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

[BitWielder1]

The prebate and other re-distributive clauses is a problem for me.
With flat tax we can reduce the tax code to one page.

[WOSG]

“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%.

[dinodino]

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%.

[HMBillson]

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!

[Filo]

Another misleading article by an uniformed source.

Sounds like the author has it right and the FTers have it, as usual, quite wrong.

[Takethathill]

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.

[HMBillson]

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!

[HMBillson]

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!

[PapaBear3625]

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?

[DakotaRed]

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.

[Man50D]

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.

[Mojave]

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.

[Man50D]

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?

[Man50D]

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.

[Man50D]

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.

[Nuc1]

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.

[Nuc1]

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.

[DakotaRed]

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.

[mo]

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

[Nuc1]

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.