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A Misleading Sales Pitch (Why the campaign for the Fair Tax will set back the cause of Tax Reform)
National Review ^ | 03/15/2010 | Ramesh Ponnuru

Posted on 03/15/2010 9:36:14 AM PDT by SeekAndFind

Here’s the pitch: The FairTax — a plan to replace the federal income tax and payroll tax with a national sales tax — will get rid of the IRS forever. It will let workers keep their entire paychecks and retirees keep their entire pensions. It will raise just as much money as the current tax code. It will promote economic growth. It won’t hurt the middle class, and it won’t cause prices to rise. It will even end our illegal-immigration problem.

These claims are drawn from the leading proponents of the plan: a group called Americans for Fair Taxation, former Republican presidential candidate Mike Huckabee, and the trio behind the book FairTax: The Truth. By painting an attractive picture of a prosperous America without an IRS, they have gotten many conservatives to become enthusiasts for their cause. Rising conservative star Marco Rubio, a Senate candidate in Florida, has endorsed the FairTax in the past (although more recently he has hedged on it). Republican congressman John Linder of Georgia, a FairTax co-author who just announced that he will not run for reelection, has made promoting it his principal mission in Congress. The Iowa Republican party has endorsed it. It seems to be gaining support among tea partiers.

The FairTax sounds too good to be true. It is. The campaign for the FairTax is deeply misleading, and much more likely to set back the cause of tax reform than to advance it.

The FairTaxers give a misleading answer to the first question everyone asks about their idea: How big will the tax be? The FairTaxers say they want a 23 percent sales tax. Most people will assume that a product that costs $100 before the tax is added would cost $123 with the tax. Actually, the tax would be $30 and the total price $130. They call it a “23 percent” rate because $30 is 23 percent of $130. Those FairTaxers who understand the numbers defend this way of calculating the tax rate because it makes it comparable to the income-tax rates they’re trying to replace. But it’s not the way any of the 45 states that have sales taxes calculate their rates. Whether or not the FairTaxers intend to mislead people by using the 23 percent figure, confusion is the effect.

It is not at all clear that this 30 percent sales tax would raise enough revenue to eliminate income and payroll taxes. Brookings Institution economist William Gale has estimated that to replace current federal tax revenues, the tax rate would have to be 44 percent (or 31 percent the way the FairTaxers calculate rates: A $100 product would cost $144 after tax). Gale’s calculation assumed that nobody would evade the sales tax and that Congress would not narrow the tax base by, for example, exempting medical services from the tax. Relaxing those assumptions increases the rate required even further.

Several groups of people would be adversely affected by the tax. Retirees, for example, have paid taxes on their wages during their working lives. After a FairTax was implemented, they would find themselves also having to pay higher taxes on everything they used their accumulated savings to buy. The value of non-retirees’ accumulated savings would drop, too.

The middle class would also pay higher taxes. Under the FairTax plan, the federal government would give all legal residents of the U.S. a “prebate” to cover sales taxes on all purchases up to the poverty line. That would protect the poor (except for illegal immigrants; higher prices are supposed to induce immigrants to come legally so they can get their prebate). And the rich would pay less than they do now, since returns to investment typically are a large share of their income, and these would go untaxed. So if revenues are to stay the same, the middle class will have to pay more. If the change in tax policy increases economic growth, this effect will be mitigated — but it will take a very long time for it to disappear under any plausible assumptions. Governor Huckabee’s claim that voters in all income groups would come out ahead while the federal government would raise the same amount of revenue as before is of course unsupportable.

FairTax proponents generally respond to these criticisms with what we would have to call flimflammery if we thought they understood the issues. Existing taxes are embedded in today’s consumer prices, they say, so getting rid of them would cause prices to drop. Adding sales taxes would be “a wash,” says Huckabee. So prices don’t go up, and workers get to keep their “entire paycheck.” Again, it sounds too good to be true.

And again, it is. If prices stay flat after a sales tax, workers can’t keep their “entire paychecks”: Wages have to fall. The paycheck you’re keeping would be smaller. (Think about it this way: If existing taxes are embedded in the cost of every product, they’re embedded in the cost of labor, too.) If wages don’t adjust downward, then unemployment has to rise. If the Federal Reserve increases the money supply to prevent this combination of falling wages and rising unemployment, then consumer prices will increase.

Most experts in tax administration also say that enforcing sales taxes gets hard quickly once the rates hit double digits. That’s one reason that many countries with broad-based consumption taxes levy value-added taxes, which are collected in smaller amounts at each step along the production and distribution chain, instead of sales taxes, which are collected in one big lump at the end. The fact that no country relies on sales taxes to the extent the FairTaxers advocate does not, however, faze them. Americans for Fair Taxation’s website discusses the issue thus: “Two of the largest economies in the world rely almost solely on sales taxes: Florida and Texas. Many civilizations in history have relied solely on transaction-based consumption taxes: a percentage of a grain shipment in exchange for a safe harbor.” Sales taxes in Florida and Texas are under 10 percent. Might imposing a 30 percent tax rate on the sales of a non-grain-based economy pose different issues? AFT doesn’t say.

Even some of the real advantages of the FairTax are overstated. Households would not have to prepare returns, and would thus enjoy more privacy. On the other hand, the federal government would still have to know people’s wages in order to determine how much they have earned in Social Security benefits. (Which leads to another problem, albeit a surmountable one. Those benefits are now linked to payroll taxes paid, which would of course end with the FairTax. As a result, people would have an incentive, for the first time, to make the federal government think they earned more than they actually did: They would accrue higher Social Security benefits while paying no extra taxes. Waitresses would start over-reporting their tips. The FairTax proposal has to take steps to combat this misreporting.)

And we haven’t even gotten to the politics of it. How likely is it that Congress and the president — any Congress, any president — will agree to create a new tax system that punishes the middle class and senior citizens? One that taxes people when they buy a home in which to live, but not when they buy a house as an investment? (This example comes from The FairTax Fantasy, a fairly comprehensive attack on the idea by Hank Adler and Hugh Hewitt.) That requires state and local governments to pay taxes to the federal government whenever they buy something — and thus, in all likelihood, to raise their own taxes? Let’s even stipulate that these are good ideas, and that the protests of the homebuilders and the charities at the loss of their popular deductions should be ignored. What are the odds that they will be?

AFT also advocates the repeal of the Sixteenth Amendment, which permits a federal income tax. Doing so would require the approval of 38 states’ legislatures. Good luck with that.

In their book FairTax, talk-show host Neal Boortz, Congressman Linder, and Linder aide Rob Woodall dismiss the notion that their campaign is quixotic by arguing that the American Revolution seemed that way too. Abandoning the FairTax as politically impractical, they say, would betray “the American spirit.” They add: “How sad it would be if the FairTax came so very close to reality, then failed legislatively because just a few people — people who could really have helped, people who could have made such a positive difference — just shrugged their shoulders and said, ‘Hey, it’s a good idea, but I don’t see it happening.’”

They need not worry about that scenario. The FairTax is not going to come close to reality. It is true that some things once considered unlikely have come to pass, but working to enact the FairTax is still a waste of time. The American spirit has historically included a fair amount of calculating of odds. And the vast majority of times that people have said, “That will never happen,” they were right.

But even if, per impossibile, the FairTax were enacted, its vulnerability to public sentiment would not end. One of the FairTaxers’ arguments against reform of the income tax is that no reform will stick. The income tax, they say, started as a simple flat tax, and look where we are now. Leaving aside the fact that it has proven quite possible to improve the income tax for long periods of time — most people don’t want to see a restoration of the pre-Reagan code — the same objection applies to the FairTax. Over time, wouldn’t it become just as riddled with exemptions and loopholes as the income tax is? Or as existing state sales taxes are? Or more so: How hard is it to imagine Congress adopting different tax rates for recyclable and non-recyclable products? And wouldn’t the FairTax be at least as easy for politicians to raise as the income tax?

AFT says no. “The FairTax is highly visible. And because there is only one tax rate, it will be very hard for Congress to adopt the typical divide-and-conquer, hide-and-disguise strategy employed today to ratchet up the burden gradually, by manipulating the income tax code.” But how visible would the FairTax really be? Each receipt would show how much the tax had raised the cost of a purchase, but most people would have no sense of how much they had given the federal government over the course of a year. Ask yourself whether you are better at estimating how much income and payroll tax you paid last year, or how much sales tax you paid.

The sound insight behind the FairTax is that the income tax pushes down the return on savings and thus creates a bias toward consumption today instead of consumption tomorrow. So taxing consumption instead of income, as the FairTax aims to do, makes a lot of sense. But there are many other ways to tax consumption. You could, for example, tax income but exempt savings. Other methods of taxing consumption pose far fewer economic, administrative, and political problems.

We do need to reform taxes — to make them simpler, more conducive to growth, and lighter on families. But if conservative politicians campaign for the FairTax, they will lose elections. If tax reformers define reform as the FairTax, there will be no tax reform. The nice thing to say would be that the people who came up with the FairTax and its marketing campaign need to go back to the drawing board. The truth is that they shouldn’t be allowed near drawing boards.


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: fairtax; salespitch; taxreform
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1 posted on 03/15/2010 9:36:14 AM PDT by SeekAndFind
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To: SeekAndFind; Taxman; Principled; EternalVigilance; phil_will1; kevkrom; Bigun; PeteB570; FBD; ...
Another misleading article by an uniformed source. Fair Tax ping!


2 posted on 03/15/2010 9:40:34 AM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: SeekAndFind

The fair tax works perfectly, it acts as a holy grail for many and keeps them busy thinking they are changing something while the income tax moves plods along.


3 posted on 03/15/2010 9:42:20 AM PDT by Raycpa
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To: SeekAndFind
I like the Fair Tax. I think it is moral and fair. The economics will sort itself -- as long as the foundation is fair and moral, I think the economics will end up being acceptable.

I consider a progressive income tax to be unfair, immoral, and economically destructive.

4 posted on 03/15/2010 9:43:53 AM PDT by ClearCase_guy (We're all heading toward red revolution - we just disagree on which type of Red we want.)
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To: SeekAndFind

One other problem with something like the Fair Tax—even if the government passed it, you know that Congress would say something like “oh, sure, we’ll get right on repealing the Sixteenth Amendment after we get this in place.” And then they never will, and we’d end up with the current unworkable income tax system (buggered to exempt favored classes such as minorities and “the poor” from the new tax) AND a national sales tax.

The only way you could ever pass the Fair Tax would be to repeal the Sixteenth Amendment FIRST and break the government’s power to levy an income tax BEFORE discussing a national sales tax or VAT. Otherwise you will end up with both, and the income tax system will be used to exempt the liberals’ favored groups from the effects of the sales tax while double-loading the tax burden onto the productive middle class and the productive rich.

Potentially nice idea, but completely unworkable in the real world. Oh, and that whole 23-vs.-30-percent snake oil bugs me too. Call it what it is, a 30% tax on sales. To call it anything else is to engage in obfuscation.

}:-)4


5 posted on 03/15/2010 9:46:07 AM PDT by Moose4 (Wasting away again in Michaelnifongville.)
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To: SeekAndFind

Why are so many fighting so hard to keep taxes hidden? The single biggest advantage to the FairTax is that every member of the electorate would see, with every purchase, the actual cost of government largesse. Just imagine when discussing a government program linking it to a % increase in the sales tax at the register...

I am amazed that so many fight so hard to keep taxes hidden.


6 posted on 03/15/2010 9:52:17 AM PDT by CSM (Keeper of the "Dave Ramsey Fan" ping list. FReepmail me if you want your beeber stuned.)
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To: SeekAndFind

http://www.amazon.com/FAIRTAX-FANTASY-Hugh-Hewitt/dp/1607913046


7 posted on 03/15/2010 9:53:38 AM PDT by Matchett-PI (Sowell's book, Intellectuals and Society, eviscerates the fantasies that uphold leftist thought)
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To: Moose4

“The only way you could ever pass the Fair Tax would be to repeal the Sixteenth Amendment FIRST”

That is part of the bill. In fact, there is nothing today to prevent from having both an income tax and a sales tax, or any other added tax. The FairTax legislation actually sets in law that we can’t have both.


8 posted on 03/15/2010 9:53:58 AM PDT by CSM (Keeper of the "Dave Ramsey Fan" ping list. FReepmail me if you want your beeber stuned.)
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To: Moose4
"AND a national sales tax."

That's almost a certainty already - probably in the form of a VAT tax.

Milton Friedman used to advocate "starving the beast". IOW, he wanted taxes cut to a minimum, assuming as the the government's annual coffers shrank, so would spending. It never occurred to Friedman - a responsible economist - that the government would run deficits with the vigor that they do today.

The liberal economists have the directly antithetical argument. Rather than "starve the beast", there's is "feed the addiction". They're planning on (and succeeding in), spending themselves into a "crisis", where some other emergency tax(es) will need to be levied to keep the US from defaulting on its debt. All of the a sudden, their dream tax, the VAT tax, becomes a reality.

I'm convinced that's the plan.

9 posted on 03/15/2010 9:57:14 AM PDT by OldDeckHand
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To: SeekAndFind
I would prefer we go back to Article I Section 2 of the constitution:
Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons
Translation: if the federal budget exceeds the revenues provided by duties on imports and excise taxes, then the state legislatures get the bill for the difference, with each state's share of the bill being calculated according to its share of the population.

To make this work, the Senate would once again need to be appointed by the state legislatures.

10 posted on 03/15/2010 9:58:03 AM PDT by PapaBear3625 (Public healthcare looks like it will work as well as public housing did.)
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To: SeekAndFind
I'd prefer Flat Tax. Even Fair Tax has too much bureaucracy and exceptions.
Flat Tax is much simpler. A simple personal deduction for yourself and dependencies and then one single rate after that.
Eliminate all other taxes. Abolish the IRS.

But first: CUT GOVERNMENT SPENDING!!!

Any and all tax reforms will be meaningless without that first step.

11 posted on 03/15/2010 9:59:06 AM PDT by BitWielder1 (Corporate Profits are better than Government Waste)
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To: CSM

“I am amazed that so many fight so hard to keep taxes hidden.”

I’m not. A lot of people get a little break on their income taxes (motor fuels taxes, you name it) and they want to keep their loophole open because *their* loophole is important. This includes many so-called conservatives who vote Republican at every election.

End the pork, unless it’s my pork, and then I need it.

I’ve been a tax consultant for fifteen years and am amazed at the things political “conservatives” can justify to themselves in the realm of tax. I can understand why liberals do it. Most Republicans in my world are as liberal as Democrats.


12 posted on 03/15/2010 10:03:43 AM PDT by cizinec
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To: SeekAndFind

The Fair Tax is calculated the same way Income Tax is: if you are in a 35% tax bracket, you pay $35 of every $100 you earn to the Federales. The same is true of the Fair Tax. If you spend $100, $23 goes to the government.

IIRC, there is no Social Security tax under the Fair Tax. Its part of the Fair Tax. Since Social Security taxes go straight into the general budget, who cares anyway?


13 posted on 03/15/2010 10:09:00 AM PDT by Little Ray (The Gods of the Copybook Headings with terror and slaughter return!)
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To: cizinec
"I’ve been a tax consultant for fifteen years and am amazed at the things political “conservatives” can justify to themselves in the realm of tax. I can understand why liberals do it. Most Republicans in my world are as liberal as Democrats."

I used to think as you do.

Now, I am convinced that we are past the point of no return. They only way back is forward until the corrupt behemoth collapses under it's own weight. Taking advantage of any legal federal bennie while starving Washington of as much tax revenue as possible (legally, of course) is a legitimate means to hasten that end.
14 posted on 03/15/2010 10:18:26 AM PDT by chrisser (Starve the Monkeys!)
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To: Moose4
One other problem with something like the Fair Tax—even if the government passed it, you know that Congress would say something like “oh, sure, we’ll get right on repealing the Sixteenth Amendment after we get this in place.” And then they never will, and we’d end up with the current unworkable income tax system (buggered to exempt favored classes such as minorities and “the poor” from the new tax) AND a national sales tax.

The Fair Tax already has a clause that can be paraphrased as "This law doesn't go into effect until the 16th amendment is repealed".

I like the FairTax. It removes the social and fiscal engineering of the current tax code. Also removed will be all of the sales (or rental, Congressmen aren't honest enough to stay bought) of legislation. The biggest lobbying efforts are to game the tax code. One tax rate for every person and none for business and that goes away. Another benefit is that foreign and multinational companies can't play around with which country's subsidiaries actually make the profit, so foreign/multinational companies won't have a tax advantage over purely domestic companies.

Is it perfect? No. The biggest problem is that savings have already been taxed when earned will be taxed again when spent, while those who have been irresponsible and have borrowed and spent didn't pay tax and then won't pay tax when they earn and repay get off tax free.

15 posted on 03/15/2010 10:20:00 AM PDT by KarlInOhio (New Olympic tagline Shut up, Bob Costas. Shut up! Shut up! Shut up! Shut up! Shut up! Shut up!)
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To: SeekAndFind
The FairTaxers give a misleading answer to the first question everyone asks about their idea: How big will the tax be? The FairTaxers say they want a 23 percent sales tax. Most people will assume that a product that costs $100 before the tax is added would cost $123 with the tax. Actually, the tax would be $30 and the total price $130. They call it a “23 percent” rate because $30 is 23 percent of $130.

Ramesh's first sign of ignorance. Currently ever item purchased contains embedded taxes thanks to businesses passing on the cost of their income taxes and associated compliance costs onto the consumer at each stage of production. The total percentage of these VATs amounts to nearly 23%. A $100 item today actually costs $77 with a $23 tax. This is known as the tax inclusive costs. The Fair Tax will remove the embedded tax by eliminating corporate income taxes and applying the rate of 23% one time, externally from the actual price, at the point of sale on only new items. This is known as the tax exclusive rate. Do the math 23/77=30%. The bottom line is the amount of tax collected($23) will be the same regardless which rate is quoted. AFFT uses the 23% rate because the Fair Tax will replace the income tax and its 23% embedded tax.

Several groups of people would be adversely affected by the tax. Retirees, for example, have paid taxes on their wages during their working lives. After a FairTax was implemented, they would find themselves also having to pay higher taxes on everything they used their accumulated savings to buy. The value of non-retirees’ accumulated savings would drop, too.

Once again Ramesh proves not to have a clue. The overall tax burden will be lower under the Fair Tax. Currently under the income tax retirees are taxed on their savings and any capital gains. These forms of income taxes will be eliminated by The Fair Tax. They will consequently have more purchasing power and be able to save and invest more than with the income tax.

The middle class would also pay higher taxes. Under the FairTax plan, the federal government would give all legal residents of the U.S. a “prebate” to cover sales taxes on all purchases up to the poverty line. That would protect the poor (except for illegal immigrants; higher prices are supposed to induce immigrants to come legally so they can get their prebate). And the rich would pay less than they do now, since returns to investment typically are a large share of their income, and these would go untaxed.

Ramesh continues to distort the facts. All economic classes will pay taxed based on what they can afford to spend. The Prebate has no direct connection to the costs of goods. The prebate will be based on already established guidelines from the Department of Human and Health Services. people must prove citzenship.

Section 302 of HR25/S296:

(2) IDENTIFICATION REQUIREMENTS- In order for a person to be counted as a member of the family for purposes of determining the size of the qualified family, such person must--

`(A) have a bona fide Social Security number; and

(B) be a lawful resident of the United States.

Ramesh's thinking on the prebate for the rich is 180 degrees backwards. The wealthy will pay more out of pocket for taxes on items since the prebate will be a much smaller percentage as compared to income given that the prebate is based solely on the household size.

If prices stay flat after a sales tax, workers can’t keep their “entire paychecks”: Wages have to fall. The paycheck you’re keeping would be smaller. (Think about it this way: If existing taxes are embedded in the cost of every product, they’re embedded in the cost of labor, too.) If wages don’t adjust downward, then unemployment has to rise. If the Federal Reserve increases the money supply to prevent this combination of falling wages and rising unemployment, then consumer prices will increase.

Prices may stay flat for certain industries but rise slightly in other industries. The price rise will vary among industries. The increase in purchasing power will more than offset any price increase. Ramesh also ignores one fundamental point. The elimination of corporate income taxes will spur U.S. companies to return to the U.S. those assets they transferred over seas to avoid income taxes thereby creating more jobs and lowering unemployment.

Most experts in tax administration also say that enforcing sales taxes gets hard quickly once the rates hit double digits. That’s one reason that many countries with broad-based consumption taxes levy value-added taxes, which are collected in smaller amounts at each step along the production and distribution chain, instead of sales taxes, which are collected in one big lump at the end. The fact that no country relies on sales taxes to the extent the FairTaxers advocate does not, however, faze them.

Who are these experts Ramesh? HJow many is most? You better tell that to the eighty economists who have signed onto the Fair Tax and sent a letter to President Bush in support of The Fair Tax.

Households would not have to prepare returns, and would thus enjoy more privacy. On the other hand, the federal government would still have to know people’s wages in order to determine how much they have earned in Social Security benefits. (Which leads to another problem, albeit a surmountable one.

How is that anymore intrusive than what we have now? How is not having to fill out a multitude of tax forms seeking information about every aspect of a person's life anymore intrusive? It's far less intrusive.

How likely is it that Congress and the president — any Congress, any president — will agree to create a new tax system that punishes the middle class and senior citizens? One that taxes people when they buy a home in which to live, but not when they buy a house as an investment?

Ramesh is really twisting in the wind at this point in the article. The Fair Tax will over the overall burden. People will no pay any tax on homes with previous owners as used items will not be taxed! There will not be a different class for purchasing a home as an investment under The Fair Tax in order to avoid the tax.

AFT also advocates the repeal of the Sixteenth Amendment, which permits a federal income tax. Doing so would require the approval of 38 states’ legislatures. Good luck with that.

Again Ramesh shows ignorance. First of all it's not AFT it's AFFT(Americans For Fair Taxation). The Fair Tax will immediately defund the IRS. AFFT is working on concurrent legislation(House Joint Resolution 16) that will repeal the 16th Amendment.

The FairTax is not going to come close to reality.

Ramesh hasn't been doing his homework on this point. The number of cosponsors for The Fair Tax has grown with each session of Congress since 1999. Politicians don't support bills out of altruism. They do so because they feel the heat from their constituents. Those who have signed onto The Fair Tax did so due to increased pressure from a growing grassroots movement. Michael Reagan recently agreed to be the Honorary Chairman of the Fair Tax National Victory Campaign. He wouldn't have joined if The fair Tax was losing support.
16 posted on 03/15/2010 10:31:28 AM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: SeekAndFind
If Fair Taxers would remove their blinders they would see that this notion will hurt more than help.

You cannot repeal an amendment simply by passing another amendment. It also takes ratification by a majority of the states.

It does not address local taxes or state income taxes.

It simply replaces one bureaucracy with another, to handle the monthly rebates.

It stands to kill manufacturing and purchase of new items as it will only apply to new items, not used. People’s anti-tax attitude will drive them to buy less new and more used, which could also create an inflated market there as well.

The wealthy, who don't want to pay the tax, will simply purchase large items elsewhere as they did to avoid the luxury tax years ago.

The author is correct.

17 posted on 03/15/2010 10:35:36 AM PDT by DakotaRed (What happened to the country I fought for?)
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To: BitWielder1
I'd prefer Flat Tax. Even Fair Tax has too much bureaucracy and exceptions.

Huh? The closest thing to an exemption is not taxing used items but that's because those items have already had a tax imposed on them. All new items are taxed at the point of sale. No exceptions. Please explain how The Fair Tax will have more bureaucracy when the tax code will be reduced from more than 67,500 pages to 136?
18 posted on 03/15/2010 10:35:55 AM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: Man50D

Good informative post.


19 posted on 03/15/2010 10:41:22 AM PDT by achilles2000 (Shouting "fire" in a burning building is doing everyone a favor...whether they like it or not)
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To: DakotaRed
If Fair Taxers would remove their blinders they would see that this notion will hurt more than help.

You cannot repeal an amendment simply by passing another amendment. It also takes ratification by a majority of the states.


Americans For Fair Taxation has been aware since 1995. The purpose of House Joint Resolution 16 is to repeal the 16th Amendment. If you took of your blinders you would realize The Fair Tax Act(HR25/S296) has a provision in their bill recognizing the need to repeal the 16th Amendment.

It simply replaces one bureaucracy with another, to handle the monthly rebates.

The bureaucracy will be much smaller. The IRS consisting of approximately 100,000 agents will be replaced with an agency requiring about 5,000 agents.

It stands to kill manufacturing and purchase of new items as it will only apply to new items, not used

You really need to read the bill. There will not be any taxes on business to business transactions.

The wealthy, who don't want to pay the tax, will simply purchase large items elsewhere as they did to avoid the luxury tax years ago.

The wealthy will no longer have their investments taxed thereby increasing their purchasing power.

The author hasn't a clue and obviously hasn't spent one second reading the bill.
20 posted on 03/15/2010 10:44:51 AM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: Man50D
The prebate and other re-distributive clauses is a problem for me.
With flat tax we can reduce the tax code to one page.

21 posted on 03/15/2010 10:48:55 AM PDT by BitWielder1 (Corporate Profits are better than Government Waste)
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To: SeekAndFind

“Two of the largest economies in the world rely almost solely on sales taxes: Florida and Texas”

Texas state sales tax rate is under 7%, with local taxes about 8%.


22 posted on 03/15/2010 11:02:23 AM PDT by WOSG (OPERATION RESTORE AMERICAN FREEDOM - NOVEMBER, 2010 - DO YOUR PART!)
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To: BitWielder1

I agree totally! The prebate is going to be ripe for fraud (a la the EITC), and there are too many moving parts in the FairTax.

I’d like to see a flat tax of, say, 1%.


23 posted on 03/15/2010 11:14:47 AM PDT by dinodino
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To: Man50D

There is nothing fair about the Fair Tax. First you set the taxing event at the entrance of the “Pipeline of life’s accumulation” with the income tax. Everything that one earns goes through this taxing event before it can enter the pipeline of savings, retirement, property accumulation and all other capital accumulation for which one has a tax basis to keep from being taxed on that same money twice should one elect to sell the capital item, but would only be taxed on the gain.

Then, just about the time that you reach the age where you will no longer be a wage earner and will no longer be adding to your pipeline of accumulation, but will instead begin to live off of your savings, retirement and capital accumulation some smart guy comes along and says hey, I’ve got a great idea; lets move the taxing event from the entrance of your pipeline of accumulation to the exit of that pipeline! We won’t tax you when you earn the money, we will tax you when you spend it. You can fill your pipeline of accumulated savings with all that you can earn before paying tax on it. We will call it the Fair Tax!

But wait, you might say,”I am no longer earning or accumulating wealth. I was taught that I should save for my retirement so that I could support myself and would not be a burden on society. I made many sacrifices throughout my life to accomplish that goal and now you tell me that you want to change the rules of the game and move the taxing event to the other end of the ‘pipeline’, so that everything that I have already paid taxes on over my entire life, which I was able to save, will now be taxed a second time when I spend it!!? And you will call this a FAIR TAX?”

You might ask yourself, “What the hell is fair about that?”

Proponents of the Fair Tax try to argue that, “Prices will go down, etc.”

I say Bull S**t. That doesn’t change the fact that current earners will be buying goods and services and saving, with untaxed dollars, and those that sacrificed and did things right and managed, by acting responsibly, to reach retirement age with accumulated capital through sacrifice will be competing for those same goods and services with dollars that have already been taxed!

For the retired or soon to be retired person, there is nothing fair about the Fair Tax until they can figure out a way to provide a credit against the tax for accumulated capital which has already been subject to tax.

To change the rules of the game in this drastic manner without accommodating the responsible people who saved to accomplish the admirable goal of self-sufficency, would be akin to waiting until a football team had moved the ball to within one foot of the goal line and then unilaterally declaring that the rules have just changed and they must cross the center of the field to score and no adjustment will be made for yardage they have already gained. Except, I suspect, those so affected by the Fair Tax, will take this “stick in the eye” a lot more seriously than any football game!


24 posted on 03/15/2010 11:33:16 AM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: Man50D
Another misleading article by an uniformed source.

Sounds like the author has it right and the FTers have it, as usual, quite wrong.
25 posted on 03/15/2010 11:40:52 AM PDT by Filo (Darwin was right!)
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To: SeekAndFind
Here is my problem, if the stuff like prebates are in, I'm against this. I recall an economist on Rush in the nineties saying that a one percent sales tax would generate as much revenue as income taxes. I believe in a ten percent national sales tax and requiring a cut in federal spending to match that amount. I do believe food and health care should be exempt with no rebates, no earned income credit nothing. The tax would on everything else including rent and mortgages. If anyone is talking about exempting anyone, I'm against it.
26 posted on 03/15/2010 11:44:26 AM PDT by Takethathill (Put on the whole Armor of God. Ephesians 6:10-18)
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To: Man50D

Once again Ramesh proves not to have a clue. The overall tax burden will be lower under the Fair Tax. Currently under the income tax retirees are taxed on their savings and any capital gains. These forms of income taxes will be eliminated by The Fair Tax. They will consequently have more purchasing power and be able to save and invest more than with the income tax.

You are wrong. Retirees are not taxed on their savings. They are taxed only on the earnings of their savings.

Under the Fair Tax proposal, they would be taxed on their entire savings, (savings plus earnings) should they decide to cash in their savings and use it to buy something. As a consequence, they will have paid tax twice on their savings, first when they earned it, and second when they spend it. Some Fair Tax that is!


27 posted on 03/15/2010 11:55:21 AM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: PapaBear3625

You have nailed it!

Abolish the income tax, rein the federal government back into the restraints of the Constitution, seat Senators through the respective state legislatures and never let the federal government out of that box again!


28 posted on 03/15/2010 12:09:00 PM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: HMBillson
It was the combination of the 16th and 17th Amendments that broke the chains on the federal government. The 16th:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
allowed the feds to tax individuals directly, without having to go thru the states.

The 17th, direct election of Senators (who were previously appointed by the state legislatures), took away the ability of the state legislators to stop federal encroachments on their power.

Do you think a Senate, appointed by state legislators, is going to allow unnecessary budget items that have to be paid for by the states, from out of STATE revenue?

29 posted on 03/15/2010 12:36:27 PM PDT by PapaBear3625 (Public healthcare looks like it will work as well as public housing did.)
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To: Man50D
Americans For Fair Taxation has been aware since 1995. The purpose of House Joint Resolution 16 is to repeal the 16th Amendment. If you took of your blinders you would realize The Fair Tax Act(HR25/S296) has a provision in their bill recognizing the need to repeal the 16th Amendment.

And, should that provision not be ratified, then what? So-called Fair Tax and Income tax both?

The bureaucracy will be much smaller. The IRS consisting of approximately 100,000 agents will be replaced with an agency requiring about 5,000 agents.

Any idea on how many began with the IRS? Can you name any bureaucracy that has not grown?

You really need to read the bill. There will not be any taxes on business to business transactions.

I printed it all out long ago and did read it, all 133 pages of it. I wonder if any supporters actually read the bill or rely more on Boortz's book.

The wealthy will no longer have their investments taxed thereby increasing their purchasing power.

The wealthy are the least of my worries. It is John Q. Public that will see he now must pay 30 cents on the dollar in tax that I see running to buy used over new items.

The author hasn't a clue and obviously hasn't spent one second reading the bill.

From where I sit, it appears like people more follow Boortz's book than the actual bill. The problems in this bill are way too apparent and clear for them to be so easily missed by supporters.

I am constantly amazed to see those who readily see big problems in the healthcare takeover, but who, out of hatred for the IRS or whatever, ignore glaring problems within this bill.

As I have long maintained, we do not tame the beast by changing how we feed the beast. The beast being out of control government spending.

Put down Boortz's book and actually read the entire bill.

30 posted on 03/15/2010 12:37:01 PM PDT by DakotaRed (What happened to the country I fought for?)
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To: BitWielder1
With flat tax we can reduce the tax code to one page.

That will be the tax form not the tax code. The Fair Tax will reduce the number of forms to zero.
31 posted on 03/15/2010 12:53:51 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: SeekAndFind

The socialists behind the “Fair Tax” universal national welfare scheme want every American on the monthly federal dole. They will make any promise, no matter how outlandish, to advance that agenda.


32 posted on 03/15/2010 12:57:48 PM PDT by Mojave (Ignorant and stoned - Obama's natural constituency.)
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To: HMBillson
Then, just about the time that you reach the age where you will no longer be a wage earner and will no longer be adding to your pipeline of accumulation, but will instead begin to live off of your savings, retirement and capital accumulation some smart guy comes along and says hey, I’ve got a great idea; lets move the taxing event from the entrance of your pipeline of accumulation to the exit of that pipeline!

You're already being taxed on savings and capital gains! The Fair Tax will eliminate this taxation and therefore will be able to acquire more wealth via investments and increase savings!

Ignoring that fact, Are you willing to sacrifice the opportunity for future generations not to have their wealth taxed to avoid your perceived double taxation?
33 posted on 03/15/2010 1:00:03 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: HMBillson
You are wrong. Retirees are not taxed on their savings.

They are taxed only on the earnings of their savings.

The splitting hairs argument only weakens your position. That is money that would otherwise be saved for your retirement. The Fair Tax will remove that tax.

Under the Fair Tax proposal, they would be taxed on their entire savings, (savings plus earnings) should they decide to cash in their savings and use it to buy something.

Wrong again. You won't be taxed on used items, nor will you be taxed on necessities up to the poverty level. You are taxed multiple times with every purchase due to corporate income taxes included in the price at each stage of production. There will no longer be multiple taxation when The Fair Tax eliminates those embedded corporate income taxes.
34 posted on 03/15/2010 1:07:05 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: DakotaRed
And, should that provision not be ratified, then what? So-called Fair Tax and Income tax both?

Per the Fair Tax Act(HR25/S296)

SEC. 401. ELIMINATION OF SALES TAX IF SIXTEENTH AMENDMENT NOT REPEALED.

If the Sixteenth Amendment to the Constitution of the United States is not repealed before the end of the 7-year period beginning on the date of the enactment of this Act, then all provisions of, and amendments made by, this Act shall not apply to any use or consumption in any year beginning after December 31 of the calendar year in which or with which such period ends, except that the Sales Tax Bureau of the Department of the Treasury shall not be terminated until 6 months after such December 31.

Any idea on how many began with the IRS? Can you name any bureaucracy that has not grown?

Are you aware the number of collection points will be reduced from 140 million(individuals and businesses) down to 40 million(businesses only)? The federal agency in charge under The Fair Tax will only grow if the number of collection points increases. That will happen at a much slower pace than the increase of individuals that has occurred with the income tax.

It is John Q. Public that will see he now must pay 30 cents on the dollar in tax that I see running to buy used over new items.

There will not be anymore tax collected under the Fair Tax than the embedded corporate taxes and associated compliance costs included in the price of all goods and services today. The total is nearly 23%. A $100 item actually costs $77 with $23 in taxes. That is the tax inclusive rate. The Fair Tax will eliminate those embedded taxes by eliminating corporate income taxes and apply that rate only at the final point of sale. That is the tax exclusive rate. Do the math: 23/77=30%. The amount of dollars collected will be the same($23)regardless of the rate quoted.

As I have long maintained, we do not tame the beast by changing how we feed the beast. The beast being out of control government spending.

No form of taxes can completely control spending. It's not designed primarily for that purpose however The Fair Tax will control spending to some extent. Increased spending would require Congress to raise the rate. Raising the consumption rate would result in a decrease of purchases. Fewer purchases would cause a corresponding drop in tax collection. Less taxes collected would give Congress less money to spend thereby forcing them to reduce spending or lower the tax rate to maximize collection.
35 posted on 03/15/2010 1:29:33 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: ClearCase_guy
I like the Fair Tax. I think it is moral and fair. The economics will sort itself -- as long as the foundation is fair and moral, I think the economics will end up being acceptable. I consider a progressive income tax to be unfair, immoral, and economically destructive.

I completely agree with you. I am sure there will be problems that we can sort out. Personally, I would get rid of the prebate concept and lower the overall rate. But that's just me. Beyond that the people that constantly say nothing can be changed are inevitably wrong. Wilson got the permanent income tax yoke around our throats. What is done can be undone. Indeed history tells us that is always the case. The marxist income tax must be eliminated to protect the freedom of our citizens. The Constitution must be amended to prevent the government hitting the citizens with both a sales tax and an income tax. While we are at it we need to amend the constitution to prevent states and localities from taxing property. It is time to reign in the bloated, arrogant and abusive government.

36 posted on 03/15/2010 1:36:14 PM PDT by Nuc1 (NUC1 Sub pusher SSN 668 (Liberals Aren't Patriots))
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To: Moose4
The only way you could ever pass the Fair Tax would be to repeal the Sixteenth Amendment FIRST and break the government’s power to levy an income tax BEFORE discussing a national sales tax or VAT. Otherwise you will end up with both,...

I absolute agree with this.

37 posted on 03/15/2010 1:38:03 PM PDT by Nuc1 (NUC1 Sub pusher SSN 668 (Liberals Aren't Patriots))
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To: Man50D

Taxes are not for controlling spending, that is a strawman. But, taxes continue to feed spending.

And, pray tell, what occurs during the 7 years we wait for ratification of repealing the 16th Amendment and Fair Tax is instituted?

When was that ratification clause added? It’s not in the original.

I didn’t say it before, but I will now, you ignored very relevant points of trouble with this and addrssed more minor points.

Typical of Fair Taxers and Ron Paulies (not saying you are a Paulie).

There are several problems I did not even address.

I’d rather see the IRS gone and a flat tax instead.

The simpler the better and Fair Tax is far from simple.


38 posted on 03/15/2010 1:45:31 PM PDT by DakotaRed (What happened to the country I fought for?)
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To: SeekAndFind

the Oligargy gets antsy when the peons and peasants get uppity!!!


39 posted on 03/15/2010 1:52:33 PM PDT by mo
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To: HMBillson
While talking about rules you might consider what is going to happen to the boomers and anyone that follows them in the time line for SS and medicaid / medicare. There won't be any. Or the dollar will be so inflated that the entire ss check will buy you an egg. Beyond that I already pay multiple taxation on my money. And I am one of those people that you describe that will pay taxes multiple times. This is not about ultimate fairness. It is about liberty and reducing the power of government to destroy our lives and dreams. Which they seem to have done with alarming regularity.
40 posted on 03/15/2010 1:53:07 PM PDT by Nuc1 (NUC1 Sub pusher SSN 668 (Liberals Aren't Patriots))
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To: Man50D

You’re already being taxed on savings and capital gains! The Fair Tax will eliminate this taxation and therefore will be able to acquire more wealth via investments and increase savings!

I reiterate, I am not being taxed on savings. That event happened when I earned the money to save. I am only taxed on the earnings generated by the savings. Under the concept of the Fair Tax when I cash in my savings and spend it. Same for capital gains. If I have spent $1 million on land for my ranch and I sell it for $1.2 million, I will pay tax on $200K, and can spend the money with no further consiquences. At 28% capital gain rate my tax would be $56K. Under the Fair tax, when I have spent the $1.2 mil., I will have paid a tax of $276K, not to mention that tax has already been paid on the $1Mil. when it was earned.

The thing I think you fail to grasp is, retirees are not in the mode of acquiring more wealth that would no longer be taxed, but are instead in the mode of spending the wealth that they have acquired and paid tax on. You propose to increase their burden by 23%.

As for your attempt to appeal to my conscience:

“Are you willing to sacrifice the opportunity for future generations not to have their wealth taxed to avoid your perceived double taxation?”

First, double taxation is not a perception with the Fair Tax with regard to accumulated capital, it is a fact.

As for the future generations, especially the idiots that voted this communist into office, I am not prepared to wreck the security of my family to right their ship. I am obligated to not support anything that will put them further into debt on the spending side of the equation and will act accordingly. I would gladly sacrifice social security, which I never expected to collect anyway, and Medicare, which has done nothing but screw up my hospitalization plan that I already had in place (it used to pay virtually all claims after deductible and now pays nothing if Medicare elects to deny their portion).

The solution to their problem (future generations) is: Abolish the income tax, rein the federal government back into the restraints of the Constitution, seat Senators through the respective state legislatures and never let the federal government out of that box again! See Papabear post # 29.


41 posted on 03/15/2010 2:44:44 PM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: DakotaRed
Taxes are not for controlling spending, that is a strawman.

Someone should have told that to founding father and first Secretary of the Treasury Alexander Hamilton before he wrote Federalist Paper #21. To quote an excerpt:

"It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them."
42 posted on 03/15/2010 2:53:05 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: PapaBear3625

PapaBear, You have the solution! I could not agree more.


43 posted on 03/15/2010 2:54:31 PM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: DakotaRed
I’d rather see the IRS gone and a flat tax instead.

We already had a flat tax on income. It's the current income tax code. People were taxed 1% on the first $20,000 of income and 7% on income over $500,000 when the 16th Amendment was enacted in 1913. Less than 1% of the population earned more than $500,000 which means more than 99% were taxed 1%. It was essentially a flat tax on income. Another flat tax on income would morph into the same multi tiered, convoluted, increasingly intrusive and heavy progressive income tax we have today only faster thanks to the thousands of lobbyists that didn't exist in 1913.

There's a reason why Karl Marx included a heavy progressive tax on income as a plank in his Communist manifesto. He understood gradually increasing the tax on productivity will discourage people from being productive and then they will turn to the state for their subsistence.
44 posted on 03/15/2010 3:01:51 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: BitWielder1
I'd prefer Flat Tax. Even Fair Tax has too much bureaucracy and exceptions. Flat Tax is much simpler. A simple personal deduction for yourself and dependencies and then one single rate after that. Eliminate all other taxes. Abolish the IRS. But first: CUT GOVERNMENT SPENDING!!! Any and all tax reforms will be meaningless without that first step.

I mostly agree. The government should be constitutionally limited to only 4 sources of revenue: A 10% income tax, a land tax (acreage only, not buildings); loser pays civil trials; and perhaps some infrastructure usage fees.

I don't like the Fair Tax, it hurts cost of production and encourages smuggling from foreign countries.

45 posted on 03/15/2010 3:18:43 PM PDT by Partisan Gunslinger
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To: DakotaRed; Man50D

“It is John Q. Public that will see he now must pay 30 cents on the dollar in tax that I see running to buy used over new items.”

There is a huge difference between 30 cents on every dollar spent on new goods and services and 30 (or 40 or 50) cents tax on every dollar earned.


46 posted on 03/15/2010 3:38:06 PM PDT by Badray
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To: Man50D

“The splitting hairs argument only weakens your position. That is money that would otherwise be saved for your retirement. The Fair Tax will remove that tax.”

I don’t know how you define splitting hairs. The principal, or actual savings portion of a savings account is signifacantly more substantial than the current period’s earnings.

And again, I am not saving money for my retirement. I am spending money from my retirement.

So you now tell me: “Wrong again. You won’t be taxed on used items, nor will you be taxed on necessities up to the poverty level. You are taxed multiple times with every purchase due to corporate income taxes included in the price at each stage of production.”

So here is your advice?: Either pay a second tax on the money you have already paid tax on, cause we are changing the rules or buy all of your stuff second hand and /or live under the poverty level.

That’s very nice of you.

My response: F. Y.

As for the so called Corporate Income Tax that you claim is imbedded in the cost of all products, I believe this is a dream fostered on the public. Having spent over twenty years in the tax department of a major corporation I can tell you that the goal of the corporation was always net book income. Corporate taxes are paid on Net Taxable Income. Anything that adds to the bottom line of a corporation is a resource to pay those taxes. Corporations pay a lot of money to tax professionals in an effort to defer taxes on book income, through timing differences, such as depreciation and depletion but the market is the detemining factor in the price of goods and services. I will grant that payroll and excises taxes are imbedded factors, but not income tax, which is a tax paid on profit.


47 posted on 03/15/2010 3:49:31 PM PDT by HMBillson (It don't take a genius to spot a goat in a flock of sheep.)
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To: HMBillson
I reiterate, I am not being taxed on savings.

Your reiterations don't change the fact the money going to Uncle Sam will remain in your savings account for you to spend under The Fair Tax.

The thing I think you fail to grasp is, retirees are not in the mode of acquiring more wealth that would no longer be taxed, but are instead in the mode of spending the wealth that they have acquired and paid tax on. You propose to increase their burden by 23%.

Oh really? You better tell that to my 84 year old father and my brother who are both retired and still invest. My father has been doing so for many years and has accrued a done well over many years. He would have amassed more if his capital gains weren't taxed.

I am not prepared to wreck the security of my family to right their ship. I am obligated to not support anything that will put them further into debt on the spending side of the equation and will act accordingly.

The income tax has been wrecking people's security for decades and is doing so now at an increasing rate. The Fair Tax will reduce their overall tax burden, ensure they are not paying taxes for corporations via embedded taxes and restore more power to them by giving them more choice as to when and how often they are taxed.

The solution to their problem (future generations) is: Abolish the income tax, rein the federal government back into the restraints of the Constitution, seat Senators through the respective state legislatures and never let the federal government out of that box again!

The first part of your statement just described the effects of The Fair Tax! The latter part cannot be accomplished by any tax code. That is a separate issue.
48 posted on 03/15/2010 5:04:59 PM PDT by Man50D (Fair Tax, you earn it, you keep it! www.FairTaxNation.com)
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To: DakotaRed
"I’d rather see the IRS gone and a flat tax instead." The IRS would still have to be there to verify or audit returns for income so they would not be gone. The income tax started as a single rate and grew into the monstronsity that we have now. The FT is uncomplicated unless you try to make it complicated. One rate. New goods and services only. Paid at the register. Perfect? No. Cheating? Sure, but I doubt that it would be close to what we have now. My fundamental objection to the Income Tax is that it is fundamentally unamerican and unfair.
49 posted on 03/15/2010 6:38:35 PM PDT by Badray
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To: Partisan Gunslinger

“I don’t like the Fair Tax, it hurts cost of production and encourages smuggling from foreign countries.”

Would you be so kind as to explain why you believe that? Everything that I have read about the FairTax says the opposite.

The tax is collected at the register so how would smuggled goods hurt anything?

The removal of taxes on business would make the US a haven for business and manufacturing. I don’t see how removing the cost of taxes is going to hurt the cost of production.


50 posted on 03/15/2010 6:47:22 PM PDT by Badray
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