Monday, October 1, 2007

a rehash of fairtax misinformation

Once more proponents have to deceive in order to make a point. I would think most of the people writing this stuff have a better education then I, however with as misleading as this is I begin to wonder. If the Fairtax was instituted the market would decrease the prices by the amount of taxes which have been removed from the item being sold. This is the magical 23% that is being bantered around. Now it stands to reason for anyone that can think that if the cost of all products were decreased by 23% then a 23% sales tax was instituted on said product the result would be the same.
Take the candy bar example, a dollar candy bar with a 23% tax would cost $1.23 however with the fairtax the imbedded taxes are removed which makes the one dollar candy bar retail for $.77 and then the 23% tax is added which brings the cost of said candybar to a dollar.
Don't take my word on it though read up on the bill yourself with the link below, keep in mind however the 23% figure was based upon government expeditures before the republican controlled congress went hog wild with the checkbook

The rate of a national sales tax would be colossal. Remember, even the proponents admit they'd need a 23 percent tax rate to fund the current size of the federal government. However, they are starting out their new fair tax system with highly deceptive language.

H.R. 25, Section 101(b)(1) states �FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.� Note the phrase �of the gross payment.�

Here's how it works: You buy a candy bar for a total price, including tax, of $1.30. One dollar of that price pays for the candy bar, $.30 goes to the federal government.

One dollar purchase + $.30 in tax sounds like 30 percent to you and me (and to every state that currently has a sales tax). But the �FairTaxers� don't calculate it that way. They say: $1.30 total price. $.30 = 23 percent of $1.30, therefore the tax is 23 percent.

Many critics have pointed out that this is a deceptive way to calculate a sales tax. AFT rebuts the critics by saying (we paraphrase for simplicity), �If you made $1.30 in income and paid $.30 of it in tax, you'd call it a 23 percent tax rate.� The 23 percent figure is what AFT refers to as the �tax inclusive� rate.

But a sales tax is not an income tax, and when we see national sales tax advocates and uncritical journalists promoting the 23 percent figure without giving the underlying explanation, we can only think that some very thick wool is being pulled over people's eyes.

It gets worse. A 1998 analysis by the William Gale of the Brookings Institute calculates that in reality (to pay all current government expenditures while also compensating for such factors as tax evasion), the national sales tax might have to run as high as 67 percent. AFT disputes that high figure. But they do not dispute that their initial �23 percent� tax rate would actually be achieved by adding 30 percent to the purchase price of goods.

Bruce Bartlett a senior fellow for the National Center for Policy Analysis, slams the 23 percent claim, also, saying it's too low even to cover current government spending. He writes in the National Review:

When Congress' s Joint Committee on Taxation scored the Linder proposal [The �Fair Tax Act�] four years ago it estimated that it would actually require a tax-inclusive rate of 36 percent, not 23 percent, to equal current federal revenues. Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate.(2)

Once again, although the FairTaxers dispute most of Bartlett's claims on their website, they make no attempt to refute the basic fact: their �23 percent� is really 30 percent, under the rosiest possible scenario.


Anonymous said...

I find it interesting that so many people quote a group called "Jews For The Preservation of Firearms Ownership, Inc" who criticized the FairTax four years ago. Besides being a lobbyist group, what else could JFPO possibly have to say about a tax policy?

Ray said...

I don't know who this Tom is, but he is right in his first paragraph that anyone who knows anything about the Fair Tax is better educated than him. I learned somewhere in elementary school that you compare apples with apples and oranges with oranges. Tom must have missed this class.

tom said...


As a business owner I fully understand the concept of "hidden" taxes. As a success in the business world I fully understand the strain of government and taxation on the private business owner.
I also understand that taxation needs to change along with spending in government.

Ian said...

While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan, FairTax's theoretical underpinnings have been professionally reviewed, and its acceptance in the professional / academic community continues to grow.

Renown economist Laurence Kotlikoff believes that failure to enact the FairTax - choosing instead to try to "flatten" what he deems to be a non-flattenable income tax system - will eventuate into an irrevocable economic meltdown, because of the hidden aspects of the current system that make political accountability impossible. Tom Frey, of the DiVinci Institute, foresees the coming collapse of the income tax system.

Here is why the FairTax MUST replace the income tax. It's:

• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, loophole free and everyone pays their share
• LOW TAX RATE, achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards, rather than penalizes, work and productivity

Its benefits are as follows:

• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy "at retail" - not "used"
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of "pre-FairTaxed" retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or "pre-bate"
• "Prebate" is "advance payback" for taxes payable on monthly consumption to poverty level
• FairTax's "prebate" ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of "parasitic" Income Tax industry
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates

• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
• No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets

For the COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie" increases
• No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow

It's well past time to scrap the tax code and pay for government the way that America's working men and women are paid - when something is sold.