AFFT to Candidates: Stop Lying about the FairTax!
November 4, 2006 · Filed under: AFFT Updates, Mailbag
Reader Chad Sargent sends us the heads-up that AFFT has written an ad that will appear in select newspapers this Sunday. The ad tells candidates: “Stop lying about the FairTax!“
10 Responses to “AFFT to Candidates: Stop Lying about the FairTax!”
Having seen the ad, I can only ask “what ever happened to truth in advertising?” It appears that AFFT is fighting lies by opponents of the Fairtax by telling some whoppers of their own.
For those of you who haven’t seen the ad, here are several criticisms I have:
(1) The ad states that the Fairtax sales tax rate is 23%. In fact, according to the latest study, the sales tax rate is 31.2%. The only proper way to use the 23% figure is in statements such as “the tax is 23 cents for every dollar paid”. It’s very misleading to describe the sales tax in income tax terms. Frankly, 20 million retailers couldn’t care less what the inclusive rate is. They simply need to know what sales tax percent to tack on to their pretax price, and that percent is 31.2%
(2) The ad states that all Americans will have a lower effective tax rate under the Fairtax. Not true. Having done my own analysis using the AFFT Fairtax calculation worksheet, and the 2005 IRS software, I can tell you that most retirees have lower effective tax rates under the income tax. Only by measuring purchasing power can it be said that all Americans are better off.
(3) The ad states that retail prices will fall. True, pretax prices may fall somewhat as the employer embedded costs of the income tax are removed, but after tax prices can be expected to initially rise by around 15%. A different result might be achieved if everyone accepted their current net pay/pension as their future gross, but for fairness and contractual reasons, this isn’t likely to happen.
I’m all for setting the record straight, but it does us no good to publish false and misleading statements or ads in rebuttal.
If the Fairtax is such a good plan for all of us, why not take the high ground and put the real facts out for everyone to judge?
I can address some of these points:
1. In fact, according to the latest study, the sales tax rate is 31.2%.
What study are you quoting? The study I quote is from Lawrence Kotlikoff, et al. dated September 1, 2006.
The inclusive rate is 23%, inclusive. Contact the authors if you want to debate that point.
2. The only proper way to use the 23% figure is in statements such as “the tax is 23 cents for every dollar paidâ€. It’s very misleading to describe the sales tax in income tax terms.
FairTax.org purposely uses inclusive percentages to make this point; since it replaces the income tax, it expresses itself in the same way as the income tax: inclusive.
Income tax, 23% bracket: earn $100, pay $23 tax.
FairTax: Spend $100, pay $23 tax.
$23 is $23, whether it’s 23% against $100 or 30% against $77.
Nobody will be misled if they stop and think about it.
3. The ad states that all Americans will have a lower effective tax rate under the FairTax.
No. The ad states “…makes everyone’s spending up to the poverty level federal tax free, and dramatically reduces effective tax rates at nearly every income level.”
4. Only by measuring purchasing power can it be said that all Americans are better off.
I agree with you there. There is still debate and disagreement about wages and prices rising and falling under the FairTax. Imho this debate is unproductive, since it freezes the picture and looks at wages and prices in isolation. They must both be considered as complementary interacting parts of the whole economic system in motion. Under the FairTax, purchasing power will increase. That’s all we need to know. The free market will determine optimum wages and prices, just as it does now.
5. If the Fairtax is such a good plan for all of us, why not take the high ground and put the real facts out for everyone to judge?
I believe that the real facts are there if you look. Our tax system is a disaster, 180º from the Founders’ vision for our country. The system is so messed up that we have no choice but to trash it and replace it with another system if we expect our economy to grow and our country to prosper. The FairTax plan was created by economists who included polls, focus groups and surveys in their research, in addition to studying the economy. I have faith that the FairTax is the answer to our tax mess.
Chad,
Thanks for your thoughtful response. Here are a few responses in the order you listed.
(1) Chad, we are both reading from the same report. Read the Abstract- the exclusive sales tax rate, which everyone who is familiar with state sales taxes understands, is 31.27%. And yes, if you want to compare the Fairtax to the income tax, the proper rate is 23.82%. That is not at issue. My point is that both numbers have to be used in their proper context in order not to mislead everyone. If you talk sales tax, the number is 31.27%. Perhaps I can make my point by asking you, a fellow Floridian(?), to tell me what my total sales tax would be assuming that Florida’s rate is 6%? Am I to believe that you think the total Federal/State tax burden is 29.82%??? I don’t think so! So, read the ad again and tell me it isn’t very misleading about the rate.
(2) See above
(3) O.K. Chad, parse words all you wish, but the statement about effective tax rates is incorrect. Here are some effective tax rate comparisons for various income levels for retirees both single and married. If you question how I derived the data, I’d be happy to email the whole package (5 pages).
Income Status Fairtax Income tax
10,000 Single 0 0
Married 0 0
20,000 Single 9.6% 0
Married 0 0
40,000 Single 14% 8.8%
Married 8.5% 3%
60,000 Single 14.7% 14.9%
Married 11% 8.8%
100,000 Single 15% 19.4%
Married 12.8% 13.3%
(5) Chad, keep the faith, but as Boortz said, believe nothing you hear or read. Do your own homework.
In FairTax circles. the inclusive/exclusive debate is old and passé. As for the ad, ok, it doesn’t specify that 23% is an inclusive rate, but it doesn’t have to. Both percentages reflect the same dollar amount. It’s not an issue anymore.
Lower effective tax rates are a certainty for almost everyone, given the elimination of the regressive payroll tax, exemptions, deductions and needless costs generated by our tax system. We feel that any “research” or “study” that contradicts this is suspect. We side with the AFFT research at FairTax.org. Here is some of the research that we have faith in. We’ve done our homework.
The FairTax Benefits Seniors
FairTax Is Good for Young and Low Income Families
The FairTax and the Federal Income Tax
Open Letter
I’ll leave you with one final thought: Our economy faces issues, many brought on by our own tax code. Jobs are going offshore, we waste billions of dollars a year on tax compliance ($265.1 billion in 2005 alone), Social Security and Medicare are going broke, we rank last in the world (tied with Portugal) in savings rates; I could go on and on. The FairTax addresses many of these challenges and offers solid solutions. If we are to prosper as a nation and competitor in the global market, we must completely scrap our tax code and replace it, no turning back, then see to it that we never have an income tax again by repealing the 16th amendment. No tax system is perfect, but the FairTax is the only valid replacement option we have.
Regards,
Chad
I think that both of you make valid points (chad/Hank). I do think that we can end this debate about what the percentages are by just stating that:
A. The amount purchasing power available to the individual will not decrease and will probably increase.
B. The amount of money the government will get is the same as it is getting.
The thing that changes will be the scope from which the taxes will be collected. Tourists, dope dealers, prostitutes, etc. who currently pay some to those states with sales taxes will now be contributing to the federal tax roles when they spend. I don’t know if the price of hookers will go up or not, but hey, those girls have to make a buck,too.
The study Comparing Average and Marginal Tax Rates covers how Americans will have a life cycle tax decrease under the FairTax. It’s linked off the home page.
Aaron,
Having perused and otherwise studied the article (your link) I have decided that we are going to lose the group who stands to benefit most and that is the working poor (10K to 15K). Not because of the lifetime drop in taxes they will pay, but merely because most voters want to know what you are going to do for me tomorrow, not how much better my life will become later. I can’t help but notice in the tables that there seems to be no inclusion of the prebate figures. Curious that they can cite taxation comparisons without including that calculation. (table 2)
Chad, since you seem to have a good grasp of the “not so obvious”, and you believe that the inclusive/exclusive debate is no longer an issue, I’ll go away and find other things to think about. Before I go, however, you still haven’t answered my question which I raised under the banner of false and misleading advertising. “What is my combined State/Federal sales tax rate going to be here in Florida if the Fairtax becomes law? If you want extra credit, tell me if the State tax will be levied against the prefairtax price or the postfairtax price??
Sincerely,
Hank
Hank, What is your combined State/Federal tax rate now? What’s the point of bringing up what the state tax is… It is irrelevant as it does not change – this is federal tax reform. The state can levy it either way to collect the amount of revenue they need to be revenue neutral. They may conform to the FairTax base and add it to the collection.
I wrote up a nice responce to this but for some reason the submit never took – I tried to submit again and it said it was already posted. However, it is not… oh well
Trying to post this for the fourth time minus some information – maybe it was too long of a responce.
Hank,
1) I’m not going to debate the inclusive / exlusive as I’m sure it has been hashed out here. However, the legislation is written as inclusive.
2) The latest detailed studies have show that the FairTax will lower effective rates (Kotlikoff – “Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation”). He shows that average remaining lifetime tax rates decline for all 42 household types (married vs single, young, middle-aged, seniors, and 7 income categories). See Table 5 on page 27 for the chart that compares the average remaining lifetime tax rates under the current system with the FairTax. Which study are you quoting?
3) While I agree that we will get our gross income and prices will increase, purchasing power will increase under the FairTax according to Kotlikoff’s study “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the Fairtax.” He found that the FairTax rewards low-income households with 26.7 percent more purchasing power, middle-income households with 10.9 percent more purchasing power, and high-income households with 4.7 percent more purchasing power. The Beacon Hill Institute proves that it doesn’t matter whether prices fall or they go up by the amount of the tax – the relative tax burden remains the same because if prices go up by the amount of the FairTax wages also rise accordingly; or if the federal reserve does not decide to accommodate (does not increase the money supply) then prices will fall and wages will remain at their net rates today. Either way purchasing power is the same, and the FairTax rate is the same.
New research which actually estimates the impact of the FairTax as written (HR25) is available on the new FairTax.org website. None of the previous research actually studied the FairTax as written.