Flat Tax vs. FairTax – Transition?

July 29, 2008  ·  Filed under: Education, Uncategorized, vs. Flat Tax

The Heritage Foundation’s Dan Mitchell discusses the current tax code and offers solutions for fundamental tax reform.


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43 Responses to “Flat Tax vs. FairTax – Transition?”
  1. This video is sort of a redux of what I saw 15 years ago when I first heard about the FairTax. There was a “debate” in Houston between the Flat Tax and the FairTax. Congressman Dick Armey spoke for the Flat Tax; Rep. Billy Tauzin spoke for the FairTax.

    But — surprise, surprise — it wasn’t a debate at all. They both said how wonderful their respective programs were, and how each would be a great improvement over the current Tax Code. But they didn’t challenge any claims, they didn’t criticize each others proposal; they didn’t point out the cons of the other sides tax plan. It was just a “rah rah” session to bash the current Tax Code. The bottom line was that no one learned anything substantive about the real pros and cons of the competing systems.

    That’s what this video reminds me of. He starts out saying what (he thinks) is bad about the current system, then jumps to the conclusion that both the FairTax and the Flat Tax are both improvements. So, let’s implement one now and then maybe get the other later!

    This might satisfy those who already are sold on one plan or the other, but for anyone hoping to see a real “debate,” it is just another disappointment. Once again, as far as I can tell, the FairTax has never been debated in public.

    Hayden Kepner  ·  Jul 29, 2008 at 8:52 pm  ·  Permalink
  2. Sorry if the title implied it was a debate (that was the title they used). I’d be fine with a transition. I’d be fine with either one. I’d be fine with part of one. Something, anything…

    Morphh  ·  Jul 30, 2008 at 10:53 am  ·  Permalink
  3. re: hayden kepner

    “Once again, as far as I can tell, the FairTax has never been debated in public.”

    so, the 4-11-06 debate between Neal Boortz and Micheal Graetz at CUNY wasn’t a public debate?

    in case you missed it:
    part 1 (30 minutes)
    http://video.aol.com/video-detail/fair-tax-debate-neal-boortz-and-michael-graetz-part-1-of-2/1715481073
    part 2 (about an hour)
    http://video.aol.com/video-detail/fair-tax-debate-neal-boortz-and-michael-graetz-part-2-of-2/592985232

    Justin  ·  Jul 30, 2008 at 10:58 am  ·  Permalink
  4. Justin– You are right. I stand corrected. Although I guess I would call that a semi-debate in a semi-public place. It’s a semi-debate because the topic of the debate did not specifically focus on the FairTax as both Boortz and Graetz were promoting their own tax-reform plans; however, most of the debate clearly was about the FairTax (mainly because Boortz didn’t seem to know anything about Graetz’s plan so he couldn’t coment on it.) It was a semi-public debate in that, as far as I could tell, there were only about 50 people in the audience and I doubt if more than a handful had ever heard of Neal Boortz or the FairTax.

    Just for grins, I listened to most of the debate last night and made a few notes. Interestingly, they repeated many of the same things we’ve discussed on this board. Here is my take:

    1. Embedded Taxes/Price of Goods/Effect on Wages. As Justin would say, Boortz started out “implying” that folks would keep 100% of their paychecks, since they’d no longer have taxes taken out,, but that prices would remain about the same under the FairTax since embedded taxes would be eliminated.

    Graetz pointed out that this was mathematically impossible and read an email exchange between himself and Graetz on that very topic. Boortz then hemmed and hawed about employers having to make a “choice” about what to do about wages, but Graetz finally pinned him down on the fact that under the FairTax either wages go down or prices go up. You can’t “keep 100% of your (current) paycheck” without prices going up.

    2. Graetz made a point that tax compliance is highest when there is automatic withholding and lowest when there is not automatic withholding, but did not make the point that there would be no automatic withholding under the FairTax so it is highly unlikely that compliance would be as high under the FairTax as it would need to be. Boortz ignored the point entirely.

    3. Graetz thought it was a good thing that the rich paid most under out income tax system since they have the most money. He then pointed out that under the FairTax the rich would pay less, the poor would pay nothing, so the middle class would need to pay more.

    Boortz ignored the point that the rich would pay less under the FairTax, and instead gave his usual speil about how the rich are rich because “they keep doing the things that make them rich.” He then said that though the middle class might pay more at first under the FairTax, AFFT had a study claiming that over the long run the middle class would not pay more. (In other words, he ignored the point that if the rich pay less under the FairTax, who’s taxes are going to increase?)

    4. Graetz said the pre-bate would cost $600 billion a year and be the largest entitlement in history, larger than Social Security and Medicare combined. Boortz said that the prebate would not be too dificult to adminster and was necessary so as not to burden to poor too much under the FairTax.

    5. Graetz said the 30% (tax exlusive rate) would not raise enough money.) He cited to the Tax Reform Commission’s report that a 34% tax-rate would be required just to replace the income tax. Boortz basically ignored that point.

    6. Graetz said that the FairTax would force states and local governments to raise taxes. Boortz ignored that point.

    7. Graetz said that the FairTax folks are unrealistic when they think that the FairTax would tax 84% of GDP. He said other countries using the VAT can only tax about 50% of GDP. Boortz ignored that point.

    8. Graetz said that under the FairTax legislation, government employees, including soldiers, would get a double whammy. First, they would have to pay 23% withholding taxes, and secondly, they would face a 30% tax on the goods and services they consume. (I’m not sure I understand the 23% withholding. I think the assumption would have to be that the government would pay 100% of the current wages to a government employee, then pay an additional 30% tax to itself. But I’m not sure. Graetz said twice that the 23% witholding was in the FairTax legislation) Boortz did not understand the point about the 23% withholding and said he’d have to address that some other time. As far as I know, he never has.

    So from my perspective (being a FairTax opponent), it seemed to me that none of Graetz’s criticisms of the FairTax were really addressed by Boortz. In fact, I don’t believe any of these points have ever been addressed (other thatn the “keep 100% of your paycheck” argument), even in the latest “Answering the Critics” book.

    Does anyone disagree?

    Hayden Kepner  ·  Jul 31, 2008 at 10:12 am  ·  Permalink
  5. most of the points you raise can probably be answered here:

    http://www.fairtax.org/PDF/FairTaxRebuttal.pdf

    look thru that, see if the FairTax people rebutted Graetz’s points to your satisfaction.

    looking thru your list, most of those points are valid….and are not the detriment to the FT that you hope they are.

    (my stuff…i’ve not looked thru the FT rebuttal since it was posted two years ago)

    1) this is simple logic, and i’ll admit, i’ve fought this global misunderstanding more than anything else. but, the fact remains, either everything goes up 30% or everything stays the same (everything = what you get to spend, and what things cost). in either case, the FT doesn’t cause a loss in purchasing power. the first book was accurate, but poorly written and easily misunderstood, which is why the paperback was revised to more accurately (less ambiguously) make the point.

    you do get 100% of your paycheck (whatever that ends up being) and the purchasing power of that paycheck is not affected.

    2) again, simple logic that is nothing more than a straw man in this context. 100% government confiscation of income with marx-ist style redistribution would be completely evasion proof…..but it’s not in line with American ideals. trying to compare evasion rates of localized sales taxes to possible evasion rates of national sales taxes is nearly impossible. and, based on the recent revelation of the billions of dollars in unpaid payroll taxes, suggesting the FT is less ‘evasion-proof’ than the current system is nearly laughable.

    3) I’m not sure i’ve seen definitive proof that the rich would pay less than they currently do under the FT, or that the middle would pay more. i’ve seen rate charts that model that, but i’ve also seen graphs that suggest the oceans will boil over in a couple dozen years. I’ve done the math for me and mine (people i’m most concerned about), and in every single case, we come out even or ahead. i can’t find anyone who can give me a scenario where they come out behind (or behind enough to warrant the level of concern this point is given).

    4) more factually accurate straw men. i read your point and my immediate thought is “Aaaaaaannnnnnnnd?…..”. so what if it’s the biggest ever? i didn’t realize it was a contest. I love how the prebate is a “hideous and ginormous government program”, while the standard yearly return-refund-audit cycle is just part of the cost of running a country.

    5) The tax reform commission was specifically not allowed to look at the FT as it is written, so they yanked out part of the base (housing IIRC), then complained the rate wasn’t high enough to make the necessary revenue. well, yeah, that tends to happen. let the TRC actually work the numbers on the FT and they’ll come up with the same stuff everyone else (who has given it a fair shot) has….the numbers work, regardless of your opinion about the program.

    6) Graetz has little to no support for that statement. since 45 states currently operate income taxes based on the federal system, the removal of the federal system will force nearly all of them to re-write the state code. they still have the same budgetary concerns, and if the cost of government business goes up 30% (due to them being forced to pay the FT), the source of public funding goes up 30% as well.

    your point is about as logical as me pointing out that Graetz didn’t allow for or acknowledge the currently uncollected fee-income the FT will generate for the states. he should have, right?

    7) considering the current savings rate of the average american, only being able to tax 84% of the money made in this country almost seems low. again, comparing the FT rate to a VAT rate is a worthless comparision, especially when you consider the amount of socialist polices most VAT countries fund with their taxation.

    8) gratez is basically double-speaking. he is correct that the federal government will pay 23% of the total it pays to a soldier in FT to the federal government (sounds like a wash to me), and that the soldier will pay full retail prices just like every other citizen. you could make the argument that that 23% lowers the payroll-budget of the government……however:

    if you are going to take that position, then you must also acknowledge that the “business side” of the current payroll taxes does the exact same thing, and we can start comparing the FT to the full cost of payroll taxes, not just the “employee-side”.

    while you are correct that Boortz did not address many of Graetz’s concerns, i’ll submit that most of them are not really worth addressing, as most of them are created by Graetz’s misunderstanding of the plan or the existing evidence for and against it.

    i think i’ll re-read the FT’s rebuttal, it’ll be interesting to see how close I got to what they said. (who knows, i might learn something new)

    justin

    Justin  ·  Jul 31, 2008 at 12:00 pm  ·  Permalink
  6. Justin — We will never agree on this, but I enjoy the exchange. Here is my rebuttal to your rebuttal.

    1. Purchasing power remains the same only if the FairTax is only 30% (tax exclusive). If the required FairTax rate is much higher — as Gale, Graetz, Jorgenson, the Rice study, the Tax Commission and the Congressional Joint Commission on Taxation all believe it will need to be — then purchasing power is lost.

    In other words, let’s assume that you keep 100% of your paycheck and prices rise by 100% of the tax-exclusive Fairtax rate. If the FairTax rate is 30%, your purchasing power remains relatively the same, because you would have gotten a “virtual raise” of around 30% by the elimination of personal income taxes, social security and medicare tax.

    But if the FairTax rate is %50, you lose. That is, prices will rise by 50%, but you will still only get a 30% “virtual raise” by the elimination of the current taxes. So, it all depends on what the FairTax rate will need to be.

    2. In fact, if you had read earlier posts (or the AEI debate), you would see that Dr. Jane Gravelle of the Congressional Research Institue found studies showing that evasion rates of sales taxes (and VAT taxes) are quite high — well above 10% even when the sales tax rate is in the single digits. England, with a VAT of around 26%, has an evasion rate in the 20% range. So, it is certainly logical to assume that the evasion rate of the FairTax will be quite high, particularly in light of the fact that it will be in ADDITION to state and local sales taxes. (And, when I use the term evasion, I’m including legal non-compliance, such as purchasing used cars instead of new cars, as well as actual cheating.)

    3. If you look at any study on the consumption rate of high income familiesversus the consumption rate of low and moderat income families, you will see that high income families tend to spend a MUCH lower percentage of their incomes than do low/moderate income families. Or, to put it another way, the rich have more money to save. Since only consumption is taxed under the FairTax (and, only certain consumption at that), on average a high-income family will pay a much smaller percentage of their incomes in FairTax than would a moderate income family.

    Now, you could say “what about the ‘trust fund babies’ who don’t pay any income taxes? First, they pay capital gains and dividend taxes, as well as estate taxes when they inherited their money. All that would be eliminated under the FairTax. Second, “trust fund babies” probably already have substantial assets — houses, vacation homes, etc. — so their actual spending might be relatively low in comparison to their wealth. Third, if prices go up too much in the US under the FairTax, they could very well decide to move to another country where they could spend their trust funds FairTax free.

    Finally, Kotlikoff says that the FairTax is a tax on wealth because he claims that all wealth is eventually spent. That’s just not true, particularly for very rich families and particularly if the income tax, capital gains tax and estate tax are all eliminated. With certain high-profile exceptions (such as certain pro athletes and entertainers), most wealthy families actually INCREASE their wealth over time through investments, real estate, privately-held businesses, etc. So, to say that they will spend all of their money on taxable goods and services is just nonsense.

    4. I agree with you about the prebate. I never thought the administrative hassle would be that big of a deal. I merely listed it because Graetz seemed to think it was a big deal and I’ve seen others make similar arguments.

    5. The Tax Reform Commission did NOT yank housing. If you read Chapter 9 of their report, they examined three types of consumption taxes. The FairTax without the prebate, the FairTax with the prebate, and a sales tax using the average state sales tax base. Using the FairTax with the prebate, and assuming a 10% tax-avoidance rate (i.e., less than under our current system), they concluded that a 34% (tax-exclusive) rate would be require to replace our current income tax system. (By the way, AFFT’s rebuttal of this point is just plain wrong. Read the the report itself.) I don’t know what you mean by “IIRC.”

    6. I don’t understand your rebuttal here. Under the FairTax, states will need to pay taxes directly to the federal goverrnment based on their spending. So, if the state of Georgia builds a road for $1 billion, it will need to pay at least $300 million in taxes to the federal government (assuming a 30% tax-exclusive rate). The only way the state of Georgia can get that extra $300 million is by raising the taxes on its citizens. I don’t think anyone disputes this.

    7. Graetz points out that 84% of GNP translates to 120% of personal consumption. (The additional amount presumably comes from taxing government spending.) The comparison with European countries using a VAT is perfectly reasonable. Surely these “socialist” countries want to squeeze every drop of tax revenue out of their citizens as possible. If they can only tax 50% of GNP using a VAT, what makes you think we could achieve a substantially higher rate using the FairTax? (As I understand it, a VAT is actually much easier to collect than a normal sales tax, since it is added to every step of the distribution process, not just at the retail level.)

    9. I don’t understand your response here, but I didn’t understand Graetz’s argument either. I will file this one under the category of “What is the effect of the federal government taxing itself under the FairTax?” We’ve tossed that question around a lot on this board, but I don’t think anyone really knows the answer.

    Hayden Kepner  ·  Jul 31, 2008 at 1:57 pm  ·  Permalink
  7. the first book was accurate, but poorly written and easily misunderstood, which is why the paperback was revised to more accurately (less ambiguously) make the point.

    The first book was not accurate. It was just flat out wrong.

    trying to compare evasion rates of localized sales taxes to possible evasion rates of national sales taxes is nearly impossible. and, based on the recent revelation of the billions of dollars in unpaid payroll taxes, suggesting the FT is less ‘evasion-proof’ than the current system is nearly laughable.

    Now who’s using logical fallacies?

    if the cost of government business goes up 30% (due to them being forced to pay the FT), the source of public funding goes up 30% as well.

    How do you figure that?

    considering the current savings rate of the average american, only being able to tax 84% of the money made in this country almost seems low.

    What does the savings rate have to do with it being difficult to collect sales taxes on certain parts of the economy?

    Fred Johnson  ·  Jul 31, 2008 at 3:03 pm  ·  Permalink
  8. Hayden, I don’t get you’re point number one regarding #1 and purchasing power. The tax equals the tax – you’re just moving it from income to consumption. If the FairTax is 50%, than it would seem we’re collecting more than 50% of the income base. Whatever the cost is to society, it should be similar under the FairTax. If the tax is significantly more, than that means Jorgenson was wrong regarding 22% and it should have been higher. Changes in overall income should be equally reflected by changes in overall price, whatever that may be.

    Morphh  ·  Aug 1, 2008 at 3:47 pm  ·  Permalink
  9. Morph —

    Jorgenson concluded that the “embedded taxes” were, on average, equal to 22% of retail prices. So, if all of the embedded taxes were somehow eliminated from the price of goods, prices would fall by 22%.

    Boortz/Linder then said that since the FairTax rate is going to be 23/30%, so when you add the 23/30% to the price of those goods,, then the price wouldl be around today’s level.

    BUT — when I asked Jorgenson what he thought the FairTax rate would need to be in order for it to be revenue neutral, he cited me to the Gale study, which, as you know, concluded that the rate would need to be far higher than the 23/30%.

    So, let’s assume for sake of argument that the tax-exclusive rate under the FairTax is 50%. And let’s take an item that costs $100 today. Assume that we switch to the FairTax and squeeze out all of the embedded taxes, the pre-tax price will drop to $88. When you add a 50% tax to the $88, the after-tax price jumps to $132. Thus, even if one’s net income remains the same after the FairTax, the price of goods goes up, so one’s purchasing power is reduced.

    In other words, to the extent that the FairTax rate exceeds the 23/30% rate, purchasing power will be reduced under the FairTax. Does that make sense?

    Let’s take 50% as a hypothetical example. If the pre-FairTax prices drom to concluding that the rate would need to be 40%-60%. So, if you add the 40%-

    Hayden Kepner  ·  Aug 1, 2008 at 5:58 pm  ·  Permalink
  10. hayden –

    1: if the rate (whatever it is finally figured to be) is instantly revenue neutral, then the same amount of work, BY DEFINITION, must buy the same amount of goods. there is only so much income, and only so much consumption, and the equation between them doesn’t alter very much. since the rate is the only part of the FT that could be easily changed, and since the rate appears to be designed to change to remain neutral, i’m not concerned about it being too high or too low in the instant case.

    wouldn’t it be funny to see the rate drop (due to economic growth) to 23% or so in five years from a start of 28%? would the people currently raising a stink about the 23% rate be willing to acknowledge their short-sightedness?

    2: still comparing evasion rates of VATs and state sales taxes to the FT. it can’t be done with any reliability. I don’t care how many studies prove that evasion rates of those goes up as the rate does……they are not the same thing. I’m willing to bet evasion rates of income taxes (legal and illegal) go up at a steeper angle and VATS and sales…..yet noone seems to be bothered by then when a “rate increase” is proposed. (or, in the current democratic mindset….”well, we know that the filthy rich are going to evade a 15% hike more than a 10% hike, so lets raise it 20%, so we can net about 15%”)

    and really….more people are going to buy used cars to evade the taxes? where are these used cars going to come from? i wasn’t aware of a used car manufacturer selling in the US.

    if you want to have used cars…..you have to have new cars.

    3: make up your mind. do you want to compare current income tax rates, or current consumption rates? your rebuttal is completely non-responsive to my point.

    also, could you find me a reclusive trust fund baby that doesn’t spend money like they didn’t earn it? all the ones I see tend to waste money on all sorts of new consumer goods. (warren buffet’s children might be the exception here)

    re: “spending all their money…is nonsense.”……

    um, what else are they going to do with it? they can’t take it with them and they can’t eat it. they are either going to spend it, or they are going to give it to someone else to spend. (i guess….they could have it buried with them…..and therefore, not spend it and prevent anyone else from spending it……but that’s probably not going to happen enough to warrant making this big a deal out of it)

    4: sweet, i knew there would be something (how do you feel about Rice’s opinion that the EIC would be maintained?)

    5: aaahh, if only you had noticed that part where i said i hadn’t read the rebuttal for two years…or if only you knew that IIRC is internet shorthand for “If I Recall Correctly” which i obviously didn’t. i’ve heard lots about the report, from they weren’t allowed to look at the FT as it is written, to they yanked part of the base, to what the AFFT had in their rebuttal. i’m going to have to see if i can find the truth to this one (unless the report shows the math they used to work the FT….and i don’t think it does…..i just don’t feel comfortable with taking their word for it.)

    6: where does the extra $300 million come from? from the increase in tax revenue (not rate) spurred by the increase in the income of it’s citizens, i guess. looking at Georgia’s population, that’s about $37 a head. i hope they can afford it.

    7: “As I understand it, a VAT is actually much easier to collect than a normal sales tax, since it is added to every step of the distribution process, not just at the retail level.”

    well, there you go. as you understand it, requiring each and every manufacturer of each and every component of an item to submit paperwork and tax revenue based on variable rates on some periodic basis is easier than requiring each and every retail seller to submit a constant rate based tax revenue?

    methinks you need to work on your understanding.

    9: (used to be eight…but the numeral and the parenthesis made the shaded smiley). the rice study (and everyone else, according to them) says that the FT calcs demand a reduction of 23% in gov’t spending, since the calcs don’t properly cover the FT gov’t spending incurs. since the calcs do not bump the spending 30%, the 23% rate is figured on a 23% reduction in total gov’t expenditures. (since part of those expenditures include the FT paid when the gov’t pays an employee, and since they’ve decided that the FT is going to go on top of current retail prices and employees will get an effective raise in their spendable income…..)

    it’s confusing, and it’s final result is not known, but i can appreciate the concern.

    graetz took it a step further and said that military people would see that 23% come out of their paychecks (since the government is forced to pay it while private businesses are not). it’s a fair, tho misleading, statement based on the pre-rice knowledge of the FT, and my rebuttal to that was based on the same logic.

    if the government being forced to pay 23% in FT for its payroll expenses results in military people ‘losing’ 23%….then my private employer being forced to pay their side of current payroll taxes results in me ‘losing’ that pay.

    if i add that ‘lost pay’ into my personal FT comparison figures, on top of the current income and payroll taxes i have withheld, i come out even further ahead.

    Justin  ·  Aug 1, 2008 at 6:30 pm  ·  Permalink
  11. fred:

    i don’t have a copy of the hardback version of the first book handy, so i can’t quote it. but, from what i rememebr, the wording was poor and easily misunderstood; it was not, however, a lie.

    logical fallicies?

    hayden stated that graetz noted “that tax compliance is highest when there is automatic withholding and lowest when there is not automatic withholding, but did not make the point that there would be no automatic withholding under the FairTax so it is highly unlikely that compliance would be as high under the FairTax as it would need to be.”

    i responded with two points:
    1) you can’t compare state sales taxes or the VAT to the FT evasion-rate wise.
    2) recent (tuesday of this week) news accounts show that “automatic withholding” systems (like the payroll taxes) can be easily avoided for years. sure, the employees got that money automatically withheld for them….and then their employers pocketed the money, and never sent it in to the gov’t.

    show me the method by which that happens under the FairTax. show me how my local wal-mart pockets 22.75% of their receipts without the state knocking on their bookkeeper’s door.

    30% vs 30%:

    it’s a closed loop. whatever rate winds up being revenue neutral forces a balance between income and outgo. if a state has to come up with 30 “extra” dollars, its a fair bet that everyone in the state has the extra income needed to cover the tax required to cover that.

    savings rate:

    very few people in america save money. if they aren’t saving it, they must be spending it. if they are spending it under the FT system, they are getting taxed on it.

    doesn’t matter much where they are spending it, or when they spend it…..the fact of the matter remains…they spend it.

    and if they don’t, then the bank they are saving it in lends it to someone else….and THEY spend it…and get taxed on it.

    regarding my original response to hayden’s original post. when he posted ‘84% or 50% of GDP’ i assumed that he actually meant that only 84% or 50% of GDP was taxable (or accessible to taxation), not that taxes accounted for (would need to account for) 84% or 50% of GDP.

    Justin  ·  Aug 1, 2008 at 6:48 pm  ·  Permalink
  12. Hayden,

    In response to post 9, Jorgenson also found the revenue neutral tax rate (in 1996) to be a little under 23% (my perusal assumes he is not doing the fairtax specifically, so prebate and education exemption might at least be different) But the point is if you’re using his numbers for embedded taxes, you shouldn’t just disregard his numbers on the rate.

    If I remember correctly, the Kolitnikoff rate assumed that the taxable consumption base was approximately 80% of GDP. This makes perfect mathematical sense with the rate calculation since receipts in 2006 were 18.5% of GDP and .185/.8=.23125. Of course, this doesn’t include the prebate, so the 80% must be low. However, using this same math, your 50% rate means that the taxable consumption base is only 37% of GDP because .185/.37=.5. I’ll grant you that I’m not an expert on GDP/consumption make up, but doesn’t 37% seem a little low?

    Average purchasing power will not go down. Maybe you think it will rise for the middle and go down for the poor and the rich (of course I don’t) or have some other shift, but you can’t think it will go down if the government collects the same amount of revenue and all else is constant. Right? If your $132 scenario occurs and those demanding the product truly have a reduction in purchasing power, then the $132 price will immediately drop (because there will be less demand and the supplier will have a surplus).

    Of course, we might be talking past each other (proponents and opponents in general) based on how we define “more expensive”. I think you might define it as costing more dollars where I define it as costing more effort (effort from a production standpoint). So you think things are astronomically more expensive today than they were in 1900, while I think exactly the opposite (especially considering a large percentage of what we have today didn’t even exist in 1900).

    Andrew Martin  ·  Aug 2, 2008 at 2:00 am  ·  Permalink
  13. Andrew — I don’t follow everything you are saying, but you nailed it when you said that proponents and opponents are talking past each other.

    Over the years now we’ve had many (mostly friendly) discussions and reviewed many studies and scenarios, but you, Justin, Morph, Joshua and the other FairTax supporters see things one way, and Fred, me and the other opponents see things differently. (Hank seems to vacillate a bit. Maybe that means he’s more open-minded. :))

    For some reason, it’s like our brains just work differently. We read the same things but come to opposite conclusions. I read a study once where hard-core Repbulicans and hard-core Democrats read the exact same articles or watched the exact same news reports, yet came away with completely different interpretations of what they read or saw. That’s what we are like. Republicans vs. Democrats. Atheist vs. Evangelicals. (Stalinists vs. Trotskyites?).

    It’s reallly fascinating that a tax-reform plan could generate this sort of black and white reaction. Neither side wants to give an inch. I can’t think of any other tax reform plan or economic policy that gets people so worked up. Usually, most people would agree that there’s pluses and minuses, good points and bad points, winners and losers in any plan.

    But not with the FairTax. Regardless of whether its a good idea or a bad idea, I think the passion it generates in people is a really interesting phenomena.

    Hayden Kepner  ·  Aug 2, 2008 at 8:07 pm  ·  Permalink
  14. show me the method by which that happens under the FairTax. show me how my local wal-mart pockets 22.75% of their receipts without the state knocking on their bookkeeper’s door.

    Why would they knock on WalMart’s door? How would they even suspect them? How would they suspect my lawn guy? Or the Chinese restaurant I went to last night and paid in cash?

    My lawn guy doesn’t even own any money to the state. Why would the state even waste a stamp to send him a notice? For 0.25% of what they collect? What’s the risk of him keeping the FT he collects? You’ve removed the Fed’s collection agency and have a large area of the economy (most services) that the states don’t care about collecting the FairTax on. You’ve got a gaping hole in your FT collection scheme.

    Fred Johnson  ·  Aug 3, 2008 at 9:46 am  ·  Permalink
  15. Hayden, what I was saying is that Jorgenson’s 22% is the cost of the tax system (income taxes). If the FairTax rate is much larger, than Jorgenson is wrong and the embedded tax cost is higher than 22%. Maybe the embedded cost is 28%. In any case, the tax cost equals the tax cost. You can’t use Jorgenson’s 22% current cost, and than say the Fairtax is 50%. They have to be relatively equal (to some degree – some diff due to prebate, size of base, etc). The cost of the “embedded tax system” should be approximately the same as the inclusive FairTax rate. Income increases should generally equal price increases. We’re shifting from one place to another.

    Morphh  ·  Aug 4, 2008 at 1:32 am  ·  Permalink
  16. Morph — I see your point and do not have an answer. You would need to ask Jorgenson about that. If the esteemed editor of Wikipedia sent him an email on that, he might be wiling to respond. (Particularly since you’ve also put in a bit about the Efficient Taxation of Income.)

    It always seemed to me to be way to convenient to say that the “embedded taxes” are 22$, and therefore we can simply replace our entire tax system with a 23% (30%) tax rate on consumption. As I’ve discussed on other threads,

    1. For the 23% tax rate to work, each of the 115 million or so American families would need to spend around $140,000 per year on taxable goods and services. (OK, spending by state and local governments are also taxed, but they get their money from their own taxpaers, so it comes out of our pockets one way or another.)

    2. Some European countries have VATs in excess of 20%, but the VATs don’t come close to funding their governments; they also have income taxes, social security taxes, corporate income taxes, etc. Why can’t the countries that use a VAT eliminate even one of these other taxes?

    I’m not trying to rehash these arguments. I’m just pointing out that the whole “embedded taxes equals 22% so the FairTax would equal 23%/30% just never was too convincing to me. I’m sure there is an explanation somewhere, I just don’t know what it is.

    Hayden Kepner  ·  Aug 4, 2008 at 7:33 am  ·  Permalink
  17. FRED:

    “Why would they knock on WalMart’s door? How would they even suspect them? How would they suspect my lawn guy? Or the Chinese restaurant I went to last night and paid in cash?”

    As a public company, Wal-Mart’s receipts are probably pretty easy to come up with. if those receipts don’t match the tax revenue they pay, they will quickly be caught skimming.

    Your lawn guy may or may not operate as a business in the first place. if he does, he’ll be required to submit paperwork to the taxing authority. if he skims (or he claims a ton of tax exemptions vs the job income he claims) he’ll be easily caught.

    the Chinese restaurant is licensed (many different ways) by the state. are they going to risk their multiple licenses to skim less than a 1/4 of their cash receipts? are they going to risk those licenses using fuzzy math on their balance sheets?

    “My lawn guy doesn’t even own any money to the state. Why would the state even waste a stamp to send him a notice? For 0.25% of what they collect? What’s the risk of him keeping the FT he collects?”

    the state regularly writes and deposits checks for $0.00. when I worked as a POD clerk at a bank, I saw that all the time. also, i thought the fee was .25% of the taxable spending, not .25% of the tax remitted. since those are widely disparate numbers (25 cents versus 5.75 cents on every $100 spent), we should probably make sure we are accurate when referencing them.

    “You’ve removed the Fed’s collection agency and have a large area of the economy (most services) that the states don’t care about collecting the FairTax on. You’ve got a gaping hole in your FT collection scheme.”

    it appears you’ve got a gaping hole in your knowledge of current tax collection practices.

    right now my state collects taxes from every single individual and every single business that operates, lives, or sells product in, this state.

    under the FT my state will collect taxes from every single retail seller that operates in this state. (assuming my state chooses to follow suit and implement a state version of the FT instead of the 1040 based income tax)

    sure, the federal tax collection agency is significantly diminished in size (taking on an oversight-style role in tax collection); luckily, the responsibilities of the state tax collection agencies has been significantly reduced as well.

    lots of straw men, very little substance support them.

    Justin  ·  Aug 5, 2008 at 12:10 pm  ·  Permalink
  18. I live in Texas. My lawn guy pays no income tax to and collects no sales taxes for the state. The State of Texas wouldn’t care a whit if he paid his FairTax or not. They certainly aren’t going to go through the expensive process of an audit to collect 0.25 cents on the dollar.

    As far as Texas implementing the FairTax base – there’s a reason they don’t try and charge taxes on these types of services… THEY ARE VERY HARD AND EXPENSIVE TO COLLECT!

    lots of straw men, very little substance support them.

    We are talking about the FairTax. There is nothing substantive about it. It’s all supposition.

    Fred Johnson  ·  Aug 5, 2008 at 8:31 pm  ·  Permalink
  19. Fred,

    Does your lawn guy pay the federal income/payroll tax? If not, he’ll probably not pay the fairtax either. Neither tax system does much about this.

    Andrew Martin  ·  Aug 6, 2008 at 11:36 pm  ·  Permalink
  20. We have a federal agency that tries to make sure he pays his federal income and payroll taxes. It’s call the Internal Revenue Service. And they care very much if he doesn’t pay. That’s my point. It won’t exist under the FairTax and it won’t be replaced by any agency that cares if he pays his FairTax.

    Right now, if he owes $100 in taxes, the agency responsible for collection would keep all $100. If he owed $100 under the FairTax, the agency responsible for collecting would keep 25 cents. Don’t you see the difference in the cost/benefit consideration in determining collection efforts?

    Fred Johnson  ·  Aug 7, 2008 at 8:15 am  ·  Permalink
  21. fred….

    does your lawn guy buy his fuel, oil, trimmer string, blades, fertilizer and other supplies with a state sales tax exemption?

    chances are very good that you lawn guy does not. after the FT rolls thru, he’ll probably still not become a legitimate business…..so he’ll still be paying the FT on all that stuff.

    at that point, the only part of the service you pay for that hasn’t been taxed is his labor (the difference between the $50 you pay him, and the $25 he spends on stuff to do your lawn).

    he takes that $25 home (just as he does now) and spends it on his wife.

    and pays the FT on that money.

    so, every bit of your $50 was taxed at 23%, it just didn’t get submitted by your lawn guy. instead it was submitted by the gas station, and the feed and seed place, and the jewelry store.

    maybe you’ve got one of those big commercial companies doing your lawn, and after the FT goes thru, he gets the FT exemption.

    now he’s got all the paperwork hassle to go thru. if he claims exempt when he buys supplies, he’s going to have to balance that with his claimed receipts. if he claims exemptions when he submits his FT payments, he’s going to have to square his paperwork.

    will the state care about making sure they get their cut of tiny amounts? probably not. but then, one could make the same argument right now.

    if that money currently isn’t being collected, it’s not figured into the rate calcs….so it’s not “lost” revenue caused by the FT.

    Justin  ·  Aug 7, 2008 at 11:22 am  ·  Permalink
  22. does your lawn guy buy his fuel, oil, trimmer string, blades, fertilizer and other supplies with a state sales tax exemption?

    chances are very good that you lawn guy does not.

    If those exemptions are available to him, why wouldn’t he use them now?

    so he’ll still be paying the FT on all that stuff.

    Maybe. Maybe not.

    at that point, the only part of the service you pay for that hasn’t been taxed is his labor (the difference between the $50 you pay him, and the $25 he spends on stuff to do your lawn).

    Labor is much more than 50% of the cost.

    so, every bit of your $50 was taxed at 23%, it just didn’t get submitted by your lawn guy. instead it was submitted by the gas station, and the feed and seed place, and the jewelry store.

    I think you’re missing my point. He could collect the FairTax from me and not remit it – which more than covers the FairTax he paid on his expenses. Who going to come after him?

    will the state care about making sure they get their cut of tiny amounts? probably not. but then, one could make the same argument right now.

    Huh? Right now, if people owe money to the state, the state tries to collect. And they keep 100% of what they collect. The same for the Feds. Under the FairTax, there would be a large portion of the economy that owes money to the Feds and not the states, but the states are the one who are suppose to collect the money for the Feds. And for what? 0.25% of what they collect? The states would almost certainly not use their resources trying to collect from these people when they could focus on people that owe them money. Their return on investment would be much, much higher by focusing on these people.

    if that money currently isn’t being collected, it’s not figured into the rate calcs….so it’s not “lost” revenue caused by the FT.

    I don’t get why you think he wouldn’t be in the base used for the rate calculations.

    Fred Johnson  ·  Aug 7, 2008 at 12:10 pm  ·  Permalink
  23. Fred (in response to post 20),

    “Right now, if he owes $100 in taxes, the agency responsible for collection would keep all $100.” Actually, the IRS keep about 0.5% (10B(IRS budget)/2T(total federal revenue):these numbers are from memory).

    And maybe I’m misunderstanding, but I believe the state keeps 1/4% of 23% (or 1/92) = 1.1%. Even if the agency responsible for collection only keeps half of this new fair tax money, they are still getting more than the IRS keeps (if my number for the IRS budget hold up).

    However, you are right that the federal government keeps 100% of the revenue collected versus the state only keeping 1.1%. Unfortunately, I am not sure that any of these entities would even employ this type of cost-benefit analysis.

    But back to the point, even with my rudimentary understanding of IRS collection methods, I can pretty firmly say that your lawn guy could happily take your money without ever having the federal government know (or at the very least, significantly under report his income).

    Andrew Martin  ·  Aug 7, 2008 at 6:51 pm  ·  Permalink
  24. “Right now, if he owes $100 in taxes, the agency responsible for collection would keep all $100.” Actually, the IRS keep about 0.5% (10B(IRS budget)/2T(total federal revenue):these numbers are from memory).

    I think you understood my point. The federal government is doing the collection and they keep 100% of the results.

    And maybe I’m misunderstanding, but I believe the state keeps 1/4% of 23% (or 1/92) = 1.1%. Even if the agency responsible for collection only keeps half of this new fair tax money, they are still getting more than the IRS keeps (if my number for the IRS budget hold up).

    The state would keep 0.25% of the amount that would otherwise be remitted. And I’m not sure what you’re getting at with the “1/4% of 23%” bit but your math is way wrong.

    .25/100 x 23/100 = 5.75/10000 = .0575/100 = 0.0575%

    However, you are right that the federal government keeps 100% of the revenue collected versus the state only keeping 1.1%.

    0.25%

    Unfortunately, I am not sure that any of these entities would even employ this type of cost-benefit analysis.

    Really? A quick search found that Iowa does (I’m sure others do, too). They track “Return on Investment (dollars received: dollars spent in enforcement) for audit staff.” They’re happy that they get $9 in taxes for every $1 invested in audit activities. Under the FairTax, if a person doesn’t owe the state, that changes to 2.25 cents gained for every $1 spent. (Actually, probably less because the area of the economy Iowa doesn’t tax are the ones that are notorious for being difficult, i.e. expensive, to collect from.) They’d have to be crazy to even spend $1. It’s a money loser.

    Like I said, there is a huge gap in the FairTax collection scheme.

    But back to the point, even with my rudimentary understanding of IRS collection methods, I can pretty firmly say that your lawn guy could happily take your money without ever having the federal government know (or at the very least, significantly under report his income).

    Maybe. But he’s taking a risk. He has to apply a risk/return analysis to his actions. There’s a high risk with moderate returns. It’s a questionable decision. Under the FairTax, there’s almost no risk with high returns. It’s an easy decision.

    Fred Johnson  ·  Aug 8, 2008 at 8:51 am  ·  Permalink
  25. Fred,

    Fortunately, my math is right on. Unfortunately, my understanding of the payment was wrong. I thought the 1/4% was from the 23%, i.e. 1/4% to the state, 1/4% to the retailer, and 22.5% to the Feds. I believe you are correct.

    “Really? A quick search found that Iowa does” Does a cost-benefit analysis, or publishes favorable stats? Believe me. If the people at the Iowa Department of Revenue started reporting this activity tomorrow, you would see 9-to-1 versus 0.0225-to-1. They want to keep their jobs. They won’t want to show that their activity is less than fruitless. But let’s just assume you’d argue that point.

    I couldn’t easily tell, but I am assuming the $9 is Iowa revenue. If Iowa keeps the income tax, they will probably keep up this auditing activity. If so, will these audits also be used for fairtax collection? Are they used today for Federal income tax collection? If Iowa switches to its own fairtax, will they still get a 9-to-1 ratio? Will they be able to use those audits to help enforce the federal fairtax?

    At the very least if they switch to the fairtax at the state level, it seems their auditing can be used to prove the same cheating that may occur at the federal level. And for little additional cost (maybe enough to justify the 1/4% collection). Besides, if they don’t spend any funds auditing, the Feds can just cut off their highway funds.

    Andrew Martin  ·  Aug 8, 2008 at 5:42 pm  ·  Permalink
  26. Fortunately, my math is right on.

    “1/4% of 23%” is not 1.1%, it’s0.0575%.

    1/4% is 1.1% of 23%.

    Your math may have been right in your head, but it didn’t match what you said.

    But this is moot, because of you misunderstanding of what the states would be paid.

    Fred Johnson  ·  Aug 9, 2008 at 7:37 am  ·  Permalink
  27. “1/4% of 23% (or 1/92) = 1.1%” is actually what I said. If the “1/92” doesn’t clarify (and the “1/4% to the state, 1/4% to the retailer, and 22.5%” doesn’t either) it’ll probably be pretty difficult for me to explain.

    But, for completeness, if you have 1/4 apple of 23 apples it is 1.1% of the apples. If you have 1/4% of 23% it is 1.1% of percentages. The ambiguity arises from using % as an item (like apple) or from using it as a operator upon the items. If we change the first sentence to 1/4% of 23 apples it is 5.75% of a single apple.

    Andrew Martin  ·  Aug 9, 2008 at 2:35 pm  ·  Permalink
  28. There is no way around it. “1/4% of 23%” is 0.0575%. If you are trying to say something different, you need to say something different.

    Fred Johnson  ·  Aug 11, 2008 at 6:27 pm  ·  Permalink
  29. All of this “higher math” exchange seems to me to miss a greater point. The Fairtax plan assumes that the States will accept the role of Federal tax collector in return for payment of 1/4% of the revenue collected. (Based on actual state consumption data, the payments would be $25,000 per day for Montana and $1.6 million per day for California). I have no idea if that would be sufficient to pay for the added complexity of collecting taxes, but there are at least three other considerations which might impact the State decisions.

    First, it’s easy to forget that our Republic consists of two sovereign powers, federal and state, each operating on the same population but with different responsibilities. Is it really appropriate for the states to act as the primary federal tax collector?

    Next, there should be no question that the state governors all oppose a national sales tax. Just google “National Governors Association” and read the 2008 tax policy paper if you have any doubts.

    Finally, while the tax collection income might be useful, the Fairtax also proposes to tax state/local government operations. I continue to believe that this feature of HR25 will be found to be unconstitutional under the doctrine of intergovernmental tax immunity.

    Taken together, how can anyone believe that the states would cooperate on the repeal of the 16th Amendment.

    Hank Van Gieson  ·  Aug 12, 2008 at 9:10 pm  ·  Permalink
  30. Hank,

    “The Fairtax plan assumes that the States will accept the role of Federal tax collector in return for payment of 1/4% of the revenue collected.” I believe that is what Fred and I were debating before I unsuccessfully explained to Fred the difference between % as an operator and as an item. Or more accurately, maybe we were debating whether or not states would ever try to collect the tax from parties that might fraudulently withhold payment.

    Fred believes it would never pay off for the states. I believe it could if part of their overall auditing process for their own revenue, either income or consumption tax.

    As far as states “accepting” the role of tax collector, I think you underestimate the federal government and their ability to strong arm states (not that I’m for it). Their main method is highway funds. A quick google led to this link, http://www.answers.com/topic/interstate-highway-system. It cites several things, but only has an actual reference for raising the drinking age to 21. I also found the 55-mile-an-hour speed limit and a bill in committee of the current congress to consider withholding funds if states don’t comply with federal rules for issuing drivers’ licenses.

    Andrew Martin  ·  Aug 12, 2008 at 11:42 pm  ·  Permalink
  31. Andrew,

    “I believe it could if part of their overall auditing process for their own revenue, either income or consumption tax.”

    I think it would be very likely that if the federal government ever adopted a national sales tax, then the States would shift to the income tax across the board. I don’t see how an income tax auditing function could assist the States in collecting the federal sales tax. But it’s kind of a moot point. There is no support from the States for a federal sales tax.

    “I think you underestimate the federal government and their ability to strong arm states”

    But that’s my whole point. At some point, I believe that the current federal government excesses will cause the pendulum to swing back to where the founders envisioned—two sovereign powers, with the federal government granted certain enumerated powers, and everything else left to the States and the people. The current trend to more and bigger federal government can only lead to the failure of our federalist form of government.

    Hank Van Gieson  ·  Aug 13, 2008 at 5:43 am  ·  Permalink
  32. Hank,

    “I don’t see how an income tax auditing function could assist the States in collecting the federal sales tax. ” How does one audit income without auditing revenue? Income is simply a function of gross revenue (sales) and expenses.

    “There is no support from the States for a federal sales tax.” By this you mean state governments, right? States don’t have to support it. The means of taxation is one of the enumerated powers of the federal government.

    “I believe that the current federal government excesses will cause the pendulum to swing back to where the founders envisioned.” I certainly hope so, but I was talking about the states being able to ignore federal government “requests”.

    “two sovereign powers, with the federal government granted certain enumerated powers, and everything else left to the States and the people.” It sounds like you’re quoting the 10th amendment. Unfortunately, the “progressive” supreme court of the 30’s basically eliminated the 10th amendment. I still have hope that it can be brought back. I remember reading something that as late as 2000 or 2001, the supreme court actually used it defend someone’s rights.

    Andrew Martin  ·  Aug 13, 2008 at 8:47 am  ·  Permalink
  33. hank:

    “There is no support from the States for a federal sales tax.”

    I don’t really care about State support for a federal sales tax.

    The States haven’t had any representation in DC since 1913.

    who are “the states” going to complain to? popularly elected senators and representatives? each other?

    since the 16th doesn’t have to be repealed to enact the FT, “the states” can’t even hold that over the heads of the federal government

    it’s disheartening to find out your best arguments make colanders look water tight.

    Justin  ·  Aug 14, 2008 at 11:27 am  ·  Permalink
  34. Justin,

    If you “really don’t care about State support for a federal sales tax”, then you really don’t understand our federal form of government. The Fairtax is predicated on the notion that not only will the federal government be allowed to tax state and local government operations, but that the states will be willing to act as the federal tax collector. The first is unconstitutional, and will result in the Fairtax rate rising to 44.6% (exclusive), the percent that retailers will have to add to their cost plus profit. The second would mean that the federal government would have to set up 50 IRS equivalents, one in each state, to administer the Fairtax, at a considerable cost imho. All of the Boortz/Linder arguments for simplicity seem to fail if the States don’t go along with this scheme.

    I suspect you are in the vast minority of Fairtax advocates who don’t seem to care if the 16th Amendment is repealed.

    Hank Van Gieson  ·  Aug 14, 2008 at 12:29 pm  ·  Permalink
  35. I don’t really care about State support for a federal sales tax.

    Justin, you’re asking the states to pay and collect the FairTax. If they don’t support it – it doesn’t work.

    Fred Johnson  ·  Aug 14, 2008 at 7:40 pm  ·  Permalink
  36. hank-

    I understand our federal form of government just fine….I understand, also, that the states don’t have ANY direct representation in DC. they can whine about things all they want, but they’ve nobody to whine to.

    so, since I have more of a voice in DC than my state does (I have three people up there I get to vote for, my state legislature has zero), I don’t really care about my state’s opinion. in fact, If i have to, i’ll do what I can to change my state’s opinion. luckily, all the people (execpt one) in DC from my state are supporters of the FT bills….so I’m not concerned that my state will resist it when the time comes.

    it’s unconstitutional for the federal government to tax the states?

    shoot, I guess they better stop making the states pay payroll taxes on their employees.

    the FT forces the federal gov’t to set up 50 baby-IRSs?

    only if the state in question doesn’t want to do the tax collection themselves….and the state wants to lose out on the tax revenue.

    also, why do you think it would be more expensive to collect taxes from all the retail businesses in a state instead of all the retail businesses, all the wholesale businesses, and all the residents of a state?

    ….i’m thinking the paperwork alone would be have to be less than a 1/4 of the current workload.

    and yes, I don’t care if the 16th is repealed. the 16th ALLOWS for an otherwise unconstitutional income tax…it does not create nor impose one.

    the FT takes away every bit of the current system. in order for a “double taxation threat” (income AND sales) to occur, the known and hated income tax would have to be regenerated….as would support for it.

    the relatively unknown (as compared to the current system) FT can’t gain enough support for passage, and you are afraid those same people would welcome back the IRS after just a couple years of the FT?

    Fred –

    If they don’t support it, it still works just fine. I don’t support the income tax, but oddly, i still have to pay it. are you trying to suggest that the states that don’t support it can just opt out of both paying and collecting it?

    Justin  ·  Aug 15, 2008 at 11:08 am  ·  Permalink
  37. You’re not a government. You may want to do a little research on intergovernmental tax immunity. There is a serious constitutional issue with the federal government taxing the states in the way the FairTax would.

    Fred Johnson  ·  Aug 15, 2008 at 2:56 pm  ·  Permalink
  38. Fred, this is not true. The reason for the tax on government services has to do with the fact that there are businesses that compete with government services. It would hardly be fair to these businesses to be taxed while a government counterpart is not.

    Also, so what if the states are asked to help with collections? If Texas doesn’t want to do it, Oklahoma or some other state would be happy to do it. They will be paid for it.

    Brian Pearson  ·  May 25, 2009 at 5:24 pm  ·  Permalink
  39. Brian,

    You may have missed our recent discussion about this issue. Turns out that if a government agency at any level sells a product or service that raises revenue of more than $2500 per quarter, that agency would be considered a “government enterprise” under the Fairtax, and would have to add the 30% sales tax to their cost just the same as a private firm. The playing field is level for all practical considerations, and I wouldn’t look for government agencies to squeeze out the private sector. It’s a non issue, it seems to me.

    As for the States acceptance of their proposed role under the Fairtax, at the moment all 50 governors are opposed to any sort of a national sales tax. While having the federal government tax state and local government consumption may not be technically unconstitutional, it would certainly be inappropriate under our republican form of government. Fred is correct–the long held doctrine of intergovernmental tax immunity will be at play here. It may be that the bribe offered to the States to act as the federal tax collector will work in some states, but I doubt it. Stay tuned!

    Hank Van Gieson  ·  May 25, 2009 at 5:46 pm  ·  Permalink
  40. Hank, I think we all can agree that the amount of government that falls under a government enterprise is very small. The portion of the bill that taxes the vast majority of government, a government employer (non-enterprise), is what is relevant. You’re right that it’s a non issue for government enterprise – I don’t think anyone has argued otherwise. It’s the rest of government that doesn’t fall into this category that appears to be the point of debate (taxing wages and purchases of government). You seem to keep bringing up a tiny minority (government enterprise) as if it somehow satisfies a non-competitive nature for the rest of government (government non-enterprise). We all know this is not the case, so I’m not sure what you’re getting at. Government enterprise seems almost irrelevant to this debate.

    Morphh  ·  May 25, 2009 at 6:02 pm  ·  Permalink
  41. Morphh,

    While government enterprises are few and far between under current law, HR25 would create thousands, if not tens of thousands, of “government enterprises” if any government agency sells goods or services to the public. For instance, buy a ride on the New York metro, pay a 30% tax. Buy a gardening book from the County Extension Service, pay a 30% tax. Any government agency that sells more than $2500 per quarter in goods and/or services would be a government enterprise and would have to charge the 30% national sales tax. No advantage over the private sector that I can see.

    I thought that the point of the debate was government competition with the private sector. So, for the sale of goods and services, the playing field is essentially level. As I understand your angst, you are worried that governments may decide to give away services which would shut out the private sector? For instance, my county government might decide to provide free garbage collection. That would probably require a vote by the citizens, but if the proposal should pass, free is hard to compete with. What difference would it make if the County had to pay a sales tax on their employees as proposed by HR25, or not? Would that factor change the outcome of the vote? I don’t think so.

    All of this is fairly academic, in that federal taxation of State/Local consumption, including government employee payrolls, isn’t likely to be approved. I still owe you a paper on the issue of intergovernmental tax immunity, and I guess I better get cracking on it.

    Stay tuned!

    Hank Van Gieson  ·  May 26, 2009 at 6:24 am  ·  Permalink
  42. Hank, I agree with you that if a government agency is deemed a government enterprise, it should have no advantage over the private sector. In fact, it’s treated just like the private sector. So yes, I think the discussion comes down to the issue of government offering “free” services, as they often do. This is the stated purpose by the bill author.

    The intent is to have the cost of providing services, in whatever manner (government, gov enterprise, private business), be somewhat equal. If there is a way for government or enterprise to operate tax free, they will migrate services to follow that model. We should also make it easy to reinstate a competitive nature with private business at a similar cost point. We have enough issues with reversing the growth of government, no need to give them a cost advantage as well.

    Morphh  ·  May 26, 2009 at 7:04 am  ·  Permalink
  43. OK folks, all of this talk is nothing more than just some useless blather from any side or direction that you care to look at it from, AFTER you come to grips with the reality that it’s ALL based upon a fiat paper and electronic bookkeeping entry currency system and NOT real money. That my friends is the undercut to the whole situation. Until you begin talking about having real money (an idea backed by confidence) in circulation, you will ALWAYS wind up back in the same place that you started from; unfairness to most of the people and an unfair advantage to a few who really know how to game the current system.
    With a fiat paper and electronic currency system, a system that is based upon false weights and measures, you will ALWAYS have an unbalanced, unfair, unflat tax system operating in it. That’s just the way it is!! It’s like the situation that so long as you have forests, you will have forest fires.
    So let’s start off with some simple questions that I discovered after more than 23 years of research and analysis of dozens of topics. I call them The Three Magic Questions. What is the EXACT AMOUNT of fraud that ANYBODY has the right to commit? What is the EXACT AMOUNT of fraud that ANYBODY has an actual obligation to endure? What is the BASIC PREMISE that is being operated off of, in the instant case? Get honest answers to those questions by demanding them!!

    Randy

    Randy  ·  May 27, 2014 at 1:29 am  ·  Permalink