How Fair is the FairTax?
The income tax badly needs fixing, but is the FairTax a promising remedy? Max B. Sawicky doesn't think so.
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Many are disappointed by dismal growth in the fruits of their labor. The temptation is strong to reach for a tax solution that could increase take-home pay in a stroke. The FairTax is a radical tax reform with a strong contingent of devotees, not least among those who roam that series of tubes we know as the internet. In this campaign season, the tax is being promoted by presidential hopefuls Governor Mike Huckabee of Arkansas, Rep. Ron Paul of Texas, and Senator Mike Gravel of Alaska. Huckabee is winning some primaries and has done the most to elevate the idea.
In a nutshell, the FairTax is a national retail sales tax that would replace all other federal taxes. The tax would be collected by state governments and the Internal Revenue Service would be abolished. The poor would be effectively exempted from the tax by the provision of a national “prebate.” That’s the theory.
Naturally your first thought is: how can I make this work for me? It should be obvious that if the feds collect the same amount of revenue as now, some are likely to pay more and others less. As things stand the poor pay no federal income tax. Most families with children under median income levels owe little or no income tax. The vast bulk of individual income tax is paid by those well above the median. The bottom 60 percent of households contribute a grand total of 2.4 percent of individual and corporate income tax revenues.
Of course, the payroll tax falls on the first dollar of earnings for the lowliest wage earner. Most economists, myself included, believe the employer-paid portion of the payroll tax is shouldered by the worker, so the total effective rate on earnings below the cap of $97,500 is 15.3 percent.
What would the FairTax rate be? Some of its supporters claim it would be 23 percent. Let me familiarize you with their arithmetic. They are talking about a thirty percent rate applied to retail purchases. A $20,000 car would cost $26,000. A new $300,000 house would cost $390,000. If the product costs a dollar, the price including tax is $1.30. Thirty divided by a dollar and thirty cents is 23 percent. Whatever.
Whether it is 30 or 23, the rate on the above-mentioned worker would still exceed that of the payroll tax. If the tax is reimbursed for all income below the poverty line, there is still some pay rate well short of “rich” where your FairTax would be higher than your payroll tax. For a nuclear family of two parents and two kids in 2007, the poverty line is $21,027. Thirty percent of the earnings of such a family in excess of $21K catches up with 15.3 percent of earnings from the first dollar at around $42K. In other words, as you escape lower class and hit the bottom rung of the middle class income ladder, you start to pay more under the FairTax than you would have under the old payroll tax.
What about combined rates for income and payroll tax? Bruce Bartlett, former Reagan tax guru, points out that the bottom 80 percent of households pay less than 23 percent of their income in all federal taxes. And the bottom 90 percent pay less than 30 percent of income.
On the high side of the income spectrum, it should be clear that those who are able to save, or spend their income in other countries, or buy stuff by mail or internet in other countries and have it shipped to them here, will pay less tax than presently. The FairTax should be great for Canada and Mexico.
FairTax advocates will argue that people who save will pay the tax later, but for any given year, it should be clear that those in the middle face a greater burden shifted onto them from both ends. When you are financially pressed, postponing FairTax by saving some of your money is not going to help you cover living expenses.
FairTax advocates have gone to some lengths to assure their audience that the sticker shock of a 30 percent rate would not be so bad. They claim the current income tax is “built into the price of the product,” so you would not be paying more out of pocket than presently. The implication is that when we switch from income tax to sales tax, the product price including tax does not change. This can only mean that income and payroll taxes on individuals and corporations are really paid by consumers. It also means your take-home pay would not increase.
All this would be a surprise to devotees of the Bush tax cuts. They were under the impression that cuts in income tax rates and assorted other goodies in the form of expanded deductions, credits, and whatnot increased their after-tax incomes. By some cruel hoax, according to FairTax economics, their after-tax incomes were not affected at all. Instead, consumers were treated with lower retail prices. (I seem to have missed that drop in prices.)
In reality, mileage would vary all over the place. A switch from income to sales taxation would raise take-home pay and consumer prices at the same time. Some would win and others lose. The progressive income tax is a higher share of income as income grows. The FairTax is a lower share of income as income grows. A switch from income tax to FairTax disadvantages those who pay relatively little income tax in favor of those who pay relatively more. A disproportionate impact would be felt by retired and elderly with little income tax, who are spending down their assets. The same holds for many young married couples who spend some time as net borrowers before beginning to accumulate wealth. The income tax is based on ability to pay. The FairTax is based on disability to pay: the less able you are, the more you pay.
Would 30 percent of the nation’s retail sales replace the current level of federal revenue? Or are we looking at a creative new way to blow up the federal deficit? The FairTax group’s calculations of the 23/30 percent rate(s) rest on some questionable premises. One noted by Bartlett is that the government will tax its own purchases from the private sector. In other words, it will charge itself and count the proceeds as net revenue. Second, state and local governments would be liable for the FairTax on their purchases. The FairTax rates do not take into account the impact on tax burdens in the state-local sector. Third, purchase of new homes and some mortgage interest are included in the FairTax tax base. The politics of a clean FairTax base are not easy.
Some economists like the FairTax because it is a consumption tax. Desire for a consumption tax does not imply the need for a national retail sales tax. There are other types of consumption taxes, such as the value-added tax (VAT) or the so-called “direct consumption tax.” The VAT is widely employed in most every industrialized nation except the U.S., though in no country is it the sole source of public revenue. The direct consumption tax exists nowhere, though it has been the object of study for decades. In a nutshell, a direct consumption tax would look a lot like the current income tax, except the taxpayer would be allowed an unlimited deduction for net savings and no restrictions on when such savings could be drawn down (and taxed in the process).
The FairTax calculations take no account of tax compliance. Presently the biggest rates of non-compliance in the income tax are among the self-employed, proprietors, and unincorporated businesses. Under the FairTax, these parties would have the responsibility of collecting the entirety of federal revenue, not just their own portion of the income tax. There would be a huge new incentive for tax evasion, and no IRS to walk the beat. This factor alone leads most tax economists to dismiss the FairTax as unworkable, aside from its other disadvantages.
The income tax badly needs fixing, but the FairTax is an unlikely remedy. The IRS ain’t going anywhere. And we’re all going to die eventually. Some things are not going to change anytime soon.
Max B. Sawicky is an economist in the Federal government. The view expressed in this column do not necessarily represent those of his employer.
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29 Comments
1. Josh:Ron Paul does not support the Fair Tax.
He supports NO FEDERAL INCOME TAX with NO REPLACEMENT TAX. (except if you count the reduction of Federal spending by at least an equal amount to be the replacement.)
Hence, the IRS is not needed.
He also point out issues with the fair tax as you have pointed out.
Also, Ron Paul’s idea of a flat tax is 0%. Nothing more and nothing less or no form of wealth transfer.
Mar 2, 2008 - 2:00 am 2. Darrell Klee:Your math is wrong. It does not include the subtraction of the cost to the manufacturers and service providers of the taxes and compliance costs they absorb during the life cycle of the product. This was calculated by an umpeachable source at 23% on every dollar you currently spend (that is to say, you are already paying the Fair Tax, Congress just doesn’t want you to know that).
If the fair tax were an even scarier 30%, a $100 item at today’s price’s tax would not be taxed as $100*.3 for $130 as you submit, it would be taxed like this:
(100-(100*.3))*.3
100*.3 = $30
100-30 - $70
70*.3 = $21
The price of the item is then $91.
The only argument against that is the idea that the business person is just going to pocket that profit. They won’t be in business long.
Additionally, and importantly, the Fair Tax is a one time tax on new items, it is not a tax on used items and thus a great boon for those who need all their paycheck and a prebate just to get by.
Respectfully, sir.
Mar 2, 2008 - 5:05 am 3. Garrett Gebhardt:Ron Paul does NOT support the so-called Fair Tax. Ron Paul believes that the actions of the IRS are illegal and that such an unapportioned tax is Unconstitutional.
Paul states that if you reduced spending roughly to 1996 levels, the Federal income tax rate could be 0%. The only justification for such taxation is to promote the growth of the welfare/warfare state. The United States does not need a Big Brother government.
The Fair Tax is a scam, in that it’s designed to sound really nice in principle and most people dislike the IRS. However, who would enforce Fair Tax compliance? The Fair Tax Revenue Service? So rename the IRS and make its business enforcing sales tax payment instead of income tax payment. What a non-achievement.
Also, the Fair Tax would not, as Mike Huckabee stated, eliminate the “underground economy”. It would merely encourage massive illegal importing and black market sales bypassing the sales tax at all levels. Al Capone may not have paid income taxes, but he didn’t pay sales taxes on any of his illegal booze imports either. Do not be fooled.
Mar 2, 2008 - 8:15 am 4. Tom Krop:You loose all credibility when you use Bruce Barlett as a reference, and seeing that You are an economist for THE FEDERAL GOVERNMENT who would expect you to like the FairTax? People like you should be leading. You won’t follow, so why not just get out of the way?
Mar 2, 2008 - 8:24 am 5. shm224:Ron Paul said he would vote for it if it comes up in congress - on the ground that anything is better than the current income tax system, but he doesn’t support the fair tax.
He is however against the whole idea of income tax and replacing it with another (high) sales tax.
Only Gravel and Hucakbee actively support it.
Mar 2, 2008 - 8:35 am 6. Fred Beloit:Max writes: “The FairTax is a radical tax reform with a strong contingent of devotees, not least among those who roam that series of tubes we know as the internet.”
OK, I see. The Fair Tax is no good and this is your proof. Thanks.
Mar 2, 2008 - 8:35 am 7. Tom Krop:The Income Tax badly needs fixing? Every time it’s “FIXED” it gets worse! It needs replacement. We need the FairTax. With politicans from Brazil and Australia looking at the FairTax we just might loose more on the world’s economic stage then we are currently seeing.
Mar 2, 2008 - 8:41 am 8. Russell:The Hedge Tax as proposed in “The Rats are in the Cheese” is fairer than the Fair Tax. It distributes the tax burden fairly; it reconnects taxation and spending; and it avoids the implementation and collection problems of the Fair Tax. Read details at http://www.hedgehogparty.com
Mar 2, 2008 - 8:42 am 9. taoist:It’s not the current income tax that is included in the price of goods you pay: its corporate income taxes. Currently, corporations base the majority of their decisions on tax law, raising the cost of doing business. Also, the actual corporate taxes are of course passed on to the customer in the price of their product. In short, the current tax structure raises the price of goods 20-30% on average, and in an inefficient way that doesn’t give the government 20-30% income on those goods. Eliminating corporate income tax and putting the Fairtax into place would keep the price of goods roughly the same but allow the government to collect money far more efficiently - which means less taxes need to be collected in total, too.
Mar 2, 2008 - 8:57 am 10. Miracle Max:I seem to recall Ron Paul saying nice things about the FairTax in debates, but I’m old and feeble. There seems to be some ambiguity, but if I misspoke I apologize.
Darrell — every source is impeachable. Nobody in their right mind thinks 23% will replace all the revenue. With your arithmetic, you seem to start with something that costs $100 and after the tax, it costs less. That would truly be a marvelous tax.
Tom — re: my employment, it’s true, baby needs a new pair of shoes. As for the futility of fixing the income tax, actually the ‘86 reform wasn’t bad. Most of the others have not improved the tax, by which I mean eliminating loopholes etc. for a broader base and lower rates. This was done in ‘86.
taoist — your view on who pays the corporate income tax is echoed by a minority of economists, but includes respectable ones like Richard Musgrave. And replacing the CIT with some kind of consumption tax (the VAT is what is usually suggested) has a lot of support.
Mar 2, 2008 - 11:10 am 11. Jed:Really? You’re an economist?
Mar 2, 2008 - 11:33 am 12. Tom Krop:The 1986 reform may not have been all bad, however the tax code has been amended of 14,000 times since then. The present code is nothing more than 60,000 pages of loopholes for special interests. The FairTax would be transparent. The public would be totally aware if the politicians monkeyed with the rate. They would almost have to explain any rate increase up front. And raising the rate would be the only way to pacify some special interest.
Mar 2, 2008 - 12:28 pm 13. Miracle Max:Jed — Really.
Tom K — For transparency of sales taxes, the state sales taxes are not confidence-inspiring. In addition, there are hairy issues with the FairTax about how to deal with financial services, among other things.
The main beefs among economists is that there is no precedent for a sales tax at 20% or so of GDP, and it’s expected that enforcement would be a much bigger problem.
Mar 2, 2008 - 1:30 pm 14. jeff:Fair tax is not a good idea.
FLAT TAX is a good idea
Mar 2, 2008 - 1:58 pm 15. Steve Keller:According to the FairTax website, poverty level income for a family of four for 2008 will be $28,000. This figure is higher for Hawaii and Alaska. This represents an annual prebate in the amount of $6440. The median income for 2007 was a little over $48000. This figure will probably be in the neighborhood of $50,000 for 2008. The majority of families who earn $50,000 or less, take a standard deduction which is $10,700 for 2007. With four exemptions of $13,600, their taxable income would be $25,700 ($50,000 less (10,700 + $13,600). The income tax on this amount is $3076.00 for 2007. Add payroll taxes of 7.65% or $3825 and you end up with a total tax of $6901. Under the FairTax if this family were to spend their entire $50,000, 23% or $11,500 will be the amount of consumption tax. Don’t say it is 30% of the $50,000. The tax is inclusive so if the selling price of an item is $50,000, the merchant must send 23% or $11,500 to Uncle Sam. If you take $11,500 less the prebate of $6440 the net tax is $5060. Income tax $6901 ~ FairTax $5060. Plus don’t forget, corporate taxes and compliance costs are included in everything we current purchase. This will not be a cost factor once the FairTax is in place and prices will come down.
Let’s assume the federal government is currently funded by the FairTax system and there is a bill being presented to congress that would replace the FairTax with a system incorporating an income tax, a payroll tax, a corporate tax, and an estate tax. The new tax bill is designed to give power back to government where it belongs. It will no longer be transparent. The government will be able to raise taxes by manipulate the code without you realizing it. Lobbyists will have the opportunity to convince congress to change the code to benefit their special interest. Within a few years the code will be so complicated, no one will completely understand it. You will no longer receive 100% of your paycheck. The government will keep your share before you have a chance to spend it and if you need to take on a second job to fill your family needs, the government will keep a larger up-front percentage. Since you no longer will be paying a consumption tax, you will no longer receive your monthly prebate check. In order for corporations to show a profit, corporate taxes and compliance costs will now be added to the cost of goods and services, but after eliminating the 23% consumption tax and adding back 22% to cover compliance costs and corporate taxes, prices will be reduced by at least 1%. No longer will the earnings from your savings and investments be free from tax; no longer will the money you spend on education be tax free, you will be using after tax dollars for these purposes. Trillions of dollars will leave the American economy to work in foreign markets but you will be able to purchase Chinese products for less than American made products. On April 15th of each year, you will be required to file a complicated tax return. To support your figures, you will be required to keep records of all your financial transactions. Not everyone will be treated equal on these returns. There will be many loopholes which will protect mainly wealthy Americans. Taxpayers who aren’t able to take advantage of these loopholes will be required to make up the difference. A huge portion of your tax dollars will be used to support a new federal department which will be called the IRS. This organization will try to catch cheats by auditing approximately 1% of these returns. Many Americans will take a chance on being audited; they will either not file a return or they will cheat on the ones they do file. All honest people will be required to make up the lost revenue. And here is the best part; illegal aliens, drug dealers and tourists will no longer be paying taxes. Again, you will be required to make up for this loss. Let me ask, would you support this new tax legislation in favor of the FairTax?
Mar 2, 2008 - 5:43 pm 16. Duane:Max, the 23% rate is expressed in the same manner as the current federal income tax. I see no problem with changing to the 30% number if you in the government would be willing to do the same and express current federal taxes on the same basis.
You say you have doubts about the embedded taxes. In the 1980’s Roger Smith, then head of GM, testified before a congressional committee that if the embedded taxes were removed he could sell a $4,300 (1980’s prices) Chevy for $2,700. It has only gotten worse.
The FairTax rate is achieved by broadening the tax base, beginning with the $300 Billion in taxes due each year that the IRS admits it will not collect. An entire society exists in this country of people who work only for cash. This group are not only involved in illegal activities but also in businesses like handyman, common laborer, etc. These people pay no taxes today but they do spend that income and would be paying taxes on it. In addition the 50 million tourists who visit us each year would be paying the tax.
The World is flat as Kenneth Friedman wrote and is getting flatter. So long as the United State continues to tax productivity this country will never be able to compete globally. So if you want this country to continue the success we have had in the past changes must be made, even if some small groups do not benefit as much in the short term.
Mar 2, 2008 - 6:30 pm 17. John Dunshee:Since a major portion of “financial services” consists of devising ways to minimize the amount of income and estate tax, I would imagine that they would have a problem. The Fair Tax would eliminate the need for their services.
The NYT would be doing front page stories about the rise in unemployment in the financial industry and the TV News would have pieces on the hoards of former financiers clogging the homeless shelters.
It would change entirely the economy of the United States and most of the theories taught in Economics classes and textbooks would have to be changed.
What you’re talking about is a LOT of high-priced talent that would be out of a job. They got the bucks and they got the lobbyists and they’re not going quietly.
Expect something along the lines of this column from Economists and people working in financial services and industries from now on.
They have to convince you that they’re indispensable.
Mar 2, 2008 - 6:44 pm 18. David W. Lincoln:I have two words for the defenders of the status quo, or those who still haven’t found what they are looking for to replace the IRS (a bow to U2): hidden taxes.
Mar 2, 2008 - 6:50 pm 19. Mike B:OK..I`m not an economist, or “highly” educated. I am an ordinary man, who likes to keep what is his, that is my money.Reading this comments,I have the tendency of thinking that most of the comments are completely ignorant.Maybe this people didn’t read the whole bill (HR 25) or just don`t like it because its cutting into their special interest.
Mar 2, 2008 - 7:09 pm 20. Darrell Klee:For me comes this simple:
Now: for a $100 item of strict necessity cost me $120 ($100 cost of item + $20 taxes on my income)
FairTax: same item will cost me less ($77 cost of item + $23 sales tax - $23 monthly prebate)
So, for a poor person, who earns $10/hr is a difference of about 4 hours or $40, that is a saving of 30%
Will there be a lot of people out of a job?
Oh heck yes!
And we’re going to need them!; when world-wide, businesses see that you can go to the land of the free and do business, and more importantly, make business plans with zero tax implications then we’re going to have to start importing in illegal Canadians too!
Respectfully
Mar 3, 2008 - 4:19 am 21. David W. Lincoln:The Fraser Foundation in Vancouver, BC would probably still have the data that lead to an expansion of the black market in Ontario’s and Quebec’s construction markets. The reason: leaving an income tax in place while replacing a manufacturer’s tax with a more broad based consumption tax.
Almost 20 years have passed since a “fairer form of taxation” was used to sell the Goods and Services tax. Well, what happened was an even greater tax burden was placed on ordinary people and businesses.
Mar 3, 2008 - 7:19 am 22. Warren W:What you fail to address are the in-bedded taxes consumers already pay, plus payroll taxes. Politicians sell that evil corporations don’t pay their fair share. However, all businesses pass along all their taxes to their consumers as a cost of doing business. An increase in corporate taxes is an increases of taxes for all citizens regardless of income. They can sell an increase in corporate taxes a lot easier than an increase in personal taxes.
Mar 3, 2008 - 10:26 am 23. Gerald McInvale:The “Fair Tax” makes a number of very unrealistic assumptions. Never mind the 23 versus 30% arguments, the concept assumes that business will reduce prices exactly in line with the reduced taxes. B.S.!! Do you really think that your Doctor, Lawyer, Other Services Providers and Product Suppliers are going to do this? Why? As a retired Corporate Senior Executive I can assure you that it will not happen. Businesses with low profit margins will utilize the funds to improve their profitability and increase their ability to compete with lower cost international firms. In addition, the citizens who have been responsible and saved money for their needs and have already paid burdensome taxes on those savings, will now be taxed again when they need to spend their savings. What in the world is fair about that. This is an utterly stupid concept.
Mar 3, 2008 - 2:51 pm 24. John Paul McDaniel:We here in Texas have a state sales tax and it has resulted in NONE! of the dire predictions some have foreseen. There has been no scandal, corruption, or cheating in relation to it. It has funded our state government SPLENDIDLY! We Texans, tourists, illegal aliens, criminals, etc. are all in INSTANT COMPLIANCE!! every time we go through the “cash-register-check-out-line”. Virtually no one escapes paying. If it works for Texas it will work for the nation.
THINK ABOUT IT MORE……………………………………………
Read and Enjoy…………………………………………..
APRIL 15TH????? Let’s make it just another Spring day.
HR 25, the Fair Tax Act, is in the House Ways and Means Committee of
congress, waiting to be passed into law. If passed, the Income Tax &
IRS would be abolished and replaced with a national (retail only) sales
tax.
Everyone shoud go to: http://www.congress.org and tell their congressmen that
they want HR 25 passed into law ASAP!!!! If we all “push together”, we
can make it happen. There’s nothing to it, BUT TO DO IT!!!!!!
Read and Enjoy.
The FINAL SOLUTION!! for the IRS & Income Tax Problem
50 Reasons I Support the FairTax
(How many reasons can you give for supporting the present obsolete IRS
& income tax system?)
Those Who Know the Facts Love the Fair Tax
“Family Friendly Tax Reform”
Tax Reform with far less pain and much more gain!
Out with the Old Code and in with the New (national RETAIL ONLY sales
tax).
http://www.fairtax.org
1. It allows you to keep 100% of your paycheck, with nothing withheld
for Social Security and Medicare payments.
2. It eliminates the regressive payroll tax that hurts the poor.
Currently, every one of us is taxed a minimum of 7.65% on our first-dollar of
wages up to $90,000, if we earn that much.
3. It assures that the wealthiest Americans will be voluntarily helping
to fund social security with every last dollar they spend above the
poverty level. Today, earnings are subject to payroll taxes only up to
$90,000. The wealthiest Americans therefore do not pay into the system
above that amount. If their earnings are from investments, no earnings
fund the Social Security system. Under the FairTax, a single purchase
(regardless of the source of the earnings) can result in greater
contributions to the Social Security system than would be paid by an individual
under the payroll tax of today.
4. It provides funding for Social Security and Medicare at a level
equal to or greater than at present, with a stronger and broader tax base.
5. It secures the future of Social Security and Medicare because all
spenders fund it and not just the workers.
6. It eliminates all personal income taxes, payroll taxes, corporate
income taxes, gift taxes, death taxes, and capital gains taxes.
7. It eliminates the income tax and the IRS. Members of Congress and
the public overwhelmingly agree that the current internal revenue code is
cumbersome, intrusive, coercive, and inefficient.
8. It is revenue neutral with the present income tax system, funding
the federal budget at current levels.
9. It will remove an average of 22% of the cost of American made goods
by removing the built-in payroll tax (the other 7.65% of earnings that
employers pay) and other business taxes that are now passed to
consumers as an “embedded” tax of approximately 22% due to the cascading of
income and payroll taxes paid by U.S. employers, at every step of
production, to the U.S. Treasury.
10. It doesn’t tax used items ? clothes, cars, homes. Only new items
are taxed when sold by a business to an individual.
11. It is progressive, a “prebate” of the tax amount up to the poverty
level is given to everyone. This means that those spending below the
poverty level have a net gain because the “prebate” exceeds the amount
paid in taxes. (Under the present system they pay the payroll tax even if
they get a full refund of income tax withheld.)
12. It eliminates 90% of the cost of compliance. American families and
American businesses waste an estimated $250 ? $600 billion per year
doing the paperwork necessary to comply with the tax code. That is roughly
$1,000 ? $2,000 annually for every man, woman and child in the U.S.
13. It creates an opportunity for our products to leave this country
costing an average of 25% less, thus increasing our exports, lower our
deficit balance of trade, and increasing employment at home.
14. It encourages investment in companies located in the U.S., thus
providing a home for money already in the US and attracting more. The U.S.
will be the most attractive tax-free haven in the world for doing
business. American companies will return from offshore and overseas.
15. It encourages repatriation to the U.S. of money held by U.S.
individuals and companies now in foreign countries, with no tax consequence.
16. All 290 million Americans and 51 million visiting tourists fund
Social Security and Medicare with their purchases. Today only 110 million
workers fund these programs via deductions from their paychecks.
17. The broader tax base includes the ten percent of our economy, an
estimated $1 trillion, that today is underground or under the table.
Under the FairTax, the illegal drug dealer will pay his tax just like the
rest of us when he buys his sunglasses, BMW, and other items, as will
those who do business for cash.
18. It allows families to save more for home ownership, education, and
retirement. An average family making $50,000 will have $7,500 more
spendable income.
19. It makes educational tuition a tax-free expenditure of tax-free
income.
20. It makes American products more competitive overseas by removing
the embedded tax from them, thus lowering their prices, which compensates
for low foreign wages.
21. It makes American products more competitive at home by removing the
embedded tax from them, compensating for the low cost of imported
products not burdened by taxes imposed by exporting countries.
22. It removes the need for formal 401-K’s, IRAs, HSA, etc. Anyone will
be able to set up any kind of savings or investment account without
regard to taxes or the government.
23. It frees churches and other non-profit organizations from the
expense of filing tax returns and paying their half of Social Security and
Medicare payments for employees. There will no longer be any 501.c.3 or
501.c.4 non-profit tax status, because there will be no more tax to be
exempt from.
24. It restores to churches and non-profit organizations the 1st
Amendment right to engage in free speech, without fear of losing their
tax-free status.
25. It gives individuals and businesses the right to donate as much as
they want to in a given year to charitable causes.
26. It restores the 4th Amendment, protecting against unreasonable
searches and seizures, from which the IRS presently is exempt.
27. It restores the 5th Amendment, which guarantees the right to due
process. Under current systems the IRS has their own courts with their
own set of rules not included in the 5th.
28. It cleans up a major flaw in campaign financing, eliminating
campaign donations for “tax favors”.
29. It eliminates wrangling in Congress over tax cuts, the tax code,
and who is or is not paying a fair share of the tax bill.
30. It encourages work by letting workers keep 100% of their earnings
and giving a rebate, to boot, making the notion that the more you work,
the more money you have, a reality, unlike the current system where
welfare is lost when you go to work, so your first dollars earned after
taxes just offset what you were currently getting in welfare, making you
no better off.
31. It allows more of the lower income families to become home owners
by allowing a second job income above their current income (all tax
free) to be applied to a mortgage. Money for down payments for homes is
also saved totally tax free so that it will accumulate faster.
32. It allows families to retain farms and businesses in the hands of
those who built them through the elimination of the death tax.
33. It allows families to help each other out tax-free, by eliminating
the gift tax.
34. It encourages individuals to self-insure, making the health system
more direct pay (no 3rd party pay), thus bringing costs down.
35. Without FICA to pay, most states, counties, municipalities, and
school districts will see a large increase in their state budget revenues,
additionally lowering the overall tax burden (State & Federal) for most
Americans.
36. It assures that no American will find, at the end of the year, a
need to get a loan to pay taxes as an alternative to penalties, interest,
or cheating.
37. It restores individual privacy. The government no longer needs to
know where you work, what you are earning, and what you are doing with
it.
38. It eliminates the need to have a “marriage” clarification declaring
who you live with, as that has no bearing at all on a state or federal
sales tax.
39. It eliminates the need for courts to decide which divorced parent
gets to take the tax deduction for children.
40. It reduces production costs for farmers and other subsidized
businesses, leading to a reduction in subsidies, thus reducing the federal
budget.
41. It eliminates the administrative costs incurred by states in
collection of state sales taxes because states will piggyback the state tax
collection onto the national tax collection, for which they are
compensated by the FairTax ?% administrative cost give-back. [Doesn't this go
to the retailers?]
42. It results in a windfall profit for many of those holding taxable
corporate high interest bonds at the time of passage of FairTax, since
they will not be taxed under FairTax. (A higher interest rate is usually
paid to entice investors to buy the corporate bonds rather than go with
the lower interest, but tax free, municipal bonds, now.)
43. It shifts the tax to consumption, which consumption tables over
time show is more stable than income, therefore the tax revenue stream is
likely to be a more stable and predictable amount.
44. It results in Federal Reserve rates being based on current
consumption, which is rather stable, instead of future earnings, which are less
predictable, resulting in surer inflation prevention.
45. It allows for better planning by businesses, because they no longer
have to consider tax implications for everything they do.
46. It makes higher employment or better compensation possible in the
small business sector where today it costs approximately three dollars
in compliance costs to pay one dollar in payroll and income taxes.
47. It moves many now providing tax preparation, advice, accounting,
planning, and records maintenance into an expansive economy where they
will be producing goods and services. There they can add to the standard
of living of all Americans and likely earn more than they do currently,
instead of shuffling paper for the government (and not contributing
anything economically to society).
48. It relieves citizens of the risk of facing the shift in burden of
proof that is so common with the current system, i.e., the taxpayer is
guilty unless innocence can be proved, when even IRS staff sometimes
give conflicting interpretations.
49. It’s simple, unambiguous, and certain, the opposite of the current
tax code.
50. It’s good for the environment. It reportedly would save about
300,000 trees a year that are needed to produce the paper for the IRS
compliance and tax forms, enough to reach around the equator placed end to
end 28 times. Also, since it taxes only new items, it would encourage
buying tax-free pre-owned cars, clothes, furniture, houses, etc. Reuse is
good for the environment, too.
PLEASE CONSIDER THIS ALSO:
22% of the price of all that you buy currently is tax / tax compliance cost. When that cost goes away (under the Fair Tax) the price of your $1.00 item (purchased at Wal-Mart, for example) drops in price to 78 cents (without damaging the profit margin).
1.23 X 78 cents = 96 cents.
Seeeeeeeeeeeeeeee!!!! Even with the 23% Fair Tax added on, your originally $1.00 item is now 4 cents cheaper.
The “out-of-pocket” cost of living , under the Fair Tax , will be no more than it is now.
Under the Fair Tax there are NO LOSERS, only winners, the difference being that some win BIGGER!!!! than others due to their increased FRUGALITY.
Best Regards,
John Paul McDaniel
Go to: http://www.fairtax.org
Mar 3, 2008 - 2:58 pm 25. Patrick Murphy:I read this and wondered why Max was so hard on the Fair Tax, at the end i found out he works for the government.
Mar 4, 2008 - 1:01 pm 26. taoist:Most in government don’t want the Fair Tax because they lose control of the people and there money. Can you imagine no I R S or as i call then (Storm Troopers). The government can”t pick winers and losers with the Fair Tax.
Max: What we have IS a flat tax…some 96 years later. Are you saying you just want to hit the reset button on all of our tax law and watch it all happen again? We need to get rid of income tax completely. Thats the only way to end all of the government monitoring of your income, and to end all the efforts to socially redistribute wealth through tax law.
Mar 4, 2008 - 1:10 pm 27. albert:The state of California just published a list of the 500 worst tax cheats, “to embarrass them into paying.” Really! So somewhere there’s a statute outlining public humiliation as a penalty? I don’t THINK so! This obviously proves that NOT filing and NOT paying is NOT against the law. (I can take a little embarrassment, just don’t take my MONEY.)
Mar 5, 2008 - 6:12 am 28. Dave Corsi:In reading this column I was wondering, who would hire someone who obviously has no clue as to how the “Fair Tax” or taxes in general work. It became clear at the end of the article, when it was mentioned that Mr.Sawicky is an “economist” for the Federal government. This help explains why we are in this mess. It is the government economists whose expertise has helped put us over 9 trillion dollars in debt.
Mar 5, 2008 - 11:50 am 29. Darrell Klee:“Darrell — every source is impeachable. Nobody in their right mind thinks 23% will replace all the revenue. With your arithmetic, you seem to start with something that costs $100 and after the tax, it costs less. That would truly be a marvelous tax.”
Thank you for taking the time to respond. I believe I am in my right mind, because with decreased taxation, in my lifetime, I have seen revenues to the Treasury go up. It is indeed a truly marvelous tax, for as I did, very simply, was use the language of science to demonstrate that not only would one pay less for an item under the Fair Tax, a myopic administration could actually raise the tax rate, and still the widget would sell for less.
Respectfully, sir
Mar 7, 2008 - 3:42 am