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

[HMBillson]

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.

[Man50D]

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."

[HMBillson]

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

[Man50D]

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.

[Partisan Gunslinger]

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.

[Badray]

“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.

[HMBillson]

“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.

[Man50D]

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.

[Badray]

"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.

[Badray]

“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.

[DakotaRed]

And opening up a new bureaucracy to handle the rebates every month is what?

Oh sure, it may begin smaller, but what bureaucracy hasn't grown when government is involved?

And on those rebates, what makes you think poor families can afford 30 cents on the dollar for their milk and groceries, while they wait on their monthly rebate checks?

What is the expense of sending out and managing those monthly rebate checks?

And, no cheating? There is no such thing as anything uncheatable.

It's a pipe dream at best.

[Toddsterpatriot]

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%.

I don't care how many times you post your bad math, it never stops being funny.

[Badray]

No new bureaucracy is needed, large or small. The SS administration is already cutting checks so this will not be a huge task.

The IRS will be gone. Any small positions will be minor and no where near as oppressive and intrusive.

The PREbates come at the beginning of the month.

I didn’t say there won’t be any cheating. There will always be those who cheat. This system will make that cheating more difficult and minor compared to what is going on now. The FairTax expands the tax base and the base of tax payers. Right now, almost half of the people do not pay an income tax, nor does the criminal element, illegals, and tourists. They will all pay under the FT.

What do you see so worthwhile in keeping the present system?

[RayChuang88]

I think what scares the daylights out of the people insider the Beltway about FairTax comes to these points:

1) It would drastically reduce the size and power of one of the most powerful agencies in the US government, the Internal Revenue Service division of the Department of Treasury.
2) It would eliminate the most insidious form of corruption: the "tweaking" of the Internal Revenue Code with influence from tax lobbyists and Congress with wording that could literally affect as little as ONE taxpayer! That means no more using the tax code to affect economic outcomes.

In short, the passage of FairTax and the repeal of the 16th Amendment would be the more dramatic change of power in government since the American Revolution itself.

[DakotaRed]

And, the SS Administration will continue cutting checks, no? So, do you propose just tripling their workload?

And, why PREbates at all? Or, did you miss that if an individual does not file the necessary papers every month, they do not receive such?

There is nothing I like about he IRS currently. However, I can’t see junmping out of hte frying pan and into the fire just because someone else has a long standing grudge against them.

And again, you forget that the so-called ‘Fair’ tax is only on new items.

What stops people who hate paying taxes, like most all of us, from walking away from purchases of new items and going for used cars, homes or what have you?

Sounds too like there will be a very lucrative black market.

Your so-called “fair’ tax is billed as “revenue nuetral,” meaning it is expected to bring in no more taxes than is currently paid in.

So, what’s the advantage?

[Badray]

The workload will not triple. The hardest part will be to enter the database of eligible households. After that, push a few buttons to issue the checks. It’s not like someone will be writing the checks by hand.

I didn’t miss that at all. That you have to register is the beauty of it. if you don’t want to be on the list, you’re not on the list. And you don’t file every month. You file once and then only if there is a change in the number of your household residents.

A grudge. That’s what you think this is, a grudge? The IRS is one of the most evil, intrusive, unamerican things that our ‘representatives’ ever imposed on us. The Founders would have sent them packing with hot tar and feathers attached.

In my post at #49, I clearly stated that the tax is only on new products and services. I missed nothing. Some people will only buy new as they do now. Some will only buy used as they do now. Some will change their buying patterns. So what?

What evidence do you have for a black market?

The prebate and the revenue neutral components are to help ensure passage of the law. If the poorest are hit harder then others, it will be demagogued. If the revenue is not there, it will be demagogued.

Remember, this is a revenue bill, not a spending bill. They are separate by design and law. The advantages of this plan are that the base is widened, we have our whole paycheck (except state and voluntary deductions) and we decide if and when we pay takes. We also restore our privacy and take a step to returning to ‘innocent until proven guilty’. That concept has been totally trashed by the IRS.

[DakotaRed]

It’s an ill thought out pig in a poke bill that will easily do much more harm then good.

That so-called conservatives fall for this still amazes me.

I could see Paulies for it, but that many others do just amazes me.

And, you all refuse to look ahead at the many, many problems within.

[Badray]

Nice dodge. Is that new?

You throw out assertions about the FT but you never address any responses. I suppose that if that is all you have, running away is the best that you can do.

[DakotaRed]

How dare you cry about dodging when half of my original assertions and points go ignored.

Run away? No, not going to “throw pearls before swine.”

[Badray]

Scroll back to the top of the page where our discussion started and you will find that every point that you brought up to me was addressed by me. Conversely, you dodged with your every response.