Kepner on Phil Hinson Fair Tax Show
July 11, 2007 · Filed under: Criticisms, News
FairTax gadfly Hayden Kepner, a regular on our site, was on the Phil Hinson Fair Tax Show a few days ago. (I haven’t had a chance to listen yet, but some of you might be interested.)
24 Responses to “Kepner on Phil Hinson Fair Tax Show”
I listened to this bit, and Hayden trotted out his pet peeves on the FairTax, but many of them are things I don’t think ring quite true.
The number one thing I generally disagree with is his use of the Fair Tax Calculator gadget on the Internet as a point of fact regarding whether or not people get large reductions in tax. I have done the math right down to the penny on my current budget, and the budgets of my mom, sisters, and several friends and found that most of us stay very close to our original tax burden, within a fraction of a percent in some cases. I personally will probably get a tax break of some $150 per year. My mother was looking at a possible tax increase of a similar amount. I believe that most people will fall in this range.
The argument that the rich will pay far less is also flawed in that most very wealthy people pay nothing close to the 40-45% rates people think they are paying. Indeed, many rich people pay far less than that in taxes by only paying capital gains taxes on monies they actually plan to spend. That is to say, if I put virtually every dollar of my ‘income’ into investment instruments, tax-deferred, and I am only being taxed when I cash in portions of those investments because I want buy something, I am virtually being taxed on my consumption already, and not my income.
To further this point, I would point out that Steve Jobs probably doesn’t get taxed on any of his actual income from Apple. He has an annual salary of one dollar. He is compensated via stock primarily, and likely doesn’t need or want direct pay. He can live off of the portion he needs to spend, and gets income-taxed only on the portions he chooses to actually take as income. Now of course, these are assumptions, I don’t really know how Steve gets taxed, but the one dollar salary was fairly famous for a while. Avoiding taxes is a game that truly rich people NEED to play, or they would be paying in some instances half of their income to the government, which most of us wouldn’t feel comfortable with if it were us.
So if indeed it is as so many people say, that rich people pay very little proportional tax because of the approach of avoiding taxation by delaying actual income until needed/wanted, consumption tax methods don’t provide them the windfall that Hayden would guess would occur. Indeed the FairTax rate of 23% is higher than today’s capital gains tax rates.
Indeed Warren Buffet claims his tax returns were only 17.7% of his income, which in the article I read was close to $46 million. I pay close to 20% myself today. Theresa Heinz-Kerry made a few headlines in 2004 when it came out she only paid 12.4% on her income of several million dollars (the final amount was very much in dispute at the time, being an election year and all).
But the approach is not uncommon: use tax deferred investments and spend only as you need it, getting taxed as you spend. Sounds like the rich have already put themselves into consumption tax territory through smart use of the system.
James –
First, let me say that I am THRILLED to death to know that at least ONE person actually listened to my radio debut. I’m afraid that the Phil Hinson Tax Reform Hour on Sandy Springs Radio doesn’t have much of an audience. However, we all need to start somewhere, right? So thanks for listening, and feel free to trash me all you want!
Next, let me point out that being on the radio is much harder than it looks (or sounds.) Mainly, you have no idea how much time you have or when the host will cut you off or change the subject, so you find yourself rambling at times and rushing through other stuff. Believe me, I had a whole outline of topics I wanted to go over in detail that quickly got trashed. It’s much easier to discuss this stuff over the blog, where you can think out your arguments and cite to articles, etc.
But Phil was a very nice guy who certainly tried to give me as much time as he could to make my points. He is obviously committed to the FairTax and genuinely wants the issue debated, including its good points and bad. Sort of like Joshua with a microphone.
Regarding your point that the rich don’t necessarily pay all that much in taxes (which was also a point Phil made), I agree completely. And I would recommend that you read Perfectly Legal, by David Cay Johnston. But currently, the top one-percent of incomes pay something like 36% of income taxes (at least, according to Rush Limbaugh’s website, which isn’t exactly a source I would usually cite). One could argue that that is too high, but they’re going to pay a hell of a lot less under the FairTax. As I’ve said several times, my own taxes would go down by over 90% if the FairTax is enacted as written, and I — alas — am not quite at that top one percent level. Somebody’s going to have to make up that lost revenue — and it ain’t gonna come from the illegal aliens, believe me.
But, once again, thanks for taking the time to listen to the show. I can tell my son that I actually got a note from a listener. He’ll be thrilled.
I had listened to it as well – I plan to listen to it again though before I comment.
Hayden, to your point of 36% of income taxes, keep in mind that that is just income taxes and does not represent the tax incidence or progressivity of the entire tax system.
Go easy on my, Morph. I was just warming up for my big smackdown with Boortz when he lets me on his show in– oh — maybe 35 years or so.
Hayden,
Sorry I missed your debut, I’ll try to catch it on repeat though.
We are all aware of the rich’s offshore corporate money dealings to avoid taxes etc. But from my experience it is almost a full time pursuit of those with large incomes to defer some of their income by purchasing personal perks through their businesses and useing loop holes to write them off as business expenses. So, they may have a stated incomes of say $1 million dollars, but have a lifestyle worthy of what should be a $5 mill. income. The 4 million difference is folded into the business that is avoiding taxes through offshore dealings, loop holes, etc. I know people who expense their vehicles, vacation homes, boats, jet ski’s, RV’s, trips, dinners, you name it if they can find a way to fold thier personal expense into the business…they do it. They’ll get the paperwork to CYA, and then find the loopholes for the business to avoid the taxes. So, maybe their taxes on the $1 mill are 36%, but if it were the actual 5 Mill. they spent on truly personal luxuries, and expenses..then what? If all the Loop Holes are gone, the Fair Tax should catch all of the revenue when these wealthy people purchase their luxury items and what would normally be living expenses. Therefore the effective tax rate on their TRUE income should go up…..alot. And we’re not just talking about the super wealthy, I know a couple that run a good size home building company, has several, million dollar properties, all the luxuries, etc. but only claim an annual income of around $150,000. They are living well beyond that income level, but only pay personal Income taxes on that amount of income for the reasons I’ve stated above.
Hayden,
I finally got the darn thing downloaded and listened to it twice. Frankly, I think you held your own quite well against the very smooth Mr Hinson. I would love to have the same opportunity to represent the retirees as you did representing basically the wealthy(?). Your arguments about the rate, the related studies (some paid for by AFFT, some not), and your clear rationale for the problem of tax avoidance were excellent. However, when you got off on your favorite question about “Who pays?”, I was disappointed.
Hayden, I’ve said it before, and I don’t know how to make it any clearer, the “who pays” is the US government, and a significant number of retirees.
(1) Government consumption makes up around 20% of the Fairtax base according to Kotlikoff and BHI. That $2 trillion allows a whole bunch of individuals such as yourself and every other worker to pay less federal tax under the Fairtax, yet the thing is still revenue neutral. (Of course, governments don’t really pay taxes, people and businesses do, so the issue here ought to be the 5% increase in the Fairtax rate to pay for the federal government taxes, and the unexplained/unquantified but serious impact on state and local taxes?)
(2) Last year I did a comparison study of the Fairtax versus the income tax/payroll tax, and the results clearly show that retirees with gross incomes up to $60,000 for singles and $100,000 for married couples have a lower effective tax rate under current law. That is so because the retirees don’t pay the 7.65% payroll tax anymore. I’d be happy to share the study with anyone who want’s to see the methodology I used. Just email me at vanlinda@comcast.net
Hank –
Thanks for your kind words and moral support. I have a sneaking suspicion that Phil is starting to run out of guests so, who knows, he might decide to put a retiree who is well-versed in the nuances of the website on his show. I don’t have Phil’s direct number, but you could always call the station. You wouldn’t need to be there in person since most guests are over the phone.
Regarding “who pays.” It was meant as a rhetorical question. Believe me, I brought a whole three-ring binder of data on a number of topics, including who pays (and, to your point, the fact that retirees and state and local governments would be paying a large part of the FairTax tab), but I didn’t have time to go into any of it.
My goal in the nterview was to cover three points. One, that the required tax rate under the FairTax is subject to considerable dispute among serious economist. Two, that there would be a lot more (legal) avoidance and (illegal) evasion than is generally discussed. And three, that the tax burden would shift to the middle class, including retires. Obviously, there are a lot more points one could make (both pro and con), but I know there wouldn’t be enough time. As it is, I don’t feel I really covered any of these points well. And, clearly, they are subject to debate, which we can get into here, but not really very well over the radio.
For future reference if any of you ever get the chance to be on the radio on any issue, I would suggest picking only ONE point to discuss. Focus only on that point, and possibly branch out to others if there’s the opportunity to do so, but if you try to cover too much you won’t be able to cover anything.
Dennis — Thanks for listening to the show. I only partly agree with what you say about business owners and those with private corporations having opportunities to shift much of their income and expenses into their businesses. From personal experience, this is not as easy as most people think. One of the reasons for the mind-numbing complexity of our current income tax system is for this very reason — people keep trying to shield income and deduct expenses and the IRS keeps passing regulations to keep them from doing so. This is also the primary reason for such extensive record-keeping requirements under out current system.
Under the FairTax, business owners could and would do the same thing. That is, they would classify their largest purchases as “business” or “investment” purchases, which would be tax free under the FairTax. In fact, I would argue that it will be easier under the FairTax for people to shift purchases to business and investment categories, and harder for the government to prove otherwise. Thus, if your point is that people cheat on this stuff today; I would argue that cheating will only go up under the FairTax.
Hayden & Dennis,
You really don’t know about cheating. I really don’t know either. To me, the controlling factor is the “implementing regulations” which will not be written until the bill becomes law. It is very possible that any business must jump through hoops to classify purchases as business or investment and avoid taxes. Those regulations could make it easy to cheat or practically impossible.
We talk and talk about holes in the legislation but if you look at any piece of legislation it’s the same. Closing the holes and completing the implied is what the regulations do. Then, if the regulations get it wrong supplemental legislation correct those points.
Duane — I agree with everything you just said. Of course, it’s these “implementing regulations” that caused our present Tax Code to be as long and cumbersome as it is. It’s at least reasonable to surmise that similar “implementing regulations” under the FairTax or any other tax plan will end up being equally cumbersome as people figure out ways to get out of paying taxes. (OK, maybe not as cumbersome as our present Tax Code, but they will need to continuously close loopholes as they pop up.) I know you understand this, but there are those out there who don’t.
Hayden — There’s an old saying about “The devils in the details”. Regulations are the details where the devil hides.
I must be on a roll. I got on another radio show yesterday — the Herman Cain show. He’s a big supporter of the FairTax, a multi-millionaire former CEO of Godfather’s Pizza, and formerly a candidate in the Repuplican primary for Senate from Georgia. He’s got a weekend show on a station in Atlanta.
I tried to keep to one point with him — that there were legitimate studies out there on the FairTax that concluded that the tax rate would need to be much higher than the proposed 23%. He started on the usual path of “those studies all changed the FairTax”, but when I mentioned the Gale study he said he wasn’t familiar with it and asked me to send him a copy for him to review, which I did. All in all a short, civil conversation.
I suspect it was all for naught, but I would sure like to hear at least one radio talkshow host acknowledge that there exists serious, legitimate criticism of the FairTax (instead of the usual crap that all critics of the FairTax are stupid, ignorant, or are employed as tax lobbyists). That, at least, would be a start for an honest debate.
Unfortunately, too many talk show hosts, unprincipled politicians, and certain blog sites (not this one), refuse to acknowledge that any legitimate criticism of the FairTax could possibly exist. This sort of behavior reminds me of the passage of Medicare Part D, which many Republicans said they would not support unless the projected 10-year price tag was under $300 billion. The administration swore up and down the the price would be less than $300 billion, but secretly suppressed studies showing precisely the opposite until after the bill passed and was signed into law. So now we’re stuck with a bad law with an exploding price tag that will wind up costing us tax-payers trillions of dollars. The moral is: it’s always bad to face up to bad facts BEFORE it’s too late.
What I find completely amazing with all these responses is a key issue that seems to be missing I’m not sure if it’s because everyone is trying to impress each other with their vast knowledge of the tax code or is it because none of you have ever been on the receiving end of our dragooning IRS where any issue of probable cause is out the window. If for no other reason we need the fair tax. This is the real issue not the politics of envy that seems to be the common thread …………we are living in fantasy land if we think we are truly free as long as complete strangers having access to personal information that we wouldn’t share with our friends/family. So let’s keep our eye on the ball the details can be worked out once it’s in place
My comments on Hayden’s show – some constructive criticism and some debated points. I’d first like to say congrats and nice job. Good debate is needed. Also, I’m sure it is very difficult being on the radio as you stated so you might be able to write some of these comments off to radio jitters and time constraints.
The exclusive / inclusive thing was hard to follow as you often used exclusive from what I could tell but then would compare to 23% rate, which is inclusive. I think inclusive would be easier for everyone to follow but pick one and go with it or perhaps state that it is exclusive or inclusive. It makes your argument sound weak as the numbers are so vastly different.
Rates: Gale is a good debating point. His study is solid, available, and arguably a study of the FairTax legislation as written. Though I’m not sure it’s fair to use the 10 year average without discussion. Perhaps the 2007 rate when you’re on the clock. Tax Panel is weaker as they did exempt government, methodology is not available for review, and arguably self serving. The other studies get into some of the same issues and some (such as the JCT) studies different tax plans altogether like the Billy Tauzin’s Individual Tax Freedom Act. I think pulling in all these other studies (against a knowledgeable person) works against you.
Tax avoidance: I debate the aspect of buying used goods to avoid the FairTax. I see that as a big misconception of the FairTax – that used goods are FairTax free. They are from the retail side, but the inherent value of a used good includes the taxes paid when the good was sold at retail. The value is determined by the supply and demand in relation to new goods. For example, I buy a new house for $200,000 and I then have to sell it. I will sell it for $200,000 (not $154,000). The house is worth $200,000 based on market. If you sell something used, your looking at how much it cost you to buy it and the relative value for someone else to buy it used. This includes the FairTax cost. So the point is that there is not going to be some huge cost difference (equal to the FairTax) with someone buying something used. Now I’m sure they will find other ways for tax avoidance but I don’t think this example works for you in an argument (at least it doesn’t work for me).
Anyway… Well done – I think you and Phil had a good debate going. So when is the Kepner Tax Act going to be ready. I’ll support you.
Morphh,
What you are talking about, with regards to tax avoidance, can be described as the “Embedded Cost of the Fairtax”. This is a poorly understood feature of the Fairtax. I think many folks continue to believe that the prices of “used” goods will be 23% plus wear and tear less expensive than “new” goods. This is clearly an unrealistic expectation as you point out. The market force relationship between used and new goods isn’t going to change one dime should the Fairtax become law.
But Hayden is correct when he points out that tax avoidance by buying used goods could impact total federal tax revenue. So, if you get some sort of pleasure out of not paying taxes, and you are willing to lower your life style (and buy used underwear at Goodwill?), the government will receive less revenue, but you won’t be saving any more money than under the current tax law.
The opportunities for tax avoidance, however, are somewhat limited. There are no used services, which accounts for half of everyones budget on average, and no used goods such as food or restaurant meals, or gas for your car. When I look at my personal budget, I can’t find any expenditures that would be candidates for a switch to used. And I’m not sure that the wealthy will buy used cars, boats, houses, furniture, etc. just to avoid federal taxes? But I’ll leave that to Hayden, our resident “owner of wealth”???
You’re right, Hank. Forget this “used boat” stuff.
As the resident “owner of wealth”
I’m saving up to buy my a new yacht. In the Bahamas!
I’m posting this for Hayden since I mistakenly deleted it.
Thanks for your comments. My quick replies:
1. I’ve tried to argue the inclusive/exclusive rate thing before. It takes a lot of time to explain to people who aren’t knowledgeable about it and caused most people’s eyes to glaze over.
Actually, being the cynic that I am, I think that’s the whole idea of the FairTax folks using the tax-inclusive rate in the first place. They know most people have no idea what a tax-inclusive rate is, but that it sounds nice and low. And they’ll turn the channel or fall asleep before they’ll sit through a discussion of the difference between that and the tax-exclusive rate. So, I just skip the explanation and go right to the tax-exclusive rate.
2. In mentioning the various studies, I was not trying to say that they are without flaws, but many folks who have only heard of the FairTax from a certain popular talk-radio host believe that ALL of the legitimate studies of the FairTax support the 23% rate, and the only studies that don’t were paid for by tax lobbyists or others with a vested interest in keeping the current system. In noting the various studies, my point was that it is ridiculous for (certain) FairTax proponents to keep arguing that ALL of these variious economists or other groups had some secret agenda to discredit the FairTax, which is essentially the argument they make time and time again. For example, Phil implied that the Tax Reform Commission had started off with good intentions, but that the lobbyists must have gotten to them which is why they ended up criticizing the FairTax. Many people believe that very thing (because it’s repeated over and over again), but aren’t aware that several studies and reports about the FairTax from various sources have reached the same conclusions as did the Tax Reform Commission.
3. I think your point on Tax Avoidance is a good one: that the price of used goods will rise under the FairTax so they won’t be any relatively cheaper to new goods than they are now. But FairTax proponents like to claim that the FairTax is a “voluntary” tax. That is, you only pay it when you CHOOSE to pay it. The clear implication is that you can avoid paying the FairTax (and save a ton of money) by buying used goods. Well, if the price of used goods goes up by the same percentage as the FairTax, then you’re really not saving anything by buying used. Then the tax becomes much less voluntary. My point is to try to force the FairTax proponents to admit the inconsistency of their various arguments, but Phil didn’t bite on that one so we didn’t get into it.
Anyway, thanks again for the comments. I learned a long time ago that any criticism, constructive or otherwise, is very helpful.
Hayden,
I have a hard time understanding your theory on their being an equal rise in the price of used items as in new items. It seems that the only possible way that this would happen would be that the benefits of buying used WOULD be large enough initially to drive up demand for used goods so much that it would increase the value of used much more than just the 23%. My difficulty with grasping this is due to the fact that although I’m doing pretty well now, I have been in a position, both as a child and a young adult where I regularly needed to find Great deals on used items. When doing this, if your frugal and wise, you can find necessities or even non-necessities that are priced without regard to purchase value. So, if i were to purchase a piece of furniture originally valued at $500 but for whatever reason the owner is willing to now sell that piece at $5, even though the true value may still be $250 …..even if the people were to increase the price to $6.15 due to the 23% Fair Tax it’s still an incredible deal. Now if your talking about someone who’s debating on whether to buy a new Jaguar vs. a 5 yr. old Jaguar, or a New Home vs. a Nice used home ….now I can see your point, because the seller’s are going to be more aware of the value and willing to wait for the right buyer to collect the value of these items. It’s been a long day and maybe my mind is missing something but it seems that you would really have to segment your beliefs into Valued Used Items vs. Non-Valued used items. In my mind, the average American would see little to no benefit in buying Valued Used Items over New Items. However, Under the Fair Tax (using hypothetical numbers) if the Poverty Level is $35,000. I’m struggling to make ends meet, but a frugal hard working guy, I would now receive ALL of my paycheck plus we’ll say $600.00 month Pre-bate. I plant a nice size garden to grow some of my own food, walk or ride my bike to work, purchase Non-Valued used items, such as clothing, furniture, etc. I don’t think you can convince me that there wouldn’t be a benefit from the Fair Tax to me …that stuggling Low Income guy.
Just to note, though I’m no longer that guy, I still hunt for Great deals, $5 pieces of furniture that with a little work I can turn into the equivalent of a $1000 showroom piece. Or since I have 5 growing children we have purchased $30 jeans from a Goodwill, Garage Sale, etc. for $1.00 or less. You can call it used underwear all you want but for those trying to get every bit of value out of their dollar, I don’t see how the Fair Tax is going to have too much effect.
Then again, maybe I’m missing something?
Duane,
I do know a little bit about cheating and loopholes under the current system, I run my own business and am associated with many other small ..and some larger business owners who I continually see write off items that should be classified as personal, but know the CYA tricks to write off as business expenses. If these expenses are transferred to the business side there are many more loop holes to limit the tax liability than as personal expenses, and ultimately whatever is not written off is written into the business as business expenses and then budgeted into the price of goods or services to the customer. And then there’s the article someone emailed me tonight about the billionaires/superwealthy Loophole allowing them to pay the 15% Capital Gains rate vs. the 35% Income Tax rate. I totally agree that the loopholes in the Fair Tax will depend on the implementing regulations, I’m just hopeful that if the grass roots is large enough to push this legislation through, the politicians will understand that any funny business with loopholes, etc. will not be tolerated. I’m hopeful that this movement if successful is not here to see the legislation pass and blend back in to an uncaring society, my hope is that we’ll keep pushing the government ever farther into reform.
Dennis — You sound like my wife, who grew up in poverty in Thailand. Here she discovered garage sales (which is something they don’t have over there, I can assure you.) So we buy EVERYTHING at garage sales. Our dining rooms set; our bedroom set; all our children’s clothes. Since we live in an upper-middle class suburb, most of the garage sales have some pretty nice stuff, though sometimes she probably takes it to the extreme. (Haven’t stooped buying to used underwear, though.)
And, you’re right, there will be varying prices for used stuff. But, as you say, the priced of used cars and houses will probably (though not definitely) rise in some relation to the FairTax rate imposed on new cars and houses. Other stuff — used furniture, clothing, etc. — probably much less so.
Yes, theoretically someone could live reasonably well and pay little in taxes under the FairTax by simply being frugal and buying used. But, that assumes that the tax rate will really be (and remain) 23%. And, of course, this shifting in consumption from new goods to used goods will drive the required tax rate up even higher (at least to some extent). If the rate is substantially higher, I believe the additional taxes on things one cannot buy used — such as rent, medical care, health insurance, utilities, gasoline, prescriptions, etc. — will impose a higher cost on most people than the savings they will achieve by being frugal and buying used.
At this point I don’t have any real evidence as to how much shifting of consumption will occur from new goods to used goods, so I readily admit that it is pure speculation on my part. But having observed the real-world behavior of tax-hating Americans (and cheap folks like you and my wife
), I think it is safe to assume that a lot of folks will change their consumption habits under the FairTax to avoid buying new whenever possible.
Dennis –
You very well may be correct but think about this. First, the tax agency in most cases will be the state sales tax people. My understanding is that either you pay your taxes or they lock your door. Second, since the fee (.25%) in many states exceeds their current budget for the agency, it allows them to hire more people and do more in-depth audits. Also, they do not need to change their procedures because to cheat on the FairTax you will also be cheating on the state tax. Finally, it weems to me that the check is very simple. If you purchased something, declaring it is for resale, and you haven’t reported the sale and the item is not in inventory, you have a question to answer.
I’m not saying there won’t be any cheating or that they will catch everyone, but it is possible that the agrivation may override the value of cheating.
Do any of you have kids? What is left out in all this discussion is that our tax system is horribly flawed and will fail, Social Security first, with wage earners footing the expense because it’s all taken out of wage earners income (nowhere else… so the “rich” don’t pay in). At some point the system will need to change… and not everyone will be a winner, no matter what change you get behind. The FairTax just offers the softest blow, and the sooner it comes, the softer the blow.
A striking plus side to the FairTax in my mind is that it is transparent (you know at the cash register when the tax went up, not through your accountant or financial advisor who isn’t usually visited regularly).
The second huge attraction is that without all the corporate shenanigans through lobbyist with politicians, (which currently benefits only corporations and politicians, not Americans) will be reduced and studies show corporations will flock to this country, as well as other off-shore monies. The collusion between government and business at the expense of ordinary “wage earners” will be reduced substantially.
The third attraction is getting rid of the expense of running our current system to comply with our insane 57000 word tax code and if you miss something, the IRS has the power to render any individual destitute or as close as they choose to make it. All the money to run a system that is horribly flawed! I guess if my income in my old age is reduced 25%, but my kids will have a chance at the American dream, it seems like a good deal to me.
But mostly, every study shows that the FairTax will pump up the economy whereas increased taxes under our current system depress the economy and end up bringing in less money. There is no solution using the current income tax system.
I hope I don’t sound too negative… with 3 young men just starting careers, I want our generation to leave them better than the trillions of dollars of debt we currently have with no way out but socialism.
Carol — I do have kids and am very concerned with the form of society and economic burden we leave them. I think everyone on this board shares the same concerns, as you obviously do, we just disagree as to how best to address those concerns. I will try to reply to some of your points below:
1. Social security (and Medicare). These will require additional funding over the next decades. You are absolutely correct that the current costs for these programs fall on wage-earners, and the future costs will be unsustainable. (For an excellent discussion of this, from a pro-FairTax economist, I would recommend The Coming Generational Storm by Laurence Kotlikoff and Scott Burns.) Like you, Kotlikoff/Burns recommends the FairTax as a way of “softening the blow” in part by shifting a portion of funding for SS and Medicare on to upper-middle class and wealth retirees.
I certainly do not have a problem with that (although the most vocal FairTax proponents, i.e. Boortz and Linder, continue to insist that retirees won’t see their tax burdens increase under the FairTax), but we need to be honest about it. Also, we need to be honest about what tax rate will be required under the FairTax. I believe we could fund Medicare through a consumption-based tax and, possibly, even Social Security, though I believe the rate will need to be far too high to replace Medicare tax, Social Security tax, Personal Income tax, Corporate tax, and the Estate Tax with a consumption-based tax.) We can only do so much.
2. I agree with you that the FairTax would be more transparent than the hodgepodge of different and confusing tax systems we currently have. I also agree wthat it will be less likely to be tampered with by lobbyiests and cheaper to administer than our current tax code.
3. I think your contention that “studies show that corporations will flock to this country, as well as other offshore money” might be subject to dispute. Those are claims that are routinely made by Boortz and Linder, but, as far as I know, they have never cited to any actual study supporting those claims. (They have a tendency to exaggerate, by the way.)
4. “Every study shows that the FairTax will pump up the economy.” I would take slight issue with that. I agree that most economists believe that a consumption-based tax system is, in general, more economically efficient than an income-based tax system, at least up to a certain tax rate. Though just how much the economy would benefit is certainly disputed. And, once the rate gets too high, I believe most economists believe that the evasion and avoidance that would occur under a consumption tax will cause economic distortions that might counter-act any economic beneifit a consumption-based tax would bring. (E.g., if fewer people bought new homes and new cars in order to avoid paying the FairTax, that would have an adverse impact on the housing and auto industries.)
So, all in all, I believe there are potential benefits under the FairTax, but clearly there are problems as well (particularly if, as I believe, the rate would need to be 50% or higher). I just want to see the problems discussed honestly so folks have a true picture of the positives and negatives before diving into something that would fundamentally change our country.
If we are to assument that the Rice study is absolutely correct, and the tax rate needed to replace existing payroll, income and estate, gift and gst taxes is 28% rather than 23.8% (39% tax-exclusive rather than 30% tax-exclusive), the operative word still is “replace.” The higher rate is nothing more than how much the federal government is already taking from the host organism today.
In debating numbers, we must not lose sight of the principle that the Fair Tax changes only how the tax is collected and shifts the tax burden away from the productive sectors of the economy. In other words, the numbers are almost irrelevant.
~Jim