Skip to comments.The Political Basis for the FairTax
Posted on 05/23/2011 6:33:08 AM PDT by SeekAndFind
For 130 years we prospered under tariffs on imports and excise taxes alone. The FT would be return toward those days of truly voluntary taxes.
Not a chance it will pass. Congress would become unable to pass out tax favors for campaign bribes,
I have got a problem with the name “fair tax”. It sounds like something that a leftist think tank or a bunch of enviro-wackos came up with. It is a name that implies to me that the originators believe that the public is made up of a bunch of fools who can be swayed by idiotic slogans. This might actually be the case, but I still think it is insulting. Why not just call it The Federal Sales Tax?
Sure they will. It will just be vastly more obvious when they are writing the changes on a nearly blank slate. For example: the NRST rate for an electric vehicle shall be 0%. The NRST rate for ethanol fuel shall be reduced in proportion to the amount of ethanol used.
Let's face it, we give government too much money and they spend it foolishly. We need to decrease the amount given to government, and have a complete cap on deficit spending.
In order for me to support an overhaul of our tax structure (and I suspect I'm not alone) it has to be a comprehensive plan that remarkably reduces taxation (both Federal and State), gets rid of the IRS to the largest extent possible, and gets rid of corporate taxation.
While that is going on States and Towns need to have their tax structures and spending policies completely overhauled. I'm sick of stories of little old ladies and down on their luck folks losing their houses for not paying property taxes. The inference there is that the state really owns all property and we need to pay them rent. Property taxes should be banned or at least the penalties should not include loss of said property.
All taxes are theft. Aside from that I don’t care how fair or low taxes are or if the budget is balanced the real problem is out of control government spending. Money equals power. The government at all levels has way too much power and influence because it injects money endless rivers of money into every facet of society. 3.5 Trillion dollars is a lot of juice. In a truly free society the government should be begging for money and barely have enough money to keep the lights on.
How about evolution instead of revolution?
Here’s a proposal ( please critique it ) :
You will be given the choice of filing taxes two alternative ways :
1) The flat way with ZERO deductions.
2) The traditional way which will require you to conform to the current tax code.
The flat tax will guarantee NO IRS audits. It will require you to pay a FLAT 10% of your income with NO DEDUCTIONS.
If you make $10,000, your income tax will be $1000.
If you make $20,000, your income tax will be $2000
If you make $50,000, your income tax will be $5,000
If you make $100,000, your income tax will be $10,000
If you make $1 Million, your income tax will be $100,000
NO HOME MORTGAGE DEDUCTIONS, NO CHARITY OR CHURCH CONTRIBUTION DEDUCTIONS, NO DEDUCTIONS PERIOD.
EVERYONE PAYS REGARDLESS OF INCOME.
All these in exchange for no IRS audit.
OR, you can choose to file in the current way with all the maze of deductions and the possibility of being audited.
Let’s give this proposal a shot and see in 5 years how many percent of tax payers will file the flat way versus the traditional way.
This will be a REAL LIVE referendum on which tax system will be most acceptable to most Americans.
We GRADUALLY EVOLVE instead of abandoning the current system in one shot with all its political ramifications.
To make this palatable to the libs, call it the PRO-CHOICE TAX BILL. You CHOOSE which tax system you want to file under.
Tell them we are really pro-choice on almost everything except when it comes to taking the life of an innocent baby.
Congress would become unable to pass out tax favors for campaign bribes,”
This, and the ability the income tax gives to violate the privacy of citizens and intimidate enemies, is why the government loves the income tax.
RE: The only critique I would have of your plan is that the same people that would oppose a Flat Tax would oppose your tax plan just as strongly.
My question is WHY SHOULD THEY BE OPPOSED TO IT? No one is forcing them to file the flat way, they can CHOOSE to file the way they’ve always been familiar with. We’re just giving others the choice of filing an alternative way.
I don’t consider it a halfway measure, I call it an evolution... or a practical way to gauge OVERLL TAXPAYER SENTIMENT. It will be practically like a referendum regarding the popularity of the flat tax.
I am quite confident that as people discover the advantage of the flat way of filing, the traditional way ( with its ever increasing lines of tax code, now numbering close to 40,000 pages ) will eventually “whither in the vine” ( to borrow Newt’s phrase ).
” The FairTax calls for one universally transparent rate to be paid by everyone on all final consumption. “
I’m having difficulty buying this. There is no “one universally transparent rate...” because it is NOT paid by everyone on all final consumption.
Homeowners get to enjoy untaxed housing consumption, therefore at equal consumption, renters pay more FairTax than homeowners.
Your results may vary but one thing you can count on is that income will be redistributed from renters to homeowners. Which is great if you’re a homeowner, not so much if you’re a permanent renter.
A flat tax makes good sense to me.
What do you think of my proposal in Post #9 above?
The Fairtax has some merit. But some changes would have to be made. Three exemptions are required: housing, medical and religous. And, enforcement would require maintaining the IRS. (NO, the states will not enforce it.) And, an infrastructure will have to be developed for those states that don’t have a sales tax.
By the way, my son, a former state tax auditor, said that auditing of sales is much more difficult than auditing income.
For two reasons.
1. 51% of the population don't pay any taxes at all, and liberals will use that to keep class warfare alive.
2. Even a liberal understands that given an option the overwhelming majority would prefer the flat tax which is why they would oppose the option of choice (at least in terms of taxation). They don't want a referendum. They want to keep the "progressive" taxation scam alive and well.
That would remove the power to control many of our actions from the hands of the professional political elite, and thus is unacceptable. TERM LIMITS, NOW AND FOREVER!
Of course, the leftist argument against it (10% flat tax) is that $1,000 impacts a $10,000 income more severely than $100,000 impacts a million. And for once, they are right. (Boy, do I hate sayin’ that!)
The sales tax on purchases becomes voluntary once you go beyond necessities; that’s why I prefer it. But if we’re not careful. we’ll end up with BOTH!
How does 10% of a 10k income impact someone more than 10% of 1mil income?
don’t know many lobbyists?
this is just another angle to lobby for designation as a necessity. you will have liberals/left give tax favors for certain manufacturers and not others. (ie gm vs ford)
there is absolutly nothing stopping the income tax and this sales tax from being simultaneous.
you also have the fed deciding what is or is not a family based on political whim.
no people willl buy direct from overseas and avoid the fairtax-scam 100%.
it is a pooorly thought out scam which envisions and internetless, horse and buggy society.
Fair Tax is DOA. The 16th won’t be repealed.
Well they didn't want to call it "tax decreases for millionaires".
For the $10k guy, it can come down to choosing which necessities to cut back; for the $1M guy it may cause second thoughts about that extra week in Europe or Aspen.
We really shouldn’t have taxes on income or capital at all.
We only had taxes on people when the FED was created. We had to pay for the interest for using the FED money instead of our own sound money.
Today, that has grown to be a pot to buy votes by stealing from the producers and giving to the looters.
Somehow, this needs to change.
Government has made a mess of the policies they have enacted to replace the Christian duty to help those less well off. Government makes all of us poorer, while destroying the foundations that make a country strong.
Government needs to get out of the way.
Government needs to get out of EVERTHING that is NOT ENUMERATED in the Constitution.
Go AWAY, you thieves!!! Get out of our pockets!!!
Get OUT of OUR lives!!!!
Destroyers and Usurpers!!!!
Sorry that doesn’t wash. If you are making 1,000,000 or 10,000, a percentage is a percentage. Let’s leave class warfare to the Democrats, 10% of ones income is fair for everyone. Otherwise it would seem you are advocating a “from each according to his ability, to each according to his need” type of system.
Is that what you think it would do? Do you have any evidence of that?
It would seem that way if I advocated the “poor” paying less of a percentage than the “rich” based on income, but I prefer NO income tax for anyone.
A consumption tax with an allowance for basic needs for survival (the same allowance for everyone, rich or poor) gives each the choice of how to spend his own money. You want to keep your taxes down? Spend less on taxed items.
The rich typically buy more, and will end up paying more. The thrifty rich will pay less than their spendthrift counterparts; the poor who choose to spend up to their last penny will pay more than the thrifty poor.
The problems I had with the FairTax as proposed were the “prebate” feature (a monthly prepayment to cover the cost of tax on basic survival), and how to start it off, as all the hidden taxes paid on goods already in the pipeline with the sales tax added will rise in price until the hidden taxes are no more. If these items can be soundly addressed, I would give it my final OK.
Although the average federal income tax revenue is 9.9% of all income, and you’d think that means your plan would work, it won’t. Unfortunately, you would have huge deficits this way.
Those paying the lion’s share of income taxes would choose the flat tax because it would drop their effective tax rate by about 5% overall. The 70% of the populace that currently pays less than 10% would continue to file under the existing system and collect the tax credits that make their tax rate effectively zero. For many of them, these credits give them back the little money they contribute to SS/M as well.
What we need is a clean switch to your proposal for everybody, or if that is too “regressive” for people to accept, some other combination of rates like 7% on the first $10K and 11% on all income above that. The key to low rates is simply to make it apply to all income. It is the deductions, exemptions, and credits that reduce the taxable base to such a small figure that we need rates as high as 35% at all.
“This, and the ability the income tax gives to violate the privacy of citizens and intimidate enemies, is why the government loves the income tax.”
These issues are not intrinsic to an income tax. Suppose there were a 10% flat income tax, withheld by employers and financial institutions. The employer could simply report his total payroll costs and send the IRS a check for 10% of that total. The IRS wouldn’t need to even know who the employees were. Financial institutions would total the gains made by all their investors for the period, and send the IRS 10% of it. The IRS wouldn’t need to know who the investors were. Still an income tax. Still withheld at the source. No individual reporting. No IRS audits of individuals. No information available to base handing out credits, exemptions, and deductions (tax welfare) through the tax code. No political favors to be handed out to groups of taxpayers.
There is no reason why the same mistakes would have to be repeated if we reset the income tax to a flat 10% rate collected at the source so no personal information could fuel the deduction/exemption/credits political machine.
“The FairTax enjoys more support from this quarter than any other tax reform proposal, including the flat tax and the reforms outlined in Congressman Paul Ryan’s Path to Prosperity. The latter two reforms provide for large personal exemptions...”
As though there is a SINGLE “flat tax” proposal out there everyone refers to, and it NECESSARILY must include a LARGE PERSONAL EXEMPTION. What kind of strawman argument supposes the political will for a flat tax, but no will to avoid poisoning it with exemptions/deductions/credits ?
Yet another article on the FairTax that ignores its two major flaws. It attempts to put the entire burden for SS/M on the wealthy, and it ignores how human behavior will drive the wealthy to reduce their consumption within the tax zone and leave a huge hole in projected revenues.
A National Retail Sales Tax would need to be at a lower rate than the VATs in use anywhere else the wealthy might choose to spend their money. Otherwise they’ll take their new higher take-home pay and spend it outside the tax zone and produce no FairTax revenues.
People who make $10K and spend all of it do so because it is available. If they had only $9K, one of two things would happen. Either they would find some way to make more money, or prices would fall so they could still buy the same amount of stuff for $9K.
HR25 is not even a clean slate. It begins with tax favors already built in. Prebate, education exemption, $5K limit on tip income for SS benefits, etc.
In other words: “Let’s buy votes of low income people,” and “Let’s buy votes of teachers, students and parents of students while screwing everyone without education expenses,” and “Let’s penalize all those shifty people who make their money from tips rather than wages by ignoring most of their spendable income when figuring their SS benefits.”
“Why not just call it The Federal Sales Tax?”
Because that would be misleading. A Sales Tax is not “progressive”, but the FairTax is very “progressive”.
It aims to send out tax credits called “prebates” so lower income people end up paying nothing (not even SS/M contributions), middle income people pay almost nothing, and big spenders (otherwise known as successful people) get shafted with close to the full 23% rate.
A true Federal Sales Tax of 10% without all the “progressiveness” would have my support. That rate would collect enough revenue to completely replace all federal individual and corporate income tax. It would be low enough to avoid driving the wealthy to spend their money overseas. It would not attempt to bury the SS/M problem in a new tax on the wealthy.
I am not opposed to a flat tax. As a practical matter it would be an improvement. Nevertheless, you overlook the fact that millions of people are self-employed, that not income is wages, etc.
I didn’t forget the self employed, it is just not an advantage that the FairTax has over an income tax.
Under the FairTax, the self employed would still have more complicated tax compliance than employees. They’d still have to report their own income to get SS credits, and they’d likely have to collect FairTax when selling their services or products to end-users. To prosecute fraud of claiming more SS credits than their real income, they would still be subject to audits from an IRS-like agency. These are some of the reasons I think the attempt to wrap SS/M into the FairTax is misguided. Without SS/M and prebates, the FairTax would be revenue neutral at 10% rather than 23%. A 10% FairTax would also have much less cheating and avoidance than at 23%.
A flat income tax collected at the “source” means not just employers, but financial institutions. Easy to do when an investor has gains, but allowing for losses would complicate things, I admit. Probably the only way to do it would be to net all gains and losses annually, whether realized or still on paper. Instead of everyone being subject to audit, however, only employers (including the self employed) and financial institutions would be subject to audit. A much smaller IRS would be focused on 20M tax filers rather than 150M, and using a much simpler set of rules.
Yes, I like your idea.
This seems as good a place as any to ask:
In reading minimum wage threads, I often find people saying that minimum wage was not designed or intended for someone to live on.
In reading tax threads, I often find people saying that nearly half pay no (federal income) taxes, and/or that the bottom half doesn’t pay enough taxes.
So how much, exactly, should someone earning minimum wage pay in taxes? (How much is ‘not enough’ and how much is enough?)
More broadly, people correctly have an aversion to taxes, which for some people distorts their judgment. This distortion of judgment I call Tax Derangement Syndrome, and occurs when people are so driven to avoid taxes that they make financial decisions which are suboptimal.
It’s a lot like people going out of their way to avoid a toll by driving an alternate route...and spending more (gas and time) in the process.
The FairTax, by nature of its ubiquity and its high rate, will drive many to seek to avoid it, resulting in inefficiency (on the part of the avoiders) and loss of tax revenue.
Prices ain’t gonna fall, and not everyone can make more money.\, which means spending has to fall.
If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups. Except that with consumption taking a hit, there might not be a sufficiently large market for all that new business.
“Prices aint gonna fall, and not everyone can make more money.”
Are you sure about that ? As demand falls, you think producers are going to just sit back and sell nothing rather than lower prices ? Economics doesn’t work that way. When the government subsidizes something, it is giving buyers more money to buy something, which causes demand to increase, which causes the price to increase. People should not be confused that the “war on poverty” has been a failure, and resulted in a wider income gap. It is perfectly logical — the “wealthy” producers see the higher demand of the subsidized “poor” and raise prices accordingly. The have higher profits, which are then taken back by the government to redistribute to the “poor”. The “poor” are not really better off, and in fact they look even worse off than before in any income comparison to the “wealthy” producers.
“If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups.”
But they won’t reduce consumption, they’ll simply consume outside the FairTax zone. Instead of maintaining a household with staff, vehicles, parties, etc. in the USA, their main home will be outside the USA and they’ll simply visit often enough to make those business decision that can’t be made remotely — of which there are very few.
Even if they stayed here and simply saved their money, the additional capital available may grow the economy some, but not enough to make up for the loss in FairTax revenue. The top 1% of Americans earn $2.5T and spend $2T each year, and the FairTax assumes it will collect virtually the entire 23% tax on that spending. If they save rather than spend, then the FairTax receipts are immediately short almost $500B/yr.
The question I’d like answered is why even a minimum wage earner doesn’t pay 10% in income tax. Is a dime out of every dollar earned too much to pay for the Federal government ?
Because the dirty little secret is that if everyone paid 10%, we could eliminate the corporate income tax — making America the best place to operate a business — and income tax revenues would actually be HIGHER than they are now. Total income tax revenues including the corporate tax revenues are generally around 9.9% of all personal income. $1.3T out of $13T personal income according to the IRS and the Bureau of Economic Analysis.
When people claim we need the “rich” to pay a 35% tax rate, what they are really saying is that they need 35% from the high earners so that half the people can pay nothing and the bottom fifth can actually get “income tax” refunds for income taxes they never paid.
Yes, that happens. It is analogous to the man who sells his prized classic car for less than it’s worth just so his wife won’t get it in the divorce. Some call it spite, and some call it principle. It’s a reaction to a feeling of betrayal. It’s their choice to do what they want with their money, and they’d rather blow it than see somebody get it who doesn’t deserve it. The FairTax assumes those people will just sit back and pay and pay and pay even though those people have legal alternatives to skip paying the tax.