Monday, April 16, 2007

The Lies of the FairTax

The Lies of the FairTax

I support the FairTax so I thought I would answer some of these statements. The individual that wrote this has much more education then I, so if I can show the fallacies of these arguments so could he.
I don't believe the FairTax is the perfect tax plan, however to get something started in the RIGHT direction is a BONUS.

In addition to the unsubstantiated claims that Boortz makes for the FairTax, there are three ridiculous lies of the FairTax Plan.

Lie #1: taxes would be voluntary under the FairTax. In his discussion of the origins of the FairTax, Boortz says that the AFFT sought "a method of taxation that would be totally voluntary, that would allow all citizens to pay what they choose, when they choose, by how they choose to spend their money." Boortz has the audacity to say that "there is nothing coercive about the FairTax." It is "a truly voluntary tax system." The government should allow you to "keep your money in an investment account of some kind, earning interest for you, until you decide to pay taxes to the federal government." The FairTax would allow people to "judge for themselves when and how they're comfortable making taxable purchases."

Well, if the FairTax system is voluntary, and allows everyone to pay what they choose and when they choose, what happens if someone decides that they don't want to pay any taxes to the federal government? The same thing that happens now: fines and imprisonment. The FairTax is not a voluntary tax at all. The whole idea is a contradiction in terms. Boortz's statement about people keeping their money until "they're comfortable making taxable purchases" is ludicrous. There is no way to avoid buying new items. One can buy a used car, a used house, and used clothes, but one cannot purchase used food. One could argue that our present tax system is also voluntary: Don't earn any income and you won't have to pay any income taxes.

Should I or anyone else choose to go purchase a new product or service then we fully understand that a tax will be paid on said service or product. I choose what I spend my money on. I can grow my own food thus I can avoid paying the tax on same.
"Don't earn any income and you won't have to pay any income taxes". This is a typical ploy of those that try to point out something obsurd by trying to be obsurd, however one must earn an income to provide for oneself and family.
There are steps that an individual can take to reduce their tax burden under the FairTax that is not reasonable to do so under the current system.

Lie #2:the FairTax rate would be 23 percent. Throughout the book, Boortz gives the FairTax rate as 23 percent. It is not until near the end of the book—in the chapter, "Questions and Objections"—that he admits it is really 30 percent. But even then he still insists it is 23 percent.

This argument is quite easy to explain it's called inclusive tax vs exclusive tax. Under the FairTax a $100 dress will include a $77 price tag for the dress and $23 for the tax. Under our current system the $23 collected in taxes are hidden in the cost of the product.
The beauty of the FairTax is the state will collect tax on $77 instead of the $100 they are collecting on now.

Those of us who were skeptical from the beginning noticed this when we got to page 84. There Boortz used the example of a single mother with two children spending $45 a week on groceries. He claims that the removal of the taxes currently embedded in the price would lower the cost of the groceries to $35.10 (a dubious proposition). But then he says: "Add the FairTax, and the groceries would cost $45.58. I learned in the sixth grade that if an item cost $35.10, and I add to it $10.48 in sales tax, then I paid a tax rate of almost 30 percent—not 23 percent. Boortz says in the "Questions and Objections" chapter that "critics of the FairTax have a way of dwelling on this 30 percent figure." I wonder why? Although Boortz explains that he is using an exclusive rate rather than an inclusive rate to figure the percentage, his "mathematical equivalent of a game of semantics" still results in a FairTax rate of 30 percent. This is why Boortz prefers the national sales tax to be included in the price of each item—so the consumer doesn't realize that he is really paying an extra 30 percent in sales tax, not Boortz's new math amount of 23 percent.


Lie #3: the FairTax would abolish the IRS. Boortz claims that his book is about transforming the nation by sending "one of its most hated institutions," the IRS, to "that place in the government guano heap of history." The goal of the FairTax is to "eliminate the IRS." Boortz even jokes about IRS agents working at a fast food restaurant after the FairTax is implemented.

Calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the FairTax. It should not be forgotten that the FairTax is a national sales tax. According to The Fair Tax Act of 2005:

There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.

The IRS as we know it would be abolished for the individual, and yes I believe some sort of revenue collection agency will exist in the federal government, however it should be a tenth of the size of the current IRS.

The Fair Tax Act also sets up a "Problem Resolution Office" and authorizes "problem resolution officers." There will even still be tax courts. Boortz himself also states: "We envision a department of the Treasury to deal with Internet and catalog sales, with stiff penalties for those selling into our communities who do not abide by the law." The FairTax will abolish the IRS in the same way that it will abolish the income tax—by replacing it with something else.

Sinced the FairTax doesn't become retroactive it is quite easy to see that an IRS would need to remain active until all such taxes are collected.
I point out at this point I don't like paying taxes anymore then you do, however I'm smart enough to realize it just isn't going to go away.

The Problems of the FairTax

Besides the fact that it doesn't lower the amount of taxes seized from the taxpayers by the federal government and is based on unsubstantiated claims and ridiculous lies, the FairTax is fraught with other problems. In his Introduction, Boortz says that this book will explain the FairTax in detail. He will walk us "through the plan step by step, detailing both the good and the bad." Since Boortz never gets to the bad, I here present seventeen problems with the FairTax.

Problem #1:The FairTax hides the amount of sales tax being paid. Boortz explains how "the FairTax was designed as what's called an 'inclusive' tax—that is, the tax is included in the list price of the product." He reasons that "since our current income taxes are figured on an inclusive basis—that is, they are taken out of our paychecks, not added to them—it was decided to handle the sales tax in exactly the same manner." How could someone write a whole chapter on the evils of the withholding tax and then turn around and recommend a hidden tax like the FairTax? Boortz even has the audacity to claim that with the FairTax the "consumer is completely aware of what he is paying." Really? Suppose the FairTax is implemented next year. Go stand in front of a store and ask the typical American how much federal sales tax he paid on the item he just bought for $139? Give him a calculator and ask him again. Unless he is familiar with figuring percentages, the average American will not be able to tell you how much sales tax he just paid.

Cash register receipts can show this quite plainly. I hate to say this but if you can't figure out the tax maybe you were absent that day when our government education system covered that.

Problem #2:The FairTax is progressive. Boortz correctly identifies a progressive income tax with Karl Marx. Yet, because of the prebate, the FairTax sets up a progressive tax system like we have now. Millions of Americans will pay no taxes at all. Others will have some of their taxes offset by the prebate. "The rich" will still be paying the majority of the taxes—something Boortz says he considers "class warfare."

Once more I can control how much tax I pay and if I want to pay it. In this manner should I want to purchase that $100,000 boat I know what my tax is. The current system has government taking taxes out of my check and including even more taxes on the purchase of the boat.
Which way would you rather pay taxes??

Problem #3: The FairTax is an income redistribution scheme. Boortz calls the Earned Income Tax Credit "a prime conduit for income redistribution from high-income earners to the poor and middle class." Why, then, would he promote a FairTax Plan with a prebate that in essence allows the majority of citizens to not only pay no taxes, but in many cases gives them money over and above that which they paid in sales tax? What's fair about making "the rich" subsidize the poor and the middle class? Boortz calls Social Security an "income redistribution and welfare program." But under the FairTax Plan, Social Security is even worse. At least now it is funded by payroll tax contributions that are independent of deductions for federal income tax. Thanks to the prebate, many people will receive a free retirement program via Social Security who never contributed a dime towards their retirement, or as Boortz says: "All benefit and no burden."

And not only that but people visiting this country from overseas will pay into it as well. Personally the Social Security Admin should be abolished and all MONIES returned to the individuals which have had (X) amount of dollars confiscated by it.

Problem #4:The FairTax creates new tax collectors. From doctors and lawyers to garbage collectors and tree trimmers—multitudes of individuals and businesses that never collected taxes before will be turned into tax collectors for the federal government. Will a teenage babysitter be required to collect the FairTax from her neighbors?

doctors, lawyers, garbage collectors, and tree trimmers already collect taxes so this won't be a burden on them, however the reporting of said taxes sure will be much simplier. Somehow I doubt that a teenage babysitter is going to pay taxes on earned income, which is exactly what see gets paid for. As it stands right now the neighbor should be paying taxes from her income into the federal government.

Problem #5:The FairTax creates new taxes. All Internet purchases will be subject to the national sales tax. So will heart surgeries, kidney transplants, and appendectomies—plus the drugs prescribed by the doctors doing the procedures. Want to attend a baseball, football, or basketball game? Better save up a little extra to take care of the FairTax that will be imposed on your tickets.

This is getting much to simple, besides the internet tax the rest of the taxes already exist. The writer of this piece however forgets to remove the already existant hidden taxes from his equation. Lame argument. Lets also add into that the taxes which already exist on the purchase of all the products for these procedures. At this current time I already pay taxes on internet sales and the companies I purchase products off of currently have a mechanism to collect and report said taxes. NOTHING changes here.

Problem #6: The FairTax creates new taxpayers. If there are no exceptions and no exemptions then churches and other non-profits will be forced to pay a national sales tax on every purchase. The FairTax will basically do away with not-for-profit entities. The FairTax would also count as taxable the purchases made by federal, state, and local governments. This means the government will be using taxpayer money to pay taxes to itself.

And just how many millions and billions of dollars does government waste, because they are shielded from the actual cost. The beauty of the FairTax is that the federal governement can be restrained from raising the tax rates because the lobbyist organizations will become null and void.

Problem #7: The FairTax makes it easier for the federal government to raise taxes. All Congress has to do is slightly increase the initial 23 percent rate. A penny here, a penny there; a quarter of a cent now, a half of a cent later. Just a little at a time, of course. It might be to compensate for inflation, to give seniors a cost of living raise, or to pay for some manufactured crisis like bird flu . Since the federal budget goes up every year, and the FairTax is supposed to be "revenue neutral," the FairTax rate will have to go up right along with the federal budget. You can count on an increase every year, for if government budgets are not under control now, why should we expect Congress to magically become fiscally responsible just because the FairTax is adopted?

Congress reacts because of LOBBYIST. NO lobbyist no reason for them to try to raise taxes for some group that doesn't have influence. Keep in mind that you the taxpayer should have the most influence in DC not lobbyist.

Furthermore, since Social Security and Medicare would be funded out of general revenues the FairTax rate would also have to go up to fund the ever-increasing cost of these programs. Then there are the escalating costs of the new prescription drug plan. And if the amount of the prebate "is updated every year to keep up with inflation," the FairTax rate will have to be raised in like manner. How can Boortz recognize that "there is absolutely no limit to the government's desire for your money" and then express hope that the FairTax rate "will go down in the future" if "Congress can keep government spending down"?

Because WE THE PEOPLE will have much more power over our congress critters.

Problem #8: The FairTax makes it easier for state governments to raise taxes. In the name of simplicity and efficiency, the states would be inclined to follow the lead of the federal government. States that currently have no sales tax could add one. States that have exemptions on certain items could get rid of the exemptions so as to match the federal government. States that have no sales tax on services could begin taxing services like the federal FairTax Plan would do.

With or without the FairTAx a state government can do as it pleases, which is why the population of each state needs to remain vigilent on what their legislature is doing.

Problem #9: The FairTax has unknown and potentially huge transition costs. Boortz asks a good question: "How will the switch to the FairTax be made?" But then he gives a very naïve answer: "Cold turkey!" He explains that "on January 1, we'll begin to get our gross pay with no deductions." Boortz gives one "transition rule": The value of any inventory on hand December 31 can be used as a credit against collecting taxes in the next year." This should get accountants to work figuring out how to value each company's inventory the highest. Will it be specific identification, average cost, FIFO, or LIFO? But what if a company's fiscal year does not end on December 31? This will cause massive accounting problems. And especially for the federal government since the government's fiscal year begins on October 1.

As a business owner it is quite easy to inventory what I have on hand, set a value of such and then document it. Keep in mind this isn't a large expense since most all companies keep a record of inventory monthly. Inventory already shipped would have to be accounted for by the receiver of such inventory. The only way to ship products is via a Bill of Lading system which is standard in the trucking industry. The fallacy of this argument is quite clear.

Problem #10:The FairTax makes certain exceptions while supposedly having none. After saying that there are "no exclusions or exemptions" under the FairTax, Boortz specifically mentions exemptions for Internet access services and tuition. Therefore, his complaint that "exempting certain items—such as food and prescription drugs—would again open the door to an entire battalion of lobbyists to argue that the portion of the industry that they represent is clearly an essential product" is unjustified for he has already opened the door to that very thing.

I don't recall reading this section in the book and since the writer of this article doesn't show where he read it I'll have to research this point. However my understanding is that NO excemptions exist.

Problem #11: The FairTax has great potential for fraud. Boortz envisions the prebate amount being issued to a card "like your bank debit card." Since every head of household would have one of these cards, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers. And since the FairTax only applies to new items, there will also be a tremendous incentive for new items to be reclassified as used or previously owned. Businesses could offer a slight increase in the price of a reclassified item in exchange for not having to charge customers the 23 percent national sales tax that would be due if the item was considered new. Enforcement of the "proper" classification of items would require an army of federal bureaucrats that would rival the IRS.

I hate to point out the obvious but this EXIST currently. Nothing changes. Is the writer of this article trying to tell us that people are praying upon others for that welfare or SS check?? Come on we aren't that dumb, well maybe someone is but not me.
Not quite sure how a "NEW" item could be reclassified as used. Does this happen now?? Can I purchase a new car and have them classify it as used?? NOT HARDLY.

Problem #12:The FairTax has the potential to turn thousands of law-abiding Americans into criminals. Since the FairTax contains no exemption for even the smallest business, anyone who does not collect the FairTax on any good he produces or services he provides is breaking the law. Mow a yard—collect the tax. Babysit—collect the tax. Repair a car—collect the tax. If you don't collect the FairTax then you are a criminal. Once again, the FairTax would have a terrible enforcement problem.

Not true, if I mow a lawn I have just created an income revenue stream for myself, thus a job. If I employ an individual then YES the results are completely different.
Once more the cost od said products would remain the same as now, just a different mechanism to fund government.

Problem #13: The FairTax does not repeal the Sixteenth Amendment. When FairTax advocates discuss their plan, they talk as though the FairTax would result in the repeal of the Sixteenth Amendment that gave us the income tax. To his credit, Boortz doesn't make that mistake, but when many people read about "saying goodbye to the income tax," that is what they think. The FairTax bill now pending in Congress ( H.R. 25 in the House and the identical S. 25 in the Senate), repeals Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes.

At this present time there is an accompying bill which handles the repeal of the 16th. Yes it is true that H.R. 25 doesn't repeal the 16th, however legislation does exist to handle this problem as well.

The only mention of the Sixteenth Amendment in H.R. 25 is when it reports: "Congress further finds that the 16th amendment to the United States Constitution should be repealed." But to repeal Sixteenth Amendment would require a constitutional amendment. Are we to believe that Congress would vote to repeal the Sixteenth Amendment after the passage of the FairTax? And even if Congress did so it would still have to be sent to the states for approval by three-fourths of them.


So, barring the repeal of the Sixteenth Amendment, what is there to prevent an income tax from being imposed again after a national sales tax has been enacted? And what is to prevent any of the other taxes replaced by the FairTax being re-imposed due to some unanticipated budget shortfall or "crisis"?


Is Boortz that naïve to think that Congress will be satisfied with just the FairTax? And even if the Sixteenth Amendment was repealed after the imposition of the FairTax, any previous tax not on income could be brought back. Can Congress be trusted to do anything else? I can easily envision Congress proposing to lower the rate of the national sales tax in exchange for the addition of a supplemental Social Security tax because we need more money to fund Social Security. Then, a few years later, the national sales tax rate would be right back up to where it was before the "exchange."

This is where WE THE PEOPLE need to remain vigilant.

Problem #14: The FairTax does not eliminate all federal taxes. Although it is implied throughout the book that the FairTax will be a replacement for the various federal taxes, there are some federal taxes that will still be with us under the FairTax. Even Boortz slips up one time and says that the FairTax would "replace virtually all personal and corporate taxes." Two examples of federal taxes that will still be with us under the FairTax are the excise tax on gasoline and the various taxes that one pays when purchasing an airline ticket. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax, which adds 18.4 cents to the price of a gallon of gas. So under the FairTax, we would have added to each gallon of gas federal excise tax, state excise tax, and federal sales tax. This is just the minimum. The states could also begin applying their sales tax to gasoline. A recent airline ticket I purchased had added to its price a federal excise tax of $15.28, a federal segment tax of $12.80, and a September 11th security fee of $10.00. And what about federal taxes on tobacco and alcohol? The FairTax will merely replace one visible tax with another while leaving intact the invisible ones.

An excise tax isn't a tax on income and thus it does remain. To learn more about excise taxes read and research the following:

Excise Tax

Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. Excise Tax has several general excise tax programs. One of the major components of the excise program is motor fuel.

Find out more about the various databases and programs listed below for Excise Tax:

Excise Summary Terminal Activity Reporting System (ExSTARS)
Terminal Control Number (TCN) Database
637 Registration Program
Excise Tax On-line Exchange (ExTOLE)
Motor Fuel Excise Tax Electronic Data Interchange (EDI)
Additional Resources for Excise Tax
Federal Excise Tax - Rural Airports (PDF)
Telephone Excise Tax Refund
Credit Allowed for Diesel Fuel Used in Mobile Machinery Vehicles
For tax years beginning after October 22nd, 2004, mobile machinery operators may claim an excise tax fuel credit for taxed undyed diesel fuel they use in their mobile machinery vehicle if the operators meet design based and use based tests.

Hot News

Online Form 637 Registration Status Check - This new web application provides the ability for businesses to confirm whether individuals/companies have a valid IRS registration. Click on the above link for additional information on the 637 registration program.

IRS Issues Guidance on Truck Sale Excise Tax
IR-2005-29 - IRS guidance establishes four classifications of truck body types that are excluded from retail excise tax.

Problem #15: The FairTax is not at all about lowering the amount of taxes the government collects. Boortz terms the FairTax a "tax reform measure, not a government reform measure." It "changes the way revenues are raised for the legitimate operations of the federal government." But if the FairTax raises the same amount of revenue to fund the same federal programs, then what does Boortz think the federal government does that is illegitimate? Is there anything he considers to be illegitimate? If so, then why would he expend so much energy on changing the way the federal government collects taxes instead of changing the amount that the federal government collects in taxes? The fundamental problem is clearly taxation, not the tax code. What is wrong with the federal government's tax code is not that it is too complex, but that it makes possible the almost $3 trillion a year that the federal government spends. As the French laissez-faire economist Jean-Baptiste Say (1767–1832) once said: "The best tax is always the lightest." Or, as our modern-day Say in Congress, Ron Paul (R-TX), says: "The real issue is total spending by government, not tax reform."

On this the writer has hit it dead on, however my 40 years tells me "the more things change the more they remain the same." I've watched both sides of the aisle speak of change and what I have noticed is that we have socialist and socialist lite. I'm not happy with either, however I do seek change. The reason spending won't change is because WE THE PEOPLE haven't a say in government.

Problem #16: The FairTax doesn't even begin to address the root of the problem. Boortz does refer to Frank Chodorov (1887–1966), reminding us that he "once observed that, by enacting the income tax, the American government was proclaiming that all wealth belonged to the government, and whatever wealth the government did not seize from the person who created it should be looked on as a concession—a gift from the government." But Boortz doesn't quote Chodorov, and he gives no source that he is referencing. He subtly seems to imply that Chodorov was opposed to the income tax because it was an income tax and that, therefore, he might be inclined to support the FairTax if he were alive. But this couldn't possibly be true because Chodorov considered taxation itself to be robbery . How is justifying the federal government spending almost $3 trillion a year of the taxpayers money, as long as it is collected "fairly," any different from the viewpoint that Chodorov condemns? While making the case for not allowing exemptions from the FairTax for food, Boortz, in using the example of a wedding reception, inadvertently shows his true colors: "Would it be fair to allow a multimillionaire to spend $20,000 on food for a large wedding reception at his estate, and not pay any sales tax on that purchase?" Why, of course it would. It would be fairer than forcing the American people to pay a 23 percent national sales tax on every good and service they purchase.

I agree with this paragraph, it isn't going to happen in my lifetime nor my kids' so I won't hold my breath waiting for the people to wake up and rid themselves of the current ruling class in America.

Problem #17: The FairTax makes welfare universal. Millions of people who never took a dime from other taxpayers in the form of food stamps, SSI, AFDC, Medicaid, WIC, or housing assistance will now be on the federal dole via the prebate. The FairTax is welfare for the masses. It makes us all wards of the state. Perhaps it would be best, in the interest of equity and efficiency, if all the money Americans earned was just paid to the state and then distributed to every American in a "fair" manner. The government could just keep what it needed, redistribute what's left, and do it all without the FairTax.

This is a good point, however I must point out that we are currently in this system because the taxcode was used to benefit "certain groups" of people, businesses and the like.

The Fraud of the FairTax

The FairTax is not the solution. And because it allows the federal government to confiscate the wealth of American citizens less intrusively and more efficiently, it will become part of the problem—the problem of the ever-increasing, ever-intruding, ever-destroying welfare/warfare state. The FairTax is a fraud. Yet Boortz ties rejection of the FairTax to believing that America is a great country because of its government, "as so many politicians do." Politicians who oppose the FairTax do so because they "thrive on dependency."

I agree the FairTax isn't the end all solution, however with my minimal education compared to the writers I have pointed out many fallacies in his arguments. I don't believe the dependant class will give up so easy, however if the lower and middle income class can keep more of what they earn, you just might SEE change in DC.

The antidote to the fraud of the FairTax is a good dose of the wisdom of Murray Rothbard: "There can be no such thing as 'fairness in taxation.' Taxation is nothing but organized theft, and the concept of a 'fair tax' is therefore every bit as absurd as that of 'fair theft.'"

I'm in agreement, however just by my agreeing with this statement puts me in the "moonbat fringe"

Boortz believes that the abolition of the income tax will make the bad day of April 15 "just another beautiful spring day." With its unsubstantiated claims, ridiculous lies, and numerous problems, the FairTax will ensure that everyday is a bad day, not just April 15.

Until something comes along that is much better I don't see any other way to change the way DC does business

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