending control
U) Talk Show Hosts are the best brain trust for tax policy
V) There is no "wizard behind the curtain" but those three Texans..
W) $20 million plus only buys "the truth"
X) Asking tough questions makes you a "Marxist"
Y) Asking tough questions makes you guilty of "spreading lies and disinformation"
Z) Debate only requires insulting and attacking people who ask tough questions
Didn’t read the full report but this summary doesn’t include Social Security and Medicare withholding and that alone is over 15%.
It won’t happen for one simple reason. People will not accept a 30% sales tax (which is what it really is) instead of the mostly single digit sales tax we have today.
“Fair Tax” proponents use 23% arguing that’s how income tax is calculated today, but when people realize that 30 cents will be tacked on to every dollar they spend (i.e. it’s really 30%), the research shows that they will balk at the idea.
It’s a non-starter.
Extra points added for being a rational, thinking person. Bravo.
The IRS will disappear...sounds good to me.
Post 2, item “D”
AA) There’s no such thing as a black market.
My friends in Canukistan absolutely loate their single digit GST (National Sales Tax) because it applies to such things as funeral services, new home construction, legal services...you name it. Much farther reaching than just day to day consumer goods.
What happens to existing IRS liens?
Will you still be against the Fair Tax when Obama raises your taxes to 70%?
Read the books, do the math (not fuzzy) and then figure out an honest reason to whine. Until then your complaints go beyond nothing but deaf ears. I suppose if Boortz were to write a tutorial workbook you might be able to follow the numbers.
Post #2, item “U”
my understanding is the tax will be INCLUDED in every dollar, not tacked on..where did you learn this?? (I wanna know so I can do some research on it)..
The FT is supposed to be "revenue neutral". It would reflect those higher rates by law.
Another reason it won’t work is because it will never, ever be implemented.
Let me make a prediction: By start of business on Monday, you and your cronies will be patting yourselves on the back and posting congratulatory comments for another FairTax thread successfully hijacked.
AB) Living like a hermit is the best way to beat the taxman.
They tack on 30% in FT on to each dollar spent on the item itself. Then they claim that 30 cents is only 23% of $1.30.
With a pure fair or consumption tax the government loses the one thing it just can’t stand to lose...
Its that plain and simple...
Thats why we’ll never see it implemented...
That’s right.. You folks don’t believe in free speech, or dissenting opinions. What on earth was I thingking...
don’t believe so..you’d have to show me where you learned this..the tax is inclusive within the $, not added on..
What about my tax-paid life savings?
And you are fine with this? I thought Conservatives were for LESS government and LESS spending. Let me pay my share by ME deciding how I spend MY money!
I had to read your list very carefully... I think some of the ‘fair tax’ people actually believe those things
LOL. Well played.
Well, for one thing its not fair to the illegal aliens who have to pay taxes on everything they buy. So, the Democrats and Republicans who rule over us would never vote for it.
Nice strawman. Even if McCain is elected, he's not going to implement the FairTax or even reform the tax system. Hell he only came out with the same lame-old "keep Bush's tax cuts permanent" after getting heat from Romney.
The FairTax is a joke. Just implement a single 10% strict flat tax with no deductions or credits.
The Fair Tax will never work because the establishment will never allow it to be considered seriously.
Well I like it. If it’s too much I’ll cut back on spending.
Take something that now costs $1 - a quart of milk, for instance. With the "Fair Tax," it would then cost $1.30.
Almost any high school graduate would be able to tell you that the 30-cent tax constitutes 30% of the original price...
That the "Fair Tax" advocates express it otherwise is prima facie evidence they are liars and frauds, or fools.
No kidding. If people relly knew how much taxes they pay...
When you compare the Fair Tax proposal with today’s sales tax, it’s still 30% no matter how you present it. Fair Tax people will say that of every dollar you spend, $0.23 goes to taxes. True, but then $0.23 is 30% of $0.77 which would have been the cost of the item without the tax.
The bottom line is, today in Austin, Texas I pay 8.5% sales tax which is 8 1/2 cents for an item that costs $1. With the Fair Tax, I would be paying $0.30 instead. To people who have been dealing with sales tax all their lives, that’s called 30%, not 23%.
The Fair Tax people know that a 30%+ sales tax cannot be sold to the American public even if it means the abolition of the IRS, that’s why they call it a 23% rate.
Vote Obama.....he will take care of you.
Been awhile since you bought milk? :’)
That’s a tad backwards...
“Take any item you’d be willing to pay $10 for, and under the FT, you’re only going to get $7.70 worth of that item”
Fair Tax ping!
wrong..if milk costs $1 now, it will cost $1 under the fair tax, only the tax is included in the $1..
that’s how I understand it..and I’ve read the book..can you show me where you learned it’s added on and from what source?
I’m not tryin to be a bugger here, just want to debate this and see where you are gettin ur facts..
“Time for the nasty poster hour....”
I’ve read the books. Both sides. The math doesn’t work. But that’s not what I was arguing. Even *if* the math worked, the proposal would never gain enough support from the public. Once they know the sales tax would be 30%, then they will reject it out of hand. That’s why it’s a non-starter.
ROFL...he’ll fix health care, solve all wars, learn the secret to keeping women from fainting, cure worldwide poverty and have us all holding hands singing kumbaya..
and on the 7th day, he’ll rest..
I was jut thinking about that it would be nice if the tax was included in the price but then on second though...let’s see what happens when a person buys 100 dollars of groceries and the receipt shows 30% tax. Burying the tax in the product makes it not so unacceptable:’(
This article misses the major point of the Fair Tax. Prices would not go up right now the tax the company pays is embedded in the cost of the goods, that embedded cost would go away.
well, you believe 30%, I believe 23%..but what we believe is irrelevant in any case..it’s a non-starter because, until attitudes in congress change, the DC establishment will be absolutely unwilling to give up the power of the IRS..
I like the fair tax idea for a couple of reasons that really don’t have anything to do with the tax rate.
I do like the end of the IRS.
I do like the taxation of the underground/criminal economy.
I do like the taxation of foreigners.
I do like the ability of an individual to determine the tax he pays by determining what he buys. (For example, I’m sure this will bring back “victory gardens.)
There are other things.
Also some things I don’t like.
I don’t like the idea at all if the 16th amendment is not gone BEFORE this is implemented.
I don’t believe the notion that companies will lower the price of goods due to the cost of taxes built into prices. They won’t.
Given the above, I don’t believe that companies should be exempt from paying sales tax on their purchases.
I don’t believe that mortgages should be exempt.
I don’t like that states will still have their host of taxes: income, property, etc., etc.,
I do think states and fed will increase fees AND charge sales taxes on them.
30,000 IRS employees will suddenly find themselves having to look for productive work at real jobs.
I don’t see how anybody could oppose the Fair Tax
Since every group, low medium and high income will pay less taxes and yet the total revenue to the government will not go down its free money. How could anyone object?
This is such a stupid argument anymore. Just be a sheep and let the governmant dictate how much of YOUR money they seize every week and keep voting Republican...