Replies

I've seen many post on here concerned with home deductions, evasion, state income taxes, etc. First of all, if you haven't reviewed the main NRST Bills, do so and many of your concerns will be answered. The FairTax, which I support replaces the Federal Income Tax, the Federal payroll tax, Capital Gains tax, gift and estate tax, with a single level National Retail Sales tax, only at the final level of sale and only on new goods and services. It does not hurt the poor. There is a monthly rebate to every family based only on the size of the family. The rebate equals the poverty rate times the tax rate and is paid in advance monthly. The only thing the Government needs to know is the size of the family. This is verified by the Social Security number so illegal aliens do not get a rebate. In effect, the rebate completely untaxes the poor. It has the effect of exempting the basic necessities of life for all of us without leaving loopholes called food, medicine, etc. (Item exemptions allow for abuse by changing the definitions of items).

The Home interest deduction is NOT a concern. It is only a habit. Today we only deduct interest on a mortgage, not the principal. To get this deduction, one must itemize and give up the standard deduction on their tax form. Most Americans DO NOT itemize so do not get the deduction. Those that do, still don't get the benefit of deducting all interest because they must simultaneously give up the standard deduction. But that is not the main point.

The fairtax (www.fairtax.org) only taxes new items. A home would only be taxed once, when it is new. When the fairtax is passed, existing homes would not be taxed. ONLY the principal is taxed on those new homes. Interest expense is not taxed. That is no different than under the income tax where you can only deduct interest. Not taxing something is the same as exempting it. But one big difference is, under the FairTax you have much more money in your paycheck to make the payment.

Some will say that new home construction would end, and everyone would buy used. That is not practical either. This bill has been endorsed by the Association of General Contractors of America. Why? It removes the embedded cost of the income/payroll tax from every nail, piece of board, drywall, and effort of labor that goes into construction. According to economists from Boston University, Harvard, Rice, MIT and Standford prices for new goods would drop in cost between 20 and 30%. The tax rate would be approximately 23% to be REVENUE NEUTRAL so prices in actuality would remain at their current level. There would be a 6 month to 1 year adjustment period because items in inventory will still be carrying the embedded cost of the income tax. Whatever the cost of new homes after the change, used homes will adjust in price. They will not be taxed, so if the cost of a new home drops in price and after the tax stays at the same level, used homes will also stay at the same level. That is supply and demand.

In one conversation on this topic, a bank officer asked me what made me think he would finance a new car for $20,000 plus an additional $5,000 for taxes. My first response was to ask him if he'd like to remain in business. In reality though, he is financing taxes today as the cost of taxation is throughout the value of the car. People just don't see it. Under an NRST, if I buy a new car for $20,000 plus $5,000 in taxes, drive it across the street, decide I don't want it and offer to sell it to an interested party for $24,000, that party will have two choices...go across the street and pay $25,000 or buy mine with less than a mile on it with a $1,000 savings. Prices adjust.

A final thought on home sales...in a 1996 study by Princeton Economics, the CEOs of 500 large corporations in Europe and Japan were asked how they would response to this type of change. Eighty percent stated they would build their next factory in the US, twenty percent would move their headquarters here. This would create a huge growth in the economy as well as making the US the savings capitol of the world. Why place tariffs on imported steel which increases prices, when you can simply attract the companies to America to provide the jobs?

Regarding State income taxes and evasion...45 states today have a sales tax. The Fairtax will be collected by the States. The mechanism is already there. It does not require a new bureaucracy. In America, 85% of the retail sales are made by 10% of the retailers (i.e. Walmart, Sears, etc.) I can't see Wal-mart conspiring with me to evade the tax. Comparing the rate of 23% to today. If you are in a 15% marginal tax bracket, adding in the employer and employee payroll tax brings your current marginal rate to 30%. If we go out of our way to avoid a 23% on what we spend, what do you think most Americans are doing to avoid a 30% bite or more on what they make?

Keep in mind there is no perfect tax system. In the late 1800s the average American complained about being enslaved by tariffs as they were used by business to keep foreign competition down and artificially keep prices high. There is no perfect tax system, but a tax system based on a man's production is akin to slavery. You can't retain freedom under a system that requires loss of privacy, intimidation and division of citizens. A flat tax at any rate will not change this. You still must report to Government the value of your labor and they will still lay first claim to your production. This is slavery, is is only a matter of degree.

The FairTax pays the State and the retailer to collect the tax, so we end the notion of involuntary servitude for businesses as tax collectors. The States that have an income tax piggyback on the federal system. Without a federal income tax, most people (including officials in my State) feel the State would also go to a broadbased sales tax. At any rate, it is much better to have 50 States to choose from than one abusive Federal Government.

The greatest benefit by far though is the visibility and accountability this bill would bring. Even though the rebate "in effect" untaxes the poor, they would still see the cost of government included on every receipt. Any Government expense could be quantified. As an example, there would be no Free Government Health Care. It would have to be related to a percentage increase in the rate. Americans could be united in decisions instead of divided into thousands of special interest groups. This will lead to smaller government.

For the sarcastic among us (I am frequently one) it is hard to imagine our elected officials passing something that takes such a huge part of their power. No one says this will be easy, but it is possible. It is up to all of us to convince our elected officials that they either give up this control mechanism or their job. Politicians love to jump in front of a moving parade. We need to form the parade. I have spoken to senior groups, business groups, unions, etc on this topic and can personally say that 95% of the people support this change, but are very skeptical and therefore do not get involved. That is the only thing preventing this from happening. If you're for this, START ACTING ON IT! Americans for Fair Taxation are holding their first annual convention starting tomorrow (Friday the 8th) through Sunday. Be there, or call 800 FAIRTAX to get involved.

Imagine a world with no more income tax forms to file. We could change the initials of the IRS to INS and send them to terrorize terrorists instead of Americans.

According to economists from Boston University, Harvard, Rice, MIT and Standford prices for new goods would drop in cost between 20 and 30%.

If true, this converts the NRST into a free lunch. Are there economists who disagree with these economists?

I'm in no mood for a "book" numnuts, especially on a national sales tax. Read the Robbins' book on the Flat Tax, you might learn something... The home mortgage deduction is a big deal and if it weren't such a big deal Congress would have scrapped it in 1986 when they reformed the tax code!

I have spoken to senior groups, business groups, unions, etc on this topic and can personally say that 95% of the people support this change, but are very skeptical and therefore do not get involved.

What is their primary skepticism? I would think it is the government's too big and powerful to overcome and thus skepticism that an NRST could ever be a reality. So they don't see themselves investing time or energy in what they think would fail anyhow. That's just a guess. What do you hear from the people you talked with?

You wrote: In one conversation on this topic, a bank officer asked me what made me think he would finance a new car for $20,000 plus an additional $5,000 for taxes. My first response was to ask him if he'd like to remain in business. In reality though, he is financing taxes today as the cost of taxation is throughout the value of the car. People just don't see it. Under an NRST, if I buy a new car for $20,000 plus $5,000 in taxes, drive it across the street, decide I don't want it and offer to sell it to an interested party for $24,000, that party will have two choices...go across the street and pay $25,000 or buy mine with less than a mile on it with a $1,000 savings. Prices adjust.

Bear in mind, the new car that sells for $20,000 today will sell for prox. $15,000 after enactment of the FairTax. The selling price including the FairTax would be prox. $15,000 x 1.2987 = $19,481. (Per Dale Jorgenson Study, Harvard School of Business Economics, which says that retail prices will drop prox. 25%-30%, depending on product.)

NRST (FairTax) above is 0.23/0.77 = 0.2987.
Price is $15,000 + (29.87% x 15,000 =) $4,481 Tax = $19,481

If the car were later sold (it would be a Used car), it would not be subject to further FairTax. IOW, under the FairTax, items are taxed ONCE and ONCE only.

Very good post, 4edm 4ever. We need more like you in support of the FairTax (HR 2525).

Cliff Cofer - State Director, AFFT Volunteer Iowa Team

* * Bye, bye... Income Tax (and IRS)! We won't miss ya' at all! * *