Would the “Fair Tax” Gut the Economy?

Recently, I’ve been seeing a lot of news about the so-called Fair Tax, which is being championed in one form or another by people like Mike Huckabee and Ron Paul. All of this talk about overhauling the federal income tax system has gotten me to thinking about what effect such a system would likely have on our consumer-oriented economy.

I will start by admitting that I haven’t read about the Fair Tax in depth. I should also note that I’m not necessarily against the idea of changing our tax system — it’s pretty archaic as it is, and could stand a good bit of improvement. I should also note that I’m not an economist. But, at least on the surface, there are some things that worry me about the Fair Tax.

The Fair Tax

For starters, here’s a (very) brief synopsis of the Fair Tax, as I understand it:

Under the Fair Tax, the current tax code would be scrapped and replaced with a federal sales tax. Things like income tax, Social Security tax, and Medicare tax would no longer exist. Same goes for the Alternative Minimum Tax (AMT), capital gains tax, and estate tax. Instead, everyone would pay a flat sales tax of 30% on nearly everything that they buy, including food, clothes, and health care.

It should be noted here that Fair Tax proponents like to think of the percentages in a slightly different way. Rather than viewing it as the additional percentage charged, they prefer to think about things as a percentage of your spending. Since a $1.00 purchase would cost you $1.30 (ignoring state sales taxes), this is sometimes referred to as a 23% tax since $0.30 is 23% of $1.30.

Anyway, because sales/consumption taxes are inherently regressive (i.e., they hit those that live paycheck-to-paycheck harder because 100% of their income is subjected to the tax), every household in the United States would receive a check to cover their taxes up to the poverty level. The argument here is that, for most people on the lower end of the economic scale, this would result in a more progressive tax system, with people closer to the poverty line spending less on taxes than people with higher incomes (and thus more spending).

The (Possible) Problem

Setting aside the issue of whether or not the Fair Tax is actually fair (this has been the subject of a lot of debate), let’s talk about the downstream impact on our economy. For better or worse, we live in an extremely consumer-oriented culture, and our economy is driven by one thing above all others: spending.

Think about that for a minute… Right now, our economy is stalling out and, in recent years, economic slowdowns have been dealt with in two major ways: (1) slashing interest rates, and (2) offering stimulus checks. Both of these moves are intended (at least in part) to stimulate spending, thereby helping to get the economy back on track.

Taking that at face value (i.e., that increased consumer spending is what keeps the economy humming), I find it hard to imagine that we’d be able to transition to something like the Fair Tax without doing serious damage to our economy, at least in the short term. Why? Because American consumers are highly price-sensitive, and our current income tax system is relatively invisible when it comes to making day-to-day purchases. But if you start adding to the cost of an item at the checkout counter, people will think twice before buying a random geegaw or doodad.

Given that consumer spending is so central to our economy, anything that has the potential to put the damper on our spending seemingly has the potential to drag the economy down. This isn’t to say that less spending (and thus more saving) would be bad for individual Americans — quite the opposite. But I’d imagine that, at least at first, there could be a good deal of economic pain if we were to overhaul the tax system in this way.

What do you think?

182 Responses to “Would the “Fair Tax” Gut the Economy?”

  1. Anonymous

    @Harvey: You still have to buy your tickets here. You can’t escape taxes, anyway. When you go abroad, you have to pay their VAT. At least in Canada, you have the option of asking for a refund, if you keep your receipts.

    And anything you bring back would have to be declared and taxed. There’s only so much you can hide.

  2. Anonymous

    As someone who spends most of my discretionary income each year on overseas travel, I think this is a GREAT idea. I imagine I might spend a lot more time overseas. For those that can afford it, the new plan would be: Make the money in the US, spend the money in the Bahamas. Taxes would be virtually ZERO. I envision for office people remote working becomes HUGELY popular.

  3. Anonymous

    @Brett: You are completely missing the point of a consumption/sales/FAIR tax. The idea is that we each have complete freedom to spend our money as we see fit.

    If 2 people spend $50,000, why should their tax rate be different? Why should it depend on what they buy, on how much something costs, how much money they earn, or how much money they have?

    Money is a tool, money is a resource, money is useless unless it’s spent. You can’t wear it, you can’t eat it, you can’t drive it, and you can’t live in it.

    If you are worried about lower income families, learn about the prebate the FAIR tax includes for people below the poverty line. It replaces the Earned Income Credit and welfare.

  4. Anonymous

    The fair tax is a great idea, but if it could be modified so that essentials like some food would be taxed at a lower rate, while nonessentials and luxury goods could be taxed at a punitive ridiculous rate (like 100%). The problem, without trying to sound too political, is that we’ll never get there because of the way this country works.

  5. Anonymous

    Patsy177 – – Why do so many posters talk about getting rid of the IRS? Its mission will stay the same to make sure that the tax is collected properly. It will just change its focus from people to businesses.

  6. Anonymous

    So much interest on this subject. I don’t have time to read all comments right now, but will get back to this later. EMBEDDED, that’s the key word here. They will all go away – and all products have them. This will make the product cheaper, so the tax is not that big of a deal – it’s just NO ONE will get away without paying them. Do you have any idea how many Ztrillions of dollars get spent that never got taxed. Come on people wake up. I think we should try it for a couple of years and see how it works, that’s really the only way you can test it. If is dosen’t work, we can change it again. What a relief everyone will enjoy NO IRS.

  7. Anonymous

    @lavalyn #175, all those calculations have already been taken into account. So a 23% discount or 30% markup, however you calculate it, was determined to be revenue neutral at the time the FAIR Tax was created.

    And how do you think those rich people get their money? It’s not from income, like you and I, but from dividends and capital gains, which are already taxed much less. I’m sure there are a number of rich people that pay their tax without too many shenanigans.

    Besides, you know darn well that Congress would never ever pass a FAIR Tax as it’s currently written. Those crooks need to line their pockets and will create categories of products so as to try to stick it to the rich. But the rich don’t need to buy luxury items. Remember what happened to the yacht market with the 10% luxury tax? Congress destroyed it because the wealthy stopped buying and put thousands of people out of work.

  8. Anonymous

    Jeff: 30% above = 23% below. 30% of $100 is $30. 23% of $130 is, surprise surprise, $30. You live in a nation that adds the taxes as a line item on top of the sale price. Trying to change that convention to lower the stated rate is deceptive.

    The rest stands. Under Fair Tax, if you don’t spend, you don’t pay tax. That’s fundamental to it. Rich people don’t spend; they save. Therefore they don’t pay tax. For the proposal to be “revenue neutral”, some other tax source must offset the amount that rich people no longer pay.

    You want to impose a tax burden shift downwards… knowing that 1. the economy is still in the crapper, and 2. “revenue neutral” isn’t even sufficient to pay your bills in the face of the government deficit. You want to raise taxes on the majority of citizens: the middle class, of which you are probably in. And you think this is a good idea?

  9. Anonymous

    lavalyn:

    I hope you read this. Do your self a favor and read the book educate your self on the proposed bill before making idiotic remarks. Don’t just throw numbers around in attempt to sound intelligent (didn’t work) and to start the number is 23%. Find out the rest for your self.

  10. Anonymous

    Anything resembling a flat sales tax is fundamentally ridiculous for the simple reason that spending vs earning is not a straight line.

    If you make $30k a year (before taxes), you probably spend close to all of your income. If you make $300k a year, you’ll probably save a VERY significant proportion of it. If you make $3m a year, you probably didn’t spend much more than if you made $300k a year, and if you made $300m a year, you’re probably spending more money avoiding taxes than everything else you spend on. Including the house, second house, third house, cottage, car, car, car, car, yacht, etc.

    How do you make a sales tax “revenue neutral” at 30% when a person making $300m might spend $2.5m a year, while a person making $3m might spend $2m a year? That’s $89 million lost revenue right there, at 30% income tax vs sales tax.

  11. Anonymous

    A Flat Tax is not free of tax evasion. Employers would have a considerable incentive to understate their sales, and overstate their purchases from other businesses and their investment expenditures.

  12. Anonymous

    “… provides a monthly universal prebate to ensure that each family unit can consume tax free at or beyond the poverty level, with the overall effect of making the FairTax progressive in application.”

    ME. What this quote describes is, in effect, what others have called a “demogrant.” Prebate = demogrant.

    “Currently, there is negative taxation in the way of all the welfare freebies, like Section 8 housing, WIC, Medicaid, food stamps, SSI, Earned Income Credits, etc.”

    ME. It is to the credit of the Fair tax that it would tax consumption no matter where the money to pay for it comes from.

    The Flat Tax would abolish the EIC and WIC for sure, and tax SSI, Social Security, and any welfare benefits in money. Benefits in kind, such as food stamps and Medicaid, would escape tax.

    Demogrants + section 8 + Medicaid + food stamps + living in a small town = tolerable poverty.

    “We currently have 5th generation welfare babies.”

    ME. 40 years ago, the country I live in substantially increased the weekly payment to single mothers. The consequences have been what one would expect.

  13. Anonymous

    In 1981, Stanford Professors Robert Hall (economics) and Alvin Rabushka (politics) published an article in the Wall Street Journal containing the first version of their Flat Tax. I read that article in real time and was deeply intrigued. Later, I bought the 3 editions of their book, the most recent one in 1995.

    I have redone their calculations several times. Their claim that a 19% flat rate would be revenue neutral is too optimistic. A rate of 21-22% would be required.

    The Flat Tax would definitely reduce the tax owed by nearly everyone earning more than 300-500K, and would raise the tax paid by some families of modest means. In other words, it can’t fly. The solution is to expand it so as to replace the regressive FICA payroll tax. That would require adding 8% to the flat rate. In effect, this spreads the cost of the Social Security over all income, not just wages under 100K/year/person.

    The Hall-Rabushka personal allowances are too complicated. Replace them with a demogrant whose annual amount is equivalent to $7-10/day. That done, there would be no need to tax wages separately from capital income. All income payments to households would be free of tax.

    Hall-Rabushka did not think enough about nonprofits. Nonprofits would have to file tax returns like all other employers and payers of interest. The only advantage nonprofits would rightly enjoy is that they would not include donations in their taxable revenue.

    The Flat Tax would enjoy some of the self-enforcement properties of the value added tax.

    The main advantage of the Flat Tax, especially modified along the lines I propose, is that compliance and administration costs would be far far lower than they are at present. The IRS would interact only with firms and other employers. There would be only a handful of tax forms, with none being more than 1 page long. The only persons who would interact with the IRS would be the self-employed. The vast majority of us would go through our lives without ever seeing a tax form.

  14. Anonymous

    @philipmeguire
    What Fair Tax are you referring to? According to the FAIR Tax, http://www.fairtax.org/PDF/FairTaxPrebateExplained2007.pdf, it “… provides a monthly universal prebate to ensure that each family unit can consume tax free at or beyond the poverty level, with the overall effect of making the FairTax progressive in application.” There is no ‘demogrant’.

    What country do you live in? Currently, there is negative taxation in the way of all the welfare freebies, like Section 8 housing, WIC, Medicaid, food stamps, SSI, Earned Income Credits, etc. We currently have 5th generation welfare babies.

  15. Anonymous

    Currently we have a progressive tax on income. Income is hard to define, but one thing is certain: whatever income is, it is not influenced by how you choose to spend it.

    The Fair Tax is a flat tax on spending, defined as everything except the purchase of financial assets. (How the Fair Tax would treat owner-occupied housing is a crucial and nontrivial detail.) The Fair Tax is equivalent to a flat tax on income (a la Hall-Rabushka) that would treat all financial assets as if they were held in tax-deferred arrangements. How to adjust Roth IRAs for the transition to the Fair Tax is another crucial and nontrivial detail.

    The great advantage of the Fair and Flat Taxes are that income neither has to be defined, nor does it have to be traced to its ultimate recipient. The Flat Tax taxes value added once, at the business source. The Fair Tax taxes value added also once, but at the retail end. The savings in administrative cost would be enormous, on the order of several tens of billions of dollars per year.

    The Flat and Fair taxes would also mean that business investment and equipment and structures would be fully deductible in the year incurred. They would also do away with all taxation of capital gains.

    I associate the Fair Tax with an article in the Atlantic a few years back, by Laurence Kotlikoff, a Boston University economist, and Niall Ferguson, a Harvard historian who is quite warm to economic thinking. I have not read that article, but have seen it cited. I am very well acquainted with Hall and Rabushka’s flat tax. H&R claimed that a flat tax of 19% would replace the Federal income taxes on personal and corporate incomes. They are mistaken; a rate of 22% would be required. The Fair Tax is equivalent to a flat tax of 23%, and would replace the FICA payroll tax as well Federal income taxes. That rate is too low; to replace the FICA tax as well as Federal income taxes would require a flat rate of 30%.

    In my work on the Hall-Rabushka flat tax, I concluded years ago that the simplest way to mitigate its harshness for people of modest means, and to assure that the average tax rate is progressive when the marginal tax rate is not, is a quarterly lump sum paid to every legal resident in the country, preferably via a direct deposit to a bank account. I call this lump sum the “demogrant.” A demogrant on the order of $3000-$3500/year would leave most Americans of modest means somewhat better off than they are at present. Keep in mind that the Fair tax in effect taxes all government handouts of any kind. Because it is awarded unconditionally, the demogrant would introduce a negative income tax to the USA.

    The Fair tax would mean that about $1 trillion of the GDP of the USA would be taken from all by taxation, and redistributed to all equally. The negative wealth effect on the incentive to hold a job could be nontrivial. A family of 6 would receive a total demogrant of about $20K per annum. That, plus public housing and Medicaid, would lead some adults to do nothing productive with their lives, especially adults accustomed to a third world standard of living. The main reason we do not have a negative income tax in the USA is that large scale and expensive controlled experiments in the 1970s and 80s revealed that when families are assured of a modest income, many wives throw their husbands out and seek to raise their children alone. Congress could not stomach being seen as encouraging divorce. Thus died the negative income tax.

    Bruce Barnes mentions the Federal Excise Taxes. While I don’t much like the excise tax on telephone billings and vehicle tires, I have no difficulty with the excise taxes on tobacco and alcohol. Also, the excise tax on gasoline is an effective user charge for road use. Gasoline should be taxed at a level high enough to pay for all highway construction and repair, and much of the cost of the city and state police.

  16. Anonymous

    I wish you had read the original book as it explains a lot. I want to second what Gavin #166 said. Upping a sales tax does nothing to dampen spending in the long run so that is a red herring.

    A consumption tax is not regressive at all. If two people spend $30,000, shouldn’t they both be taxed equally?

    There are only two variables here. The difference in how they spend their money and how much income each person has.

    1) What people spend their money on is personal choice. Some people rent a home, some people buy a home. Some people like to eat out, some people like to vacation, others like to buy antiques. Some people like Yugos, others like Cadillacs. In short, some people like experiences, others like things. Some spend more, some spend less. Who are we to tell them how to spend their money by screwing with the tax code? Granted, stuff happens and we are forced to spend money, but that’s why people save money, right?
    2) Money in the bank or under the mattress provides no benefit. It’s all potential. If I die, I can’t take it with me. My heirs will get it, but if they don’t spend it, it does them no good either. People who spend more money pay more tax. People who spend less pay less tax.

    And for those people the don’t read, the “prebate” as I believe it’s called, makes the tax progressive. The less money you spend, the less tax you pay as a total percentage of money spent.

  17. Anonymous

    I think its true that initially people will be cautious about spending but on the other hand i think that people will spend more on housing because they will think that they can control the other percentages(eating.untilities.other money wasted things)So seeing a higher paycheck will lead them into buying a house or a more expensive home.This was my initial thought of what i would do or how i would think.

  18. Anonymous

    This is where the author goes awry:

    “Because American consumers are highly price-sensitive, and our current income tax system is relatively invisible when it comes to making day-to-day purchases. But if you start adding to the cost of an item at the checkout counter, people will think twice before buying a random geegaw or doodad.”

    First, you’re ignoring that customers don’t *have* the money to begin with in the current system. A substantial portion of your paycheck is withheld to pay federal taxes, and while it may be “invisible”, you simply don’t have the money. Any sticker-shock would be offset by the equal shock at having 15-25% more in your bank account, plus the poverty rebate.

    Second, prices are set, in most markets, by supply and demand, and it’s more likely to cut into corporate *profits* rather than drive up the cost, since they’ll have to continue selling. However, that will be offset by the reduction in taxation, since our corporate income tax, one of the highest corporate income taxes in the industrialized world, would be replaced by taxes collected at the cash register rather than upstream from the consumer.

    Indeed, national sales taxes are quite common around the world, including in Canada and the European Union, and while their total tax burdens may be obstacles to growth (one Swedish study suggests the EU, if it were an American state, would be the fifth poorest after Arkansas), their use of a consumption tax to collect it does not appear to be.

  19. Anonymous

    Our constitution is only 3 – 4 pages long. Would be nice if the tax code were a similar length and greatly simplified instead of being chocked full of special interest goodies and a way for politicians to grant favor to their constituents and supporters. I would certainly support a 20% or 25% flat income tax that kicks in on incomes > $50K with no write-offs….. or a national sales tax, but only if the income tax is eliminated permanently. However, politicians cannot be trusted, and will corrupt whatever they touch.

  20. Anonymous

    This couldn’t be more regressive. While taxing the smallest things that people need to survive while ignoring Wall Street and home purchases the brunt of this will fall on those least able to pay and assure they never get ahead. Those on Wall Street will be buying and selling their way to a tax free fortune.

    While I may not have to pay a social security tax what happens to the approximately 8% of my social security payments that now come from my employer and is part of my pay package as an imbedded cost? Does anyone believe they will be getting an 8% raise from this?

    A 30% tax on my food bill, a 30% tax on my water bill? They can’t my air yet.

    Hetty Green would love this if she were alive today.

  21. Anonymous

    Donna (comment #52):

    Competition will drive prices down.

    FairTax will give the economy an immediate stimulus without the disasterous effect of Marxist socialism and government micro-management.

    Government dabbling into the housing market has been a disaster already, and we are headed for something much more worse under an attempted socialist government control that has bogged down economies everywhere it has been tried.

  22. Donna: The argument is that market forces (i.e., competition) will drive prices down. I don’t necessarily doubt that this will happen in the long term. My primary concern when I wrote this article had to do with what will happen in the short term. As we’ve seen over the past year or so, our economy is an extremely very fragile thing. As such, any short term hiccups could have major downstream repercussions. Unless you believe that the market would transition and account for these sorts of changes in taxation instantaneously (seems unlikely), there will be a period of flux during which consumer spending *could* be impacted.

    Many commenters have latched onto my admission that I hadn’t read Boortz’s book, and have then gone on to immediately misconstrue my concerns and thump their chest about how great the Fair Tax would be for our country. Just so we’re clear, I’m not overly concerned about the long term effect on prices (go back and read what I wrote). But what about in the near term? Do you *really* believe that prices would instantaneously reflect these changes? Our tax system is hugely complex, so I don’t think it will be that simple. But perhaps I’m mistaken.

    Are these short term concerns a valid reason to maintain the status quo? Perhaps not. But that doesn’t mean I don’t worry about them.

  23. Anonymous

    I have read both books and gone to the website. I’ve spent hours and hours each weekend for the last 6 months reading about and pondering the Fair Tax. There’s nothing that shows that businesses are going lower prices simply because they no longer have to pay the taxes that were “embedded” in the prices of their goods and services. If they’re not required to, why in the world would they actually do it? This is the one thing about the Fair Tax I cannot get past – it simply doesn’t take into account our national culture of Gotcha Capitalism and sneaky business practices.

    Between my rent and medical expenses alone, I will be completely soaked under the Fair Tax. Bare minimum, I’m looking at a $3000+ hike in my annual taxes. That would pretty much bring me to a subsistence-level existence (no ability to add to my savings account or retirement fund). I don’t believe for one second that my landlord, any of the landlords around me, my health insurer, or any of the hospitals or doctors they contract with are going to lower their prices/charges. I seriously doubt many other business will, either. They’ll simply pocket the extra profit. Why? Because they can. That’s how the economy works in the country and I’ve seen nothing about the Fair Tax that would address that reality.

    Besides that one little problem, I think it’s a great idea. Too bad I can’t afford it.

  24. I apologize if some of the exchanges above don’t exactly follow, but I just discovered that one person was commenting under multiple usernames. These comments have all been removed.

  25. Anonymous

    Why wouldn’t price gouging under the Fair Tax happen as easily as it does now?

    I have never seen price reduction due to competition or reductions in taxes or fees happen with my utilities, telephone, cable, cell phone, internet. I have not seen the cost of my food go down since the price of transport decreased. Besides gasoline, I have not seen any price hike go away in the last 4 months – and we’re on a deflationary roller coaster ride even as I type. Why would they be any more likely to reduce prices if their costs are lower than they are now?

    I just don’t see how your idealistic notions of business practices translates into verifiable reality. And that’s my biggest concern about the Fair Tax. So much of it’s “neutral” effect on middle income earners depends on idealistic beliefs about free-market capitalism.

  26. Anonymous

    The price of goods would only go down in the sticker-price sense. The actual cost at the register would remain the same.
    Say something has a sticker price $10 now and you pay 7% state/local sales tax. So at the register you pay $10.70. and the receipt says:
    Item: $10
    Sales tax @ 7%: $0.70

    Under the FairTax you would pay $10.54 and your receipt would say:
    Item: $7.70
    FairTax: $2.30
    Sales tax @ 7%: $0.54 (assuming the FT isn’t taxed)

    This is how “prices will go down” under the FT, if the elimination of payroll tax doesn’t change anything. So if anything, eliminating that expense will allow businesses to lower prices in order to compete, if they so choose. If they choose not to, they will lose business to competitors who did lower their price.
    Simple as that.

  27. Anonymous

    Actually, some of us are getting hung up on the idea that we could be paying at least a few thousand more in taxes per year. If I had to do that with what I make per year, I’d be pretty much eating cat food.

    I’ve been burned plenty badly by the Gotcha Capitalism of the last 15 years or so. I don’t have the same faith as the rest of you that businesses will reduce the prices of their products and services once the “embedded taxes” are removed. I’ve seen government-imposed taxes and fees removed on services like utilities, cell phones, DSL/cable etc., and in every single case I have experienced exactly zero effect on my bills because those companies just added some ridiculous charge that just so happened to equal the removed tax/fee. While the cost of fuel has gone way down, I sure haven’t seen any corresponding price reductions in the food I buy.

    Clearly the supporters of the Fair Tax have more faith that companies will do what’s right than I do. Maybe there’s some sort of mathematical evidence that supports ethical business behavior that I know nothing about?

    Other than all those messy human nature issues, I’ve got no inherent problem with the Fair Tax. I just don’t see how anyone could guarantee prices of goods and services will go down unless we were all robots whose programs could be updated.

  28. Anonymous

    Some of you are getting hung up on whether this tax plan will net you $50 more per year or so (and it should).

    But what I like about it is that it gives me the ultimate choice in where my tax dollars go. If I personally don’t support a particular foreign war, I could just buy used goods (untaxable, under the FairTax) until that war ends. If I DO support a particular administrative move, I can go out of my way to Buy New American.

    Such flexibility is the stuff of legend. It’s also how the country USED to run, back when people were concerned about their freedom.

  29. Anonymous

    Obviously, your early comment is true…..that you don’t know much about the “fair tax” and you should never take the word of the “popular press.”

    Several important things you forgot to mention:
    -payroll taxes will also be gone which helps businesses as well as the employee to earn higher wages.
    -with no fwt, employees take home $$ will be more…therefore more cash to spend.
    -businesses will not have to pay income tax either (which will drive down “actual” cost of products because the embedded taxes in all goods will be gone)
    -this will encourage businesses to stay in the US instead of sending jobs to other countries with less tax burdens
    -and most important to me: people won’t be able to cheat on taxes. Drug dealers, illegal immigrants, strippers (and others that live off tips and don’t claim all of their income) will all pay taxes anytime they purchase a new product.

    All that being said, don’t take my opinion or anyone elses. Read the book, do the research yourself, and then make your own decision.

  30. Anonymous

    Um, I really need some hard math here to know if this is worth my while. Unfortunately I haven’t yet encountered anyone extolling the virtues of the Fair Tax who could actually provide some math – or proof that costs of rent, medical care, utilities, etc. will go down enough that my taxes aren’t going to be higher.

    Oh well, I’ll keep searching. It’s getting old, though.

  31. Anonymous

    Maybe you can help me understand this better, Terry. I used the new Fair Tax calculator on this site: http://www.fairtax.org/site/PageServer?pagename=calculator

    It takes into account increased take home pay and all of that. Great. According to this calculator, I would pay $520 less under the Fair Tax than the current system.

    However, this calculator does not take into account the $10,320 I pay annually for rent nor does it consider the $4300 I pay (based on 2008 expenses) for out-of-pocket medical care. I’m not even thinking about food or necessary utilities (like heat/electricity and water) here. But if we were to consider it, we can throw in about $1500 a year for food and about $2000 a year for non-optional utilities. (only water and electricity)

    So, do you think all of the tax on all of the above come to equal to or less than my $520 savings from the calculator? This is what I am struggling with.

  32. Anonymous

    “His rent for example would go down dramitcally because the value of the property would go down along with all costs and since competition would force prices to go down the idea that prices would be kept high per greed wont happen.”

    The thing is, these are predictions. You can’t be 100% sure that rents are going to go down enough such that people like me aren’t going to pay more in taxes. You’re asking me to take a pretty large gamble. I want to support the Fair Tax – I really do. I’ve even read the book. The reality is that every single “Fair Tax Calculator” I have encountered has me paying $2000-$4000 more per year than what I’m currently paying. The increased taxes are because of rent and my out-of-pocket costs for medical care.

    As far as I can determine, the Fair Tax is great if you use very little health care or your insurance has no or very low out-of-pocket costs and if you’re a homeowner. That’s great for people who own their own home and don’t have any history of cancer, congenital illness, etc. And please don’t tell me I can choose to go without health care or that I can always find a cardboard box to live in. I’ve had Fair Tax supporters say that to me, and it really doesn’t help your cause any.

    Yeah, if I made $5,000-20,000 a year more than I currently do, I’d probably be 100% behind this idea. But I don’t, I won’t be seeing a pay increase any time soon, and it’s hard to support something that’s going to really, really hurt financially.

  33. Anonymous

    I’m really trying to be open-minded about this Fair Tax, but it’s kind of hard when 30% of my total annual rent is $400 more than what I paid for in federal taxes last year. Even when I factor in FICA, it seems to me that I would be paying significantly more under the Fair Tax than the present system – and I didn’t even count the state income tax I pay. How exactly is this cheaper for me than what I currently pay?

    (single & annual of $30,000 gross)

  34. Anonymous

    A great objection, Nickel; one that I thought of at first as well. I asked several of my friends (one is an economist of sorts) and their answer went something like this:

    The income tax is already factored in by businesses when they price their products. Abolishing the income tax will decrease built-in costs by about 30%, and competition will ensure the prices actually drop.

    Basically, prices stay the same…you just stop worrying about your federal taxes. Plus, we start to tax the nontaxable (illegal drugs, etc), no one escapes the system, the IRS is dethroned and on and on.

    It’s brilliant, really. 🙂

  35. Anonymous

    6/13/08

    Over the last few months I have seen several opinion pieces regarding the Fair Tax. In separate articles, both Amity Schlaes and Rich Lowry were opposed to the Fair Tax, but (it seemed to me) on the basis of wrong information. To give you one example, Lowry stated that the tax would be applied to the purchase of homes. Only partly true. Only on NEW homes would a tax be charged. Re-sale homes would not be affected. In fact the tax would not be applied on anything used: cars, boats, clothes, furniture, as well as re-sale homes.

    But if you did buy a new home you would pay about the same–including the national sales tax–as you would now. Here’s why:

    The Fair Tax eliminates federal payroll taxes, which are Income, Social Security, and Medicare. So the employee would take home a much larger paycheck. It replaces that revenue with a national sales tax, to be charged at time of purchase of goods or services. It also eliminates the income tax on businesses. These business income taxes are passed along to the consumer and make up about 22% to 27% of the price of goods we now buy. So if businesses no longer have to pay those taxes, competition will cause those prices to drop by about the same amount. If you are adding 23% sales tax to that lower product price, you end up paying about the same, but with much more money to spend because you had no federal payroll deductions on your paycheck.

    Mr. Lowry also mentioned that the proposed 23% national sales tax is actually closer to 30%. He’s right, if you figure it that way: If you spend $100, $23 of that would be the Fair Tax and would go to the government. Taking $77 ($100 – $23) and then adding the $23, it would come out to be 30% of $77. But Mr. Lowry misses the main point. If you calculated the imbedded corporate taxes the same way, the 22% to 27% becomes 28% to 37%. The point is that the Fair Tax would replace the imbedded taxes that we already pay on all goods, and we actually would end up paying less on many items, even while including the Fair Tax.

    Most people have a hard time believing that enough revenue would come in to replace the payroll deductions. But some of the best economists have done the math, and have found otherwise. Here are some reasons for their conclusions: Right now, you have 158 million workers paying income tax through payroll deductions. With Fair Tax, you would have 300 million Americans contributing through their purchases. Also, 50 million tourists a year would be supporting the US government through all of their purchases. There is a large amount of income in the US that is not taxed. You have the very wealthy, who can afford to do business offshore or overseas, so pay very little in taxes, but live here, and buy here. You have many who illegally avoid paying taxes on their income. And you have illegal businesses, like drugs, which pay no taxes. The government estimates that 3 trillion dollars a year of income is currently not taxed. But whoever makes that money probably buys cars, jewelry, yachts, etc. With Fair Tax, they will pay their fair share.

    You might be wondering whether low income earners who pay little or no income tax will be harder hit under this plan. Actually, only after a certain level of income (approximately the poverty level) does the Fair Tax kick in. So, depending on the size of your family, you would get a monthly rebate to cover the taxes paid on purchases up to that level. Nobody pays the national sales tax until they spend more than the poverty level for their family. And that would apply to everyone. Those in the lower income brackets would do very well: even though they don’t pay Federal Income now, they would also have Social Security and Medicare deductions eliminated from their paychecks, prices on goods would be much lower, and they would pay no Fair Tax on used clothing, cars, furniture, jewelry, homes, or anything used. So, they could avoid paying taxes almost entirely, but still be receiving that monthly rebate check. Their earnings would go much farther than under the current system.

    As soon as we switch over to the new system, the revenue from payroll taxes would be completely replaced by the national sales tax. But what happens after that is the truly amazing part of the story.

    Because businesses are no longer paying income taxes themselves, they will have a huge advantage competing with foreign companies. Not only will they be super competitive overseas, but they will be able to capture more of the market here in the US which has been overrun by products from foreign companies. The estimates are that 10% growth of our entire economy will occur in the first year! And when the economy is growing, what happens to the working guy? More opportunity and better pay! If employees are getting paid more, guess what? They spend more and more revenue flows to the government.

    On top of that, foreign companies will be racing to relocate in the US to gain the tax-free advantage. More jobs for Americans, more chance to move into better paying jobs, more money, and more revenue for the government. Within a few years our economy could absolutely explode, and money would pour into the government. At that point, we literally could be looking at eliminating the Social Security and Medicare crisis, and paying off the national debt. Remember, right now Social Security and Medicare are supported only by those who are working, who will be increasingly outnumbered by those collecting the benefits. But under the Fair Tax, those programs are supported by nearly everyone who is a consumer. And if the economy is doing great, the investments of many of those retired baby boomers will dramatically increase, so they will have more to spend which will, again, increase government revenue.

    It sounds fantastic, I know. It’s difficult to convey the reality and possibility of such a dramatic change in a few short paragraphs. But the Fair Tax has been researched and developed for over 20 years, and is now supported by over 70 US congressmen. Rich Lowry is an editor at National Review magazine which was started by the late, great William F. Buckley, Jr. I don’t know if Mr. Buckley had any opinion on the Fair Tax, but I imagine it would have appealed to him: a plan of profound common sense, which would require courage to implement, and would be a blow to a tax monster that increasingly subjugates and impoverishes us. I challenge you journalists to get one of the short Fair Tax books to learn what it is really about, and form an opinion based on facts. You can order from their website, http://www.fairtax.org.

  36. Anonymous

    I have pretty much convinced myself that the only reason anyone could possibly be against the FairTax is because they didn’t come up with it first.

    “Well Jim, that FairTax would be a great idea if I came up with it, but I’m afraid that the whole “prebate” idea and “no mortgage interest deductions” are not going to poll well with my constituents because I said so.”

  37. Anonymous

    What the opponents of the FairTax refuse to understand is that we as consumers look at the sticker price of the item that we want to by and make our buying decisions based on that. If the retailers would include the 23% or 30% tax on sticker price (as is done when buying gasoline) the consumers will quickly know whether they can afford the item that they are about to purchase and thus the the tax becomes less important.

  38. Anonymous

    Bob! Where did you come from, kindred spirit?!

    You have it exactly right, my friend.

    The point you make in post 138 is one of those truths thats seems so obvious to us supporters that we neglect to point it out, but –

    Under the FairTax, if you don’t want to pay taxes, you don’t have to!

    Let’s say you don’t support a particular policy. You can call up your Congressman and say, “Hey buddy, I don’t agree with this policy, and until it goes away, I won’t be buying any NEW items.”

    Then the manufacturers of those items lose money, which gives them less to contribute to your Congressman’s next campaign, then he/she loses an election down the road.

    See how much power that gives you?

    That’s what the country used to be like until the IRS was created – during the Civil War, to INCREASE tax revenue by mandating it!

  39. Anonymous

    I just sent this to the Contact Us section of this website:

    Hi. I think it may be time for you to re-address the (as of this writing) second-most talked about blog post you’ve ever written.

    I have been reading your blog fairly regularly since that post brought me here, and I do agree with much of what you say. But there is a point where we differ.

    I’m talking about the FairTax post. I noticed that you responded to comments exactly once – on the day the blog entry was written – and I would encourage you to take a gander at what has been written in response since then.

    I was a bit hard on you in my first few posts, but you must understand. Your initial reaction to the FairTax is the equivalent of you calling me a big fat liar just because your buddy told you I was.

    But if you got to know me, you’d see I wasn’t so bad. So it is with the Fair Tax. If you would just READ the thing, or even just the Plain English Summary (http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf) you’d see it’s actually a pretty good deal.

    Evan as a supporter though, I have to insist that they abandon all the “23% inclusive” rhetoric. Normal people just don’t know what that means. Hell, I have a journalism degree and I had to have it explained to me.
    It is a 30% sales tax, plain and simple, but this distracts people from the even simpler fact that THE TOTAL PRICE YOU PAY FOR ITEMS WILL NOT CHANGE.

    If something is 9.99 + 7% sales tax now, it costs 10.69 total.
    Under the FairTax, this item STILL cost you 10.69, but the receipt will say something more like $7.12 + 30% sales tax = 10.69.

    This, I think, is the single biggest fact that FairTax supporters are glossing over. But our opponents are certainly exploiting it to their advantage – even John McCain’s current position on the FairTax is based on this misinformation.

    And it’s supposedly a conservative issue, despite the fact that it would completely untax the poor.

    In fact it completely untaxes everyone on the basic essentials of life, and taxes us only on (excuse the language) shit we don’t need.

    People call this regressive because the more money you make, you can afford a more disproportional amount of “shit you don’t need.”

    But this is just whining, plain and simple. Under the FairTax, if you are poor, you are already NOT BEING TAXED! What more could you ask from your government? To complain about having a disproportionate amount of stuff that you would be taxed while buying is equivalent to saying “I envy rich people because they pay more taxes than me.”

    This is all I have to say for now. I will also be posting this in the comments of the original blog post, so that further discussion may be stimulated.

    Thanks,
    Randy
    ===================

    And I think John did a pretty good job of explaining the relationship between a 23% INclusive tax and a 30% EXclusive tax.

  40. Anonymous

    Let’s clarify some things that have been mentioned in this article:

    1. The percentage that you use 30% is correct because you calculated it exclusively. The FairTax is advertised as being 23%. This is because the FairTax is calculated inclusively. We can use the example that is mentioned in this posting: an item costs $1.30. The 30 cents is tax and therefore 30/100= a 30% tax. Now we can calculate this inclusively: 30/1.30=23% tax rate, which is exactly how the FairTax is quoted. Simply a difference of tax rate calculation. Now think about your payroll taxes. They are calculated inclusively, just like the FairTax. If income taxes were calculated exclusively, then we’d all be paying much higher tax rates!!! A family makes $100,000 a year and is taxed at a 25% rate. Their take home pay is then $75,000 is the tax is calculated inclusively. Calculated exclusively 25,000/75,000= 33% tax rate. There’s your difference in tax rates.

    2. Where this blog post is also wrong is that prices would go up. Think about the taxes that a corporation pays to the government. The corporate tax is currently 35%. Therefore 35 cents out of every dollar you spend at Walmart goes to the government already. The FairTax eliminates the corporate taxes, and simplifies the process for corporations for filing their taxes. And think of how much simpler payroll will also be for corporations! Billions of dollars saved right there! Prices go down dramatically before the FairTax is added. Prices will definitely not go up anywhere close to 30%. Prices will probably go up but only 1-2%.

    Taxes are an extremely complicated issue. This is why the push for tax reform has been so weak. The truth is, our current system is outdated, complicated, and needs to be dramatically reformed. The FairTax is the only comprehensive plan that can dramatically simplify the US tax system while producing a reliable source of income for our government. Just please research about the taxes you pay, how much time you spend per year preparing your taxes, and get the real facts about the FairTax. I highly recommend reading the books and going to FairTax.com. And did anyone mention that the 23% FairTax rate would be able to pay for the collapsing social security and medicare system? Think about it and research it. We need a grass roots support for this.

  41. Anonymous

    I guess I should mention that I’m a Democrat and I seldom agree with anything said by a Republican. Not because I disagree with the party but that I haven’t seen very many Republican politicians that actually follow the mission statement. Smaller gov, less spending, equal rights to succeed or fail. HA!!! It’s been more spending, bigger gov and unequal rights.

    However, from what I read on fairtax.org I can stand side by side with Republicans and support this.

    I did notice that a good portion of the detractors are the people with something to lose such as the people who aren’t paying taxes (either legally or illegally) or enjoying huge refunds or work in the tax field. Not to be mean but what’s fair to you is not fair to me. I didn’t force you to make your decisions and I don’t want to pay for them. I’m not saying to end all entitlement programs but I want to help the people who need help and not the people who play the system. Actually I have an idea that would fix that too, simply make anyone who wasn’t disabled help the community or get an education. The country would be better off and the people would be better off too.

    And can you really claim to understand 65000 pages of tax code and pay the correct amount? I can’t even read the code without getting a migraine.

  42. Anonymous

    After reading over a hundred comments, I think I have the basic idea down. However, I didn’t see anyone bring up a simple point (so I may be wrong about this) as it is now, Almost EVERY dollar you make as an employee is taxed at whatever your tax bracket is and under the Fair Tax plan, you would have some control over how much tax you pay. If you buy new, you pay tax, if you buy used or don’t buy at all, you aren’t taxed on that money. Personally I like the idea of having some control over my life and money. And since we’ll be buying more used items and keeping them out of the land field, that’ll be better for the environment, right?

    Maybe there will be a period of adjustment for the economy but there will always be people who spend every dollar and some who save and invest as much as they can so shouldn’t we reward good behavior?

  43. Anonymous

    Randy, Bruce,
    You’re chasing a ‘red herring.’ The idea is that without the ‘Windfall Profits Tax’, the consumer would still pay the tax on the profits with Fairtax when they bought some retail item. Otherwise it would go into their investments, instead of into the government.
    Even under the current system, the consumer does Pay ALL the taxes. Show me case where he (whoops, politically incorrect) doesn’t?
    Peter

  44. Anonymous

    Well Bruce, I don’t entirely buy their argument that the investors will be the ones to pay either.

    I do not expect that a Windfall Tax would cause an oil company’s profits to decrease. I would expect them to increase the price of gasoline to cover that additional tax burden – thus passing the taxation directly to the consumer – and in fact, as an investor I would demand it.

    And then we will all pay even higher prices at the pump regardless. So the Windfall Tax is not just a bad idea, it’s an exercise in futility.

  45. Anonymous

    Randy, didn’t you notice that the people against the windfall tax say, ”The “energy giants” are you and me, and all our next door neighbors, all who hold the shares of these companies through mutual funds, pensions and direct holdings. Why promote a windfall tax on ourselves”?” They don’t seem to buy your argument that the customers pay all the taxes.

  46. Anonymous

    Bruce, post 132…

    Somebody should. That windfall profits tax scheme is one of the worst ideas I’ve ever heard. Worse even than the proposed Gas Tax Holiday, which is saying quite a bit.

    This will be the first election I can recall where I am actually HOPING that the candidates can’t keep their campaign promises.

  47. Anonymous

    John please read comment 88.

    This tax break exemplifies the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.

    Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.

    Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.

    Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.

    When people can not afford the essential needs to live they can not save. When the riches 1 % has more wealth than the bottom 95 %, it gets to the point that we have a society of people who have forked over all their wealth to the economy with no safety net.

  48. Anonymous

    I found theses comments on the post “What to Do About the Oil Crisis”:
    http://robertreich.blogspot.com/2008/04/what-to-do-about-oil-crisis.html

    Randy, maybe you can point out to these blogers that since businesses simply pass along the cost of their corporate taxes to consumers by including it in the MSRP as part of the embedded taxes, they essentially do not pay their “fair taxes” now, either.

    Anonymous said…
    What windfall profits? Exxon has about the highest net margin of any of the majors – yet only about 11%, low compared to many other industries. Thus, the large amount of profits of the oil companies is actually a function of the size of their revenues (great demand for their product), and not some “windfall” event. Increase the cost of producing oil (by raising taxes), and less projects will be profitable leading to lower supply and higher prices. Government meddling, as usual, will make things worse.

    The whole concept of a windfall profits tax is so anti-capitalism and anti-American. Let us not forget that these “big bad oil companies” – as the politicians like to portray them – are publicly owned companies owned by shareholders like me and other regular folks. Bad policy directed at the “big bad oil companies” ultimately hurts the stockholders – savers, investors, and dividend receivers – and consumers who will face lower supply and higher prices.
    8:36 AM
    Anonymous Anonymous said…
    “Let me repeat: The “energy giants” are you and me, and all our next door neighbors, all who hold the shares of these companies through mutual funds, pensions and direct holdings. Why promote a windfall tax on ourselves”?

    Answer: To promote the public good; a novel concept in our way of doing things but well worth the sacrifice.
    12:43 PM

    And, by the way, WE THE PEOPLE are entitled to royalties on that oil. Jed Clampett and Exxon did not create that oil. They owe the rest of us for what they take from the earth. Collecting that debt will not lower or raise oil prices, but will allow us to rely less on dumb taxes.
    10:55 AM

    Anonymous said…
    What does a oil windfall tax really do? Isn’t it a simple redistribution of wealth from one group to another? I would argue yes. Before you jump on the band wagon of this idea, you should think about who you are taking from. Obviusly, you take money from the oil companies. But who really owns the oil company and is the real stakeholders? Isn’t it the share holders? How many Americans are shareholders of American oil companies through either their pension funds or mutual funds that they own either outright or through their 401k plans. i would hope that someone would really dive into the numbers to see what the true benefit of this versus just trying to use it for poitical advantage.
    7:17 AM
    Anonymous said…
    Yes, someone needs to explain to Clinton and Obama (& Dr Reich) that a “company” is made up of owners & laborers – people, and that is all. Their proposal to “go after the oil companies” is a proposal to go after the people who provide labor & capital in a joint effort that benefits everyone. A company is everyday people who make sacrifices to achieve a better life for themselves. Companies are people.
    7:25 AM
    Art A Layman said…
    anon 7:25:

    Slightly off base. Companies are made up of people, they are not people. If “companies” were concerned about their people, employees and stockholders, they wouldn’t be paying their CEOs outlandish earnings while the rest of their employees receive middlin wages. They would be paying out far greater dividends to their stockholders when they have astronomical profit growth.

    When you have a “company” in an industry as vital as the energy industry the government must be ever vigilant to make sure that they are not profiting through the advantages of market manipulation. “Companies” exist because we the people, through our government, have licensed them to exist. That license was not intended to allow them unbridled control of assets and revenues that are injurious to the public welfare.

    Keep in mind that they are making all this profit by extracting and selling a material that truly belongs to the American people. Due to our euphoria over capitalistism the government collects little in royalties for those materials.

    All their protests to the contrary, corporate executives often make decisions to feather their own nests rather than looking out for their shareholders. Rising stock prices are merely a byproduct of the neverending search for more bonuses and higher salaries for those in control.
    9:07 AM

  49. Anonymous

    Spending is central to our economy, which is why we are financially going down the tubes. Think about your blog and every financial blog out there and how important the concept of saving is crucial to long term financial health. Our country does not practice saving as we spend more than we save. We need a paradigm shift in how we operate to maintain our superpower status. Otherwise we will have a society of people who have forked over all their wealth to economy with no safety net.

  50. Anonymous

    Well said, Bruce.

    However, I’ve got to point out that since businesses simply pass along the cost of their corporate taxes to consumers by including it in the MSRP as part of the embedded taxes, they essentially do not pay their “fair taxes” now, either.

    That 66.7% increase in personal taxes you are referring to is already paid by individuals through those very corporate taxes. The only effect the FairTax will have will be to make that fact obvious, so that people are able to decide for themselves how much money they will contribute to the Federal government.

  51. Anonymous

    The best place to learn about the “fairtax” is http://www.fairtax.org/PDF/Pla…..ct2007.pdf . This is The Fair Tax Act of 2007 – HR 25/S 1025 plain English summary found on http://www.fairtax.org

    Dave Wells suggests that the author LEARN SOMETHING about the subject. Hank says its obvious you people are commenting on the fair tax and know nothing about it. Hank thinks one should read the propaganda of fairtax.org and boortz.com and offers false information about embedded taxes. Randy says, “Every disagreement I’ve seen with the FairTax either cites the studies incorrectly or out of context – or without even reading it. Like this blog.”

    People should make up their own mind by reading the plain English summary of the Fair Tax Act unless they cannot comprehend the Act by themselves. For example, there have been many comments about whether the tax is 23% or 30 %. The Fair Tax Act says “A retail business computes its national sales tax liability by multiplying the rate of 23 percent times the monthly gross payments received.” In order to do this; a retail business should mark up the sale price by 30 % to get the proper gross payment. I don’t need anyone to put his or her spin on this statement. The Act is very clear. This is a 30 % sales tax.

    One should also examine the consequences of the Act. The Act says, “Taxable property or services purchased from a seller for a business purpose in an active trade or business, or for export from the United States for use or consumption outside the United States are not taxed provided the appropriate certificate is presented by the buyer to the seller.” The consumption tax will increase the tax on people about 66.7 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. That is 40/60 x100 or 66.7% increase in personal taxes. Under the “Fairtax plan,” businesses do not pay their fair taxes.

    It is plain to me that the above complainers have never read “The Fair Tax Act of 2007 – HR 25/S 1025.” or the plain English summary. Personally, I think this is another example of the dumbing down of America.

  52. Anonymous

    I heard on the news a few days ago that Hong Kong ha had some kind of a flat tax in effect. While I would agree it would be better than the current system, I still believe the FairTax to be superior.

    Why do I mention Hong Kong? They’ve had such success with it that that they’ve been able to cut property taxes. Amazing, huh? My assertions, for some time, have been that we would be able to cut taxes after having the FairTax in effect.

    BTW, I’d suggest that everyone read this book:
    Fair Tax: The Truth: Answering the Critics
    (Paperback)

  53. Anonymous

    Rick, the reason why “all” the FairTax advocates in these responses are “always” referring people to fairtax.org is because the original author
    a) admits to knowing nothing about the FairTax
    and
    b) bases his argument against it on what the mainstream media has told him about it.

    I agree with you, Rick, that econ is an art. I agree that the FairTax is not THE answer. I am an advocate, however, because I believe it is better than any other idea out there.

    I also agree with your point that “just because someone disagrees with fairtax doesn’t mean he or she hasn’t done his homework.”

    However, in the context of this blog post, the author admits to not having done their homework – see my point a) above, or the original author’s second paragraph, first sentence – so such comments are entirely appropriate.

    Every disagreement I’ve seen with the FairTax either cites the studies incorrectly or out of context – or without even reading it. Like this blog.

  54. Anonymous

    You know, I find it interesting that all the fairtax advocates always accuse anyone of disagreeing with the fairtax of “not knowing anything about it,” accompanied by a strnog demand to “go to fairtax.org and read about it.” Well, I happen to have gone to fairtax.org and read all about it. That doesn’t mean I agree with the economics listed on that site.

    To a large extent, economics is a sort of art. There is no right answer. FairTax may or may not work, but contrary to its advocates, it is not necessarily the only right answer. Further, just because someone disagrees with fairtax doesn’t mean he or she hasn’t done his homework. You advocates of fairtax also need to do your own homework and realize that there may be other viable solutions out there. And maybe, just maybe, the statements you make, like “embedded taxes will be removed, the fair tax added, and your cost will still be the same” might not be 100% correct.

  55. Anonymous

    its obvious you people are commenting on the fair tax and know nothing about it. your math is wrong. the cost of goods you buy will not increase because there is no added tax. the embedded taxes will be removed, the fair tax added and your cost will still be the same.
    item costing $10. before fair tax will be $10. after fair tax.
    go to the library or fairtax.org and READ or boortz.com for link

  56. Anonymous

    The OP argued that we cannot afford to correct the injustices and inequities of our tax policy because they are necessities of our monetary policy. I disagree. I think the Fair Tax would make the impact of federal taxes on the economy more obvious and predictable to the banking industry and would allow the Fed to more effectively regulate monetary policy.

  57. Anonymous

    A few things in the article I agree with totally: 1. You haven’t read much about the Fair Tax. 2. You don’t know much about the Fair Tax. Beyond that, I would say you don’t understand it. A good idea before writing a blog, LEARN SOMETHING about the subject you are writing about.

  58. Anonymous

    Ok.. Guys enough is enough… Government is to regulate and enforce the “fairness in the game”… Well…, Good luck with that, as lately that word “fair” is only fair for few, the rest of us are becoming poor.

    The biggest joke I have ever heard from the FED’s was, that price of oil = gas will not raise the price of food… Are you insane…!!!, how many electrified railways do you see, everything is on OIL… road, railroad, water and air… you start praying for miracle as soon will need one. BTW… dollar can tumble in less then a day… and all your savings will melt away, all diversified stocks and mutual funds…, CD’s, savings… just name it. 1000$ may buy you pair shoes. who know maybe even less, an apple, a cookie…

    Good night dear friend and good luck, don’t forget to pray maybe pope and god will come to help.

  59. Anonymous

    Randy,
    Maybe you have forgotten “The Problem” in the original blog post? It seems to me that the “fair Tax” has been put on a shelf for now but the problem still remains. “Setting aside the issue of whether or not the Fair Tax is actually fair …. let’s talk about the downstream impact on our economy. … Right now, our economy is stalling out and, in recent years, economic slowdowns have been dealt with in two major ways: (1) slashing interest rates, and (2) offering tax rebate checks. Both of these moves are intended (at least in part) to stimulate spending, thereby helping to get the economy back on track.” This blog was “Written by nickel – Filed under: Economy, Taxes”

    It is the job of the FED to “get the economy back on track” and keep “the economy humming.” People commenting on this blog have shown an interest in changing the system so they should have an interest in how the economy works. If you are only interested in the dumbing down of America, so be it.

  60. Anonymous

    And what, exactly, does this have to do with the FairTax, Bruce?

    Why resurrect a 3-month-old thread with this information that is totally unrelated from the original blog post?

  61. Anonymous

    Here is something to think about. This came from http://robertreich.blogspot.com/

    Friday, April 11, 2008
    The Fed and Democracy

    Former Fed chair Paul Volcker recently sounded off against the current Fed for toeing the edge of its authority, exercising powers that are, in Volcker’s words, “neither natural nor comfortable for a central bank.” It’s the first time I recall a former Fed chief criticizing his successor. Justified?

    Think of it this way. You probably learned in school the United States government has three branches. Actually there’s a fourth, in some ways more powerful than the other three. It’s called the Fed, and it pretty much runs the American economy. Yes, Congress and the executive occasionally pass laws like the little stimulus package that’s about to send you a few hundred dollars, and appropriate taxpayer money for other purposes.

    But the Fed can expose taxpayers to hundreds of billions of dollars of potential losses without a single appropriation hearing, as it did recently when it allowed Wall Street’s major investment banks to exchange tainted mortgage-backed securities for nice clean loans from the Treasury. And the Fed can do amazing things – like decide one big bank, JP Morgan, is going to take over another, Bear Stearns, backed by $29 billion of taxpayer money.

    Even its ongoing decisions about interest rates affect us more than anything the other branches do. The Fed has decided the threat of recession is bigger than inflation so it’s been lowering interest rates. This has made the dollar drop further and faster than otherwise, which means you’re paying more for gas and food. Can you imagine if Congress caused this to happen?

    Five years ago the Fed decided to make money so cheap lenders shoved it out the door to anyone capable of standing up, and Alan Greenspan pooh-poohed the idea that regulators should be especially vigilant. What happened? We had a housing bubble, millions of Americans are losing their homes, tens of millions are watching their major asset (their home) drop in value and their pensions shrink.

    So does this mean the Fed should be more accountable? Are its decisions so important that citizens have a right to more say in what it does? Problem is, most people don’t understand what it does, and have no idea how it makes decisions. And partisan politics could do terrible damage. Yet we don’t want the Fed to refrain from doing what it’s doing. Paul Volcker to the contrary notwithstanding, government has to make sure there aren’t runs on our banks and that our financial system is strong.

    The first step in reconciling democracy with the Fed is for people to become better educated about it. Most Americans don’t even know where the Fed is located. (It’s on 20th Street and Constitution Avenue in Washington.) And most have no idea who runs it. (Besides the chair, now Ben Bernanke, are openings for six other members of the board of governors, each appointed for fourteen years. Five regional bank presidents join them on the Open Market Committee. Who appoints the regional bank presidents?
    If you don’t know, you ought to find out.) These twelve people have more power over your daily life than your congressman and Senator, maybe even your president.

    posted by Robert Reich | 3:54 PM

  62. Anonymous

    So why does some guy who admits right off that he hasn’t “read much about the Fair Tax, just what’s out there in the popular press,” the go on to write an article about it. And why do we read it?
    I say to him, and to many who commented on his article: go read the books by Congressman Linder and Neal Boortz. That should answer most any questions you could possibly have.
    It’s amazing to me how many people have opinions on a subject, that it’s obvious by their comments, they know next to nothing about…and that certainly includes Senator McCain.

  63. Anonymous

    Randy…

    Gas is getting close to $3,50 and is only March, that will drag prices up whether you like it or not. Some basic goods are already up. Milk (btw, I have felling they water the milk lately, any comments on that), OJ, eggs…. The recent minimum pay increase was a joke as most of the states were at 7$ already.

    If the feds can cut rates for the banks 3 times in 3 months why wouldn’t they lift minimum wage 3 times in 3 months too? Consumer oriented economy and nobody cares about the consumer. I as a consumer am unhappy by the attention given to me. And refuse to purchase American made goods; I will set a economical trade embargo and sanction the feds, I shall buy only imported goods from now on… 😛

  64. Anonymous

    Of course, the drug dealer isn’t going to charge a tax, but for the first time, he\’ll be paying his fair share whenever he buys a shirt, a six pack of Dr Pepper, or gets a haircut. That goes for the illegal alien being paid under the table, too.

    One thing I see often is the idea that the FairTax will be regressive, especially to poorer people. That’s why the prebate was added to make it progressive. I agree with you that the poorest will be spending all of their income, but they are spending all of it under the current system. With the current system, embedded taxes are actually more regressive because there’s no prebate for that. And, they think they are getting all of their tax money back when they file for it: They are mistaken because they are spending money on embedded taxes as well as on SS and Medicare withholding. That’s what is regressive. All embedded taxes will be removed, making it fairer, especially for poorer people.

    It’s unfortunate that many people will spend all of their income, no matter what that income is. And, those who are poor could be more frugal if they chose to be, so they wouldn’t be living so close to disaster. Also, there are many who are unwilling or unable to better themselves so they can increase their income. This will be true no matter what tax system we have.

  65. Anonymous

    Great idea Nick, then the cost of goods will go up accordingly in order to pay the suddenly-quadrupled salaries of the bottom-tier workers that produce them.

    And then those same workers go from the 15% to the 35% tax bracket, and they may actually be worse off than before.

    Or maybe they lose their jobs entirely to illegal immigrants that will do the work for $10/hr under the table!

    That sounds great, let’s do just that.

  66. Anonymous

    2 Bruce,

    You do realize that what you suggest has no way of happening. It is of no interest to the top 5-10% of the richest people, having that type of taxation enforced. Flat sales tax is fast and good way to “slip it out” to the public, and fixer-upper in a way. If the government don’t start govern and regulate plain and simple… we are for a big trouble. Euro is 1, 55 and racing, printers are printing; Friedman is forgotten, Keynes is dead… we live in times of financial cholera.

    Meanwhile I watched a movie “Maxed Out” 2007. I’d recommend it to anyone. Interesting way of treating American citizens.

    PS. I would suggest government race the minimum wage 300% to about 21 dollars an hour. That will help the economy as the consumers will have money… period. And we are consumer oriented society. Let the managers and CEO’s figure way to comply with it, they are the people that get millions a year for thinking.

  67. Anonymous

    Brian Pearson,

    Brian said “Broader tax base which includes the underground economy,” Consumer spending makes up 70% of the GDP or about $10 trillion. In the USA personal net worth is $55 trillion and businesses have about $60 trillion. If we assume a taxable net worth of $100 trillion, a net worth tax rate of 3.1 % would cover president Bush’s latest budget of $3.1 trillion or about 4 % for just taxing net worth over $5 million. It takes a sales tax of 31 % to cover the same budget. If a drug dealer charges a 30 % sales tax, I don’t think he would send it to the government. I do remember New York seizing truckloads of black market cigarettes that was avoiding New York sales taxes.

    A sales tax is regressive. Poorer people must spend a larger percentage of their assets than wealthier people must. The wealthiest 1 % has more assets than the poorest 95 %. Said another way; the top 5 % have two thirds of all personal net worth. In this country there are 37 million poor people and 57 million near poor or about one third of the population. These people have to spend all of their income and can not save to build their net worth. Wealthy people on the other hand can not spend all of their income and therefore have to save. Savings, investments, and intangibles are not taxed under the “fairtax system.”

    I do not see why any citizen will either be unable or unwilling to apply for the prebate. All citizens will be eligible for the prebate no matter what their line of work is. The “fairtax” does not tax exports, so visitors can have items shipped out of the country sales tax free.

    There are two classes in this country. One class derives concentrated power from its concentrated wealth. The other class has power only in numbers. That power is effective only to the extent that it can be mobilized through organization.

    The point is that wealthy people hire lobbyist, think tanks, government employees, and yes our representatives to persuade people that our representatives are voting in the best interest of people instead of allowing the wealthy to steal from society. Millionaires and companies fund the fair tax system. The fair tax system benefits the wealthy and companies. Shouldn’t people take a critical look at their claims to see how the tax system will benefit them and society?

    The best place to learn about the “fairtax” is http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf

    America should adopt a tax system based on net worth for the following reasons.

    1. A tax on net worth has the largest tax base. The net worth of this country is larger than the income system, about $9 trillion, and the consumption system, less than the gross domestic product, (GDP) about $14 trillion. The individual assets of $55 trillion and business assets of about $60 trillion is over 8 times larger than the consumption system.
    2. Income is not a measure of being rich, net worth is. The wealthiest 1-percent of households have more assets than the lowest 95%, $18 trillion. Since the total individual assets are $55 trillion. The wealthiest 5 % own about 67% of the individual net worth in the USA. The biggest 1-percent of corporations own 80 % of the business net worth.
    3. Taxes should be based on ones ability to pay. A tax on net worth is the fairest tax to all. Net Worth is the measure of ones ability to pay.
    4. Taxes on net worth have the lowest percentage. America’s budget is about $3 trillion. A consumption system requires a sales tax of over 30%. A net worth tax would be less than 3%.
    5. A tax on net worth is the most versatile. Besides a flat tax of 3% for individuals and businesses, there are other possibilities. Some people say we have double taxation. We could tax only people at 6% or only businesses at 6%. Since businesses can’t vote and they pass there cost on to their customers, that is the best way to go. Next is the progressive path. The first $1 million could be tax-free and increase by 0.1 % for each $1 million up to 5% after $50 million.
    6. A tax on net worth is the simplest to file. Take what you own minus what you owe. Our present tax system is 63,000 pages of loopholes. Example: a person leases a car. The lessee does not own the car, so no tax. The leasing company owns the $25,000 car, but has a $10,000 loan. The company is taxed on $15,000. ($25,000 minus $10,000) The loan entity has $10,000 of assets so it pays tax on $10,000.
    7. A tax on net worth is the easiest to enforce. Since this is a property rights country, all assets are traceable. Taxing only the most prosperous 10 % of businesses and people is the most efficient tax system.
    8. Like the consumption tax, all of our present taxes could be replaced, Individual income tax, corporation income tax, employment taxes, gift tax, and estate tax. Plus the excise tax.
    9. Guarantees funding for all budget items like social security and Medicare by eliminating use taxes. User fees or tolls are another way for the wealthy and businesses to avoid paying taxes. Budget items come out of general funds.
    10. A tax on net worth promotes transparency. When a company shows an annual report with a book value of $1 billion and only $10 million in taxes, they aren’t paying their full taxes.
    11. A tax on net worth promotes free trade. Money, inventory, buildings, etc. are all assets so everyone can move assets around for the best effect.
    12. Eliminate inflation. Dr. Milton Friedman said to end inflation, stop printing money. By increasing the tax rate 1%, the national debt of $9 trillion could be paid off in 10 years.
    13. We start collecting 100 percent of our earnings in every paycheck. We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
    14. Reducing taxes on the poorest 90% will raise revenue. When people have more money to spend, they buy more goods, which means more profit for businesses and the wealthiest 10%. Money flows up, water trickles down.
    15. A tax on net worth promotes jobs. Employees cost companies less since the employment taxes are repealed and therefore employees become more competitive in the global market.
    16. A progressive tax on net worth levels the playing field. Small companies that create the most jobs become more competitive with large companies.
    17. A tax on net worth removes some incentive to move plants overseas. Taxes are based on assets no matter where they are located. What you own minus what you owe.

  68. Anonymous

    Broader tax base which includes the underground economy, most of whom will either be unable or unwilling to apply for the prebate. For them, the tax is recessive, along with millions of out of country visitors to the US. “According to Professor Dale Jorgenson of Harvard University’s School of Economics who participated in the four years and $20 million of research that went into the FairTax, revenues to Social Security and Medicare would double as the size of the economy doubles within fifteen years after the installation of the FairTax.”
    http://tinyurl.com/2nj5bn

    There are trillions of dollars (est. between 10 and 13) in offshore tax shelters which, after the FairTax is enacted, would have no reason to exist. Greenspan has said it would be matter of months before it is repatriated. Who knows what measurable effect that will have? I imagine it will go to investments in the stock market and elsewhere, where it’ll do a lot of good.

    The FairTax will be favorable to savers and investors, and workers since the old tax system is gone. People who make money from an investment are not taxed on it. A guy who wants to work extra, won’t have to pay tax on the extra income he makes — nor for that matter, any income.

    And as Jorgenson and others familiar with the FairTax have said, we’ll see an increase in growth of the economy. More business means more growth, which means more spending and saving, which means there’ll be more tax revenue. My own opinion is that once we’ve stabilized SS and Medicare, we can see about lowering taxes. Lower taxes would mean further growth…

    The United States will become a haven for corporations and other companies, since they’ll no longer be concerned about tax consequences for almost every decision they have to make. The US would be to the former offshore accounts what the offshore accounts were to companies and individuals were to the IRS. Companies that actually make things will be going here instead of China.

    This is a broader view of what the transformation of America will see. Most people talk in terms of the individual, but I often choose to talk in terms of what is good for the country. But, what is good for the country is good for the individual.

    No one, not the least of which are the architects of the FairTax, believes the FairTax is perfect. I wish it were, but it’s far better than our current system.

  69. Anonymous

    I love history, maybe that is because I grew next to an old Roman ruins and pretend to be Spartacus the slave, or Hannibal crossing the Alps fighting the Romans. Or maybe because I found so many lessons that repeated in front of my eyes in the last 20-30 years of conscience life, which lessons happened two millenniums ago.

    The Only one who did something in Roman world is Tiberius (in my personal opinion), because he reformed the whole country not just the taxation code. Unfortunately Mike is right. There are way too many greedy people out there who don’t realize that the most precious thing they have is sleeping in its crib and dreaming of better future.

    “I am Shiva the god of dead” Michael Clayton said, and “Monsanto” would fit perfectly instead “Unort”. Yet I believe in human imperfection that will ruin us, and that is why this tax joke is a joke, otherwise we should be paying taxes on online purchases long time ago, yet we still don’t. We ought to be paying less on cell phone services yet we don’t…

    Greed, Greed, Greed…

  70. Anonymous

    Interesting ideas

    ‘‘(1) To raise revenue needed by the Federal
    Government in a manner consistent with the other purposes of this subtitle.

    ‘‘(2) To tax all consumption of goods and
    services in the United States once, without exception, but only once.

    ‘‘(3) To prevent double, multiple, or cascading taxation.

    ‘‘(4) To simplify the tax law and reduce the administration costs of, and the costs of compliance with, the tax law.

    D

  71. Anonymous

    I am all for a better, simpler tax system.
    And Yes, libertarians, we do need taxes for a better society.
    Specifically for univeral, public resources like roads, etc.
    Direct welfare to the poor and big business should be reduced or eliminated.
    TIFs and Tax brakes to big business should be eliminated.
    There are enough incentives for a business to make a go of it.

    “The FairTax bill introduced into legislation.”
    We all know that Congress discusses and Amends proposed bills.
    You cannot presume to know the final outcome.
    Keyword: Introduced = NOT FINAL.

    “It will be in the interest of businesses to police themselves.”
    Hmmm… “it is much harder to keep a secret that two people know.”
    Hmmm… Weak argument at best – bad assumption.
    Hmmm… Just like the banks did the past 2 years?
    Hmmm… Just like Enron.
    I am a capitalist but there are too many greedy people that cannot regulate themselves.

  72. Anonymous

    Mike, you wrote –

    \”Some people on this blog have over-simplified the idea to pertain only to a new, final consumable goods. How does one determine what a final product is?\”

    A final product is whatever the consumer purchases as new retail. In your eraser example, FairTax would only be charged on the eraser by itself if a consumer purchased it at retail by itself. Pencil manufacturers would not be FairTaxed on erasers.

    \”No one knows for certain what will be written into law.\”

    Sure we do. Read the Bill (http://www.fairtax.org/site/PageServer?pagename=about_bills)

    \”Another idea is that the IRS will be going away which appeals to peoples’ emotional sensibilities. This idea fails to account for the oversight that will be needed as some entity will be needed to monitor the massive amounts of transactions not currently being done.\”

    As stated in the opening paragraph of the bill, the FairTax will be administered primarily by the states – which already have experience monitoring the state sales taxes that occur on the \”massive amounts of transactions\” that ARE currently being done.

    \”Regulations and more accounting and will be needed as people try to “game” the system.\”

    Yes, some people will try to game the system. They do now, and it will be just as illegal as it is now – if not more so. The difference under the FairTax is that it will become a conspiracy of TWO, instead of just ONE, and it is much harder to keep a secret that two people know. It will be in the interest of businesses to police themselves.
    To quote fairtax.org:
    \”More than 80% of all tax returns are eliminated under the FairTax–every individual filing. What remains are retail outlets collecting the FairTax. Of these, 80 percent of all retail sales now occur at large retail chains like Wal-Mart. The point is oversight will still reside under the Treasury Department but the government\’s responsibility will be over a far smaller \”universe\” of tax collection points making compliance oversight far less costly and far more effective than the current system which costs $265 billion a year in compliance costs and still comes up $350 billion a year short of what is owed.\”

    For their sources & study, visit http://www.fairtax.org

  73. Anonymous

    Fair Tax raises more questions than answers….

    “What is exciting to me is that used items have no tax.” – Steven

    “I think one part of the Fair Tax is that an item is only taxed once, and only once. This event happens in the retail market. Ie a person buys a table. The wood and nails used to build the table would not be taxed, but the end product would be taxed. Furthermore when the table is sold in a private sale (ie used on Craigslist), it is not taxed, since it was already taxed before.” – mlathe

    Some people on this blog have over-simplified the idea to pertain only to a new, final consumable goods. How does one determine what a final product is?
    Example: Rubber Eraser vs Rubber Eraser for a Pencil. Is the rubber eraser the final product or is the pencil?

    No one knows for certain what will be written into law. That being said, I believe that if the so-called “Fair” Sales Tax is ever implemented; then EVERY transaction of goods or services will be considered a taxable event and multiple taxation will continue as it has in the past.
    Example: A car can be sold 5 times. The car will then be taxed 5 times.

    Another idea is that the IRS will be going away which appeals to peoples’ emotional sensibilities. This idea fails to account for the oversight that will be needed as some entity will be needed to monitor the massive amounts of transactions not currently being done.

    Black Market Mentality
    Regulations and more accounting and will be needed as people try to “game” the system.
    Example: An unscrupulous business and consumer conspire to reduce or eliminate the tax burden illegally. Business agrees to sell product or service valued at $30 for $10. The consumer agrees to pay another $20 under the table. Consumer pays $3 in taxes instead of $9.

    We can agree or disagree on whether the government NEEDS the total amount scheduled to be paid but that is a separate argument for another blog.

  74. Anonymous

    One concern some people have about the FairTax is the loss of jobs that may occur among the people now profiting from the present tax code.

    To everyone who has posted here, is there anyone who does not want us to find a cure for cancer? I doubt it. So how many jobs will be lost if indeed a cure is found? Cancer treatment is huge and the people involved provide a greater service than anyone at the IRS or H&R Block.

  75. Anonymous

    Compassion comes from the individual. It is optional, purposeful, and voluntary. Socialism comes from the masses. It is imposed, arbitrary, and mandatory.

    A consumption tax gives an individual more power over taxes by allowing them to control their consumption, while allowing them to accumulate wealth without penalty. The Fairtax fixes the so-called regressive nature of a pure consumption tax by giving a “prebate” to all people based on a government poverty level.

  76. Anonymous

    Thanks, Bruce, for that clarification! That makes me feel even better about the FairTax! I paid my taxes yesterday, in celebration of President’s Day. While I feel gratitude for liveing in such a great country, and I am glad to pay my part in defending our freedoms, the painful experience of trying to figure out the tax code and do all of that paperwork just reminded me of why we need a simple, fair taxation process so that all Americans can easily contribute their share to our great land!

  77. Anonymous

    Owen,
    Why do you think paying taxes is penalizing corporations? Do you also think people are being penalized by paying taxes? You also said “. They pass the cost along to the consumer so we are already in essence paying these taxes.” Using this logic for not taxing corporations, we could say let’s just tax corporations and not people. Like the “fairtax” corporations would collect taxes from consumers and pay higher income taxes. Wouldn’t that be great, no personal taxes? The IRS workload would go down by 134 million returns.

    There is a big difference between needs and wants. The IRS “Tax Stats at a Glance” says the bottom 10 % of returns has an Adjusted Gross Income, AGI, of less than $5,700. They can’t afford wants and have no political power. The top one percent of taxpayers is now estimated to own between forty and fifty percent of the nation’s wealth, more than the combined wealth of the bottom 95 %. You may be able to afford “wants” but the most political power most people have is the vote. The supporters of the consumption tax are trying to convince you to vote for the well being of the wealthy and businesses.

    People don’t blame the rich for the increase in the deficit. They blame the Republicans. Which Party clams to represents the wealthy and business? Where did you get the idea “you can avoid funding the government if you don’t agree with them?” Which party keeps telling people they don’t have to pay for government spending?

    What have you done to close a loophole? Wealthy people can use their influence single-mindedly and very effectively. A single billionaire can get the undivided attention of any politician he wants, any time he wants. If he doesn’t get what he wants he can, in fact, “fight city hall,” the statehouse, and even the federal government. Poorer people must pool their limited individual power and organize to have any effect at all. This is a very difficult thing to manage, in practice.

    Sometimes compassion is confused with Socialism whereas free market capitalism is confused with greed and anarchy. You said “from your comments it sounds like you want more things to be fair and wealth needs to be evenly distributed. I’ve always been curious about this because it seems to me that if you take away reasons for people to work hard and innovate they would stop trying.” If you really are curious, may I suggest you read “The Conscience of a Liberal” by Paul Krugman.

    You seem to be one of the near poor; you make too much for government assistance and to little for financial independence. Living on the edge with no safety net. You should not have to support businesses and the wealthy.

    The republican economy is not sustainable. We had a stimulus package in 2001, Kantrina in 2005 ($150 billion), and now we need another $150 billion to keep the economy going. The price of oil is still inline with gold it is just that our national debt is $9.2 trillion so the dollar is worth less. You pay more at the pump. Money flows up, water trickles down.

  78. Anonymous

    I don’t have a reply for the cashier theft problem, though I’ve noticed a lot of places that have only one cashier logged in to any given register, which I imagine does reduce theft. I’ve worked in retail, myself, though as an employee. Where I worked, we had several people at the same register. When it was busy, it was a madhouse. Oftentimes, the drawer was left open because several salesmen were making change at the same time. I remember one lady complaining she was short-changed. I wasn’t surprised. These days, most registers have to be closed before another sale can be processed.

    It wouldn’t just be federal taxes, either, it would also be state and local sales taxes. I guess in all cases, store management would have to either cover shortfalls or find solutions to theft. I’ve often read that employee theft is usually worse than customer theft. In any case, I think the store would have to cover for shorts.

    I agree with you that companies like H&R Block would have to adapt or else go out of business. There’s a FAQ on fairtax.org talking about how accountants and so forth, would likely be able to adjust.

  79. Anonymous

    Brian, I guess I should’ve said that they would be employed in some other capacity of tax collecting, but there would absolutely be a reduction in workforce for the new agency, whatever it would be called.

    People have talked about the IRS employees losing their jobs, I wonder what all the accountants that prepare taxes and work for corporations would do. I’m sure there would still be a need for some, but not nearly as many as there is now. I imagine businesses like H&R Block would need to seriously change their business model or go under.

    As someone who has worked in retail management most of my career, there is one area I would have a little bit of concern about. That would be retail theft by cashiers not ringing in sales. Obviously, this would be money that people paid tax on but was never collected because of theft. Since this is the only way tax would be collected, the theft becomes much more costly to us. Would the penalties be stiffer for a cashier caught stealing since now they are stealing from not only their employer, but the government as well? Would penalties then become something similar to tax evasion?

    And as I was driving down the turnpike yesterday I thought, wow, it would be nice not having to pay tolls!

  80. Anonymous

    Dave — The IRS would go away, along with virtually every bit of of the income tax code. The only reason the IRS would stick around would be to take care of the previous year’s business. There will be an enforcement arm if I understand it correctly, but it will be greatly reduced in size due to the lower cost of compliance and simplicity (because there’ll be 20 million tax collectors instead of 140 million income tax payers) and decreased complexity of the FairTax — about 123 pages vs what…60,000+?

    I also believe the tax gap will decrease. Currently, according to the IRS:
    The updated estimate of the overall gross tax gap for Tax Year 2001 – the difference between what taxpayers should have paid and what they actually paid on a timely basis – comes to $345 billion. This figure falls at the high end of the range of $312 billion to $353 billion per year, an estimate released last March.”

  81. Anonymous

    I agree with the Fair Tax overall, but Dave highlights one of the few things that I don’t like about it- the elimination of the excise tax on fuel, cigeretts, alclhol, and such items. Ibelieve that those who use the raods should pay more for their upkeep (hence a fuel excise tax- though this system isn’t perfect). I also think that useing the excise tax on cigerettes and alclhol and other harmful drugs discourages their use, while the government should use those funds to setup a trust to pay for healthcare, childcare, and other societal expenses incurred as a result of the use of these substances. (This fund should not be used to pay for unrelated expenses!)

    Other than that, the Fair Tax is a pretty good proposal!

  82. Anonymous

    Interesting discussion…personally I’m for the fair tax. While most of the points on both sides have been covered, here are some reasons I see that the fair tax would be good overall:

    1) Simplicity- While the IRS wouldn’t go away, the agency would be theoretically scaled back as there would be only one measure of tax, not hundreds of different taxes. Of course, we are talking the government, so I’m not totally convinced of that. But as consumers, we would know what we are paying in taxes. But anything that is simpler, more often than not, is a good thing.

    2) New tax payers- As others have said, travelers from foreign countries and illegal immigrants would now be paying taxes that they now don’t pay. Furthermore, as Nick alluded to earlier, the members of the “underground” economy such as drug dealers, prostitutes/pimps and gamblers would be paying taxes as consumers in society. In addition, anyone working “under the table” would also be paying taxes. In fact, it would probably eliminate employers paying people in this manner.

    3) Embedded taxes would be gone- Not only the ones that corportations pay now and pass along to us, but taxes on gasoline, cigarettes and alcohol that are now embedded. Prices on these items would immediately drop accordingly.

    4) Improved business economy- Instead of businesses moving overseas, they would actually come back/relocate here as there would be no corporate income tax.

    Just my 2 cents…bye for now.

    Dave

  83. Anonymous

    The thing about the FairTax is that it encourages growth. Growth equates to more revenue. More revenue means less tax. Less tax means more growth which means…

    Well, I guess it levels out somewhere.

  84. Anonymous

    We need a new mindset.

    A flat tax or Fair Tax or consumption tax, whatever, is all about outgo, not income. What difference does it make how much money I have or earn if I choose to spend like a pauper? If I make $100,000 and only spend $10,000, I get the same result as someone making $10,000 and spending it all. So how is this tax regressive?

    Money in one’s pocket is potential – and worthless – unless it it used. Money can’t buy happiness or bring someone back to life, so why are we so hung up on taxing something that isn’t being used?

  85. Anonymous

    Hi Bruce, Yeah, I was up early and in vacation mode but I still think my idea holds true. Corporations today aren’t going to be penalized by paying taxes. They pass the cost along to the consumer so we are already in essence paying these taxes. And your comment about not eating or driving is just silly. There is a big difference between needs and wants. But you will be able to hold of on buying that new car, appliances, music, books, furniture. These things aren’t necessities for living and you can probably hold off on buying that couch or remodelling the house. This is how you can avoid funding the government if you don’t agree with them. Based on your comments about Republicans I’m making assumptions here but you can use this to make them stop the War in Iraq and other actions in the world where we don’t need to be. They also couldn’t provide those tax cuts to the rich anymore that people blame for the increased defecit. Sure people might find loopholes to exploit but then you just work to close the loophole.

    I think the biggest reason we don’t seem see eye to eye is that you seem to be more into a form of socialism and I’m more into capitalism. I don’t want that to sound bad because people take comments like that out of proportion but from your comments it sounds like you want more things to be fair and wealth needs to be evenly distributed. I’ve always been curious about this because it seems to me that if you take away reasons for people to work hard and innovate they would stop trying. Now, I’m far from being rich. I live paycheck to paycheck and I work my butt off but if I didn’t think this would pay off in the future I would stop working hard at my current job and go find something easier to do.

    Well, I’m going back to vacation mode. Have a good day everyone.

  86. Anonymous

    Actually, under the FairTax, rent is considered a service. So therfore, you would still have to pay taxes on it. However, you would still get the Prebate, which would cover your taxes on the basic expnse for basic houseing- anything over that is a luxery, and as such should be taxed!

    People who buy a new home would have to pay taxes on it (usually rolled into the mortgage, so unfortuanly they would also pay interest on those taxes). If you buy a used home, it would not be taxed (It already has been!)

    At least, that is how I think it works. If anyone knows any different, let me know.

    -James Lee Vann

  87. Anonymous

    Brian…

    Changed my mind, I’m for the taxation. Plan is…

    Open the LLC sell my house to the LLC making profit, rent my house to myself and pay no taxes on the LLC, as the LLC will support me… NO payroll, no income, love it. It is genius; we will be nation of corporations I am becoming business owner right now. Hooray… have to call my lawyer.

    Bye for now

  88. Anonymous

    Owen,
    What are you talking about? I think you got up to early. Do you want to be forced to pay the taxes that businesses and the wealthy are not paying? Used goods as defined by the fair tax bill is goods that have already been taxed by the sales tax, therefore everything will be taxed for years. Are you going to stop eating or driving to not pay Washington?

    I found this comment on http://robertreich.blogspot.com/ regarding economic issues.
    Monday, January 28, 2008
    The Real Recession Problem: Consumers Are at the End of Their Ropes
    Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.

    But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything.

    This tax break exemplifies the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.

    Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.

    Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.

    Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.

    Republicans have almost doubled the national debt in the last seven years by giving tax breaks to the wealthy and to businesses. The big losers from this is the general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens. The falling value of the dollar that makes everything imported more expensive. The U.S. economy, which is harmed by the distortions from the widening gap of income and wealth. State governments and state taxpayers, which see their tax systems erode along with the federal system, and the integrity and sustainability of the tax system as a whole are also, losers. The only way to lower taxes is to reduce spending. The republicans with control of congress and the presidency increased spending every year.

  89. Anonymous

    Bruce –
    Do you really think that corporations pay those taxes now? Out of the goodness of their hearts they give away the money that they have earned? No, they pass along those taxes that they have had to pay to the consumer. That is why they estimate that prices won’t rise much if at all because the fair tax removes the embedded tax that is added along the way in the production process.
    This will also help the people on assistance that you spoke of since they wouldn’t need that 30 percent increase. Hopefully there aren’t so many people receiving government assistance that it would be able to derail the government if they had to increase what they are giving to people. If that were the case we are in worse trouble than I can imagine.
    Government spending is way out of control. That is a huge issue that isn’t really addressed by any tax code except when they decide to increase taxes. They are talking about giving rebates to people and then in the same bill people are attaching pet projects and other things to it. If you are giving money away wouldn’t it make more sense to add into it ways to cut spending not increase it more? Atleast with the fair tax I could decide that if I’m not happy with what they are doing in Washington I can buy more used good or save more and not pay Washington. Sure, they can increase the rate of the tax to pay for their project but maybe someone in Washington will wake up and figure out that we are sick of paying for 100 million dollar bridges that lead to an island where 10 people live. Maybe we could just start a revolution with this idea and wake some people up and make the government officials realize that they work for us. We don’t work for them.

    Well, that’s enough from me. I’m off to get out of the cold for a few days. I’m not taking my laptop so maybe I’ll be able to shut up for a few days. Enjoy.

  90. Anonymous

    Brian…

    Most of the Brits don’t worry whether they can afford to go to the doctor, or get in debt for the rest of their lives. And that is not only Brittan, it is most of Europe.

    “I’d like to emphasize the growth we could see. It could even give us surpluses”… too many “could” not “will”
    About the surpluses… we already do have them, the world don’t wont our genetically modified beef, modified corn, Gas guzzling SUV. The world doesn’t care about us, not anymore. Ford don’t import some European models as they were to expensive to be sold in US the CEO publicly announced.

    “And then, there is the return of $11 billion dollars from currently tax-protected offshore accounts.”… Offshore accounts… 11 billions. Why someone, who is making money outside US, would come back? Because we give him 0%, he already has that, no implications at all, or decision making barriers. You have to do better then that.

    “FairTax would be broader, including illegals and other various and sundry criminals, this provides a broader base for taxation. Since only legal residents would be eligible to apply for prebates, the tax would be regressive to the underground economy.”

    Now that is just a piece of art. So we welcome even the illegal and criminals if they have money to spend. And because I will have rebates and they will not they will be going home… (now that is hilarious). If I’m illegal criminal, I will not pay your 30% tax; I’ll steal with 0% tax, sell it on a black, underground market, for 100% profit. And as the tax would be Federal not State, there will be less police to catch me.

    Brian… are you for real? You think those guys from the offshore will come to country like that?

    Grey economy will always exist. Only way to take it out on the sun is to legalize it. And tax it.

    As I mentioned already…, “road to hell is covered with good intentions”. I ask for actions not “intentions”, “coulds”, “buts” and “ifs”. Tax code needs cleaning I agree. 56000 pages are a lot, yet they piled in the last 40years. How did the people survived before that and how come the best years were before the changes started to occur. 50-60 we were going up, 70-80 kind of flat and from then going down up to now?

    Sorry I didn’t get this. Business pays absolutely no taxes, none at all…. Then its easy… I can open LLC and pay no taxes too. I can buy without paying tax at all, managing purchased goods is company business, not yours. My business? I rent my garage to my neighbor for profit, he pays 30% tax. Yet that is a “rent” not a “sale” so he doesn’t have to pay tax it is not a “sale” is it?
    Now thinking of it I will vote for tax like that.

  91. Anonymous

    What about people receiving government assistance social security, military retirement, Medicaid, or disability? They will have to pay a 30 % sales tax. To be fair government services will have to go up 30 % and since the government has to pay the sales tax, the cost of an aircraft carrier will go up 30 %. To pay for these items the budget will go up 30 % which means the fair tax which will be neutral to the present tax will have to go up.

  92. Anonymous

    Over 60 % of the oil consumed in this country is imported at a global price. Oil companies that sell US produced oil can produce that oil at a much reduced price but they still sell it at the global rate. If oil companies did not have to pay any federal tax they would still sell that oil at the global rate. There is not anything in the “fairtax” bill to compel any company to reduce their prices.

    There may be the 23 % embedded federal tax but I would not count on it being removed at the checkout counter.

  93. Anonymous

    Consumer spending makes up 70% of the GDP or about $10 trillion. Notice that 30 % of $10 trillion is $3 trillion, not 23%. President Bush sent the nation’s first-ever $3 trillion budget proposal to Congress on Monday, February 4, 2008.

  94. Anonymous

    Nick and others – There are doctors in Britain who are dropping out of the health care system, which means people hare having a harder time finding a doctor.

    The costs of the health care plan Romney is so proud of is growing out of control.

    I’m going to take a chance and try a little code…

    First, talking about the FairTax, I’d like to emphasize the growth we could see. It could even give us surpluses. Here’s another source saying much the same thing. Wouldn’t it be a good thing if we had surpluses?

    And then, there is the return of $11 billion dollars from currently tax-protected offshore accounts. I assume that will be put to more productive use, probably in investments.

    The new tax shelter will be the USA, since no company will have to worry about tax implications in almost every decision they make.

    When Americans for Fair Taxation built the FairTax, they did not take the above into account. They just wanted something that would be fairer, yet would provide the same revenue as the current income tax system. Since there is increasingly less compliance to the income tax, and since the FairTax would be broader, including illegals and other various and sundry criminals, this provides a broader base for taxation. Since only legal residents would be eligible to apply for prebates, the tax would be regressive to the underground economy.

    No one, especially those from Americans for Fair Taxation, would say the tax is perfect. But I do suspect many, even in that fine organization, are underestimating the impact of the FairTax.

    I’m going to bed. I apologize ahead of time if my HTML doesn’t work.

  95. Anonymous

    The consumption tax will increase the tax on people about 66.7 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. That is 40/60 x100 or 66.7% increase in personal taxes. Under the “Fairtax plan,” businesses do not pay taxes.

    Corporations enjoy all of the privileges of persons except the vote. They benefit from infrastructure, employee public education, law enforcement and limited liability. If corporations do not pay taxes, their privileges should be revoked.

  96. Anonymous

    James…

    “The Case of Lurita Doan and the GSA” on PBS,

    http://www.pbs.org/moyers/journal/blog/2008/02/the_curious_case_of_lurita_doa.html

    Press the little icon “watch video” under the picture. Congress actually is doing something. You would be surprised. After you watch it you’ll know why nothing is happening and why the Congress looks like bunch of useless chimps.

    We don’t need change of taxation; we need investigation of where the money were spend, how much and who benefits, money to be refunded, people to be sent in jail.

    Simple math, positive population growth = more workers = more taxes in government. That is you positive side of the balance sheet (emigration is a plus, full grown workers for minimum price without benefits, businessman dream). Now tricky part is the negative part. And for the last 8 years there is no accountability, transparency, or spending cut. (I’m sorry, I forgot the SCHIP). You can triple the taxes if you spend the same way, result will be the same.

    Brian…

    If half of the world could manage universal health care and be not the reaches country in the world, I would suggest we look at the option. I pay more in healthcare and dental (no vision) then on Federal and State taxes a paycheck. That is disturbing.

    Adam…

    Value added tax always have been passed down to the consumer. So we end up paying it. I read somewhere that Sales and VAT are two different taxes, even if they look the same.

    I tried reading baron Keynes, had a hard time, and was just 18. Too dry, yet I liked his idea on savings and income. And again he is a different epoch. Times changed a lot from then.

    Savings is OK, yet you have to have an income outage to save, after all you’d have to pay rent, food, drive, gas, and normal necessities. They would cost you extra 30% at least. What about the mortgage and big items? A car?

    “Essentially, we would become a nations of investors and savers, sending our superior and cheaper products overseas”

    We are already nation of investors… IRA, 401K, etc…, that does makes us savers, yet we are not one, I doubt we would. And that have nothing to do with the second part. Superior and Cheap products, have nothing to do with that first part, savings and investment. Cheep is usually poor quality and quality is affiliated with higher price. You defeated the gravity law with your second statement. I have never seen superior and cheep. It is either one or the other.

    I don’t understand the world of economics lately it make no logic at all.

  97. Anonymous

    Erika –
    I hate to be that guy but I gotta say you really need to visit fairtax.org and do a little reading.
    James already answered your comment about the prebates but your comment about the taxes on the businesses is wrong. The whole idea is that the taxes are only on final goods and services. So for raw materials and supplies for businesses there are no taxes.
    Also your comments about investing doesn’t make sense to me. Sure many people like me would be investing more but still spending about the same. But your comment seems like you expect everyone to stop spending and invest in anything they can find. I just don’t see that. There are so many people I can’t even imagine taking the time to research for investing. There are also many people who are afraid of investing because they don’t like any risk. These people will probably spend the extra money they get to keep in their checks.

  98. Anonymous

    Thanks for your comments, Adam. You are right about the transformation of the economy. I don’t think it proper to say, ‘kill’ when you are turning a caterpiller into a butterfly (not that our economy is a caterpiller, but…)

    Erika- The Pregate is for ALL Americans, not just the poor. It is essentially enough to cover the taxes on the basic neccesities of life, while allowing for a tax on spending above that! If middle income Americans spend moe on used goods and less on luxeries, they would be taxed less! The rich who buy everything new, would be taxed more! What a concept! (Actually, Jefferson described something similiar to this in his time- a tax on luxeries which at the time were mostly imported!)

    -James Lee Vann

  99. Anonymous

    Okay, allow me to call attention to the most important part of any proposed national sales or VAT tax.

    The largest selling point, which is not mentioned here is that it would transition our economy from a consumption economy to an investment economy (simple Keynsian economics – an economy is made up for three basic things – consumption, investment (read: business), and government spending). So, yes, the original post is right – it would kill the economy as we know it today. This is considered by many economists to be a good thing.

    The current economy is based on debt and overspending to encourage growth. We have a negative savings rate. Under a tax like the fair tax, there would be an enormous incentive to save rather than consume – because all those wonderful stock/bond/cd/mma earnings are not taxed. Why spend it on frivolous crap and pay an extra 30% when you could be earning an extra 8%?

    Long term, this would have the effect of providing an enormous advantage to U.S. businesses in almost every industry. It would end trade deficits and cause surpluses. Essentially, we would become a nations of investors and savers, sending our superior and cheaper products overseas for others to consume (reducing their savings rates, but hey…).

    Such a change is widely considered to be a potential boon, and calling it a rebirth of the U.S. economy is probably not much of a stretch either.

    ______

    Now, there are also the other arguments previously discussed, and while I have not read any peer reviewed articles on the topic, I am inclined to believe that the forces just mentioned (translated: GDP growth galore), combined with the reduction in corporate taxes and double taxing, would basically mean that you could probably still buy just as much crap as you do today only without the negative savings rate.

    Sounds counter-intuitive, I know… but that’s the world of economics.

  100. Anonymous

    Perhaps someone has already made this point, but corporations will be paying a 30 percent tax anyway — they have to pay the “fair” tax along with everyone else when they buy supplies/raw materials.

    It’s great that the tax will offer rebates for the very poor, but what about the middle class? Most members of the middle class live hand to mouth. Even if they cut spending in reaction to the new tax, they’ll still be paying a higher percentage of income in taxes than the wealthy.

    The fair tax would be a perfect example of the failure of supply side economics. It will allegedly encourage people to save and invest, but in what exactly will they be investing? If they invest money in businesses and no one is purchasing the goods and services that those businesses offer, where is the net gain to the economy and how will anyone make money off those investments?

    Other countries do have a fair tax (they typically call it a value added tax), but they combine it with an extremely progressive marginal tax rate — taking the large part of the tax burden off the poor and middle class while encouraging people to spend a little less.

    I hope all the proponents of the fair tax sans income tax are extremely wealthy, because if they’re not, they’re going to get seriously screwed.

  101. Anonymous

    The way I understood it, Louisiana had $billions in money and in aid coming to them, but that had to request it, first — hence the lag. I think they have since streamlined the process.

    I don’t know why there are few Democrats supporting the FairTax. I figure they won’t be able to raise taxes so they can have national health care, and other such things. That’s just my guess.

  102. Anonymous

    Well, I agree with them spending money like crazy. I do support the war in Iraq, and I know that it is expensive. We must cut spending in other areas (and save as much money on Iraq as we can while still supporting the mission).

    You seeem to blame the President for everything- what about Congress? They are the ones wo set the budget! If they were serious about cutting spending, it is the Congress that must do it!

    That is something where both the the Republicans and Democrats fall short on. That is why I remain Independant.

    BTW, where is that PBS video again? I can’t find a link to it? I may watch it if I get the time, but I have seen several conspircay theory videos- most are poorly referenced bunk.

    If the video was in a previous comment, I apologize for not reading them all- this is the 73rd commment, and I read and respond to a lot of Blogs!

  103. Anonymous

    James…

    I like the start of the second paragraph… It is important how you spend, and lately… “Drinking sailor” is a too soft of a description for present Republican president. (Being a former sailor myself).

    So far the federal government is the biggest spender, not the state, which is my point and now, it will give even more money to the federal government, so they can bail out the Bush’s presidency? Or to plug the hole it created? Or spend even more? So the organization is based in Texas (what a surprise), mainly republican (another one)… How much more you need to start being suspicious and star research deeper?

    I would (wish) prefer if an audit was executed before the office expire and all responsibilities be addressed, people sentenced and send in jail. All the illegally acquired funds are paid back to the government, those are our money. And so on and so on… There must be personal responsibility for ones actions. (You didn’t watched the video, did ya… ) I don’t believe in “public” responsibility (public is a mass, substance…), surprisingly Americans are good and responsible people, per person basics.

    New Orleans is the best example of it all. I watched show on PBS about hurricane hitting New Orleans, several days prior the Katrina to happen. I watched and couldn’t believe that every think they said in that show did happen. Yet what stroke me is that repeated lag… of action. For several days I watched the news and could not believe to my eyes. We cannot help a city in US here in our home land, and we are spending trillions on a war half away across the world, subsidizing governments and regimes around the world with federal money. And you wish to give more to the Federal budget so they can spend even more… It is insanity. You don’t give a alcohol to a AA member with the good intention “to help” him fight his addiction.

    Government gives permits for house building. Why did it permit houses to be built first of all? Sorry…, someone get a bribe closed his eyes and a contractor made a buck. Do you want me to go up the chain to the president of this country? “Common sense” is common upon the circles of influence. For you, is common to work, spend and pay your taxes. For your president is to tell you to work, and spend your taxes. Do you get the difference? Common for one is not common for other. “I know where my enemies stand; I don’t know where my friends do”. Enemies don’t betray friends do. So think again.

    http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf

    Sounds good? Trick is, “separate packages”, one may be accepted other may not. It sounds great on paper.

    I just did my taxes; here is news that may piss many Americans. I have PayFlex, and use it for dependant care. I have spilt custody and each year we transfer the rights to each other. By family law we are both custodial parents. By Tax law only one could be, so now I have to pay taxes on all my dependant care dollars throw the year. The law lack perfection, as well as the taxes.

    Republicans or Democrats is not important as now they are the same coin, just a different side of it. Problem is I cannot see one that could or wishes to do something, that would change the status quo. 32Mil, in a month for Obama. where those money came from? I’m tired…

  104. Anonymous

    So, your saying that becasue the FairTax is supported by Republicans, you don’t like it? Then you say that the Raod to Hell is Paved with Good Intentions? Aren’t “good Intentions” what the Democrats use to justify taxing the rich to give to the poor?

    I agree that we should drastically reduce spending- I disagree with Ron Paul on how we should od it. The Constitution makes national defense the federal governments first objective and number one priority. That is where we should be spending the bulk of the National budget. Let the States take care of education, and eliminate as many entitlements (good intentions)as we can from the national budget (again, state and local governments can handle this much better than the Feds). Let the People take care of the People, not the federal government. (and their ‘Good Intentions.’

    Once expenses are greatly reduced, the FairTax can be greatly reduced (of course, we need to pay off our debt, too).

    New Orleans is a poor example. Everyone messed up- the people of New Orleans for building their houses on a flood plane (oops!) the government of New Orlenas and LA for not mantaining their flood prevention systems, the Governor for being slow to act, the President for throwing money at the problem without thinking about it- FEMA for wasting billions of dollars, on and on. It wasn’t any one person or organizations fault. It was a massive melt down of the system!

    Anyway, the States can do what they want, they are a soverign government. If they want to tax the heck out of their citizens, it’s their baby (I won’t stand by and let Missouri do that, but if your state wants to, I won’t stop them!)

    -James Lee Vann

  105. Anonymous

    James…

    Future is inevitable and how that tax will work is unforeseen. On paper Communism is a great Idea too…, from the people – to the people – in the name of the people, fairest of it all. Didn’t work…, “sorry” is what my parents get and a government pension in amount of 60$ a month. Gas close to 6$ a gallon now, VAT 18-21% including food. No thank you. I will do my research, here it goes.

    First line…, and I stumbled already … “substitute federal payroll and income”, wait… .

    What about State? Sales taxes are state business, they are not federal tax, and what would the state do then? Jack up the estate taxes and… ? And everything else that they can? We already have doubled the estate taxes; the increase in assessed value raised it to a record high as the prices went up. If State have less and Federal more who wins, police is state, schools are state, firefighters are state… aren’t you getting concerned already? Why more money should go to federal government then now? Equation is already in advantage for the federal government any way. Will the State tax remain?

    You want me to believe that I can keep my entire paycheck!!! I’m sorry but it is too good to be truth. I don’t buy it.

    1. Opening the web site I see two republican nominees.
    2. Fair Tax National Spokesman and former Lt. Governor of Missouri, William Phelps (another republican).
    3. FairTax National Spokesman, Bill Spillane received a degree in Economics from Purdue University and studied law at Gonzaga University. His multifaceted career includes 32 years as a combat ready fighter pilot in the U.S. Air Force and Air National Guard, including numerous medals for fighting in Vietnam. He retired as a full colonel. Bill flew as an international airline pilot for Pan Am and for United Airlines and has been all over the world numerous times, as well as having lived in Europe and Asia. (Is he military pilot, a civil pilot or economist? When did he find a time? And complete 2 universities as well. why not Stanford?)

    I don’t have the time to research more, the more I read who stands behind the idea. The less I start liking the Idea.

    So…, it is not un-bias, that is guaranteed. It is not pro social or democratic either. Some of the web sites, who host earlier, mentioned organizations advertisement and radio appearances are anti democratic and are pro republican. Check it for yourself. Check as well the meaning of the word “Demos”. And as a part of this “demos”, I have the right to suspect treason.

    “The road to hell is covered with good intentions” the saying goes. I have seen first hand what Politico-Economic oligarchy can do. You had the chance in the last 8 years too…, in your own back yard. New Orleans is a prime example, with republican appointed head of department.

    My question is, how many times a person has to find a lie to become suspicious? For me the number is 0. I grew up in society where you were guilty until proven innocent. I have different ways of thinking, researching and questioning.

    And for end. The proposal looks like a “National sales tax” not a VAT.

    What can be done as of yesterday would be internal audit. Yet I highly doubt it will happen. I did the research you asked me to, did you watched the PBS video I posted?

  106. Anonymous

    Honestly, I’d rather go with Ron Paul’s plan to eliminate the income tax & replace it with nothing! As has already been mentioned, he doesn’t “champion” the FairTax proposal. He’s open to it as a possibility, but his preference is to so drastically reduce spending that the income tax is simply unnecessary.

    Sounds good to me!

  107. Anonymous

    You have a fair point. BTW, no one from Americans for Fair Taxation will say it is perfect, but I’d agree it is the best deal going. Even some of the criticism thrown at the FairTax also applies to the current income tax. I’d like to see this enacted, tomorrow…if not today.

  108. Anonymous

    Brain,

    I agree. That is why I referenced both sites. My point in the FactCheck.org reference was to show that even the critics admit that the FairTax would benefit the economy!

    Even the critics at FactCheck don’t claim that the Fair Tax would “gut the economy”! That is a ridiculous assertion. I urge anyone reading this post to check out FairTax.org! It is a fabulous resource. Sure, read the critics, I too am a skeptic, but I have done the research and the FairTax is the best plan I have seen!

  109. Anonymous

    If there are hidden taxes in the sales taxes now, what is the guaranty there will be no hidden tax or any other tax look-a-likes under the new tax law? Do you believe they are not calculated and included already?

    I have friends in some of the European countries and as an example in Spain for the 2K a month, taxation is around 10%, including government run free health care, unemployment benefits and so on and so forth. So clear an employee would put in his pocket 2000 – 200 Euro, = 1800. Compare it with your check.

    I don’t wish to rename a monster or as you mention to hit the gray economy as it will always exist. If you wish to tighten the regulations and simplify the tax code, you are free to implement it now. If you wish to hit the gray economy hire more IRS agents. Implement the law in its full power. If a beggar steals loaf a bread he goes in jail, if a CEO steals millions an ankle bracelet and home arrest!!! That sounds like a Hugo’s novel, isn’t that cynical?

    Now why it is not implemented, or why it will never going to be implemented… or to be honest why the hell are we having this conversation… I’d suggest you watch this:

    http://www.pbs.org/moyers/journal/blog/2008/02/the_curious_case_of_lurita_doa.html

    That is the answer why, are so many people in government concern of “fixing”, (understand) “closing” Social Security and Medicade Medicare… We contribute more and more every year, yet is almost empty. If we close the account there will be no history of its usage, and all money misused will be unaccounted for as the account will be closed. All the guys with the hands in the cookie jar will have the chance to go away with it. Billions of dollars your and my money set for your and my old days will disappear. I call this day time robbery.

    Yes… I do consider moving out; it is in my best interest. I came and I can live this country. I have started so many times on so many places; it became a second nature for me. The frustrating thing in US is that the “little guys” don’t help each other. Do you realize that you can put the system in its knees by just by cashing your checks and withdrawing your money and use cash? CD’s, High Yield Savings accounts… it all runs on your own money. The system is using you the way it wishes. Instead to take care of you, the citizens and costumers. You get paid most 3-4% savings or even less, what is your mortgage percentage; add the signing, origination fees, points, insurance… so how much really? Buying a car? 8-9% and up… Direct Deposit Advance, (this one is my favorite) 10% per time, bi-weekly make a whopping 260% a year from the poorest of us. That is illegal; it is criminal, who the institution is? Wells Fargo. One of my colleagues is hooked and he cannot break the chain.

    We don’t invent the wheel, neither the auto, we try to combine several taxes in one and rename it. There is nothing new about it. The concern comes that there is no guaranty of social or health benefits provision in it. Pure and simple taxation. To proudly call yourself American in exchange. What is there for you? I know what is there for the government, yet where are your needs in that equation. You are just dying to give your last penny for the good of this country? My suggestion is to pack your bags and have some traveling done with educational purpose. But not in Mexico, they are more crooked then we are. Go to Denmark, Norway, Spain, Germany (the one that lost 2 World Wars). See for yourself how those “losers” live.

    Here are some rates:
    http://en.wikipedia.org/wiki/Tax_rates_around_the_world
    http://en.wikipedia.org/wiki/Gasoline_usage_and_pricing

    I don’t think we need new Tax to get old crooks.

  110. Anonymous

    –That last bit about no one feeling bad about thousands of people suddenly out of work was the part that got to me.

    If the auto were invented today, would you be against this newfangled invention because thousands of buggy whip makers and buggy makers would be going out of business?

    –Do you seriously believe rents will go down?

    I do, because many will see buying a used house without being taxed for it as an opportunity. Market forces will bring down rent costs. Plus, leasers will see their costs do down, too.

    –A homeowner with spare rooms to rent? You think they’re gonna register? You think the tax collector will ever find – and pursue – them?

    Nope, there’ll always be baby sitters, grass mowers, and spare rooms rented which will be under the radar, just as they are under the current system. But, under the current system, compliance is gradually becoming worse. The FairTax will tax the underground economy.

    –Maybe the economy NEEDS to slow down. Why are we so obsessed with “growth” anyway?

    With growth, people will see a stronger dollar, meaning our significant buying power from China will increase. Stocks will go up. People who invest will benefit, as the companies will. $11 trillion from offshore accounts will go to work for us, probably from investments. The increase in income from illegals will result in increased revenue. Growth, all by itself, will result in increased revenue. Taxes could actually come down, though we may want to stabilize Social Security and Medicare, first.

    –Do you really think that companies will pass FICA (or any other) savings on to their employees? Call me a skeptic, but I don’t think they will.

    Yes, why not? The employee deduction is from the employees paycheck–that part is his money. The company match will disappear, too. Why would they want to mess with it? It’s a cost they don’t want to deal with. And, they would want to decrease the cost of business because of market forces. If the company across the street sells a widget for fifty cents less, then the first company will match it. It’ll go down until an equilibrium is reached; that point is most likely to be where all of the cost is marked off the price of the widget.

    –I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.

    All new items, no matter where they come from, are subject to the FairTax. Conversely, all of our exports will be minus the embedded taxes, which will make for a level playing field with countries who export to us and subtract their taxes.

    –Jerry in OC MD, I think that companies will keep the 7.65% in FICA taxes they pay. However, the employees will still get the 7.65% in FICA taxes that are now withheld from their paychecks.

    All monies required by Social Security will be paid for by the FairTax.

    –Once the rentals are all registered with the state, it’s a short step to tighten regulations, like requiring annual inspections (paid for by the owner, or course – KA-CHING!).

    There’ll only be one tax authority for any state. If one state doesn’t want to handle the tax, then they can allow another state or a third party to do so — and if not then the federal government will do so. There’s nothing in the HR25 that has to do with inspections. If a state decides to implement some kind of sales tax similar to the FairTax, then maybe the state could implement an inspection policy. What is to stop them from doing it without going through such a process?

    –Why would I want to have a 30% sales tax alone? When I pay less now? Even if I put the present sales taxes…

    Remember, there are hidden taxes you are paying, now, which will add up to the sales tax you’ll pay, should you decide to stay in country. There are FICA taxes, corporate taxes, income compliance costs, and so forth — they all disappear.

    –The sales tax is NOT 23% under the fairtax proposal, it’s 30%. A 30% addition to the cost of the item. While it may be 23% of the total, it’s NOT a 23% tax.

    It’s both a 23% tax and a 30% tax. The former is inclusive, while the latter is exclusive. The former is how income taxes are figured. The latter is how sales taxes are figured.

  111. Anonymous

    Dan (#60) –
    That’s true to a point, but I don’t think the effect is as large as we see in theory. Or rather, while the frivolous elastic goods would generate less revenue, the frivolous inelastic goods would not necessarily.
    There is always a variation in the price of a good, and most people do not tend to choose the lowest price item. Brand loyalty and other non-price factors still play a large role in purchasing choices.

    I suspect a dip would be seen as prices go up initially, but I don’t think the effect would last long.

  112. Anonymous

    Taxes are OK right now, plus basic food items are tax free, I like that way of thinking Thank you uncle Sam.

    My concern is “volunteer pretax deductions”… medical and dental plans… I pay for me and my son, employee and family UH medical, close to 80$ every 2 weeks and that is just participating in the plan, after that you have the copays, and actual payments out of pocket. dental is a bit less, but it piles up. And I don’t really need them I do it for my kid, he don’t think how much would cost visit to the doctor, he wants to run and jump. Bush veto SCHIP, now gives me 900$, for what first? day care, doctor, toys, milk & OJ, food?

  113. Anonymous

    deepali comment 59, that is because of the elasticity of demand, basic economics. Take this example: If the price of milk goes up 30%, families are still going to buy milk; if the price of chocolate syrup goes up 30%, people will buy less chocolate milk. Milk is inelastic, chocolate syrup is elastic.

    On a side note, for adults who are addicted, tobacco is inelastic. This is why the government taxes them heavily. Not only do the politicians get to call it a “sin tax”, they get to collect most of the money they are trying to get (the real goal). A new tax on car seat warmers would decrease demand and therefore decrease tax revenue.

  114. Anonymous

    I’m skeptical about Americans being extremely price-sensitive. True, we bitch and moan, but I don’t see anyone driving any less than they used to, yet gas prices have soared in the past few years (AND people continue to buy cars that get poor MPG). And while embedding a tax in the price of cigarettes reduces teen smoking, it doesn’t much change adult purchases. So I’m not sure that we’d see decreased revenue if you embed a sales tax into the price of an item and cause that price to go up.

  115. Anonymous

    Gov. Huckabee’s advocacy of the FairTax ( http://snipr.com/irsgone ) is the single most important policy position in this election. Research findings explain why:

    The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces [BHKPT] ( http://snipurl.com/whatratewks ).

    The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan [THBP] ( http://snipurl.com/baserate ).

    Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case [THBNP] ( http://snipurl.com/realwages ).

    The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be [ALM] ( http://snipurl.com/econbenes ).

    Consumption benefits [ALM] ( http://snipurl.com/econbenes ) :

    • Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

    • Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

    • The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

    • By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

    Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system [KR] ( http://snipurl.com/kotcomparetaxrates ).

    Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively [JK] ( http://snipurl.com/kotftmacromicro ).

    Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax [THBPN] ( http://snipurl.com/lessregress ).

    Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 [THPDB] ( http://snipurl.com/moregiving ).

    On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base [TBJ] ( http://snipurl.com/staterates ).

    The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent [WM] ( http://snipurl.com/homebenes ).

    ALERT: Kotlikoff refutes Bruce Bartlett’s shabby critiques of the FairTax ( http://snipr.com/bbrebuke ).

  116. Anonymous

    Most of the posts here seem to be pure opinion. I therefore respect them. If only facts could be presented than I would take exception. One example would be the actual rate of the FairTax. The inclusive rate IS 23%. That is the way the current FICA and income tax are quoted. The FairTax replaces these so therefore it is quoted this way. If one chooses to use an exclusive rate, the 30% would be correct. However, when the exclusive rate someone in the 25% income tax bracket along with medicare and social security taxes were to be used his effective tax rate would approach 60+%.

    If someone has a vested interest in the current tax code I can see their objection to the FairTax. Buggy whip makers most likely were against automobiles also. For everyone else, get the correct information from http://www.fairtax.org. Form an educated opinion.

  117. Anonymous

    Disclaimer: I AM an economist and have debated both sides of this issue. Both the current and proposed systems have pros/cons, but here are some additional points that have been missed in the fair tax discussion:

    1) Illegal immigration: As an illegal immigrant, if I can make $250 a week and live off of $200 (food, travel, shelter), there is a $50 incentive to stay in this country. Since I’m being paid cash, I pay no US income taxes and only a 5-10% sales tax, depending on where I live. If a consumption tax increases my $200 worth of expenses by 30%, how much of an incentive remains for me to stay in the country? This assumption ignores the embedded corporate tax argument, but I would submit that a financial disincentive would do more to prevent illegal immigration than paying millions of dollars to erect large fences.

    2) Sinking dollar: As mentioned earlier, having no federal income tax would certainly attract foreign investment capital back into the US, as money seeks the highest return. This increase in foreign capital flowing into the US would bolster the value of the US dollar and reverse its current trend. Good news for imports, bad news for exports.

    3) Long term interest rates: Piggybacking off of #2, an increase in the amount of capital available lowers debt interest rates. Academic research pegs this long term reduction somewhere between 250-350 basis points, depending on whose model you believe. In plain english, this would equate to a drop in mortgage rates from ~6.00% to ~3.50%-4.00%. Run the mortgage affordability calculators with those rates and see if home ownership rises.

    4) The IRS going out of business. This will not happen. The federal government still has to collect the same amount of revenue under either system. A consumption tax would probably reduce the size of the IRS by about about 70%. This would lead to job loss at the IRS, but I find it hard to believe that all those accountants at the IRS would have a hard time finding a job under the new system. See below.

    5) Closely related to #2 & #3, a huge increase in foreign capital flowing into the economy spurs new business investment. Foreign companies would relocate to the US. Domestic stock markets would rise. What would happen to your 401(k) if ROI jumped to 12-16%?

    6) Taxing the poor. Proponents of the fair tax have agreed to “prebate” the amount of tax paid up to the poverty level in the form of monthly checks from the government. In other words, in addition to a sudden raise in the form of not having any income taxes taken out of my paycheck, I would also receive a monthly check (currently about $500 for a family of four) from the government.

    Is this so-called “Fair Tax” a panacea? Not hardly. Does it solve more problems than the current system? Maybe.

    Last comment: I agree with Chris (comment #43) Everyone should do their OWN research, and make their OWN conclusion.

  118. Anonymous

    We have no income tax in Texas but instead a 6.25% sales tax. It works out better this way because there are a lot of potential income tax cheaters in Texas who work for cash or use another’s SSN. Most come from south of the border. They cannot avoid sales tax. The tax is not charged on food items or rent.

    I believe the same would hold true for a national sales tax. All the people in the US (legally or otherwise) would generate a significant revenue steam to replace the current tax system. More likely than not, the tax rate could and would be significantly less than 23%.

    I’ve also heard that a national sales tax would be collected by the state agencies already collecting sales tax. So the IRS would indeed see a giant reduction in staff size.

  119. Anonymous

    The sales tax is NOT 23% under the fairtax proposal, it’s 30%. A 30% addition to the cost of the item. While it may be 23% of the total, it’s NOT a 23% tax.

  120. Anonymous

    The big problem, in my view, is when has the government, at any level, ever established a tax that it didn’t raise?

    What starts as a 23% Federal sales tax would likely grow. I wonder if people who are in favor of the Fair Tax would still be in favor of it when the tax is 55 cents on the dollar.

    I think the Fair Tax proposal sounds great… until you start looking at the things surrounding it and asking how it will work in all facets. Then you find problems. Could it be altered and managed to work? Possibly.

    What we really need, right now, is a clarified tax code and an option to file simplified tax returns.

  121. Anonymous

    I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.

    Comment by Brandon — Jan 30th 2008 @ 8:42 am

    Details, details,details…, first check shipping charges for the weight, you are limited. And check import tariffs, just in case give them a call, for personal use it ought to be tax free, yet… check it twice.
    http://www.usitc.gov/tata/hts/bychapter/index.htm

  122. Anonymous

    amx511…

    You are hilarious… are you in computer business? “Single point of failure”, networks perhaps. “Monadic”… you mean Nomadic right? It sounded like Moronic to me…

    Please start speaking normal English; I have plenty of this style already without you there.

    How would you call it, IRS – SRI if it does what it has been doing it would end the same way if the same people run it… “New whorehouse with old hooker doesn’t prosper”. One flat tax doesn’t mean there will be no other taxes… what about wheel tax, or car license fee? liquor and tobacco? Or anything else that is not a “sale”? Actually everything is a “sale”.

    SRI will monitor children, is that a KGB type a thing? Imports cannot be taxed? Are you in your mind? Have you ever open US import/export duty tariff, do you know what are you talking at all? Double taxation…? Globalization…? What the hell? Globalization is good if you are rich… that is not the case anymore. The coin just flipped. America is for sale… to any one who has money.

    Successful !!!???

  123. Anonymous

    A big part of the fair tax or national sales tax is that it will
    get rid of the hated IRS.

    The replacement entity will be as big as IRS, just with a different
    name. I like the concept of FairTax, but its current form is not a
    viable tax code replacement.

    Let’s call the replacement entity SRI to signify that it is meant to
    be the anti-thesis of IRS. It will be responsible for tax collection
    from retailers and rebate distribution.

    Under FairTax, tax is collected only by retailers. While there are
    less retailers than individuals, the amount of work needed for each
    retailer has to increase because the retailers are now the
    single-point-of-failure. SRI really has to work hard to reduce the
    number of frauds retailers do because now each fraud has higher
    potential of deprives government of incomes. Considering that even
    businesses in heavily-regulated industries can do and some are doing
    ‘creative accounting and financing’, the chances of business doing
    ‘creative tax collection’ is considerable.

    SRI will also have to guard against tax rebate fraud. They will have
    to monitor even more individuals than IRS ever will: children,
    homeless people, and people who do not currently pay income tax. They
    will have to think of a way to distribute rebate checks for monadic
    people (homeless or those who keep on the move). And are they going to
    monitor the birth and death of everyone so as to reduce the
    possibility of fraud (e.g., dead people keep receiving rebate check)?
    How big do SRI have to be for that? How does this promote a small
    government?

    There is also the reality of globalisation and realisation that we are
    not the world. Purchases (goods or services) from abroad cannot be
    taxed. As a matter of practicality and cost, you cannot inspect all
    imported goods. Inspecting imported services are even more difficult
    and costly because they are not tangible things. Won’t that encourage
    people to purchase international services, increasing the trade
    deficit? International tourists will most likely be double taxed
    (income tax by their government and then by FairTax).

    All the above assume that we successfully transition to FairTax. But
    how about the transition itself? What are you going to do with
    deferred tax accounts? How will you close down the retirement accounts
    since they are not needed anymore?

    And the most important thing, IMO, is how to keep it away from special
    interest groups. It is reasonable to claim that SIGs have been playing
    a large part in complicating our current tax code. How to stop them
    from tinkering with FairTax?

  124. Anonymous

    44. (Minimum wage,
    Do your employers report how much you earned? What’s to keep your employer from lying to get you a bigger SS check? )

    Why would your Employer beef up your SS? He has to pay more too… Are you out of you mind? Have your seen Employer to pay more when he can pay less? It is business not a charity…

    And how would you call the next institution of tax collecting doesn’t matter at all. This can work just fine if it is cleared from the clutter. Taxes are good, otherwise forget police, firefighters and good roads. GREED is bad… next ting you know there will be tax for the air we breath.

  125. Anonymous

    30% federal sales tax? Goodbye Internet sale and Ebay, goodbye shipping industry. Such sales taxes are un heard of any where in the world? I pay less in SS, MA&MC, Federal and State combine? Why would I want to have a 30% sales tax alone? When I pay less now? Even if I put the present sales taxes…

    And why would I wish to close the SS? I paid bunch of money to that and MA&MC, where they will go? We are not Europe with their negative population growth, I see this as a populist way to get a way with allot of stealing in the government and sticking us with an even more taxes.

    I’m against it. If they wish to do something, think about cutting government spending, investigating and revisiting all the lobby/politico/economical deals… Question that is against us is where we go from here? Do we steal more and how…? Or we create a working raw model for the world to envy?

    If it’s the first…, I pack my bags and leave, I have a place to go. If it is the second…, I may apply for Citizenship after all…

  126. Anonymous

    A big part of the fair tax or national sales tax is that it will get rid of the hated IRS.

    My landlord will have to register his rental properties with the state tax collector – your tax collector will be in your back yard, not thousands of miles away.

    Once the rentals are all registered with the state, it’s a short step to tighten regulations, like requiring annual inspections (paid for by the owner, or course – KA-CHING!).

    I don’t want a government inspector in my home every year. Do you want a government inspector in your home every year? Didn’t think so.

  127. Anonymous

    A big part of the fair tax or national sales tax is that it will get rid of the hated IRS. That might be true but another government agency would be in charge of keeping track of how (and I would assume where, when, etc.) you spend money which seems just as bad to me if not worse. Tracking the spending and spending habits of all Americans seems way too big brother for me.

  128. Anonymous

    Ryan, the fair tax is revenue neutral. The outcome you predict of prices being the same is impossible. Right now, a company only passes on the cost of its taxes in its goods. Under the fair tax, the company would also have to cover taxes that you and I no longer pay. The pre-tax price of goods will decrease, but the tax will bring the total cost higher than it is now.

    Net effect: you take home more, things cost more, and no more headaches around April 15th. Most people won’t see a huge difference in their net income.

    Ernesto, the government can just require employers to report all wage information. Cheating on your fair tax would be extremely difficult for an individual. I guess you’d have to convince a business to not collect it from you. There is far more lying and cheating under the current system.

  129. Anonymous

    Minimum wage,

    You’re making my point for me: if FICA is not withheld from payroll, how does Social Security know how big of a benefit check to send you when you retire?

    SS Benefits can range from $700 /month – $2600 / month depending on your earnings. Does the SSA track all your spending? Do your employers report how much you earned? What’s to keep your employer from lying to get you a bigger SS check? If either type of reporting is the case, you’re getting away from the government-free simplicity your hoping to achieve with the fair tax.

    My fear is the fair tax will create a nation of liars and tax cheats. All for the sake of 30% off.

  130. Anonymous

    You know, I think before a new posting, maybe just a little research should be done, perhaps read the book, so that you can inform your readers about what the “Fair Tax” plan is really about, and not just what you read in articles by people that are against it.

    This posting shows exactly what is wrong with this country today. People make an opinion based on what the news and media say, instead of doing their own research. Maybe as a whole we can stop letting our politicians run the country as they see fit, and realize that we are supposed to have a say in what goes on… Just a thought…

  131. Anonymous

    Jerry in OC MD, I think that companies will keep the 7.65% in FICA taxes they pay. However, the employees will still get the 7.65% in FICA taxes that are now withheld from their paychecks.

    Money Conversations Guy, you make a good point. The resultant rise in prices will probably not be the full 30%. Corporations will be saving 7.65% in payroll taxes, as well as up to 38% in income taxes on profits.

  132. Anonymous

    I am a supporter of the fair tax, and have a little insight into the whole thing for us all. What we’re all forgetting, or don’t realize is that about 20-30% (depending on who you ask) of the price we currently pay for goods is an “embedded tax”. Remember: businesses don’t pay taxes, they pass them on to us in the price of their goods or services. So, the thinking is that since this new Fair Tax would increase competition, and remove federal income taxes on businesses, the price of goods SHOULD come down by 20-30%. Then tack on the Fair Tax, and VIOLA…you have a net price increase of 0%. So that pack of gum that costs $1.00 BEFORE the Fair Tax is enacted SHOULD cost $1.00, AFTER the fair tax is enacted. BUT…we all get to take home our whole pay check. AND…we get that refund check from the government every month. SOUNDS GREAT TO ME.

    My only concerns are: 1. For simplicity’s sake, let’s say I make a gross salary of $1,000 per week, and my take home pay is $750 per week under the current tax system. My employer knows that I live off of that $750 and that somehow I make it work. What’s to stop them from cutting my pay down to $750 and keeping that other $250, which is what the government used to take for medicaid and social security and income taxes, for himself? Multiply this by every employee in the company and someone has just created one hell of a raise for himself/herself.

    2. The increased competition in the US will be GREAT for business and theoretically great for us, the consumer. BUT…if the businesses ally and decide not to drop the prices collectively, we’re right back where we started…with the government meddling in business. Theoretically, this would make the US the most friendly place to do business in the world…but then we’ve got some of the most corrupt CEO’s in the world too. This concern is not nearly as worry-some to me as number 1.

  133. Anonymous

    Brandon – One thing that might happen is that American goods would be purchased more because they would take advantage of not having the embedded taxes and quite possibly would end up being cheaper than a foreign made tv even if purchased in Canada. The other thing is that perhaps Sony would move some manufacturing to the US in order to take advantage of not having corporate taxes which would mean no embedded taxes.

  134. Brandon: That’s a good question. I would assume that it would work similar to state sales taxes. In this case, if you were to go out of state to buy (say) a car, you would owe taxes in your home state. However, in that case you would be forced to pay since you have to register your car before legally using it. In the case of a TV from Canada, there would be no such registration requirements, and so it would be very difficult to enforce.

  135. Anonymous

    I wonder how imports would be effected by Fair Tax. I don’t mean like buying a Sony HDTV made in Japan, but rather buying a Sony HDTV in Canada and shipping it to the US. If you could avoid the tax that way, it might be worth it on big ticket items.

  136. Anonymous

    I want to make sure it is noted that although prices of goods will increase based on the tax, the cost of producing the goods will DECREASE about the same amount resulting in all goods costing about the same.

    The reason this can happen is only the final consumer pays the tax, and the corporations don’t need to spend millions hiring tax lawyers.

    If you believe this, then the fair tax makes a whole lot of sense.

  137. Anonymous

    “That coupled with the fact that FICA taxes are eliminated, and companies will be able to pay their employees more, should eliminate any fear of “sticker shock”.”

    Do you really think that companies will pass FICA (or any other) savings on to their employees? Call me a skeptic, but I don’t think they will.

  138. Anonymous

    I am on the fence about the fair tax. There are definitely downsides to it, as well as to our current system.

    The proposal seems to be less regressive than current FICA taxes, which would be good.

  139. Anonymous

    @Minimum Wage:

    Are you sure rent will be taxed? I’m not sure, but, as you point out, it doesn’t make sense that rent would be taxed. If the backers of the FairTax movement really wanted to make it fair, it seems they would think of these issues and not tax rent.

  140. Anonymous

    Maybe the economy NEEDS to slow down. Why are we so obsessed with “growth” anyway? Sure it wouldn’t be best for everyone’s wallet’s if the stock market just quits going up by 8-10% a year, but I think what we’re doing is unsustainable anyway.

    We are trying to consume the whole world, and eventually it will have to plateau–probably when population growth slows because we can’t produce enough food anymore.

    Perhaps if people were incented to spend/consume less and save more, it would be a good thing for humanity, for the environment, for everyone.

    (I’m in a philosophical mood today, obviously)

  141. Anonymous

    Here’s something to think about:

    Landlords will have to register their rental properties with the tax collector.

    A homeowner with spare rooms to rent? You think they’re gonna register? You think the tax collector will ever find – and pursue – them?

  142. Anonymous

    Dan Carter said:

    You state that that you do not know much about the Fair Tax and then you proceed to make comments and assumptions about it. Cost of goods will not go up by 23 or 30% or whatever. Embedded taxes on the manufacturing process will go away and the net is that while the tax on retail goods will go up, prices will go down. There is much more, please become more educated before you write about a subject.

    Do you seriously believe rents will go down?

    There is NO evidence, anywhere, ever, that rents have gone down as a result of any tax cut, not even California’s huge 57 percent property tax cut of Proposition 13.

  143. Anonymous

    mlathe said:

    I think one part of the Fair Tax is that an item is only taxed once, and only once.

    Not exactly. If you buy an existing rental property, the tax has been paid. It is an established accounting principle that the purchase price of the property is equal to the present value of the future rent stream – you are buying precisely the future rent stream.

    Therefore, the tax has already been paid on the rent, and the rent should not be taxed a second time.

  144. Anonymous

    Carolyn said:

    The best part is that if you don’t buy lots of things, you won’t pay lots of tax.

    Actually, since rent is taxed and the purchase of an existing home is not taxed (and thus mortgage principal is not taxedl), many renters will buy fewer things than the homeowner down the block, yet pay more tax.

    What do you say to a renter with no hope (FarTax or not) of buying a home? Why should I have fewer things than my neighbor yet pay more tax than he does?

  145. Anonymous

    You state that that you do not know much about the Fair Tax and then you proceed to make comments and assumptions about it. Cost of goods will not go up by 23 or 30% or whatever. Embedded taxes on the manufacturing process will go away and the net is that while the tax on retail goods will go up, prices will go down. There is much more, please become more educated before you write about a subject.

  146. Anonymous

    Justin – With the Roth you are paying tax upfront in the hopes that it is tax free when you take it out. If they put the tax on purchases you are essentially getting charged twice for what you put in. I would like to think that the growth in the account would make up for having to pay on what you put in but that’s probably just me. The other thing is that for the Fair Tax to work the income tax would have to be repealed which is why you see the tag lines “make April 15th just another day” and Let’s put the IRS out of business.

  147. Anonymous

    @Colin: If there is a national sales tax, how does that make a Roth worse than a tax-deferred account? You will still have to pay the national sales tax with the tax-deferred money, as well as the income tax that will still be around.

  148. Anonymous

    I’ve read that a national sales tax is on its way, whether we like it or not? Why, since politicians on neither side of the aisle have the chops to raise income taxes to the point necessary to bring our nation’s entitlement programs (I.E., Medicare, Medicaid, Social Security, etc) back into solvency … they will instead look to the less politically painful solution of a national sales tax. Of course, this will be years, if not decades, down the road, as no one in Washington does anything until its too late (consider the climate for the ‘stimulus’ checks).

    This is why Roth IRAs / Roth 401Ks are a BAD IDEA … you’re paying in after-tax dollars NOW, for the promise of a tax-free withdrawl. No one has promised you that there wouldn’t be a national sales in the future, though. A tax break in the hand is better than two in the Bush (HA ha).

  149. Anonymous

    owen has it right…calling it a 23% tax (v. 30%) is using the same math that is used currently to report income tax rates.

    taxes always discourage the behavior to which they are attached…so if it’s a choice between taxing income and taxing consumption, the choice seems obvious.

    and I usually keep my cynicism about the poor to myself, but for all the people concerned about how this will adversely affect the “hard working Americans”:

    a woman that I work with, who makes substantially less than I, and is receiving a tax “refund” for five grand in a few weeks because she’s a single mom…yesterday she casually mentioned that she has a 52″ TV…glad to see where my income tax dollars are going.

  150. Anonymous

    Everyone seems to be forgetting that under the FairTax all corporate taxes are eliminated and companies will be given a tax rebate on any items currently in inventory. Since companies will no longer have to pay taxes, they have more money to throw around, and the Law of Supply and Demand dictates that prices will fall. That coupled with the fact that FICA taxes are eliminated, and companies will be able to pay their employees more, should eliminate any fear of “sticker shock”.

  151. Anonymous

    I read the “Fair Tax Book” a while back, and the thing that struck me is that the authors seemed to imply that it was going to magically generate more income by removing the taxes along the way, so the retail prices of items would go down, thereby offsetting a portion of the “sticker price” with the tax included. So the government would get the same amount of money, but all the people would have more, except the IRS auditors and tax lawyers and who cares about them.

    That last bit about no one feeling bad about thousands of people suddenly out of work was the part that got to me.

    While I think that a system like this is probably a more efficient way of managing the tax system, I don’t think it’s something that is going to make a huge difference in the day-to-day lives of most people.

  152. Anonymous

    One other quick note. The prices would be embedded in the price so you wouldn’t have a product that is $5.00 and then add 23% or 30% (depending on which one you want to use). The price is just going to be 5 bucks.

  153. Anonymous

    Quick comment since I’m still at work and can’t read all of the comments right now. But a big thing that the comments I did read are missing is that the tax is on the final goods and services. All of the products we buy today have taxes imbedded along the way at each point of manufacture. So the studies on this show that the prices we would end up paying would be a percentage or two above what they are now. This would also make the US one of the biggest corporate tax havens in the world because they wouldn’t pay corporate taxes. This would in turn bring companies back to the US so they could get in on the savings and bring lots of jobs with them.

    The other problem I’m seeing is that everyone is hung up on this 23% vs 30% figure. The reason they go with the 23% tax is that they are replacing a tax system that uses that same format for reporting. So if you use the fair tax supporter number a person who earns $60,000 a year in the 25% bracket pays $15,000. Now the non fairtax supporter would have to look at it as someone who earns $60,000 would pay the same $15,000 but it would be about a 33% tax since the $15,000 is 33% of $45,000 that they take home.

    Must have a disclaimer in here. I’m oncall this week and my brain is fried already so numbers might not add up right but the ideas should still be sound. If not, I’ll try to catch up once I get home.

  154. Anonymous

    I think one part of the Fair Tax is that an item is only taxed once, and only once. This event happens in the retail market. Ie a person buys a table. The wood and nails used to build the table would not be taxed, but the end product would be taxed. Furthermore when the table is sold in a private sale (ie used on Craigslist), it is not taxed, since it was already taxed before. This is supposed to give biz an incentive to invest. By that Truck or Bulldozer, you won’t pay taxes on it. One thing i don’t understand is if a biz owner buys his wife a company car (no taxes!), but she doesn’t use it for company biz, how will the government catch this?

  155. Anonymous

    IMHO, calling the 30% tax only 23% is slight of hand. Might as well be honest about how the number is being generated. Which is why I think they describe it as 23%. Its a lower number which people can feel better about than the 25% of the larger tax bracket or the 30% value of true tax amount.

  156. Anonymous

    There are three areas of thought on this issue that need addressing before I’d throw my support behind the “fair” tax:
    1 The notion that the price of all goods will go down due to businesses passing along tax savings.
    2 How to determine Social Security benefits if not by income.
    3 Addressing how businesses expense the items they purchase and how that affects the economy in the long term.

    1. How do we determine if the price of goods will go down appreciably and the business owners don’t just decide to keep the extra profit. Also, any business that makes money by consuming goods (raw material) is at a disadvantage to businesses that make money without consuming goods (banks, insurance companies).
    2. Social security bases your retirement benefits on your earnings. Do they now track your spending instead? Sorry you’d get a bigger retirement check if only you’d have spent more money. Should have bought that Winnebago.
    3. I’m a business person myself and am of the opinion that MOST businesses pay no or virtually no income taxes to begin with. I keep my businesses primarily for the tax write off. Face it, by the time a business pays all its expenses, depreciates all their assets and sends money to the shareholders, there is no money left for Uncle Sam to tax. 35% business tax? 35% of what? Sure there is a large expense in the form of payroll taxes paid for employees; I’m just not sure any of that would get passed on to consumers in any meaningful way.
    Also, businesses expense all equipment they purchase. If I own a construction company and purchase bulldozers every 5 years (based on a deprecation schedule) then what happens when my tax structure shifts from income avoidance to consumption based? Now instead of a tax write off, I get charged 30% extra for purchasing a bulldozer. All of a sudden, it’s cheaper for me to hire a mechanic than it is to buy new equipment. Good news if you’re a bulldozer mechanic, bad if you’re a Caterpillar shareholder.

  157. Anonymous

    Changing the tax system like this would really be hard to do. What would happen to the IRS employees, corporate accountants, tax lawyers, not to mention the tax perparer industry (HR block, el al). There is a lot of money sloshing around. Also i’ve never really understood a good argument about what would happen to the tourist industry. Seems like it a German tourist would pay German taxes, and then come to the USA to pay for goods and services +30% taxes. How could that be good?

    I think we’ll find that if this goes anywhere, there will be a lot of resistance, and in the end, we will have a patch or some other crappy solution.

    Last thing… politicians like giving benefits to small constituencies by giving tax breaks (ie tax rebates for Green Energy). A simplified tax system like this, would take away an important tool that these people use to tweak the system.

  158. Anonymous

    It’s a great thing and everyone should read more about it. One thing people don’t talk about is that corporate taxes would also be cut. That corporate tax is always passed onto the consumer, usually around 25%. If you take that tax off the price then add the 30% fair tax, you’re pretty much paying the same thing. The best part is that if you don’t buy lots of things, you won’t pay lots of tax. That sounds fair to me. You also have people that are currently not paying taxes but using government services (medicare, medicaid, welfare, public schools, etc.) are now contributing to those things they are using. I’m also a strong supporter because I work in multiple cities and states and have to pay taxes everywhere which SUCKS at tax time…this would get rid of that. No more April 15:)
    (Tourists that pay heavy sales taxes can usually get reimbursed…as you’ll find out if you visit most European countries and some South American cities as well. So the fair tax would probably not curb tourist spending.)

  159. Anonymous

    Steven said:

    But you forget that you take home a whole lot more of your paycheck. People will be able to control more (through choosing what to buy) what they pay in taxes. So I don’t think the 30% increase of the cost of new goods will be that much of a disincentive.

    A lot of people are going to be in for a big shock when the 30% tax rate kicks in. Worse, people overburdened with debt will really get stressed when they discover that the interest on their debt payments is taxed!

    Renters will freak out when they discover even their rent is now taxed.

    I see a large initial drop in spending – if nothing else, a lot of people will need to spend their “extra” money just to pay down the debt and shake off the “tax-on-interest” demon.

    Spending will recover but it will take a hit at the start.

  160. Anonymous

    I have many questions about the Fair Tax, but like most people, I think the tax system needs an overhaul in a bad way.
    People don’t bother to look at how much money is being taken out of their check in taxes – they base their financial situation on take home pay. But if they suddenly got that extra money on their paychecks, would they know how to be responsible about it?

    Would the government have to pay the new sales tax on everything it purchases? How much is that going to change our national budget?

    What about the possibility of a black market? I see that as a very real problem, especially in areas that have high local sales taxes. It’s 10% around here, which would be a total of 33% or 40% (the difference being how you classify the Flat Tax – as 23% or 30%).

    Also, it strikes me as a bad sign that 2 out of 5 commenters on a blog devoted to personal finance get “Fair Tax” and “flat tax” confused. If we can’t get the lingo down, how much more confusing will it be to the country as a whole?

  161. Anonymous

    I tend to agree with Steven. While the initial “sticker shock” of everything costing 30% more, I think that would largely be offset by the 30% larger paycheck. If someone is used to getting $1,500 every two weeks, when they start getting $2,000+ paychecks I think that would alleviate some of the pressure to not spend money because they appear to cost more.

    I do agree there would be a short-term effect, but just take gas prices for example. Last year the price of gas jumped nearly 40%. People bitch and moan about it and talk about how they are going to cut back on consumption, but after a few months people forget about it and continue on their ways. Demand is virtually unchanged.

    So at first there might be a cut in spending when they flip the switch so to speak, but in a matter of months getting used to more take home pay, people will begin to not even realize things cost 30% more.

  162. Anonymous

    @Andy: That 25% plus 8% sales tax ignores state income tax. Would states still be taxing income under this new tax system? Would states still tax sales in this system?

    I find it hard to believe that states would stop both, or either. Add that 8% sales tax to the 30% sales tax and … yay?

  163. Anonymous

    You can’t forget the affects of IRAs, 401(k)s, and their Roth counterparts and how they would be affected by a drastic change. The money in tax deferred accounts hasn’t been taxed via income tax yet, would it end up being tax-free? Or would it immediately get taxed at your current marginal rate? The Roths have been taxed and promised to be tax free afterwards, then a 30% consumption tax afterwards?

  164. Anonymous

    Also, if you are in the 25% bracket and pay about 8% in sales tax, a 30% flat tax would result in a shortfall of 3%. This is basically a simplistic calculation, but it illustrates a challenge of how to price the flat tax so that it does not shortchange the tax revenue.

  165. Anonymous

    >> But if you start adding 30% to the cost of an item at the checkout counter, people will think twice before buying a random geegaw or doodad.

    But you forget that you take home a whole lot more of your paycheck. People will be able to control more (through choosing what to buy) what they pay in taxes. So I don’t think the 30% increase of the cost of new goods will be that much of a disincentive.

    What is exciting to me is that used items have no tax.

    An additional good thing is that foreign purchasers will be paying the taxes also.

  166. BKLNYC: We’re talking about the Fair Tax, not a flat tax. Those are two different things. And yes, Ron Paul is against taxes in general, and advocates dramatically reduced spending. That being said, he has said that he would support the Fair Tax as long as it truly resulted in the elimination of income taxes.

  167. Anonymous

    I don’t know too much about the Fair tax – but like most, I think we need an overhaul done with our tax system. You are probably right that it would put a damper on the economy for a while, but do you think it would be worth it – if it yielded a long-term benefit?

Leave a Reply