Flat Tax has Flat Tires for Our Economy; The Fair Tax Supercharges
By Merrill Bender Posted in User Blogs — Comments (19) / Email this page » / Leave a comment »
Steve Forbes has published a new book called the "Flat Tax Revolution" where he promotes his old 1996 Presidential campaign concept of reducing your Income tax filing to a flat 17% rate and a simple postcard style form.
Mr. Forbes has resurrected from the auto junk yard of tax reform a car that won't run and is easier for special interests to hijack and steal later on. He is trying to inflate the tires of this old reform idea but the engine in this car will not provide enough energy to rev up our economy or go the distance to create quality jobs for American Families.
Mr. Forbes old (Flat Tax)Car is up against John Linder's and Neil Boortz's new Book "The Fair Tax Book" ( New York Times #1 Best Seller) which lays out a well researched Legislative Package which has been fined tuned to provide a Progressive Tax Reform and Tax simplification solution that truly supports American Workers, American Families while supercharging our American Economy in a way that fights outsourcing and brings American manufacturing back to US Shores.
The Flat Tax leaves in place the most REGRESSIVE tax on the working poor and Middle Class. 7.65% is pulled out of the First Dollar and every dollar there after that Average American Families Make. Another 7.65% is paid by their employers and many Economists say that suppresses wages and prevents low wage earners from earning more to suport their families. The Fair Tax eliminates the Regressive Payroll tax and still fully funds Social Security and Medicare.
For many of the same arguments that Steve Forbes presents for supporting the Flat Tax, The Fair Tax does it ten times better. and solves so many more of our tax and economic problems affecting the working poor and the middle class in America. The Fair Tax, Untaxes the poor by eliminating the payroll tax and giving them a true net tax rate of 0%.( with FairTax Prebate)
The Fair Tax is a fully researched and documented package that has already been put into full legislative form and is waiting in the garage of Congress, ready to rev up our economy and give every American Family a raise in take home pay. The AFFT (www.fairtax.org) has spent the last ten years and over 22 million dollars in focus group studies, polls and economic research to see what works well economically and works well for American families.
The better answer to Steve Forbes call for a 17% Flat income tax and keeping a 15.3% total Payroll tax - is The Fair Tax which takes ZERO Income tax and ZERO payroll tax out of your paycheck and allows you to take home 100% of your paycheck in take home pay.
That is actually what will happen under an up to date and ready to go Legislative Package- HR 25/ S25 commonly called the Fair Tax- www.fairtax.org. The Fair Tax Legislation has 37 Congressional Co-sponsors including the powerful #2 man in the House- Congressman Tom Delay.The original Sponsor of the Legislation Congressman John Linder of Georgia started in the 106th Congress and has included the Bill in the 109th Congress as HR25. Support continues to grow as more people know the facts about the Fair Tax.
Congressman Linder has written a new book with Talk Show host Neil Boortz called The Fair Tax Book, Saying Goodbye to the Income tax and the IRS which outlines in a very factual way the strong economics that support the Fair Tax research and shows how this new simpler retail sales tax is better for American Families, giving them more take home pay even after paying the federal sales tax and buying all the same things they bought the year before under the Income tax.
Mr. Forbes Flat Tax car (Lemon) only eliminates about half of the $225 to $250 billion dollars in tax compliance costs where the Fair Tax eliminates a much stronger 90% of compliance costs. Mr. Forbes leaves 90% of the cumbersome IRS tax code because even under a Flat tax, 90% of the code determines the definitions and calculations of the income to be taxed. Then you tax it at 17%.
Mr. Forbes does not have a group of over 75 nationally known economists writing letters to Congress in favor of his idea. The Fair Tax has that support. http://fairtaxreform.blogspot.com/2005/04/geter-done-economists-nationwide.
html
He also leaves in place a tax code that is more likely to be corrupted by lobbyists and special interests in the future. Lobbyists who will continue to manipulate the code to rob Peter to pay Paul. Under the Lemon Law he should return this car to the used car lot he got it from.
American families want a new tax reform car that is safe and well tested for the economic roads of a new century. Two of our largest states operate their state budgets on a sales tax with no income tax, Florida and Texas.. These 2 States are ranked 15 and 19th in the world for their economic output and a Sales tax works for all their State functions.
The Fair Tax is " Family Friendly Tax Reform " whose time has come. http://fairtaxreform.blogspot.com/2005/02/give-every-american-family-raise.
html
The Fair Tax package eliminates all Personal and Business income taxes, payroll taxes, AMT, and Death taxes. Due to these eliminations, prices will drop 22 to 25% and then the Fair Tax replaces them all with a revenue neutral federal retail sales tax on new products and services. Consumers will pay about the same as they do now.
American business and American labor should take strong note of the fact that exports are not taxed; thus the Fair Tax will provide a boom to American manufacturing because American products will be 22% lower in price for sale overseas. We can't compete with low wage countries but we can compete with lower taxes on business, products and services made in America. The result is a boom to the economy and a boom to better paying manufacturing jobs in America.
The Fair Tax Legislative package has been well researched and is well supported in the research section of their web site - www.fairtax.org.
Dr. Dale Jorgensen of Harvard University has researched the economic impact of the Fair Tax. Dr. Jorgensen calculates a 10.5% growth in the economy in the first year of the Fair Tax.
The Tax Reform debate and the research is far beyond the simple discussion of Flat Tax, VAT or National Sales Tax, though some will still go through the motions. A complete package is waitng in the wings ready to go - The Fair Tax.
The Fair Tax is much more than a National Sales Tax, it has additional provisions that result in prices dropping 22 to 25% before you add in their NST. Consumers will pay about the same for products and services as they did before but take home a much bigger paycheck that is 100% free of federal income or payroll tax.
In addition, the Fair Tax has provisions to maintain Progressivity by providing a prebate of the sales tax up to the poverty line to every family. For a family of 4 they receive $479/m for a Couple they receive $357/m. An Average family of 4 making $50,000/yr will have more than $7500 in additional take home pay and after tax purchasing power under the Fair Tax there by making it both progressive and fair. The more you spend the higher your effective tax rate. Supporters say, "Those that Know the Facts Love the Fair Tax". More importantly it is the only comprehensive tax reform proposal that eliminates the income tax and the more regressive payroll tax.
The Fair Tax meets all the guidelines set down by President Bush for his tax reform panel including promoting home ownership and supporting charities.
Steve Forbes has commented on the Fair Tax and misquotes how it works, his biggest error is to try and scare people away form the Fair tax and to his Flat Tax by saying families that buy a $100,000 home will now pay with the Fair Tax $130,000; UNTRUE.
Under the Fair tax the costs to Builders drops the price of the new home from $100,000 to $75,000 ( Economic research proves it); Than you add in a Federal Retail sales Tax of 30% Exclusive (23% inclusive equivalent) The New price will be $97,500. You pay about the Same and the taxes are paid. That Family also took home 30% more in take home pay and can afford that house much more easily than under the Income tax.
In addition, the Fair Tax also meets the 3 standards set by House Minority Leader, Nancy Pelosi in her open letter to the President on Tax Reform sent 12/15/04; 1) Tax Simplification; 2)Tax Fairness(Progressivity); 3) Revenue neutral.
This Car is waiting in the garage gassed up and ready to go. Democrats and Republicans need to climb on board and drive our economy in a positive and new direction with the Fair Tax Legislative package.
The Fair Tax has been built from the ground up, it has been test-driven and shared with many researchers, economists, average Americans and American Organizations.
Supporters include 560,000 members of Americans for Fair Taxation, 350,000 members of The National Tax Payer's Union, and is outlined as a legislative agenda item of the 6 million member American Federation of Farm Bureaus.
The Fair Tax has been fined tuned and polished for the 21st century. It is an economic engine waiting to rev up our economy and send us down the road better able to compete fairly in the global market place and to grow a financially stronger "ownership society" at home.
but one on which I know very little. I've read some of the FAQs from www.fairtax.org, and while it seems like they've got a good idea (repeal the income tax amendment and put this "fair tax" idea in its place) but I'm wondering as to the pros and cons of the proposal. What are some of our redstaters' perspectives on this? Is it an idea whose time has come or is it smoke and mirrors?
from a serious and quite comnservative economist (Bartlett writes for both National Review and the Wall Street Journal):
http://www.nationalreview.com/nrof_bartlett/bartlett200505050838.asp
That article provides some thought provoking counter points to the headlined diary.
You ask why risk being subjected to both a consumption and an income tax? That can happen today. The 16th Amendment does nothing to stop it.
In fact, repeal of the 16th amendment would not outlaw income tax, it would simply make it very difficult to implement and maintain. I'll explain:
Article I Section 8 of the Constitution grants congress the power to "lay and collect taxes".
Article I Section 9 places limitations in that "No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census".
The 16th Amendment simply nullifies that portion of Section 9, it does NOT grant the power to tax.
I think that your fear of Congress, although well earned, is misplaced.
I've never understood what's so bad about a VAT.
The problem with the FairTax proposal is that it would require even more federal involvement in people's lives.
The FairTax contemplates eliminating regressivity by providing each American with a monthly "rebate" that would have the effect of ensuring the working poor pay little to no tax, similar to our current tax code. The problem is, can anyone see the gov't doing this right? I can just imagine the horror stories on cable news about checks being sent to the wrong address, a working class family not being able to purchase food due to a check mix up, etc.
The only way the gov't could facilitate such a system is with even more centralization of the economy. Example: each American is provided with a Social Security card that functions like an ATM card, and the monthly rebate is electronically deposited into their "account," avoiding the aforementioned problems. This sounds more like sci-fi than today's America.
From what I've heard, a VAT is a sales tax that's harder to evade, easier to control for, and less damaging to the economy than many other taxes. How about cutting all federal taxes in half and instituting a VAT? Once again, this gets back to the debate over whether broadening the tax base while lowering the tax rates is the way to go. I've always thought it was, but I'm not an economist. Many economists think just the opposite: that you should just tax one thing at the necessary rate to raise the requisite revenue. This is what the Flat Tax is all about. But I dunno, it seems to me that if we can make drug dealers pay their fair share in taxes while alleviating the burdens of productive Americans, that could only help the economy.
I am going to answer and address some points brought up here.
- Bartlett has published numerous articles bashing the FairTax. The problem being that he makes wild claims with no real facts to support them. He completely ignores studies and the opinion of a LOT of economists. A true economist would be analyzing the pros and cons of the plan and not hammering on a couple of his delusional cons. His rants sound more like a personal ax to grind.
- Repealing the 16th amendment would abolish income taxes. Many argue now that it doesn't really confer that right now, but this would solve all of those arguments. Without that amendment Congress does not have the right to tax Labor (IE: Income). Any attempt to try would be VERY visible to us all & a very bad political move. With the tax code the way it is now our politicians can sneak all kinds of pork giveaways into the code without the majority of the public knowing a thing about it. That in itself is probably why this won't pass.
- This is a VERY Visible tax. You know everytime you pay the tax. You know before you buy something what it is going to cost you with the tax & you decide whether to buy or not. The choice is yours. Not taken from you as the Income tax does. Look at your next check and see how much they take in Fed Tax, FICA & Medicare. Now imagine getting every penny of that every week.
- With a VAT you preserve the Income tax and that just doesn't solve any of our problems.
- There is talk of the Social Security Office with more employess (unemployed IRS agents) handling the prebate payments as their system is already set up to handle this type of payment. There is also talk of issuing an ATM like card to handle this. That system too is also in place with food stamps and AFDC type payments for welfare recipients. Each household would receive a card. A biggee for me on this is that only US Citizens are eligible.
- Illegal Aliens and criminals will be paying their fair share.
- Lastly jobs will come back to America. No corporate taxes, no burdensome compliances. No reason for them to stay overseas. Don't kid yourself and think businesses are leaving for the cheap labor. Everyone in business knows it is the taxes that have businesses moving to locations that are offering them a tax haven. America will be the new tax haven for businesses. Yes the owners will be paying the NST on purchases, but the business can operate tax free. They will be bringing jobs back to America. If something is not done soon we will one day be a third world country. Sounds impossible but go to Lou Dobbs site and just look at the list of companies that have moved overseas. It is staggering and growing rapidly. Our upper and middle classes are moving to Panama and the Bahamas while their poor are flooding into our country. Something has to be done and this plan can solve so many of these problems.
There really are many more reasons. I would suggest buying the New York Times #1 Bestseller The FairTax Book by Neil Boortz and John Linder. It is a really enlightening book and humerous too. How many tax books become #1 bestsellers:-)
Can we please call things by their proper name? We are talking about a national sales tax here. Let's call it that. When proposals have to hide behind cutsey-pie names like "fair tax" I immediately suspect that some shyster is trying to pull a fast one
Why would a VAT preserve the income tax? It would no more do so than this proposal would. Which is to say that either proposal could end up keeping the income tax unless the 16th amendment is repealed.
Mr. Bartlett, William Gale, and others are soundly rebutted in the Rebuttal Section of www.fairtax.org
http://www.fairtaxvolunteer.org/smart/rebuttals.html
( Seventh pdf down)
Mr. Bartlett calls the Fair Tax "Dopey" because he takes a "Dopey" approach to actually applying Economic standards to the study of the idea.
Over $22 million dollars and 10 years of study and research effort has gone into this Legislative package. The numbers are solid.
Bartlett has been offered to debate the Facts but so far has refused. He continues to comment using only Half truths or only half the facts about the Fair Tax plan.
Over 75 National Economists and Economic Professors from around the country who have actually studied the Economics of the Plan sent an Open Letter to Congress and The President in favor of the Fair Tax Plan HR25/S25.
www.fairtax.org look for pdf link -" Economists Letter" on Left
OR
http://fairtaxreform.blogspot.com/2005/04/geter-done-economists-nationwide.
html
The only one being Dopey is Bruce Bartlett
Those That know the Facts Love the Fair Tax and see where the critics don't have or acknowledge the true Economics of the Fair Tax.
Your Wrong we should call this the Fair Tax because that is the common name given for many years to this Comprehensive Legislative Package. House Bill HR25 and Senate Bill S25 in the 109th Congress. Originally, introduced by Congressman John Linder in the 106th congress.
The Fair Tax is much more than just an add on National Sales Tax it is a progressive package which replaces a whole series of Taxes which allow for a Price drop of average Goods and Services of 22 to 25%. The Fair Tax package also has a Rebate system to make it progressive.
This Legislative package has already been fined tuned and is much more than a discussion of Sales Tax as though it was the same as State Sales tax.
Though you may be just joining this Tax refrom debate the idea and the package have been around for Years with this name.
The Debate is much further along in Congress, than NRST or VAT or FLAT, there are detailed packages like the Fair Tax with much more to know and learn than a 23% Inclusive Sales Tax rate.
The transition to the Fair Tax would be unbelievably unfair.
Example: My sister has been a prolific saver and has amassed an enormous amount (for a 40 year old) in 401K and regular, after-tax savings.
On the other hand, my husband and I have bought an enormous amount of assets (farmers, with corresponding debt).
If we convert to a national sales tax, my sister will have to pay again when she spends her money, though she paid FICA taxes on all and income taxes on much of it as it was earned. On the other hand, my husband and I bought tax deductible assets and would pay for it with tax free earnings.
The conversion would not be fair (though I would come out on top!)
Also, I disapprove of the VAT because of the "hidden from ultimate payer" rule. Our ruling royalty seems intent on obtaining and spending every possible penny they can, with the squawking of the goose as their only constraint.
It is my impression that we gooses squawk louder and better when we can see it with our own eyes, not just read about it in a statistical analysis.
Besides, France uses VAT, so it must be bad.
A comment for everyone to respond to:
- I agree that Bartlett's analysis is weak.
- I don't get why everyone is so obsessed with going on a quixotic quest to repeal the 16th Amdt. It's just not gonna happen. It's one of those things that will get about 20% support in all the opinion polls, and the Democrats will use it to color Republicans as "fiscally reckless" and win future elections. People need to be convinced that a consumption tax is the way to go. At that point, there will be no need to repeal the 16th Amdt, because no one will support an income tax.
- Neither the VAT nor the Fair Tax inherently eliminates the income tax. Both could be used to replace the income tax. Both could be used in conjunction with the income tax.
- I'm not an economist, so I may be talking out of line on this one, but a VAT just seems all around easier to administer than a NST or Fair Tax system. Most of the countries with lots of governmental expenses use it, and it seems to raise revenue better than the income tax. We'll always have lots of federal expenses, if only because we need to maintain the world's most powerful military to prevent murderous nutjobs from around the world from killing us. A VAT, NST, and Fair Tax are all consumption taxes of sorts, just different kinds of consumption taxes. And I've yet to see any country that's successfully administered an NST. I'd be interested in hearing reasons why one is better than the others, as the VAT seems the best to me right now.
As a CPA, I am in favor of simplification of taxes. Every time Congress "simplifies" taxes it guarantees me more clients. In the 30+ years I have been preparing taxes I have yet to see any of the so-called "tax simplification acts" simplify the tax code. The first such act I remember which claimed it was a tax simplification act was at the end of the 80's and it added several hundred pages to the code.
I'm understandably skeptical of any claim of simplification.
I'm also skeptical of this FairTax being the answer to everything.
Your article mentions that Florida and Texas don't have state income taxes. Florida does not because they are able to charge tourists enough taxes to cover their needs. Texas does not because they have their oil taxes. Nevada does not because of gambling taxes. Other states do not have these additional tax revenue sources and therefore, they charge income taxes.
You seem to pretend that the IRS will just go away and that we have the organization in place (through the Social Security Administration) to manage this change. I'm not buying it. If any government organization is more poorly run and prone to errors that won't go away than the IRS, it is the Social Security Administration.
I read Bruce Bartlett's article and the FairTax rebuttal. The rebuttal did not win my trust with their use of "Fact" at the start of each response.
For example, in responding to Mr. Bartlett's assertion that a national sales tax would cause an increase in prices equal to the tax, the rebuttal responds:
"Fact: Dale Jorgensen has projected an average producer price reduction of 22 percent for goods and 25 percent for services in just the first year after the adoption of the FairTax."
While it may be a fact that Dale Jorgensen projected that, it does not raise his projection to the level of a fact. My guess is that most service providers (myself included) would indeed raise our rates by the amount of the tax and keep the bonus created by the elimination of the other taxes for ourselves. That is my projection. It is a fact that I have made a projection. Now you can state it as such.
The Fair Tax is still Fair to All.
For the 401(k) saver who has saved a large next egg, under the old system they would have paid income tax on those withdrawals. Under the Fair Tax they will pay on their purchases of new products and services.
Keep in mind the products and services will drop 22 to 25% under the Fair tax and after you add in the federal retail Sales tax they will pay close to the same.
Read more at the FAQ section of www.fairtax.org
#15 and #16
Or on the front page left side click on link about Seniors and see how your retirement will be better under the Fair Tax.
I agree with your 1,2&3 above.
On the VAT I see a few issues.
1. Harder and more expensive to administer. Typically it is a smaller tax added at each stage of production. Farmer to processor to packager toe wholesaler to retail Store or Service provider. Each Stage of the supply chain will keep sales records and submit a tax and the paperwork.
The Fair Tax waits until the end of the line and the final retail purchase. TAXed once. Less entities to monitor and submit taxes.
2. VAT is hidden in the price so you don't really see it. Politically this makes Hay for Lobbyists to tinker or Politicians to increase.
With The Fair Tax you can see it and monitor the politicians as well as decide how much tax you will allow.
3. Ultimately the VAT is just a cost passed on to the consumer. wheterh you pay 6% at each step of the process or 23% at the end the overall cost will be less with the Fair tax because the compliance cost will be less.
More on the VAT in the FAQ section and Research and Rebuttal Sections of www.fairtax.org
FAQ #45 - What about value-added taxes (VATs), like they have in Europe and Canada? Are they not consumption taxes?
While VATs are also consumption taxes, and better than income taxes, the FairTax is not a VAT. A VAT works very differently. It taxes every stage of production. It is much more complex, and is typically hidden from the retail consumer. Second, in industrialized countries that have a VAT, it coexists with high-rate income tax, payroll and many other taxes that, in some instances, have led to marginal tax rates as high as 70 percent. Third, all other industrialized countries, except Australia and Japan, have a much larger tax burden than the U.S., which requires higher rates and makes tax administration much more difficult. Lastly, a VAT is a lobbyist's dream, allowing them to install their loopholes unbeknownst to the purchaser. A retail sales tax, in contrast, is a lobbyist's nightmare, applied as it is under the bright lights of the retail counter.
Thank you for taking the time to read the Rebuttal section of the web site.
The research section has even more info and perhaps more to your liking and level of understanding.
For a fun Read as well as informative I also suggest "The Fair Tax Book" by Neil Boortz.
Others beside Dr. Jorgensen that know the numbers and know Economic theory concur with the range in the Price drop.
The Economists Letter on the front page goes into it.
However, I would say that it has been estimated that 80 to 90 % of the Fair Tax dollars will be collected by large companies like the Wal-Marts, Targets, Sears, Grocery Chains, Firestone Tire, Starbucks, etc. All of whom compete for sales, If their production and operating costs go down by 25%, the market will see those prices go down.
WalMart is a perfect example if they can get the product cheaper they sell it cheaper so they can sell more of it than Target does. They meet their profit margin targets and the needs of their Stock holders.
As a CPA I am sure you see that in business. you see the imbeded costs of taxation, payroll tax and compliance throughout the Supply chain.
The Fair Tax gives American business the same advantage as if they bought their materials for 25% less from Chinia. To be competitive and get the business they lower their price.
The Price Drop is to be expected but will be an average of 22% on Products and 25% on services. Other Economists say 20 to 30% price drop.
Even if that were not to happen - average families will be taking home 30% more in take home pay plus receiving amonthly Prebate check.
This is a WIN Win
I've never understood what's so bad about a VAT.
The problem with the FairTax proposal is that it would require even more federal involvement in people's lives.
You're joking, right?
The FairTax replaces all of the major taxes (income, estate, FICA, capital gains, etc) with a sales tax, and the only place that is collected is between business and consumer. With a VAT, not only would you have the between business and consumer part, but all the business-to-business parts in between. Ergo, a VAT causes a lot more federal involvement than the FairTax, even if it replaces everything that the FairTax does. If it doesn't, then it only increases federal involvement above the current system, which is definitely way more intrusive than the FairTax.
The tax that's only collected in one place (between business and consumer) is by definition less intrusive than taxes collected here, there and everywhere.
or any other type of tax deferred account. As a matter of fact, probably less than half. I know from working in a bank that there are some really significant balances in accounts of people who seem entirely average in all other ways.
All salary withdrawals for 401K investments were subject to FICA taxes, which for most people exceed income taxes.
Further, all consumers benefit from any drop in prices equally, whether they have savings not (and I'm not willing to accept a SWAG estimate like "22 to 25%" as gospel).
Final conclusion: The transition would be UNFAIR. (Kinda ironic for a "Fair Tax", huh?)
The fact is that everybody is already paying taxes in the form of hidden taxes (22%), not just pre-tax or post-tax investors. So, everybody has an advantage under the FairTax. Now, unless you feel that the people that haven't already paid the income taxes should be hit even harder, then the plan IS fair. But, it is still an advantage for everyone, just on a lower level for some people. However, the income taxes that were paid already, did fund the government at that time when income taxes were taken out. It is time move on and fund the government in a new way, moving forward.
Also, remember this, anything will require a transition. Once it is done, your children and grandchildren will be much better off. There is no reason that their hard work (income) should be taxed as a disincentive. Sometimes it is necessary to take a step back to take two steps forward.
We should go with the FAIR tax and risk getting both an income tax and a sales tax? Right now, with the 16th Amendment (and as long as that lasts), we are gonna end up with both hanging over our heads.
The flax tax keeps that genie inside the bottle.