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.

6 Responses to “More Fair Tax Nonsense”

  1. dcook530 says:

    Boortz’s argument is flawless. Yours if full of emotion and I am willing to bet you have never read the Fair Tax book.

    Boortx does not mention an annual payback period (You do!) he is brilliantly discussing the actual total earnings required to buy a $100,000 home. This is exclusive of any financing or time period. Thus today an individual who is in the 33% tax margin must earn ($100,000/1-.33) $129,870 to buy a home.

    Under the Fair Tax the $100,000 home cost ($77,000 price + $23,000 imbedded)$100,000. The income earned, except for state taxes, is the total amount, no federal deductions. Thus, $100,000 in income will more than buy a $100,000 house.

    Also, under the Fair Tax there is the pre-bate (based on poverty level and family size) a family of four would receive $5,902 per year and the opportunity for the individual to receive an additional $7,500 from the employers FICA Share

    Thus in this example, using only one year pre-bate, and one year FICA tax the individual in this specific case will require the following income: to buy a $100,000 home under the Fair Tax an individual will receive ($100,000 + $5,902 prebate) $105,902 or as high as ($100,000 + $5,902 prebate+ $7,500 FICA) $113,402.

    Under the current tax system a requirement to earn $128,870 to buy a $100,000 home exists! Under the Fair Tax to end up with the $100,000 an individual must earn $87,040 + $5,902 prebate + $ 7,057 employers FICA (optional). So in the best case the employee can earn %13 less under Fair Tax and produce $100,000 in consumption from $87,040 income. Not too bad verses today’s requirement to earn $129,870 ( a whopping 49% more!).

    What agency will have to be created? 46 of 50 states already collect state tax only six states will have to set up a process to pay. All business who collect tax already are sending money and reports to the IRS and Social Security and in many cases their states. The collecting businesses will receive ½ % for their efforts, that is $5,000 for every $1,000,000 in tax.

    Transition shock! Sure there will probably be some bumps in the changeover.

    This quote: “(because the employers can’t cut employee gross salaries down to the current net)” makes no sense. Remember, the employer has no business tax liabilities and thus will be in a better financial position to meet his same payroll. As far as payroll goes the employer will have to decide what to do about his share of the FICA tax (In my example I assumed it would go to the employee, but it might not).

    The “Black Market” Huh! One of the great things about the Fair Tax is all who consume will pay. That includes the crooks. Will there be attempts to get around the Fair Tax? Certainly, but since there are fewer players, only end user sales and not all individual tax earners and businesses the potential criminal population significantly decreases.

    The pre-bate is based on the family size and the poverty level; a simple straight forward process. This produces a fair and just national figure (The national figure includes New York City and New Braunfels) that is part of the reason it is called the “Fair Tax”, personally I call it the “Just Tax”. Yes, the cost of living in various locations is different but to be fair and just third world cities like New York City will be treated like real American cities such as New Braunfels.

  2. Mike says:

    “Yours if full of emotion and I am willing to bet you have never read the Fair Tax book.”

    You’d lose that bet.

    “Boortx does not mention an annual payback period (You do!) he is brilliantly discussing the actual total earnings required to buy a $100,000 home. This is exclusive of any financing or time period. Thus today an individual who is in the 33% tax margin must earn ($100,000/1-.33) $129,870 to buy a home.”

    No. Income taxes are marginal and there is a deduction. So a high wager earner needs to earn about $150k for a 100k house while a low-wager earner (getting taxed at an effecive 10% rate), need only earn 110k. Also, the mortgage interest deduction knocks something off that.

    “Also, under the Fair Tax there is the pre-bate (based on poverty level and family size) a family of four would receive $5,902 per year and the opportunity for the individual to receive an additional $7,500 from the employers FICA Share”

    This essentially replaces the current deductions and regressiveness.

    “Under the current tax system a requirement to earn $128,870 to buy a $100,000 home exists! Under the Fair Tax to end up with the $100,000 an individual must earn $87,040 + $5,902 prebate + $ 7,057 employers FICA (optional). So in the best case the employee can earn %13 less under Fair Tax and produce $100,000 in consumption from $87,040 income. Not too bad verses today’s requirement to earn $129,870 ( a whopping 49% more!).”

    The Fair Tax is *not* a tax cut. So the embedded tax currently taken out of my paycheck will still have to be taken out by my employer in the form of him cutting my gross pay down to my net pay. If I am earning $130k, my takehome is $100k, he will have to put all of my current witholding (incudling FICA) into Fair Tax if he is not to raise prices. So I will get paid $100k for the same work. The exchange rate of my work to house is *unchanged*. It can not possibly be unless the Fair Tax cuts taxes.

    “This quote: “(because the employers can’t cut employee gross salaries down to the current net)” makes no sense.”

    So you think labor unions under contract will accept a pay cut of their gross down to their net? Keep living in fantasy world.

    “The “Black Market” Huh! One of the great things about the Fair Tax is all who consume will pay. That includes the crooks.”

    Yes, crooks pay taxes in between obeying gun control laws.

    “Will there be attempts to get around the Fair Tax? Certainly, but since there are fewer players, only end user sales and not all individual tax earners and businesses the potential criminal population significantly decreases.”

    Yes. No one will accept cash in exchange for pretending the sale didn’t exist. The thing is, as Barlett notes, other nations have experimented with this system and always found that a VAT works better. Think about it – every time someone make an illegal sale under the Fair Tax, you lose 23% of the price. With a VAT, you only lose a few percent.

    “The pre-bate is based on the family size and the poverty level; a simple straight forward process. This produces a fair and just national figure (The national figure includes New York City and New Braunfels) that is part of the reason it is called the “Fair Tax”, personally I call it the “Just Tax”. Yes, the cost of living in various locations is different but to be fair and just third world cities like New York City will be treated like real American cities such as New Braunfels.”

    So essentially, you are advocating a massive transfer of wealth from areas with a high cost of living to areas with a low cost of living. Good luck with that. I’m sure the people of New York will appreciate paying my mortgage.

    This is perhaps the most offensive thing about the “Fair Tax” and the thing that makes it the most *unfair*. A New York City resident pays more in taxes than I do but I get the same “prebate”? That sounds fair to you?

    I like the way the Fair Taxers have stirred debate (and thanks for visiting the blog!). But the more I think about the Fiar Tax, the worse of an idea it seems.

    The reason I get angry, however, is that Boortz and the supporters are representing the Fair Tax as something it’s not – a tax cut. “You’ll get your whole paycheck! Houses will be affordable!”. Both of those statements are impossible if the Fair Tax simply replaced the embedded tax. Dale Jorgenson, whom Boortz sites in the Fair Tax book, has speficially called them out for saying “you’ll get your whole paycheck. You’ll get a 25% pay hike!” He says they are “overpromising”.

    The benefit of the Fair Tax is efficiency and bringing business back to America. It’s economic growth. Stick to that.

    One last thing. What if the eggheads have miscalculated (since we know economic projectiosn are *never* wrong). What if the correct Fair Tax rate is 25%? Then we’ve added about $200 billion to the deficit. And what if it’s 20%? Then we’ve instituted the biggest tax hike in American history.

    This is why I would prefer a slow transition to a consumption tax or VAT. So we have an opportuniy to adjust as it is implemented.

  3. dcook530 says:

    Based on your response. I don’t loose the bet. If your really read the book AND UNDERSTOOD IT you could not reply as you did.

    A high wage earner must earn $130,000 dollars to buy a $100,000 house. Let me clarify this. Today, his total imbedded tax rate using the national average at this INCOME level is 33%, which makes his average marginal rate 23%, Hmmmm! a familiar figure.

    The mortgage interest deduction is gone under the Fair Tax because no income tax is paid. Mortgage interest is not part of the program because it is filed for under the current program and has no value under the Fair Tax.

    The pre-bate provides tax relief up to the poverty level for all. It is fair and equal for all! Has nothing to do with deductions and repressiveness. Just starts all at an equal point. Those at the bottom of the income scale will benefit most from the pre-bate.

    You are right the Fair Tax is not an INCOME tax cut. It totally eliminates all INCOME taxes! The embedded tax will not be imbedded in goods and services provided under the Fair Tax program. If you wish to have the employer remove it the amount of Fair Tax $ removed in ALL cases is $0. If you make $130,000 today under the Fair Tax you will make $130,000 net of the $0 imbedded tax under the Fair Tax and you will receive $130,000.

    There will be no pay cuts. In fact the Fair tax is projected to produce a 13% growth in GDP thus “labor” capitol will be in high demand and maybe wage increases will result; it always happens in a strong growing economy.

    I don’t know what gun control laws have to do with this issue. But today’s dope dealer takes tax free income and buys a $60,000 auto; he pays state and local taxes but not income taxes. Under the Fair Tax the crook is taxed at the point of consumption thus the crook will pay $60,000 for the auto that includes $46,200 base price without imbedded tax plus $13,800 Fair Tax. That is the way the Fair Tax works!

    The eggheads you refer to have conducted a $20,000,000 study with the initial intent to produce a VAT or flat tax their research and testing resulted in a consumption tax as the best bet and currently the imbedded tax is actually 33% on total NATIONAL INCOME but you get the same revenue flow with a 22% tax on total NATIONAL CONSUMPTION. The study group recommended using 23% rather than 22% to be safe.

    I don’t know what a slow transition to a VAT would result in also in your initial comments you were concerned that a “going to have to create a massive agency” to manage the pre-bate. What you suggest with the VAT is to establish a point of consumption taxation just like the Fair Tax but still have the Income Tax. This is very important. The IRS, the 16th Amendment must be eliminated or the Fair Tax or any other consumption TAX will never work.

    Complex Tax! complex Tax! You want to avoid a complex tax system just look at the current IRS system. Studies have shown if you send 20 identical income tax packages to 20 different tax accountants you will get 20 different tax solutions. FAIR TAX ENDS A COMPLEX AND CUMBERSOME TAX PROGRAM THAT NOW EXISTS.

    QUESTION; Why do you want to pay more taxes. Today you pay 22% imbedded tax at consumption plus your individual income tax.

    I recommend you read the book again and discuss the issues defined and don’t confuse the discussion with gun control, union involvement, mortgage deductions and so called regressiveness.

  4. Mike says:

    Thanks for the response!

    “The mortgage interest deduction is gone under the Fair Tax because no income tax is paid. Mortgage interest is not part of the program because it is filed for under the current program and has no value under the Fair Tax.”

    Yes, I know. But you have to take that into account when you compare the current system to the Fair Tax. You can’t just say “you pay X under the income tax system” because you actually X-Y, Y being mortgage interest deductions.

    “The pre-bate provides tax relief up to the poverty level for all. It is fair and equal for all! Has nothing to do with deductions and repressiveness. Just starts all at an equal point. Those at the bottom of the income scale will benefit most from the pre-bate.”

    I hate to circle around this point, but it is *not* fair. The pre-bate is supposed to be the advance refund of the tax I am paying on the basic necessities of life (see pg85 of the Fair Tax book on the “consumption allowance”). Those necessities are cheaper in some parts of the country (and therefore my taxes are lower), therefore the prebate should be smaller.

    The prebates are one of biggest concerns. Once every American is getting a check from the government, the political pressure to continually increase the size of those checks is going to be enormous. Can you not hear the Democrats now? “We’ll raise the consumption allowance by $10,000! That’ll show the evil rich!” The consumption allowance is based on the necessities of life. We have a political party in control of Congress that currently thinks broadband internet is a basic necessity of life.

    “You are right the Fair Tax is not an INCOME tax cut. It totally eliminates all INCOME taxes! The embedded tax will not be imbedded in goods and services provided under the Fair Tax program. If you wish to have the employer remove it the amount of Fair Tax $ removed in ALL cases is $0. If you make $130,000 today under the Fair Tax you will make $130,000 net of the $0 imbedded tax under the Fair Tax and you will receive $130,000.”

    The Fair Tax does not eliminate the embedded tax, it simply replaces it. If my employer makes $130k selling my services, he pays $30k in taxes and gives $100k to me. Under the Fair Tax, he will still charge $130k for my services and give $30k in Fair Tax. So where is the extra $30k coming from to raise my take-home to $130k? 130+30 does not equal 130. The Fair Tax simply replaces the embedded income tax with an embedded sales tax. In order to do this, my employer must still turn around and give the same amount of money to the government that he is giving them right now. There is no pile of money magically appearing to raise my take-home pay.

    And since one of the primary researchers on the Fair Tax (Jorgensen) is specifically saying this, I am disinclined to think I misunderstand.

    As for people evading the Fair Tax: people evade the income tax right now by paying cash under the table for goods and services and not reporting it as income. Do you not think a 23% price cut might induce people to buy some goods and services under the table?

    “The eggheads you refer to have conducted a $20,000,000 study with the initial intent to produce a VAT or flat tax their research and testing resulted in a consumption tax as the best bet and currently the imbedded tax is actually 33% on total NATIONAL INCOME but you get the same revenue flow with a 22% tax on total NATIONAL CONSUMPTION. The study group recommended using 23% rather than 22% to be safe.”

    Well our government spends billions on financial projections. God knows those are *always* right. And we don’t pay anywhere near a 33% income tax. A middle class family making $50k pays less than 10k. Our federal government, as a whole, collects less than 20% of our national income in taxes. (I think the current figure is 18%).

    ” What you suggest with the VAT is to establish a point of consumption taxation just like the Fair Tax but still have the Income Tax. ”

    A VAT is like a sales tax, only added at each point, not just at retail. So a 5% VAT can add up to an eventual 23% sales tax. In Australia, they have a GST that is similar and, like the Fair Tax, it is embedded in the price (although Australia still has income taxes).

    Here’s my current thinking: I would prefer to see a VAT replace the income tax over a period of years so the system can be adjusted. A VAT in place of a retail tax minimizes the black market problem (or the buying things in Canada and Mexico problem). And the slow implementation means it can be adjusted if it’s having problems.

    It is simply wreckless to suddenly change 1/5 of our economy in one fell swoop.

    ” FAIR TAX ENDS A COMPLEX AND CUMBERSOME TAX PROGRAM THAT NOW EXISTS.”

    I agree this is fantastic goal. I just think there are better options.

    “QUESTION; Why do you want to pay more taxes. Today you pay 22% imbedded tax at consumption plus your individual income tax.”

    Again, you are promising me a tax cut, which the Fair Tax specifically isn’t. Boortz is saying prices won’t change, so I will still be paying embedded tax in the form of Fair Tax. And my employer won’t raise prices, so he will still be paying my deductions (which ARE the embedded tax) as Fair Tax.

    The benefits of the Fair Tax are efficiency, scaling back the IRS and boosting the economy. Marketing this as a tax cut — which is what you have just done — is simply misleading.

    Boortz has been incredibly deceptive about this, promising people what amounts to a massive pay hike (and therefore de facto tax cut) throughout the Fair Tax book. But on page 84, even he slips and says “if employers fail to take taxes out of price, the addition of formerly-withheld income taxes.. will give her a 25 to 30 % increase in take home pay”. In other words, the only way your take-home pay goes up 25% is if prices do as well.

    “I recommend you read the book again and discuss the issues defined and don’t confuse the discussion with gun control, union involvement, mortgage deductions and so called regressiveness.”

    I raised gun control as a (bad) example of how people disobey laws. But do you really think we can reform the tax system without addressing unions, mortgage deductions and tax regressiveness?

  5. Mike says:

    PS – I live in Texas. We have no income tax, just a sales tax. I LOVE it. (althought we also pay high property taxes). But:

    a) an 8% tax on a state level is very different from a 23% tax on a federal level

    b) we don’t have prebates, of course.

    c) the prospects of an income tax has come up recently because our politicians are concerned that they can’t raise sales taxes much more without creating a black market.

    Also, see my post today.

  6. 836oak says:

    “Under our plan, all city and state goverments will pay to the federal government a tax on all their spending — on all their purchases, on services and goods, including labor (wages).”

    Fairtax -The Truth. Answering the Critics. Page 138.

    Do you see that? Seriously – do you futting SEE that? Fairtax is a massive new tax on city and state governments. GO READ IT AGAIN.

    A tax on all city and state governments? Of the many hundreds of thousands of words in Fairtax books, web sites, and videos — you have to look very very hard to find their fine print, but it’s there, a massive tax on city and state governments. I just showed it to you.

    Go READ IT AGAIN.

    All city and state governments must pay massive taxes to the federal government.

    Once again — GO READ IT AGAIN!

    Fairtax spokesman have confirmed the fine print as the actual plan — the “real deal.” Fairtax is NOT just a tax on people (they told you about that –sorta), its a preposterous tax on cities and states. That is how their ” math” adds up.

    I just showed you their fine print. SO GO READ IT AGAIN.

    And Fairtax leaders confirm this — it’s a massive tax on city and state governments.

    Try to grasp this.

    No wonder real experts have dismissed Fairtax as a farce — Wall Street Journal, Bruce Bartlet, the Joint Committee on Taxation. See various links at the bottom.

    Don’t get mad at me. We all know our present tax code is horrible. I want to get rid of our tax code! I loved Fairtax at first, precisely because I thought Fairtax was ressearched, perfect, and on the level. I had no idea it was total nonsense — in fact, it’s more of a study in psychology and gullibility, than of economics. Mathmatically it’s absurd — and Fairtax leaders know it.

    Fairtax was going to fix the insane tax code, AND bring economic fairness and transparency.

    I loved it for a few years, until I read the fine print. They didn’t put out the fine print for about six years, (WONDER WHY?)

    When they did put out the fine print — meaning the nonsense about taxing city and state governments – -it was buried in the back of their books, in one or two sentences.

    Now just ask yourself — WHO would hide the biggest source of revenue — in a sentence or two — years after the plan comes out?

    Wouldnt you put that in the FIRST chapter? IN fact, this should be called — THE TAX ON CITY AND STATE GOVERNMENTS.

    Others have reported on the Fairtax Farce, of course. Wall Street Journal, for example. CPA’s and tax experts have dismissed it as nonsense. The supposed “experts” Fairtax had sign a letter ten years ago have backed off the plan, once they looked at it. Mostly, a study done for President Bush about the Fairtax shows a national sales tax would be drastically, absurdly HIGHER than Fairtax has tried to tell you.

    Fairtax is NOT just a simple sales tax on what people buy. That part they tell you about (sorta). But the part they do NOT tell you about, except very briefly in their fine print, is a massive tax on city and state governments.

    Are you starting to grasp this yet? Its a massive tax on city and state governments.

    Got that? Its a massive tax on city and state governments — hidden in the fine print, and admitted to by their leaders.

    There is no research on this, in fact, they hardly mention it.

    By now, no matter how stupid you are about Fairtax — you have to grasp that they have hidden this massive revenue stream in their fine print.

    That is one of their big “hustles”. They pretend to tax the government, in the fine print, to make their math work. But they know that’s impossible, literally impossible.

    Go ask any of these nutty “Fairtax groupies” if Fairtax is a massive tax on city and state government. Oh no no no, they will say — you should read the book!

    We got it from the book, bozo!! That is where we got it. Maybe YOU should read the book. And we contacted Fairtax leaders, and they confirmed it. Fairtax leaders have written to this blog (see below) defending taxing city and state governments.

    Read this again.

    “Under our plan, all city and state goverments will pay to the federal government a tax on all their spending — on all their purchases, and services or goods, including labor (wages).”

    Fairtax -The Truth. Answering the Critics. Page 138.

    Ever hear Fairtax mention any taxes on city or state governments? Of course not. Ever hear them say – “Your city government and state government will pay most of the revenue for the federal government?”

    No? Well of course not. The idea is silly and they know it.

    The “tax the government” idea wasn’t a printing error, not a mistake by an editor. Their plan to tax the government was hidden, but when I emailed Fairtax spokesman about this repeatedly, they admitted, yes, all city governments, all state governments — all government bodies of any kind, will be “subject to” (pay) the Fairtax.

    How much tax will they pay, total, I asked? Depends on how much they spend, they told me.
    But did you make estimates of what each state would have to pay? Based on past budgets?

    Why would we do that? They asked.

    Why? Because those taxes would be the biggest source of your revenue!! Of course you would need to estimate what that income would be. So, did you research that, or not?

    We didn’t have to.

    Okay, did you TELL cities and states about this massive new tax.

    No, why should we?

    Don’t you think they should know?

    They assured me, city and states will SAVE so much money they will be happy to pay this tax to the federal government.

    Oh really? How do you know?

    We know, because we know.

    Do you think it’s “transparent” to tax city and states without telling them?

    No answer.

    Are you starting to see the basic BS??

    Fairtax KNOWS they can not tax city and state government. So why did they say their plan was based on it?

    Because they had to. A 23% sales tax on PEOPLE would would not bring in enough.
    Do you see a problem? Fairtax is counting money as revenue, when it’s not even logical. Or possible.

    Fairtax insist there is no need to tell cities and states about this part of Fairtax.

    That tells you all you need to know about this “PLAN”.

    Do you see why Fairtax has not asked for hearings under oath? You will never see these guys going under oath, and answering questions. It will never happen. They know their plan is total nonsense.

    How it that transparent? How is it simple?

    Where will city and state governments get the money to pay this ?

    http://www.buckleyforsenate.com/the_fair_tax.asp