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"Now to make this column worth reading for those of you who are not familiar with the FairTax, a very quick introduction is in order..
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Since Congressman John Linder, the author of H.R. 25, The FairTax Act, and I wrote “The FairTax Book” in 2005 we’ve seen an unprecedented and ever-growing nationwide interest in this tax reform idea. Let’s face it, you have to be doing something to capture the imagination of the American people to have a book on taxes debut No. 1 on The New York Times Bestsellers List.
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The FairTax eliminates all corporate, business and personal federal income taxes, all payroll taxes, capital gains taxes, dividend taxes and estate taxes, and replaces them all with one embedded sales tax on the sale of all goods and services at the retail level. Tens of millions of dollars in research show that the corporate and personal income and payroll taxes that will be eliminated by the FairTax end up being paid by consumers at the retail level. The average amount of embedded taxes in the cost of everything we buy at retail is approximately 22 percent. This would mean that we are replacing the embedded cost of our present tax system (22 percent) with the embedded FairTax (23 percent).
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You can read Boortz' column here:
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(Link removed because it is no longer valid.)
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8 comments:
And since this regressive tax is named the "Fair Tax" by its advocates and not a VAT like in Europe, that changes everything?
Lower income folks pay a much higher percentage of their incomes on purchases. They are net spenders and would pay 22% on nearly their entire income since they live paycheck to paycheck and don't save.
Upper income families spend a much lower percentage of their income and are net savers. They would pay a lower percentage of their income with the 'Fair' tax.
Is this FARE, I think that is one reason Brinker thinks this is a no starter.
Okay, listen up, naysayers: The FairTax is a progressive consumption tax (just like the one that Warren Buffett recently came out favoring). Here's what you need to know about...
FairTax - NOT REGRESSIVE
FairTaxed prices, within months after HR 25 passage, would look similar to prices before FairTax - not 30% higher as opponents contend - competition, because of significantly lessened costs of doing business, would see to it.
So, the FairTax rate (figured as an income-tax-rate-non-comparative, sales tax) on new items would be 29.85% (on the new, reduced cost of items because business isn't taxed under FairTax - thus lowering retail prices by 20% to 30%), or 23% of the "tax inclusive" price tag - this is the way INCOME TAX is figured (parts of the total dollar).
The effective tax rate percentages, that different income groups would pay under the FairTax, are calculated by crediting the monthly "prebate" (advance rebate of projected tax on necessities) against total monthly spending of citizen families (1 member and greater, Dept. of HHS poverty-level data; a single person receiving ~$200/mo, a family of four, ~$500/mo, in addition to working earners receiving paychecks with no Federal deductions) Prof.'s Kotlikoff and Rapson (10/06) concluded,
"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.
"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."
Further, per Jokischa and Kotlikoff (circa 2006?) ...
"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."
It's well past time to scrap the tax code and pay for government the way that America's working men and women are paid - when something is sold.
FairTax - NOT A VAT
The following is a very informative paraphrased (source) rebuke of naysayer, Bruce Bartlett, who's been raggin' on the national sales tax forever:
(Paraphrased) Reply by Dan R Mastromarco (LL.M., Taxation, Georgetown, principal in the Argus Group, adjunct professor at the University of Maryland, International Management Program, and research consultant to Americans for Fair Taxation - FairTax.org) to:
"A National Sales Tax Doesn’t Add Up" by Bruce Bartlett, December 29, 1999
Many engaged in true tax reform find Bartlett-type attacks exasperating, if not embarrassing. I'd like to convey perspective of both flat taxers and sales taxers who believe that such attacks are counterproductive, but first provide some political history by which to frame said perspectives.
For years Conservatives have posited that a VAT is bad policy (when liberals were discussing it), fearing it would become additional to an income tax (it was called a "money machine"). Circa 1980, conservative intellectuals touted Hall-Rabushka "subtraction method"[ H-R ] VAT which taxed business value added at the business side and labor value added at the labor side. Unlike European VATs (identical in scope), H-R became favorite of Dick Armey and Steve Forbes. It eliminated steeply progressive tax rates and tax on savings. Because of the prior VAT criticisms, H-R was packaged as the "flat tax" and is sold as an income tax to this day, rather than the VAT that its DNA characterizes it as being.
Some conservative commentators have called for the repeal of the 16th Amendment and for the adoption of the flat tax, (despite the fact that it is styled as a direct tax and could not be adopted with such repeal). Mr. Bartlett has called the national sales tax [ie, the FairTax] a VAT (which it isn't), castigated VATs as evil, and has said that sales taxes have become VATs in Europe (which they didn't). In the next breath, he "throws his arms around" the flat tax (which is a VAT). He quotes Bill Gale that the [FairTax] would have to be imposed at 60 percent, but glaringly fails to recognize that if the two bases are the same, he would have to impose that rate for the flat tax to be revenue neutral. In truth, all economists know that the two plans differ NOT in economic effect or base, but in administration.
An income tax taxes savings and investment multiple times. Both flat tax and FairTax are neutral as to savings and investment, tax income only once, and are both consumption taxes. Both are single rate taxes, have nearly the same base, and would improve the U.S. standard of living. Neither redistributes wealth.
While some have even suggested that hey are the same plans under different names, the flat tax taxes value added at each stage in the production process, but the FairTax prefers to tax it when it is added up at the end and eliminate the need to make everyone a taxpayer and collector.
Substantive commonalities between the flat tax and FairTax doesn't mean that there are NO key political and policy distinctions that could be exploited in pitting one against the other. If FairTax supporters wanted to retaliate in response to the Bartlett-type critique, they would have much material with which to honestly do so:
• The flat tax will make small firms and farmers pay the tax even if they have no profit
• The flat tax is opposed by many small business groups
• The flat taxers implicitly support big government by disguising even more of the overall tax burden as the current law
• The flat tax has been kicking around for nearly 20 years
• The flat tax makes everyone a taxpayer and collector, while the FairTax exempts 115 million filers [2000 figure] from ever having to deal with the IRS
• The flat tax is regressive, but the FairTax would enable everyone to keep his full paycheck.
• The flat tax has not only stalled, it has lost public and Congressional support.
• The FairTax is instantly understood, while even some proponents of the flat tax don’t understand it
• There are no transition rules developed for the flat tax and they would be very difficult to craft
• The flat tax taxes exports and relieves imports from tax
• The flat tax confuses tax reform with temporary tax reduction and makes both twice as hard
• The flat tax retains the entire income tax apparatus which erodes as quickly as you can say, “tax bill”
FairTaxers could advance these truthful points without resorting to bigotry associated with a cultic religious organization. However, for the most part, FairTax supporters have chosen not to attack the flat tax, but rather accentuate the commonalities between the plans - despite the above-noted differences. The reason is that, in the battle for tax reform, the real enemy is our current system.
Income tax advocates look down upon the articles of Bruce Bartlett with smug chortling, as Bruce is doing their work for them. The IRS and the liberals who want an income tax to ensure (1) taxes can be raised without the American people knowing it, and (2) wealth can be redistributed from the middle class to the poor, do not even need to fight us - we're killing ourselves!
Perhaps Mr. Bartlett believes that the flat tax will help elect Republicans, effect tax reform, and provide tax cuts; however, the real effect of his criticism is to divide conservatives, to delay serious national consideration of tax reform, and to fertilize the roots of the income tax.
(Pass it on! Permission granted to reproduce in whole or part. - Ian)
Hi Ian,
I very much appreciate your posting that detailed explanation of the FairTax here.
I think this is an important enough subject that Bob Brinker should address it again on Moneytalk. Perhaps if someone called the program and asked if he had done any further reading on the subject. 8)
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It's too bad that Brinker so often will give his own "political" opinions and then not allow any opposing viewpoints.
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Hi Steve,
Please read what Ian posted. It seems to address your concerns.
Thank you, Honeybee. It's always great to hear sincere feedback (out in this blogosphere of "experts"). You might find this following piece useful in helping to lay out FairTax specifics, and also which presidential candidate stands to advance the FairTax message:
Increasingly, Mike Huckabee is what leadership looks like. He's an adroit public speaker, and he communicates his message in life-like, cogent terms, with compelling examples like the story he told (at the Ames Straw Poll) of what his then-11-yo daughter entered into the "Comments" section of a Visitors Book after visiting the Yad Vashem holocaust museum: “Why didn't somebody do something?” Very effective.
Huckabee is all about calling his listeners to "do something," to awaken them to their own empowerment, and summon them to action in order that "Main Street," and not "Wall Street," will prevail in guarding the values and beliefs upon which the Republic was founded.
Huckabee puts his listeners at ease, and reassures them, articulating clear concepts in a natural, easy style (no doubt something well-cultivated as a pastor). He’s not as “mechanically-scripted” as Romney, nor angry or demanding, like a Ron Paul, and his large brown eyes, peering through a humble demeanor, draw a striking contrast to a unconvincing, tired-looking Thompson. One can easily imagine sitting comfortably with Mike over a cup of coffee at the Main Street Cafe.
Most importantly, Mike Huckabee ardently supports passage of the FairTax Act of 2007 (HR 25 / S 1025). While many - like Romney, and others, who are invested in the current income tax system - seek to demagog the well-researched FairTax plan, its acceptance in the professional / academic community continues to grow. Renown economist Laurence Kotlikoff believes that failure to enact the FairTax - choosing instead to try to "flatten" what he deems to be a non-flattenable income tax system - will eventuate into an irrevocable economic meltdown because of the hidden aspects of the current system that make political accountability impossible.
Romney's recent WEAK response to FairTax questioning on “This Week with Geo. Stephanopoulos” drew a sharper contrast between Huckabee and all other presidential front-runners who will not embrace it. Huckabee understands that what's wrong with the income tax can't be fixed with "a tap of the hammer, nor a twist of the screwdriver." That his opponents cling to the destructive Tax Code, the IRS, preserving political power of granting tax favors at continued cost to - and misery of - American families, invigorates his campaign's raison d'etre.
Of the FairTax, Huckabee asserts that it's...
• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, FLAT, and FAMILY FRIENDLY, loophole-free, and everyone pays their share
• LOW TAX RATE is achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards - rather than penalizes - work and productivity
A detailed benefits analysis of the plan (from The FairTax Book) explains Huckabee's ardent advocacy:
For individuals:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy "at retail" - not "used"
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of "pre-FairTaxed" retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or "pre-bate"
• "Prebate" is "advance tax payback" for monthly consumption to poverty level
• FairTax's "prebate" ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of "parasitic" Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates
For businesses:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
• No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Global "free (and equitable) trade" becomes possible for currently-disadvanted U.S. exports
• U.S. exports increase their share of foreign markets
For the country:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie" increases
• No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow
Passionately supporting FairTax, Huckabee understands that, if elected President, Congress will have to present the bill for his signature. His call to action goes beyond his candidacy: Main Street will have to demand that their legislators deliver the bill.
(Permission is granted to reproduce, in whole or part. - Ian)
Honeybee, I can expect your blog to be primarily a Brinker Bashing Blog but you have now turned it into a political forum for operatives of Huckabee.
Ian is nothing more than a political stooge, paid or unpaid, trying to drum up support for his candidate.
Any dialogue with Ian is nothing more than more internet exposure for his regressive candidate.
Include me out.
My good friend, Ambrose said:
"Honeybee, I can expect your blog to be primarily a Brinker Bashing Blog....."
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Ambrose,
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To quote another good friend of mine: ROAR, ROAR, ROAR!!!
I'm sorry I haven't been "bashing" Brinker enough for you. I guess the spirit of the holiday season must be affecting my good judgment. 8^)
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Ambrose also said: "....but you have now turned it into a political forum for operatives of Huckabee. Ian is nothing more than a political stooge, paid or unpaid,....."
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Since the topic was originally brought up on Bob Brinker's Moneytalk, it is fair game for discussion, IMO.
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I do not know what Ian's motives are, and I don't think you can prove what you said about him. All I know is that when anyone wants to make a comment that is on topic, I will accept them on this Blog.
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And Ambrose, you may not have noticed that I have not revealed my own opinions about the FairTax--largely because I don't understand it enough to make a judgment. IOW: I'm not for it or against it.
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I do know one thing for sure--the current tax system is OBSCENE.
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Wish that there were quite a few more rational responders like you out there, Honeybee. I have never understood people who, when presented with information, decide that it threatens them - at some level - then, instead of responding with questions, they respond with attacks. This type of behavior is what polarizes and divides us, when we should be united in ridding ourselves of intrusive gov't. And it is why we end up laboring under the present tax system which requires people to waste years of their lives trying to figure out how to stop the gov't from confiscating our wealth.
Anyway, hope you've found the FairTax (and Huckabee) information and links helpful to better understand FairTax. Please let me know if you have any specific questions. If I don't have the answer, I can research it.
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