Category Archives: Fair Tax
The Eye That Does Not See
Neal Boortz today:
Now, ask the average American how much they paid in taxes last year. Many will say, “Actually, I got a check for $400!” This folks, is nothing but government educated ignorance. The fact is that the government isn’t just “giving” you these tax refunds out of the goodness of its heart. That is YOUR money.
This is a very good point. An excellent point. Except … that Neal Boortz is the primary supporter of the Fair Tax. Under the Fair Tax, the typical family would received a tax “prebate” of $400+ every damned month.
This is why I refer to Fair Tax supporters as Fair Tax Movementarians. In addition to thinking the Fair Tax will magically put extra money into their paychecks, will magically make lobbyists go away and will magically generate revenue from illegal activities, they can’t see the problem with the Prebate.
(I’ve blogged on the prebate before. One correction: I don’t think getting checks to everyone every month will be that much of a problem. My other criticisms stand.)
Missouri is considering a Fair Tax, complete with vote-buying, dependency-creating prebate.
I hate the income tax as much as anyone. I just moved from a state with no income tax to a state with three. It sucks. But the Fair Tax is just a terrible idea, as I’ve discussed in links you can find by clicking the topic below this post.
Fair Tax Straw Men
Neal Boortz, fresh back from vacation:
Slemrod says in that article that there is not one reputable economist of any political stripe that would support the FairTax. Tell that to the economists who support the FairTax, like Lawrence Koltikoff, the chairman of Boston University’s Economics department.
What Slemrod actually says:
In “The FairTax Book,” the syndicated radio host Neal Boortz and Representative John Linder, Republican of Georgia, claim that replacing all federal taxes – income, payroll and estate taxes – with a national sales tax would increase the average household’s purchasing power by about 20 percent, end the need for the I.R.S. and turn April 15 into just another spring day. “Once the FairTax takes effect,” they declare, “you’ll be receiving 100 percent of every paycheck, with no withholding of federal income taxes, Social Security taxes or Medicare taxes – and you’ll be paying just about the same price for T-shirts and other consumer goods and services that you were paying before the FairTax.”
For a book that claims in its introduction to be “about honesty,” this statement falls far short. No reputable economist of any political stripe would support it. The honest truth is that replacing the current tax system with any system that raises the same amount of revenue (as Boortz and Linder claim their plan does) may make us better off, but only by redirecting our resources away from dealing with complex filing requirements and improving our incentives to work, save and innovate – not by creating the kind of free-lunch miracle suggested here.
Slemrod is right and Boortz is wrong. No economists would agree with the statement that, under the Fair Tax, prices won’t go up but takehome pay will. That is mathematically impossible. And Boortz himself has admitted it.
Responding to the Response to the Response
Should I keep kicking the Fair Tax? Why Not?
The FairTax does not increase the price of everything you buy by 30%
It almost certainly will, owing to wage inflexibility.
The FairTax does not put an increased burden on the poor. It literally “untaxes” them.
The FairTax does not destroy the middle class.
However, the middle class is where the saving rate and Fair Tax intersect to the produce the maximum effective tax rate.
Scientologists had nothing to do with it.
What is the truth behind the “you get to keep your whole paycheck” concept
Either you get your gross pay cut down to your current net or the price of everything your employer sells goes up 30%. There is no free lunch, no matter what the Fair Taxers try to tell you. And given the reality of wage inflexibility, the prices will almost certainly go up.
Retired Americans living on their investments and savings are not “double taxed” by the FairTax.
The FairTax rate will not have to be 40, 50 or 60 percent.
The idea that the Fair Tax rate will be 23% is based on a single paper that no one beside Jorgenson has ever seen.
The FairTax will not “destroy” our economy, no more than nutritious food would damage a starving child.
No, but it is certainly going to cause some shockwaves. Where do people get this idea that you can radically upheave 20% of our economy without a ripple?
This is standard nonsense from the Fair Tax crowd. But here’s what go me laughing:
Don’t you just love the idea of watching the moving vans pull up to those law offices on K Street after the FairTax is implemented? All those thousands of lawyer-lobbyists packing their gear to move off to greener pastures somewhere else … weeping at the loss of their six-figure incomes earned by manipulating the current tax system for the benefit of their clients.
Hahahahahahahaha. Hohohohohoho. Heeheeheeheeheehee.
Neal, do you think the lobbyists got rich by giving up? Do you think they won’t still be lobbying for every subsidy and regulatory exemption under the Sun?
And do you really think they won’t immediately try to monkey with the Fair Tax? To get certain industries exempted? To get the rate lowered for “important” industries? With the Fair Tax, the sugar industry will be screaming for rate cuts to protect them from “unfair” Mexican sugar. The steel industry will demand exemptions as an “anti-dumping” maneuver. The idea that we can use a magic bullet to curtail the influence of lobbyists — whether that bullet is called McCain-Feingold or the Fair Tax is childish nonsense.
The Fair Tax has become the rallying point of those who hate our current tax system. I sympathize. For a while, I was with them. I can’t stand the current system either. But this is not the way to fix it.
Don’t You Dare Criticize My Tax!
Jeff Schnepper makes a good criticism of the Fair Tax. Boortz’s response?
First of all … he resorts to the childish 30% argument. I’m sorry, but if a person can’t understand the concept of replacing one embedded tax with another, and calculating those taxes in the same manner, then you have to wonder how much serious thought they’ve put into their criticism.
I have the next Fair Tax book on my to-buy list. But when you respond to an article that list both the benefits and drawbacks of the Fair Tax with “Waa! It’s not 30%!”, then you’re not even trying.
One of the biggest reasons to oppose the Fair Tax is the deception being practiced by its proponents. If their plan was so great, they would respond to the arguments that:
PS – Speaking of stupidity, Boortz outdoes himself with this:
Remember the AIDS “epidemic?” Several years ago people were calling for my head because I repeatedly said that there was NO AIDS epidemic in the U.S. Now it seems that less than 1% of adults in the U.S. have HIV. Some epidemic, huh?
So if a million people dropped dead of ebola, you wouldn’t think we have an epidemic on our hands?
Attacking the Fair Tax: Bartlett
Someone sent me this PDF file of Bruce Bartlett tearing apart the Fair Tax. Unfortunately, he still includes a footnote on scientology. But it’s worth a read.
This idea sounds dumber and dumber every day.
Attacking the fair Tax: Pimps
From Boortz today:
Taranto’s first attack this week on the FairTax occurred on Monday. In Monday’s “Best of the Web” Taranto implied that Mike Huckabee thinks that under the FairTax prostitutes would collect the 23 percent tax (a use tax?) and forward it to the federal government. Now what Huckabee had actually said was that under the FairTax “You end the underground economy, Illegals, prostitutes, pimps, gamblers, drug dealers–everybody pays taxes.” It doesn’t take much grey matter to figure out that Huckabee was referring to the fact that these miscreants of the underground economy would pay the FairTax along with everyone else when they used their earnings to purchase goods and services.
Neal, they are already paying the embedded tax when they buy those things. You have said, repeatedly, that the total price of legal purchases will stay the same. All that’s changing is that the embedded tax is coming through Fair Tax rather than the current system. If that is the case, then the legal purchases of illegals, prostitutes, pimps, gamblers and drug dealers pay the same tax they always were. Net gain: zero. The only way the Fair Tax would increase revenue from the shadow economy is if drug dealers started charging the Fair Tax.
I’ve never seen anyone as mathematically ignorant as the Fair Tax Movementarians.
Attacking the Fair Tax: Naivete
Usual caveat: While I oppose the Fair Tax, that doesn’t mean I support the current system. I would just prefer a VAT or a flat tax.
I’ve attacked the Fair Tax because it falsely promises a big pay hike for Americans (a claim Boortz himself has withdrawn) and because I think the prebate would be a disaster. But I’ll hit it again because I need the blog traffic from the Fair Tax Movementarians responding.
One common argument for the Fair Tax over the flat tax goes like so:
We tried a flat tax with Reagan’s tax reform. And it wasn’t flat for long. Congress immediately began revising the tax and making it hideously complicated again.
This has two problems. The first is factual — the 1986 Tax Reform did not create anything approaching a flat tax. It simplified the taxes but not very much, as anyone who owns a business could tell you. It created all kinds of tax incentives and breaks. Claiming that the 1986 Tax Reform Act was the equivalent of a flat tax is like claiming my cat is a hippopotamus. Yes, they are both fat mammals. The similarities end there.
The second problem is naivete. The Fair Taxers assert that the Fair Tax will start simple and stay simple. That Congress will be unable to work all kinds of strange complications into it.
This is total garbage. Just to list a few things Congress will try to do with the the Fair Tax:
Granted, the potential for political abuse is a little lower and more transparent than with the current system. But to sit here and claim that the Fair Tax will be magically immune from the Washington need to endlessly tinker and update and improve is incredibly naive.
The Prebate Problem
Maybe I’ll post this over one at of the Neal Boortz boards just to see the fur fly. Like the supporters of any sweeping policy — socialism, neoconservatism or liberalism — Fair Tax supporters can’t admit that anything might be wrong with their ideas. The commenter on this post is smart, polite and makes some good point. But he still can’t resist telling me I’ll get a bigger paycheck or getting more focused on what the Fair Tax does right (“eliminate” the IRS and give you your “full” paycheck”) than what it does wrong.
My biggest problem with the Fair Tax is the prebate. For those of you who don’t know, this is the check the government writes to every family that “prebates” the tax they are being charged for the basic necessities of life. It’s what supposedly makes the Fair Tax fair.
But as far as I can tell, there are several massive problems with this:
Granted, this is a massive improvement on the current situation in which the IRS can arrest you for incorrectly filing out a form based on their instructions. But it doesn’t “eliminate” the IRS; it merely reduces it.
There are other criticisms of the Fair Tax, but the prebate is the deal-breaker for me. It has always sounded odd to me and the more I think about it, the dumber the idea seems.
All right, Fair Tax partisans. Fire away! Just keep in mind:
No Pay Raise
I’ve been having a nice debate in the comments on the impact of the Fair Tax. It’s helping me focus and refine my arguments, always a good thing.
I thought I’d put up two links to bolster my point that the Fair Tax supporters are being deceptive when they tell you:
a) Prices won’t rise under the Fair Tax
b) You will get your whole paycheck.
This is mathematically impossible. CNN talks about it here (search for Daniel Shaviro) and Boortz himself admits it here. Hopefully, he’ll put this front and center in his next Fair Tax book.
More Fair Tax Nonsense
See if you can spot the flaw in Boortz’ argument that it will be easier to buy a house under the Fair Tax.
Memo to Neal: house are not purchased based on one year’s earnings. If my marginal tax rate is under 30%, then by the “logic” you’ve used, I’ll be worse off.
Of course, neither makes a difference. The problem with the Fair Tax is not that prices will go up. It’s the transition shock of some prices going up (because the employers can’t cut employee gross salaries down to the current net) and others not going up (because they can). The problem is the hideous black market that is almost guaranteed to appear — which is why Bartlett favors a VAT. The problem is that we won’t “get rid of the IRS” but simply infest it in every business and every home in America. The problem is that we’re going to have to create a massive agency to figure out the
welfare prebate amounts for every person in the country (since only a batshit insane person would advocate equal “prebates” for people in New York City and New Braunfels).
So much easier to bash Bartlett’s Scientology straw man and fulminate over the pointless inclusive-exclusive argument than to address substantive complaints.
Because it’s too damn easy.
And Boortz is in a glass house here. He is still running around saying that the government will get the same amount of tax revenue, that prices will not go up but you will take home your entire paycheck — which is mathematically impossible. Something’s got to give. And I think Bartlett’s right that it will be prices.