Working with Democrats to pass the FairTax

June 27, 2009  ·  Filed under: Activism, Political Support, Public Support

Jessica Wexler, who worked the Obama campaign, posted her speech from the Mid America FairTax Rally on FairTax Nation. I have copied and posted the speech below.

Hello, I am Jessica Wexler. I am a strong supporter of the FairTax. I have volunteered with FairTax KC for the past year and written an organizing manual to be used by Fair tax supporters across the country. So there is no confusion, I am a Democrat. I have worked 20 hour days, 7 days a week, for months at a time. I have slept on office floors with blankets pulled from the trunk of volunteers’ cars. During Senator McCaskill’s campaign, I learned the benefit of a union hall with showers, even if they were behind a door marked Men’s. On Novemeber 4th while polls were closing and parties were starting. I was still at President Obama’s Raytown office, working to insure every vote was counted. I have organized teachers in New Orleans and registered voters through Rock the Vote. I have been in favor of the FairTax for several years. Ever since my uncle, for those of you who don’t know him, he is the FairTax KC Geezer, gave me a small paperback book to read. My uncle and I disagree on all the major hot button issues from abortion to gun rights, social security to the death penalty. To sum it up we disagree on how the government should spend our tax dollars. We are in complete agreement on how the government should collect those tax dollars. The FairTax!

I am here to speak about why I, a democrat, support the FairTax. Why other Democrats must support the FairTax. And why it is crucial that the FairTax is a nonpartisan issue both on a local and national scale.

My top 3 reasons for supporting the FairTax are it will increase jobs, widen our tax base, and gives me control over the money I earn.The FairTax increases jobs by eliminating some of the major reasons, such as the capital gains and corporate income taxes, that caused and continue to cause U.S. companies to leave the U.S.

The FairTax widens our current tax base. Under the FairTax; People making money from criminal activity such as drugs pay taxes. Illegal Immigrants pay taxes. People being paid under the table pay taxes. People who once used accountants, attorneys, and financial advisors to find loopholes in our current system pay taxes. Everyone in the U.S. who buys anything new will pay taxes.

With the FairTax; I will finally have control over my money. Managing a nonprofit in Kansas City earning $30,000 a year I was bringing home $418 a week. With the FairTax in place I would be brining home my entire pay check of $576 a week. That’s an increase of $632 per month, totaling $8,216 for the year. A college graduate with $21,000 in student loans would be able to pay off the loans within 3 years using only the increase in salary. I will no longer have to wait a year to receive a refund on the money I earned that the government borrowed interest free; my money will be there every payday.

Fellow Democrats must support the FairTax because it simplifies our tax system, boosts our economy, and is far more Progressive than our current tax system.

We all agree that our current tax system is complex and hard to understand with over 70,000 pages of tax code. According to Money magazine, 99% of us will pay a tax professional to file an incorrect tax return! Democrats want a simplified tax system. The Fair Tax is the simplified tax system! Pay a tax once on new items purchased and that’s it. Buy anything used clothing, books, house, car there is NO Federal tax.

The FairTax will boost our economy in a number of ways. The most important way due to our current unemployment is it will creat jobs. There is over 13 trillion dollars in offshore accounts. The FairTax will bring back an estimated 2-3 trillion dollars in the first year alone to be invested here at home.

The third reason Democrats must support the FairTax is that it is far more Progressive than our current system. Under the FairTax Low-income households experience five times the benefit increase as compared to high-income households. This gives us a greater opportunity to move up the economic ladder and achieve the American Dream.

It is crucial that the FairTax has nonpartisan support. On the National level the FairTax cannot pass without bipartisan support. Our current Senate is made up of 57 democrats, 2 independents, and 40 republicans the House of Representatives is made up of 256 democrats and 178 republicans. We must persuade those on both sides of the aisle to gain passage of the FairTax.

I can not stress enough the importance of nonpartisan support at the local level. Imagine if my uncle never gave me the book, or if I was close minded and unwilling to learn about the FairTax because of all the issues we disagree on. There are entire families of strong Democrats that don’t have an Uncle to persuade them to take the time and learn about the FairTax. If we supporters of the FairTax dismiss the Democrats, we lose 50% of our potential supporters. Everyone must decide if the FairTax is their number 1 issue above all other issues, that is the only way the FairTax can succeed. Most Democrats don’t realize they have a vested interest in the FairTax. Simply because they are unaware of the facts and have been convinced that the FairTax is a Republican issue. We must show them that the FairTax is an American Issue. We have to be welcoming and inclusive of all people willing to listen.

I discovered at my first FairTax meeting that if my uncle was not there I as a liberal democrat would have ran away and never come back. To look at the crowd before me today, it is safe to assume that the majority of you are not Democrats. Democrats are not here for the same reasons I was ready to runaway. At the meeting volunteers were discussing inviting Sarah Palin to speak at an event, and pro-McCarthyism to name a couple of the topics that made me uncomfortable. I was thinking to myself. “What on earth am I doing attending an event with right wing republicans? I need to re-evaluate the FairTax, if this is an example of other supporters.” I am happy to say, I now have great relationships with everyone at FairTax KC. I talk to Earl and John at least once a week. Never would have guessed how well we get along and how many things we are in agreement on. Thankfully, I was able to explain how isolating their unconscious actions were to an outsider.

Now we remind each other that all social issues are left at the door. If you want to discuss the War in Iraq go right ahead, just NOT at a FairTax meeting or FairTax event. All of FairTax KC pamphlets, emails, and speeches are examined to insure that they are inclusive of all people. We have formed a strong grass root organization that thrives on diversity and stays focused on what matters: the FairTax. A year ago, we had 200 email addresses after reevaluating and marketing our ideas to be inclusive of all political parties and organizations we now have over 4,000 email addresses. We have to take the time and make the effort to be inclusive, Not exclusive. I am standing here today as evidence that a staunch liberal democrat does support the fairtax without compromising my liberal views on social issues. Thank you!

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48 Responses to “Working with Democrats to pass the FairTax”
  1. I really love the idea that those on the other side of the political spectrum also so the benefits and value of the FairTax. Actually, I have a hard core liberal friend here at work who is also a big fan of the FairTax so I know that this is not just a Republican or Conservative issue.

    Unfortunately, this speech does re-iterate several of the questionable “facts” posted in the FairTax books like the 13 Trillion in off-shore dollars to come flooding back into the country. I’ve seen enough information on this to suspect just how much money will actually come flooding back into our country. I would also like to see some numbers on this five fold benefit increase for low income households over high income households. This is a new one for me.

    In the end, it’s great to see some liberals supporting the FairTax. If only it could gain some high profile attention and media coverage this might really gain some momentum. It sure would be good if a CNN or MSNBC host would come out supporting it and start pushing it on their shows. That would probably be one of the best avenues for spreading the word to the liberal masses.

    Scott  ·  Jun 30, 2009 at 9:55 am  ·  Permalink
  2. I agree with Scott’s concerns about the content of the speech by Ms. Wexler. In addition to the 7-8 false or unsubstantiated claims she made, it seems to me that, with her extensive political experience(?), she might have provided some better detail about just how to achieve bipartisan support for the Fairtax? Or maybe she has no idea how to proceed? Not surprising when you understand that HR25 will likely stay bottled up in the Revenue subcommittee of the House W&M committee for ever–or as long as John Linder continues to introduce HR25. Not only do all the Democratic members of the Revenue committee not support the Fairtax, but the ranking Republican on that committee opposes HR25 as well.

    I wonder if Morphh could invite Jessica to participate in a discussion of her speech on this blog? Might be character building at least?

    Hank Van Gieson  ·  Jul 1, 2009 at 8:06 am  ·  Permalink
  3. Scott, I believe the comment about the five fold benefit increase is based on a study by Laurence Kotlikoff and Sabine Jokisch where they concluded that the long term effects of the FairTax would reward low-income households with 26.3 percent more purchasing power, middle-income households with 12.4 percent more purchasing power, and high-income households with 5 percent more purchasing power. “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax

    Jessica is aware that I posted her letter here, so perhaps she’ll comment. I’ve also provided her blog link in the post if you want to comment over at FairTax Nation. She stated she put her bipartisan organization recommendations in a organizing manual, which they handed out at the rally to coordinators.

    Morphh  ·  Jul 2, 2009 at 9:15 pm  ·  Permalink
  4. Morphh,

    Jessica Wexler is certainly a better spokesperson for the Fairtax than, say, Joe the Plumber. But I’m amazed that she could include that “five times the benefits” claim in her speech. That data was lifted from a pretty obscure 2007 study, and makes me wonder if maybe she got some help from someone much more informed about the details of the Fairtax and the related research? I don’t suppose you could shed any light on that question ??

    As for the statement itself, does Ms. Wexler understand that that five times the benefit increase claim is for those born after 2030? I doubt it!!! That claim also raises the issue of whether or not those living today would be willing to absorb the benefit reductions as shown in the study in order for the unborn to somehow benefit? Tricky issue!

    As for the Kotlikoff/Jokisch study, I certainly am not qualified to understand the details of the model they used, but their findings seem to be based on the general belief that savings would go untaxed under the Fairtax, and the increased incentives to save would increase capital stock and real wages. But, that may not be true. As we have discussed, retail prices are most likely going to rise significantly, and there is no indication that a price increase was included in the model assumptions. Furthermore, we also know that HR25, Sec. 801-806 imposes a hefty implicit tax on both investment and debt instruments. Both impact the incentive to save, imho.

    I just don’t put much stock in models such as this one, particularly when they were trying to forecast 100 years out in the future. As a marketing tool in support of the Fairtax, the study leaves a lot to be desired?

    I hope Ms. Wexler will join this discussion. I have some serious questions about her rationale for supporting the Fairtax.

    Hank Van Gieson  ·  Jul 4, 2009 at 4:09 am  ·  Permalink
  5. It doesn’t look like the new “poster girl” for the Fairtax, Jessica Wexler, is going to join us for any discussions, so, with or without her, I’d like to discuss her three reasons given for her long time support of the Fairtax.

    (1) ” The Fairtax will create jobs”. Her reason given for this position was that eliminating the business taxes would create more jobs. I think an opposing position might be just as likely. After all, if we subscribe to the conventional wisdom that you get less of whatever is taxed, then taxing consumption means we get less consumption, less consumption means less production, and less production means fewer jobs. At least initially, business owners aren’t likely to add jobs when consumption is still in question. It would be much more prudent to simply pay overtime as an alternative to taking on the burdened cost of a new employee. And if Ms. Wexler believes that foreign companies are going to be moving to the USA, she hasn’t read and understood the tax implications of HR25, Section 905, which lays a 23% tax on income generated in the US by foreign owned companies. Where is the data supporting the growth of jobs?

    (2) “The Fairtax broadens the tax base”. Ms. Wexler is referring here to illegals and the Black Market. But much more important is the Fairtax proposal to tax services, something the States have tried without much success. Taxation of services accounts for half the base, and is the area most prone to evasion and avoidance. Broadening the base by taxing all services isn’t necessarily a good thing! As I recall, Hayden posted an excellent discussion of the impact of taxing illegals and the black market? Not a particularly strong reason to support the Fairtax, imho.

    (3) “I can control my money”. I can’t argue with that simple premise, because we all will be taking home all our pay/pensions. A minor point, but her personal example doesn’t add up. A single worker making $30,000 gross would pay $2295 in FICA, and $2760 in income taxes which comes to $97.21 per week for a net of $479.71, not the $418 Wexler claimed. Where is the other $60? Perhaps she included State or Local taxes, health insurance payments, or perhaps she just likes to over withhold and give the government an interest free loan. I’ve said it before, but it may be worth repeating that you can under withhold by 10% with no penalty. In any event, the withholding for federal taxes is not the amount she presented.

    As for control, control over what? Her comment about repaying a student loan indicates she does not understand the likely price increase that would eat up most of that additional take home pay. And buying used stuff doesn’t save any windfall amounts as we have discussed. You avoid paying federal taxes, but the cost of used stuff relative to new stuff won’t change from that of today. Think about it as the “embedded cost of the Fairtax”!

    Overall, I’m not sure her rationale for supporting the Fairtax is well founded in facts, but she is welcome to her position. Maybe she can get Charlie Rangel’s attention from her Democratic perch? Otherwise, it’s going to be a long and unproductive eight years in the Fairtax future!

    Hank Van Gieson  ·  Jul 9, 2009 at 9:16 am  ·  Permalink
  6. Hank,

    The old axiom of “you get less of whatever is taxed” only holds true based on the premise that the cost of what is tax goes up. If you tax something after reducing its cost to arrive at the same expense (as the fairtax does by keeping real prices the same), then consumption of that item should remain constant (all else being equal).

    Based on the logic you are applying, the mere act of continually switching between a tax on consumption and a tax on production would eventually lead to zero production (which may be true, but for other reasons).

    I quasi-agree with your broadening the base critique. Those of us that understand the embedded tax issue already know that illegal aliens and other that avoid the income tax are already contributing via the embedded taxes. It’s only the product of their labor that receives the benefit of not being taxed. The fairtax will equalize this a bit for illegal aliens assuming that selling the product will be done through normal channels, but drug dealers and some others will still avoid the tax.

    And of course if one believes in embedded taxes, then no laborer pays anything in payroll or income tax. There employer pays it as a tax on their labor (in addition to their own payroll). I sometimes forget how you feel on these issues, Do you think if employers were required to pay the entire payroll bill that somehow today laborers would be 7.5% better off and employers would 7.5% worse off relative to labor?

    Andrew Martin  ·  Jul 9, 2009 at 7:00 pm  ·  Permalink
  7. Andrew,

    I agree with you that, on average, if real prices remain about the same, consumption shouldn’t be reduced. But, on behalf of low to middle income seniors, and younger families up to their necks in credit card debt, real prices for them probably won’t remain the same. Seniors at incomes up to around $35,000 (SS plus savings), won’t get an increase in income under the Fairtax because they currently pay no income or payroll taxes. The estimated 17% retail price increase may not be fully offset by the prebate. And younger families that are spending “borrowed wealth” (credit cards), will get take home pay increase plus the prebate, but the books still may not balance for them either.

    And, of course, folks like Hayden, who makes out like a bandit under the Fairtax, will be expected to go on a massive spending spree in order to help the consumption averages?

    I’m not sure I understand your point about embedded taxes. I also wish you would call them “embedded costs of the income tax system”, because those costs include compliance costs which are not taxes strictly speaking. I believe there are embedded costs, but I don’t understand how labor pays no income or payroll taxes because of the embedded costs. It seems to me that labor pays twice, once when the amounts are withheld, and once at the cash register?
    I really wouldn’t advocate having the employers pay both sides, and in fact, a case can be made that employees should pay all of the SS premiums, just the same way they pay all their car/house insurance. And, if the Fairtax should pass, that would be exactly what would happen. All of us would be paying for all the benefits with our sales tax dollars. Which, as I have written, is grossly unfair to all seniors that have paid their premiums into the SS Trust Funds for 45-50 years and are now collecting the promised benefits without any more contributions being required. I’m opposed to resuming paying for my pension with my sales tax dollars under the Fairtax!

    Fair that isn’t!!!

    Hank Van Gieson  ·  Jul 10, 2009 at 8:08 am  ·  Permalink
  8. Hank,

    Real prices will remain the same for everyone. That’s not to say that prices won’t shift between products. The greatest shift will be from our exports to our imports. And yes Walmart uses a lot of imports. So maybe the poor will be hurt in that way. But the poor will also benefit from the greater demand on the labor pool produced by the increased demand for our exports.

    The 17% is your calculation (that I don’t think will be anything close to that), but it is an inflationary number, not a real increase. Even if it did occur it wouldn’t hurt most sources of income (like SS), but it would hurt assets stored in US dollars.

    I guarantee that Hayden won’t make out like a bandit. He’ll drop his rates when his competition does. Why doesn’t he charge more now. The goodness of his heart. Even if that’s so, his heart will still be good when the fairtax passes, so he won’t take advantage.

    “It seems to me that labor pays twice, once when the amounts are withheld, and once at the cash register?” I don’t understand this at all. Are they paying the same money twice? The whole point of embedded taxes (I’m not referring to compliance costs here) is that they are embedded in the price of the product. That means only the purchaser of the product pays them. If the purchaser and labor pay them that would be twice as much revenue. Unless you think that each pays a portion (which is reasonable), but that means that labor doesn’t pay for their whole income/payroll tax. At least a portion is embedded in the cost.

    Your response to who pays payroll tells me you didn’t understand my point (or at least question). But the response does somewhat answer my question, so I’ll ask it this way and assume your answer is yes: Do you think if laborers were required to pay the entire payroll bill that somehow today laborers would be 7.5% worse off and employers would 7.5% better off relative to labor?

    Let me give you an example that shows why all income/payroll taxes are eventually paid by consumers (just like if they were paid via a sales tax). Assume we live in a world with no income tax. An individual comes to the conclusion that they would be willing to work for $10K/year and nothing less. How did they come to this conclusion? Maybe their parents’ support makes anything less unattractive. Maybe they can grow their own food and anything less would give them less. It doesn’t matter, but people, i.e. the labor market, make these individual decisions all the time. This is what defines the market. If all of a sudden there was a 33% income tax, would this individual still use $10K/year? No. Why would he? That would mean he is willing to accept just $6.6K/year to spend on everything he planned on spending the $10K on. Why would he all of a sudden change his mind? The answer, he wouldn’t. He would want his new employment to cover the $10K for everything he wanted before plus to cover this new cost. In other words, he would demand $15k, so he could spend $5k on income taxes and $10k on all the other expenses he wished to cover.

    Andrew Martin  ·  Jul 10, 2009 at 7:02 pm  ·  Permalink
  9. I am sorry that any of you felt ignored. I do not often participate in blogs. I made the assumption if you had questions you would email me at fair tax nation. I am happy to answer questions either on fair tax nation or by email jesswexler@gmail.com. Thanks, Jessica

    Jessica Wexler  ·  Jul 11, 2009 at 12:01 am  ·  Permalink
  10. Hank, you keep railing on about seniors having to pay take on SS benefits. You do however concede there are “embedded costs of the income tax system”. The lion’s share of these “costs” are corporate income taxes. This means that you are paying the “cost” of these taxes that are embedded into the purchase price of everything you buy at the register today. Specifically, these tax “costs” include the employer contribution for SS, so you are still paying this today. Why are so rife with righteous indignation about the FairTax suddenly forcing you to begin paying “taxes” on your SS benefits again directly when you are currently contributing to the system right now indirectly?

    You really strike me as an intelligent individual, and many of your arguments have given me pause to reconsider my views on the FairTax. This non-sense however about the FairTax is going to suddenly make me pay tax again on the SS benefits that I have paid into for my entire life is just ridiculous. I don’t understand how you feel fine paying the “embedded cost” of the employer portion of the SS system today, but claim that under the FairTax the world will suddenly become unfair by you having to pay a more direct “tax” for the same purpose.

    To me, this isn’t an either/or situation. This is more of a heads I win, tails you lose situation. Of the money you spend today to buy a widget at Wal-mart, X dollars ends up in the SS fund. Under the FairTax, a similar and ideally the same X dollars (possibly inflation adjusted) will end up in the same place only thru a different mechanism. No matter how you pronounce potato, it’s still a white starchy vegetable that comes out of the ground and tastes great with butter or fried.

    Scott  ·  Jul 13, 2009 at 7:20 am  ·  Permalink
  11. Scott,

    I’ll try to explain why I disagree with your analysis, and why I will continue to “rail” against this particular very important transition issue.

    But first, let’s get our facts straight. The lions share of the embedded costs are not corporate income taxes as you claim. When considering the total embedded costs of the current tax system, which add up to around 25% of sales when compliance costs are added to Jorgenson’s 22%, 60% of the embedded costs are employee income taxes and payroll contributions. That is the lions share for sure. But, if you just want to focus on business tax costs, then, according to the Kotlikoff/BHI 2006 Fairtax rate study data, the average payroll share paid by businesses was 4.5% of retail sales, income taxes were 3%, and compliance costs were 2.5%. All of these percentages are the average costs across 20 million businesses with gross retail sales of $9.5 trillion in 2007. At least in 2007, the lions share of embedded costs for businesses was the matching payroll contribution, not corporate income taxes as you claimed.

    Under current law, I paid my share of the payroll contribution (7.65% of gross pay) for 45 years or so. I agree that I also paid the business taxes and compliance costs through higher prices at the cash register. Now I’m retired and drawing my pension as promised. I’m still paying the business taxes embedded in the retail price of goods and services, but I no longer make that 7.65% contribution. My income rose due to the “payraise” as well as the SS pension.

    Under the Fairtax, the 30% sales tax rate is set to include revenue to pay for my pension. But, I have already paid in full, so why should I be forced to resume paying for my pension with my sales tax dollars? An analogy might be if you paid insurance premiums for 40 years, died, and some guy in a three piece suit and Gucci shoes came to your spouse and informed her that the insurance company would certainly be sending her a monthly check as promised, but she would have to continue to pay the monthly premiums? No way, my friend!

    This is a transition issue that would phase out over the many years following the implementation of the Fairtax. It affects retirees the most and every worker today to a varying extent depending on their age at the time of implementation. Independent of whether I’m better off or worse off economically under the Fairtax, this is a fairness issue that needs to be fixed. And my contacts at AARP seem to share my concern. Stay tuned!

    Hank Van Gieson  ·  Jul 14, 2009 at 6:09 am  ·  Permalink
  12. Hank,
    It seems part of your argument is based on the government deception that SS payments are an investment. We all know this is false – it’s a tax built on a pyramid scheme. You’re paying for someones share, but it’s not yours. We’re all going to pay more when the boomer bill is due. The generational robbery is going to come to an end in one way or another – it can’t be sustained otherwise. The other argument on pension is an illusion, you’re getting more to pay more. Price increases through accommodation do not increase the burden of taxation.

    Morphh  ·  Jul 14, 2009 at 6:40 am  ·  Permalink
  13. Hank, you seem to be agreeing with my point. Under the current system the employer pays a matching portion of your SS contribution, correct? This matching contribution is a component of the “embedded costs”, correct? This would mean that under the current system you are in effect continuing to contribute to the SS fund with every purchase you make. Now, I will concede that you will pay a larger amount into the SS fund under the FairTax as this would now be both the employee portion which you have paid in for 45 years as well as the employer match which is a hidden part of the embedded costs. Are we in agreement on this, or is there still a disconnect?

    Going with the assumption that we are on the same page now, I understand your frustration but I still think you are misrepresenting this issue. You portray this as I will be paying into the SS fund because of the FairTax. This is not really accurate. The truth is that you are already paying, and under the FairTax you will just be paying a bit more (I know bit is very subjective). This might be splitting hairs at this point, but I believe it is a point worth making. The reason is that I think most, or at least many retirees don’t fully understand that they are indeed still contributing indirectly thru “embedded costs” to the SS fund.

    Scott  ·  Jul 14, 2009 at 7:18 am  ·  Permalink
  14. Hank,

    I don’t think it will change your arguement, but for the sake of being accurate I want to correct one of your statements -(I paid my share of the payroll contribution (7.65% of gross pay) for 45 years ).

    The 7.65% has not been in effect for 45 years. It’s only been since 1990. Forty five years ago (1964) the rate was 3.625% according to http://www.ssa.gov/OACT/ProgData/taxRates.html.

    John Bailey  ·  Jul 14, 2009 at 8:29 pm  ·  Permalink
  15. Scott/Morphh/John,

    Scott, we are indeed on the same page (for a change? lol). So lets discuss that “little bit” extra that I would pay under the Fairtax in order to fund the social insurance programs. Again using the Kotlikoff/BHI rate study data, the revenue generated from SS contributions was $871 billion in 2007. That is 38% of the total revenue generated from the taxes to be replaced by the Fairtax. 38% of 23% is 9%. Instead of the FT rate being 14%, it’s 23%, and in my case, with an estimated taxable consumption of $60,000 annually, I’m paying $5400 annually in additional taxes that I believe are unfair. In other words, I’m paying for almost half of my SS pension which I thought had been earned over the years. Is that fair?

    Morphh, I don’t share your cynical view of Social Security. Frankly, I don’t give a darn what the Supreme Court says, FICA is just like an insurance plan, and can be viewed as an investment. Certainly has been for me and jillions of others. And it doesn’t necessarily have to come crashing down as you predicted. I’ve written several times about the fixes needed to get us through the boomer period ahead. Fixes such as lifting the current cap, changing the cost of living index to a “chained” method, increasing the rate, bringing State and Local employees under the system, etc. etc.

    By the way, does anyone have a link to the Supreme Court decision that reportedly said that FICA couldn’t be treated as an insurance plan? Inquiring minds want to know.

    John, thanks for your correction. Careless writing on my part based on the current rate. Doesn’t change a thing as you said. But accuracy does count so, thanks again.

    Hank Van Gieson  ·  Jul 15, 2009 at 3:42 am  ·  Permalink
  16. Hank, The burden of taxation should be looked at as a whole and as a standard of living. While you present this as paying a tax twice by not treating FICA as general revenue, this says nothing about the overall tax burden comparison.

    What SS is for you and jillions of others is not a prior investment, but a senior welfare program paid by current tax revenue. You paid for the welfare of your parents, and current workers will be paying your welfare payment. However, we’re not talking about the same scale and ratio of payment, which is why your IOU “investment” is far from sufficient to cover the cost. Your solution is to raise the taxes on current workers, pushing the burden to the next generation. What’s fair about that?

    The government deception that you’ve earned this over the years makes this difficult, as you haven’t. You’ve earned a payment (paid a tax) sufficient to cover the cost of your parent’s generation, which is far from sufficient to cover your generation. So instead of accepting this reality, you argue to push this massive cost to your children and grandchildren. I agree that the FairTax does generate more revenue from wealthier seniors, which decreases the burden on workers. This is the right thing to do. The generational robbery needs to be reduced and wealthy seniors need to pay more for their generation’s welfare.

    Sorry for the harshness… I’m in a bad mood this morning and lashing out. :-(

    Morphh  ·  Jul 15, 2009 at 6:43 am  ·  Permalink
  17. Morphh,

    You will always be forgiven for any “bad hair” days, because you keep this very valuable and informative blog on track. As far as I know, it’s the only blog that allows both pro and con discussions in a civil manner. The other blogs seem to be factually challenged, and, worse yet, don’t care!

    I thought I made it clear that my comments were independent of whether or not the Fairtax was economically better or worse for me. My “railing” as Scott calls it, is against a basic fairness issue. And, yes, it’s based on a different understanding of the social insurance programs than you describe. I have always believed that the payroll contribution rate was based on actuarial tables just the same way as an insurance policy premium is calculated. And, as John pointed out, the rate has gradually doubled over the years since inception, presumably to account for our increasing longevity. And, it will have to be increased again a little in order to accommodate the boomer generation. Once that wave passes, it is very likely that the rate can be lowered provided we change other related things such as retirement age due to growing longevity, and cola adjustments based on actual spending habits. Of course, if the government had not decided to spend the trust funds (back in 1994?), the current picture wouldn’t be so bleak. I could make the case that profligate federal spending is the problem, not my collecting more than I paid in as you suggested? I guess what I disagree with is your argument that I paid for my parents pension amounts, when what I really believe is that I paid in enough to cover my pension costs, not theirs. I’m not anal enough to have kept all my SS information, so I can’t tell you if I have broken even in constant year dollars or not. I tend to think not, but who knows.

    Do you have any leads on that Supreme Court decision you once referenced when informing me that I shouldn’t treat FICA as an insurance program?

    Hank Van Gieson  ·  Jul 15, 2009 at 7:49 am  ·  Permalink
  18. Hank, I agree that the problem is government spending and their misdirection of funding. They treat SS revenue as general revenue, so in part, it’s not just the Social Security trust that we haven’t been paying enough for, but mainly the rest of government. By citizens viewing SS tax as a trust investment instead of the general revenue it has become, I can understand the point of view that we’ve paid for that particular social program. But in reality, we’ve just paid for the current government spending, which shifts the cost of our massive SS payments to our children.

    I’m not that familiar with the Supreme Court decision. I believe your talking about Flemming v. Nestor (1960) – that no one has an accrued property right to benefits from Social Security. Nestor argued that a contract existed between himself and the US government since he had paid into the system for 19 years. The Court ruled that no such contract exists, and that there is no contractual right to receive Social Security payments. Payments due under Social Security are not “property” rights and are not protected by the Takings Clause of the Fifth Amendment. The interest of a beneficiary of Social Security is protected only by the due process clause – so you’re entitled to whatever Congress defines as a payment in the current law. Which is why they can change the age, change the amount, distribute benefits progressively, deny benefits, and whatever else – it’s not an investment, it’s a senior welfare program.

    Morphh  ·  Jul 15, 2009 at 7:58 am  ·  Permalink
  19. Hank/Morph,

    The case is Helvering v. Davis. Here is a link to the opinion. Here is a link to an interpretation.

    Andrew Martin  ·  Jul 15, 2009 at 8:28 am  ·  Permalink
  20. Thank you Morphh and particularly Andrew. In reading the piece discussing the interpretation of Helvering, I noted the following:

    “Regarding whether Titles II and VIII together were an invalid old-age insurance scheme, Cardozo merely noted Davis’s argument that they dovetail so as to justify concluding that Congress would not have passed one without the other, and the government’s opposing position that Congress could spend the revenue as it willed. “We find it unnecessary to make a choice between the arguments, and so leave the question open.” So the Court ducked the core issue of whether Social Security is an unconstitutional government insurance program.”

    It seems to me that the SC never did rule that FICA wasn’t an insurance plan, which the government had been claiming for years. The politics of this issue seem complicated, but I don’t think you can fault me for thinking about SS as a valid insurance program. Perhaps unconstitutional, but that has never been settled.

    Hank Van Gieson  ·  Jul 15, 2009 at 9:42 am  ·  Permalink
  21. the SS discussion is about to become moot in either case.

    the house version of cap and trade understands that this tax program will likely result in job losses. those job losses will likely result in a negative impact to SS revenues. therefore, the bill has a provision to allow SS to tap into the general fund to make up the difference.

    from that point (and the fact that the general fund has been dipping into SS for ages), there is nearly nothing stopping those two ‘accounts’ from becoming one in the same (especially if the combination is marketed to the population as the fix for a failing SS system).

    as for the idea that ‘i’ve paid in for x years, and i shouldn’t have to pay any more’….

    under the current plan, you are still paying in. you are paying in in smaller increments, and it’s much more indirect than it once was, but a portion of every dollar you currently spend winds up in the SS coffers. so, yeah, you aren’t making direct payments into SS anymore, but you aren’t done paying SS until you stop earning or spending money.

    Justin  ·  Jul 15, 2009 at 9:49 am  ·  Permalink
  22. Justin,

    I may be wrong, but I think cap and trade has as much chance of passage as an ice cube in hell! And, the same goes for allowing the SS Trust Fund to tap into the General Fund. Currently, the general fund is tapping in to the SS Trust funds, not the other way around. I don’t see any prospect of Congress muddying up the Trust Fund situation. It really is the “third rail of politics”. Which is why I have always maintained that including FICA in the Fairtax plan was a huge mistake. The transition issues are show stoppers, imho!

    Hank Van Gieson  ·  Jul 15, 2009 at 11:54 am  ·  Permalink
  23. Hank,

    This line, “The proceeds of both taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”, is the supreme court stating that it is not an insurance program, i.e. the revenue is general because it is not “earmarked”. This a bold statement considering that both the executive and legislative branches said otherwise. This is what makes the entire decision nonsense.

    What your quoting is whether the supreme court would have to overturn both provisions passed on congress’s passage being based on the two provisions being together. They stated that it didn’t matter because neither one was overturned.

    Andrew Martin  ·  Jul 15, 2009 at 1:16 pm  ·  Permalink
  24. Hank,
    Here is the Lexis synopsis of the Fleming v. Nestor case, whose citation is 363 U.S. 603, 80 S. Ct. 1367, 4 L. Ed. 2d 1435 (1960):

    Appellee was an alien who had lived in the U.S. for 42 years. He became eligible for old-age benefits, but was deported pursuant to § 241 (a)(6)(C)(I) of the Immigration and Nationality Act for having been a member of the communist party for six years while living in the United States. Appellee’s benefits were thereafter terminated because he had violated one of the benefit-termination deportation grounds specified in § 202(n) of the Social Security Act, 42 U.S.C.S. § 402(n). Reversing the district court finding that § 202(n) was unconstitutional, the court held that § 202(n) was constitutional because social security benefits were not an accrued property right as the district court had held. Congress had exercised its plenary power to fix conditions under which aliens were permitted to enter and remain in the U.S. Section 202(n) stated that the termination of benefits would apply to those person who were deported from the United States because of illegal entry, conviction of a crime, or subversive activity. Congress had explained social security benefits could not be used to support those deported for communist associations.

    The statutory provision that Nestor challenged, 42 U.S.C.A. Section 402(n) reads as follows:

    “(n) Termination of benefits upon removal of primary beneficiary.
    (1) If any individual is (after the date of enactment of this subsection [enacted Sept. 1, 1954]) removed under section 237(a) of the Immigration and Nationality Act [8 USCS § 1227(a)] (other than under paragraph (1)(C) of such section) or under section 212(a)(6)(A) of such Act [8 USCS § 1182(a)(6)(A)], then, notwithstanding any other provisions of this title [42 USCS §§ 401 et seq.]–
    (A) no monthly benefit under this section or section 223 [42 USCS § 423] shall be paid to such individual, on the basis of his wages and self-employment income, for any month occurring (i) after the month in which the Commissioner of Social Security is notified by the Attorney General or the Secretary of Homeland Security that such individual has been so removed, and (ii) before the month in which such individual is thereafter lawfully admitted to the United States for permanent residence.
    (B) if no benefit could be paid to such individual (or if no benefit could be paid to him if he were alive) for any month by reason of subparagraph (A), no monthly benefit under this section shall be paid, on the basis of his wages and self-employment income, for such month to any other person who is not a citizen of the United States and is outside the United States for any part of such month, and
    (C) no lump-sum death payment shall be made on the basis of such individual’s wages and self-employment income if he dies (i) in or after the month in which such notice is received, and (ii) before the month in which he is thereafter lawfully admitted to the United States for permanent residence.
    Section 203(b), (c), and (d) of this Act [42 USCS § 403(b), (c), (d)] shall not apply with respect to any such individual for any month for which no monthly benefit may be paid to him by reason of this paragraph.
    (2) As soon as practicable after the removal of any individual under any of the paragraphs of section 237(a) of the Immigration and Nationality Act [8 USCS § 1227(a)] (other than under paragraph (1)(C) of such section) or under section 212(a)(6)(A) of such Act [8 USCS § 1182(a)(6)(A)] the Attorney General or the Secretary of Homeland Security shall notify the Commissioner of Social Security of such removal.
    (3) For purposes of paragraphs (1) and (2) of this subsection, an individual against whom a final order of removal has been issued under paragraph (4)(D) of section 237(a) of the Immigration and Nationality Act [8 USCS § 1227(a)] (relating to participating in Nazi persecutions or genocide) shall be considered to have been removed under such paragraph (4)(D) as of the date on which such order became final.”

    The Supreme Court refused to consider the foregoing statute unconstitutional, even though Nestor had paid in to Social Security under the then-prevailing rules. At 363 U.S. 17, Justice Harlan stated:

    “We observe initially that only the clearest proof could suffice to establish the unconstitutionality of a statute on such a ground. Judicial inquiries into Congressional motives are at best a hazardous matter, and when that inquiry seeks to go behind objective manifestations it becomes a dubious affair indeed. Moreover, HN6the presumption of constitutionality with which this enactment, like any other, comes to us forbids us lightly to choose that reading of the statute’s setting which will invalidate it over that which will save it. “It is not on slight implication and vague conjecture that the legislature is to be pronounced to have transcended its powers, and its acts to be considered as void.” Fletcher v. Peck, 6 Cranch 87, 128.”

    We can extrapolate generally from this decision that there is no vested property right to social security benefits on the basis of benefits paid in. Congress can reduce the benefits or take them away at any time.

    ~Jim Bennett

    Jim Bennett  ·  Jul 15, 2009 at 1:41 pm  ·  Permalink
  25. hank, you can think that all you want….everybody thought the same thing when it was brought up in the house.

    and yet, it somehow managed to pass.

    Justin  ·  Jul 16, 2009 at 6:56 am  ·  Permalink
  26. Boortz to Answer Questions on the FairTax

    On his website, Neal Boortz says he will go over the FairTax on his Aug. 5 show and has invited questions.

    Although I have little doubt that he’ll simply ignore any truly tough questions (or simply make up answers), I would urge some of the regulars on this blog to ask some of the questions we’ve kicked around.

    Hayden Kepner  ·  Jul 31, 2009 at 8:02 am  ·  Permalink
  27. OK, I sent in three covering: (1) retail after tax prices; (2) source of $11 trillion offshore claim; and (3) appropriateness of Federal government taxation of State and Local consumption. I can’t get Boortz here, so hope you will give a listen and maybe report on his tap dancing?

    Hank Van Gieson  ·  Jul 31, 2009 at 2:28 pm  ·  Permalink
  28. As other posters have pointed out, Jessica’s speech, while clearly heart-felt, repeats baseless claims and falsehoods perpetrated by FairTax proponents, particularly those on talk radio. When the claims are repeated and passed on, they take a life of their own, even if there is no actual support for these claims. They become part of the “accepted facts” upon which so much support for the FairTax is based.

    This is one reason why it is so hard to have a reasoned debate with FairTax proponents. Before you can discuss the real issues with the FairTax, you have to peel through the layers of made-up facts.

    For example, we’ve discussed on this board before that there apparently is no basis for the much-repeated claim that “13 trillion dollars” will return to the states if the FairTax is passed, yet FairTax proponents accept this claim at face value. Jessica repeated this claim in her speech on the merits of the FairTax.

    I emailed Jessica and asked her if she had any citation I could look up to understand the basis for this claim. She emailed back that Jorgenson and Kotlikoff had done a study showing this. As most on this board know, Jorgeson does not support the FairTax; and neither Jorgeson nor Kotlikoff did any such study. When I pointed this out to Jessica, she then referred me to one of her Kansas FairTax colleagues and suggested I submit the question to the FairTax Nation, where more knowledgeable people than her would be able to answer the question.

    Well, her Kansas colleague never responded to my email. Nobody on FairTax Nation posted a reply to my question. So, I can only conclude this is simply another “fact” that radio talk show hosts have simply made up.

    It will be interesting to see if Jessica continues to repeat this claim in her future speeches, or whether she will take the time to investigate this and other claims that are made in support of the FairTax before she accepts them at face value.

    Hayden Kepner  ·  Aug 3, 2009 at 8:38 am  ·  Permalink
  29. Is there a dispute that there are $13T of US owned assets abroad or that all (or some specified percentage) will return if the Fairtax becomes law?

    Andrew Martin  ·  Aug 3, 2009 at 10:00 am  ·  Permalink
  30. Andrew — Yes, there is a dispute about:

    1. How many dollars are held abroad.
    2. Who owns that money.
    3. Why those dollars are being held abroad.
    4. Whether (and what amount) of dollars would return to the US if the FairTax were enacted; and
    5. Whether it would even be a good thing for dollars to “return” to the US, since that would necessarily suppress the value of the dollar and cause inflation.

    But, let’s start with the first. How many dollars are actually held in foreign bank accounts?

    Hayden Kepner  ·  Aug 3, 2009 at 12:01 pm  ·  Permalink
  31. Andrew,

    Is there ever!!! The original source of this Fairtax myth, as near as I can tell, is the first Boortz/Linder book. On page 97, the book refers to the year 2000 World Wealth Report and claims that the report states that 1/3 of the wealth of high net worth individuals is held offshore, amounting to $11 trillion in dollar denominations. However, on page 104, the book modifies the claim by saying that there is $11 trillion in American owned wealth held offshore.

    The Tax Justice Network published a briefing paper in 2005 that concluded that there was $11.5 trillion in offshore wealth, but it was owned by wealthy people from all over the world. The white paper also pointed out that regionally, North American wealth held offshore amounted to $1.6 trillion. There are 23 sovereign nations in North America, so American owned wealth held offshore might be significantly less than $1 trillion?

    I also recall that Fred reported on this blog that, in 2004, the federal government granted a one time amnesty to encourage investors to “bring their wealth home”? The results aren’t well documented, but it seems to me that any American wishing to reinvest in America has already done so.

    Bottom line is that it is certainly not true that there is $11 trillion in American wealth held offshore, and even more unlikely that anyone would “come rushing home” if the Fairtax passed. Even if I’m wrong, the federal tax revenue from repatriating this wealth is probably less than $50 billion under the most optimistic economic scenario.

    Anyone with additional data should chime in, but this thing looks like a Fairtax myth that has grown all out of proportion, including Jessica’s new claim that $2-3 trillion would come home in the first year? Not likely!!!

    As for foreign owned wealth, before anyone rushes to claim that it will flood into America due to the Fairtax, you should reread HR25, Sec. 905, where you will find that income from US based businesses owned by foreigners is to be taxed at 23% or whatever existing trade treaties mandate. Not a big incentive to locate in the USA?

    Hank Van Gieson  ·  Aug 3, 2009 at 12:06 pm  ·  Permalink
  32. Here is a link stating what the US owned assets abroad are. They show $11.5T in 2005. Does anyone dispute this?

    I thought you may be Hank based on the Tax Justice Network study.

    Andrew Martin  ·  Aug 3, 2009 at 10:57 pm  ·  Permalink
  33. Andrew,

    I wouldn’t dispute the Global Policy Forum data you linked us to, but that report has absolutely nothing to do with the issue at hand. The GPF report deals with US owned assets abroad versus foreign owned assets in the US. I would suggest that the fact that there is much more foreign owned assets in the US than US assets abroad is a good thing for jobs, etc.? But, US owned assets abroad include fixed assets such as a major US aircraft factory located in China as part of a commercial airplane sales deal. Has nothing to do with taxes, but was a necessary ingredient of marketing and sales.

    Go back to your link’s GPF home page, and scroll down to a recent piece entitled “IRS Steps Up Scrutiny of Offshore Funds”. This article says that there are $400-500 billion in US owned hedge fund assets located in offshore tax havens, but half of those assets are owned by tax exempt organizations. I think this data comes closer to the truth than the $11 trillion Boortz/Linder wrote about. And, it is closer to the data presented by the Tax Justice Network, imho.

    Hank Van Gieson  ·  Aug 4, 2009 at 6:21 am  ·  Permalink
  34. The last time this topic came up, one of our contributors admitted to having set up a tax-shelter account in Panama for a wealthy client.

    While we can debate the numbers, no one has disputed that a re-allocation of investment in favor of the US would occur as a direct result of the FairTax – nor can anyone. Free of a tax component, the United States would remain – and further grow – as the best venue in the world for investment, whether the source is foreign or domestic.

    ~Jim

    Jim Bennett  ·  Aug 4, 2009 at 8:57 am  ·  Permalink
  35. Thanks for the link there Andrew. This is definitely food for thought. Honestly though, this seems to be a minor selling point in my opinion. If the data that Andrew located is accurate and a significant portion, even say 20% were to “come home” I think that would be a great benefit to our economy. If however Hank and Hayden are correct, I don’t see this as undermining the other benefits of the FairTax.

    On another note, I will definitely plan on listening to the Boortz show tomorrow. Thanks to my new iPhone I can now listen to Boortz at work. I actually have to agree with Hank and Hayden here though. Boortz has done a great dis-service to the FairTax by not taking on the tough questions. If the FairTax is really all it’s cracked up to be, which I really hope is the case, then he should readily take on all comers. I expect to be disappointed tomorrow, but I’m hoping to be pleasantly surprised instead.

    Scott  ·  Aug 4, 2009 at 9:06 am  ·  Permalink
  36. Andrew — Thanks for the link. But, frankly, you’ve proved the point that Hank and I wanted to make.

    It’s easy for Boortz and Linder to twist facts around to support whatever claims they want to make about the FairTax. But when one actually examines the basis for their claims, you get an entirely different picture.

    For example, Boortz claimed in the CNN “debate” that there are $13 trillion in dollar-denominated foreign accounts held by US businesses and individuals for the purpose of evading US tax laws. Based on the chart in the link you’ve showed, that statement is a lie. Let’s look at what your link shows:

    1. There are approximatey $13.7 trillion in FOREIGN INVESTMENTS owned by American individuals and companies. These are NOT simply “dollar-denominated accounts,” as Boortz claims, but include real estate, businesses, stocks, bonds and, presumably, some dollar denominated accounts.

    2. In contrast, there are approximately $16.3 trillion in DOMESTIC INVESTMENTS in the United States owned by foreign individuals and companies.

    3. So, foreigners own MORE American assets than Americans own foreign assests, despite our “punishing tax system.” (A fact that Boortz somehow neglects to mention.)

    4. Foreign investment is a good thing for a number of reasons that have nothing to do with taxes. Diversification of risk. Taking advantage of comparative advantage for labor and materials. Access to natural resources. Access to markets. Adopting the FairTax is not going to change this.

    5. If you click on the “Home” tab of the link, there’s actually an article that is more on point to our discussion, entitled “IRS Steps Up Scrutiney of OffShore Funds.” In that article, it says that US investors have arounf $500 billion in offshore hedge funds, but half of those are from tax-exempt foundations. So, even assuming that 100% of the rest of the US investors in offshore hedge funds do so to evade taxes (which is in itself a questionable prospect), then we’re only talking about $250 billion — a far cry from the $13 trillion that Boortz throws around.

    Anyway, Andrew, I do appreciate the link. You’ve helped clarify this issue, though I suspect that’s not going to stop Boortz from continuing his misrepresentations of this issue.

    Hayden Kepner  ·  Aug 4, 2009 at 9:19 am  ·  Permalink
  37. Jim,

    I might agree with you if it wasn’t for HR25, Section 905, which lays a 23% tax on income from operations in the US by foreign owned firms. Don’t you think that will discourage foreign investment in the US?

    Hank Van Gieson  ·  Aug 4, 2009 at 10:46 am  ·  Permalink
  38. Good point, Hank.

    There are however two exceptions in subsections (b) and (c) of that section. The first is for interest on portfolio debt investments. Unfortunately that is not a defined term. The second is for treaty countries.

    As long as the earnings of the foreign person or entity remain with the US subsidiary, the tax is not triggered.

    As to foreign countries that withhold earnings about to be sent to US investors, the FairTax will cause those investors to consider reallocating their investments to the US, where there is no tax.

    Thanks for pointing that out.

    ~Jim

    Jim Bennett  ·  Aug 4, 2009 at 12:50 pm  ·  Permalink
  39. Hayden,
    I agree with some of what you said, but the difference between foreign investment domestically and US investment abroad doesn’t necessarily speak one way or the other to the “punishing nature of our tax system.” After all, Chinese and Mexican citizens can (and do) own US property. US citizens can’t own land in Mexico or China. It also doesn’t account for foreign investors that either come from more punishing tax systems, or more likely, less secure investment arenas.

    And who says hedge funds are the main source of assets that return. The bottom line is US citizens invest about $13.7T (2006) abroad. Of course, some of that is going to return, just like foreign investment will increase (unless the 23% tax on income Hank points out is more of burden than the current tax system on foreigners). Why? Because the US will be a better place for business. Labor costs are going to go down by at least 20%. Income won’t be taxed. Gains on real estate will even be exempt, not to mention gift/estate taxes. Our entire tax burden is going to shift from production to consumption, so the environment will be more conducive to production.

    I am by no means suggesting that the entire $13T would come back. How much? I don’t know. A good chunck? Probably. Whatever income is generated won’t be taxed (for domestic ownership). That by itself is a huge reason to shift business here (especially considering many of our foreign competitors have already shifted there tax burden to consumption).

    Andrew Martin  ·  Aug 4, 2009 at 1:12 pm  ·  Permalink
  40. Andrew,

    We may have discussed this previously, but please explain just exactly why you contend that labor costs will be reduced by 20%?

    Hank Van Gieson  ·  Aug 4, 2009 at 7:29 pm  ·  Permalink
  41. Andrew — We don’t need to rehash all of our arguments over the pros and cons of the FairTax here.

    My point was simply that claims of the type that Jessica made in her speech — “there are $13 trillion in offshore accounts” that will magically return when the FairTax is enacted — is based on her good-fairth belief in what she heard from her colleagues at FairTaxNation, who in turn based that claim on what they heard on the radio, which was an intentional misrepresentation of the truth by Boortz.

    This happens over and over again. If you examine many of the “accepted wisdom” of the FairTax — whether the required tax rate, the effect on the “embedded taxes,” the billions we will allegedly collect from the underground economy and illegal aliens, the $13 trillion in foreign accounts — they are all based on exagerations, distortions and out-and-out lies told by Boortz (and, to a lesser extent, AFFT) which are never challenged except here on the FairTax Blog for the simple reason that those making the claims are not forced to back up their claims with facts and do not allow dissenting voices to be heard.

    So, well-intentioned people like Jessica get suckered into supporting something that, in truth, is entirely contrary to her liberal beliefs. I mean, she actually believes that the working poor would come out better under the FairTax than Warren Buffett. Sheesh!

    Hayden Kepner  ·  Aug 4, 2009 at 8:02 pm  ·  Permalink
  42. Hayden,

    I wasn’t attempting to rehash the pros and cons, just stating why the business environment would be superior as compared to the current tax system (while pointing some of your argument’s flaws).

    I’ve already agreed with you many times that politicians, radio talk show hosts, etc. are very good at over selling their points. But, of course, that occurs on both sides of the political aisle (or all sides if you believe politics isn’t binary). Describing the value of foreign assets held by US citizens as “in offshore accounts” is disingenuous at best. But you’re right that most of the time its just people repeating what was heard. I’m sure all of here are guilty of the same sin.

    I wouldn’t worry too much about the need to hear dissenters. Most people don’t even realize there is anything to dissent from. You should try dissenting from the current stimulus crazy congress or socialized healthcare debate. Most of the dissenters are ignored, but those fiascos are actually happening. Believe me, if the electorate examined those issues as much as we examine the fairtax here, those issues would turn out much differently.

    Hank,

    15% immediately comes off based on the payroll tax. I used an additional 5% as a low estimate for what income would be (off the top of my head). Immediate is defined as the time from implementation to the time to reach equilibrium in the labor market.

    Of course, this doesn’t account for those that prefer the $200K job at 50% over the $150K at 0%, but I think they only represent about 1/300 millionth of the US population.

    Andrew Martin  ·  Aug 4, 2009 at 9:57 pm  ·  Permalink
  43. Jim,

    Here is a condensed version of Section 905: “`(a) In General- All persons having control of any gross income from sources within the United States of any foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.”

    Now, I don’t see anything here that would support your claim that the tax wouldn’t be applied if the income remained within the US? Isn’t it strange that a sales tax bill would contain an income tax provision such as this?

    The provision in Sec. 905 that exempts debt portfolios might have been necessary to prevent double taxation. Aren’t debt instruments covered under Section 801, implicit taxation?

    I certainly agree with you that the 23% tax is subject to existing trade treaties. As I understand it, such taxes might be as low as 5% for Most Favored Nations? MFN status applies to around 60 countries, I believe?

    All in all, Section 905 is less than clear, at least to me. And, I do recall that Dr Walby once wrote that this Section 905 provision isn’t really a tax, but should be viewed as a tariff??? Now that really clears things up?

    Hank Van Gieson  ·  Aug 5, 2009 at 3:24 am  ·  Permalink
  44. Hank,
    For the pruposes of 905, the person having control is the payor, not the foreign investor. If the foreign investor directs that profits not be distributed but retained in the business, then income is not realized, and there is no tax. Having said that, I’m not overly wild about Section 905, but I suppose it’s meant as a club to encourage foreign countries not to withhold tax on repatriated income of US investors in their countries.

    Section 801 is about financial intermediation services, and implicit income has to be read in that context. It would appear that the portion of interest on “portfolion debt investments,” see 905(b), constituting financial intermediation services would be taxed without respect to the nationality of the payee.

    ~Jim

    Jim Bennett  ·  Aug 5, 2009 at 9:39 am  ·  Permalink
  45. PS:
    Hank, I just realized this. After passage of the FairTax, the US will be the only country without an income tax. Foreign investors who derive income from the US will still be subject to income tax in their home countries. If the US charges them 23%, they will be able to take a credit on their home country income tax returns. Thus, Section 905 is a pick-up for the US costing foreign investors nothing.

    The FairTax will still make the US attractive because of the favorable tax climate overall for investment.
    ~Jim

    Jim Bennett  ·  Aug 5, 2009 at 9:44 am  ·  Permalink
  46. I don’t know if this belongs here, but for those of you that missed the one hour Fairtax discussion yesterday by the newly selected candidate for admission to the Radio Hall of Fame, here is my take.

    Nice job of filibustering, imho, in that Boortz spent 35 minutes discussing the history of the income tax, and the history of the Fairtax development. He then spent 17 minutes making unsupportable claims about the Fairtax, and then answered four mundane questions in the last five minutes.

    Boortz renewed his claim that everyone would get 100% of their pay (gross pay), and prices would remain the same. He basically said that 22% embedded taxes come out and 23% sales tax is added for no change in retail prices. He also botched his attempt to compare the sales tax rate to income tax marginal tax brackets. Whoever writes his script isn’t very smart, imho!

    He repeated the myth about the $13 trillion in US owned assets returning from offshore to bolster our economy. I’m not too sure how many of us agree, but I certainly don’t!

    His answer to the impact of the Fairtax on health care costs simply repeated his claim that health care costs will go down and the after sales tax price will remain about the same. I doubt it!!!

    A major gaffe, unless I’ve missed something this year, is his answer to a transition question. He said quite clearly that the Fairtax would not go into effect until the 16th Amendment was repealed. My understanding of Linder’s addition to HR25 this year is that the Fairtax would be put in place in January of the year following passage, and the income tax would be reinstated if the 16th Amendment wasn’t repealed within seven years. I sometimes wonder if Boortz and Linder are still talking to each other?

    All in all, not exactly a brilliant performance by a future hall of famer!

    Hank Van Gieson  ·  Aug 6, 2009 at 10:06 am  ·  Permalink
  47. Hank — Thanks for the summary. I did not hear the presentation except for the last five minutes. Not surprisingly, he did not bother to answer any real questions about the FairTax.

    Hayden Kepner  ·  Aug 7, 2009 at 3:00 pm  ·  Permalink
  48. As other posters have pointed out, Jessica’s speech, while clearly heart-felt, repeats baseless claims and falsehoods perpetrated by FairTax proponents, particularly those on talk radio. When the claims are repeated and passed on, they take a life of their own, even if there is no actual support for these claims. They become part of the “accepted facts” upon which so much support for the FairTax is based.

    This is one reason why it is so hard to have a reasoned debate with FairTax proponents. Before you can discuss the real issues with the FairTax, you have to peel through the layers of made-up facts.

    For example, we’ve discussed on this board before that there apparently is no basis for the much-repeated claim that “13 trillion dollars” will return to the states if the FairTax is passed, yet FairTax proponents accept this claim at face value. Jessica repeated this claim in her speech on the merits of the FairTax.

    I emailed Jessica and asked her if she had any citation I could look up to understand the basis for this claim. She emailed back that Jorgenson and Kotlikoff had done a study showing this. As most on this board know, Jorgeson does not support the FairTax; and neither Jorgeson nor Kotlikoff did any such study. When I pointed this out to Jessica, she then referred me to one of her Kansas FairTax colleagues and suggested I submit the question to the FairTax Nation, where more knowledgeable people than her would be able to answer the question.

    Well, her Kansas colleague never responded to my email. Nobody on FairTax Nation posted a reply to my question. So, I can only conclude this is simply another “fact” that radio talk show hosts have simply made up.

    It will be interesting to see if Jessica continues to repeat this claim in her future speeches, or whether she will take the time to investigate this and other claims that are made in support of the FairTax before she accepts them at face value.

    Calafate  ·  Oct 29, 2010 at 8:55 am  ·  Permalink