Federal Taxation of State/Local Government consumption

March 5, 2010  ·  Filed under: Uncategorized

On another blog, Jim Bennett and Hank Van Gieson had a discussion about the Constitutionality of the Fairtax plan to tax government consumption.

Hank writes in and requests a discussion:

My arguments now draw on what is called “the rule of law” which uses the Constitution and the Federalist papers to determine original intent. Clearly the framers never would have agreed to allow the federal government to tax state/local government operations. And, when Justice Marshall wrote “the power to tax is the power to destroy”, any constitutional arguments should have ended.

Jim, on the other hand, uses 220 years of Supreme Court decisions as a basis for claiming that the Fairtax is constitutional. This is known as “the rule of man”. Many years ago, the Court came up with the doctrine of intergovernmental tax immunity and have been chipping away ever since. Jim quotes many decisions that weaken that tax immunity doctrine in support of his claim that taxing governments is OK.

Clearly, we can never agree on the constitutional issue, so I suggested to Jim that we move to fairtaxblog and examine the basic AFFT rationale for taxing governments in the first place.

The only AFFT rationale I have ever found for federal taxation of State and Local governments was to prevent unfair government competition with the private sector. But, Section 704 of HR25 clearly states that any government agency at any level that sells more than $2500 in goods or services per quarter would be classified as a “government enterprise” and would be required to collect and remit the 23% Fairtax. The playing field would be level and there was no need to tax the over $2 trillion in government consumption in order to prevent unfair competition. So, what was the real point of government taxation?

Unless someone can provide a better rationale for this potentially unconstitutional proposal, it seems most likely that the Houston tax lawyers who created the Fairtax plan simply wanted to keep the tax rate as low as possible. By adopting the rather unusual inclusive definition of the sales tax and adding over $ 2 trillion in government consumption to the Fairtax base, the rate came to just over 23%. Had they not taxed governments, and had they expressed the rate in the normal exclusive terms, the rate would have been over 43%. When added to the average State and Local sales taxes, it’s clear that sales tax rates over 50% would have been required. Was the real reason for taxing governments simply to cover up the real sales tax rate by forcing the States to pay part of the needed federal tax revenue by raising all their rates?

Any comments would be appreciated.

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41 Responses to “Federal Taxation of State/Local Government consumption”
  1. I tend to agree with Hank regarding the original intent of the constitution, but I also question the constitutionality of the current income tax system. I also agree with Hank that the courts have chipped away this distinction, making Jim’s argument likely true as well. So I think both arguments are correct from the respective viewpoints, but the question is what is the most likely outcome. Even with the increasing movement to a constiutional government, I think it more likely Jim’s viewpoint would prevail in the courts.

    As for unfair government competition with the private sector. If government stayed within it’s proper bounds respecting limited powers, such taxation of the government would be unnecessary.. to go to Hank’s second point. While I’d love for that to be true, we know it’s not.

    I think Hank is overstating the impact of section 704 to address the entire issue. It seems to me that the largest competition threat from the government is not the one that charges sales (covered in sec 704), but when those services or goods are “free” paid for by taxation. It’s important that the cost for a good or service cost the same, be it paid for through taxation or direct sales. Government should not be able to offer a service at a lower taxpayer cost than a similar private business offering the same service for retail sale.

    I think Hank’s last paragraph is just incorrect. We have discussed the issue in past here, and while there was some disagreement and some final figures to check (which I never got to), it doesn’t come close to reflecting the estimates presented in Hank’s last paragraph. $2 trillion in government consumption is a nominal cost, not a real cost based on the accommodation level Hank selected. It also tends to ignore the cost of the current system to the States and Local government, and what would be removed. I still believe that the real cost to state and local government will be less under the FairTax and will properly show the true cost (compatible to the private sector) of those governments for providing a service to the people.

    Not to leave this on a negative… I would prefer many of the ideals that Hank seeks. I’d like a system that was constitutionally limited, prevented government competition, removed government taxation on itself, and a greatly reduced tax rate (by cutting government spending).

    Morphh  ·  Mar 5, 2010 at 9:34 am  ·  Permalink
  2. Morphh,

    Thanks for responding–maybe some others will chime in?

    Last point first. I reread that exchange you referenced about impact on States, and it didn’t resolve much. Let me try again.
    I assumed that retail costs would fall by 10% and retail prices rise by 17%. And monetary accommodation by the Fed has nothing to do with that assumption. On several prior emails and posts, I have asked you, Kotlikoff, Tuerck, et al, to tell me what monetary action is needed from the Fed to allow that retail price increase. My view is that there will be over $2 trillion in cold hard cash injected into the economy from the take home pay increases and the prebate. Not only does the Fed have nothing to do with that cash infusion, there is nothing they can do to head off a one time unique price increase, imho.

    From the State Treasurers perspective, income tax revenue would remain the same, and sales tax revenue would decline by 10%. That 10% reduction in the sales tax base would be offset by the fact that the States no longer would have to pay their 7.65% share of FICA. Call it a wash and the States will still have to come up with that 23% tax on all consumption except education spending. I fail to see how you can believe that State costs would be less under the Fairtax, unless you are going to claim that State payrolls would be reduced and/or the States “tax the tax”?

    As for Section 704, I think it is a bigger deal than you indicated. All current government enterprises including the Postal Service, TVA, Amtrac, etc. would have to collect and remit the tax, as well as all government agencies that meet the criteria in Sec. 704. As for government agencies at any level offering free services that would compete with the private sector, please give examples of a couple of such services you have in mind. Do you really think the voters would support a free town laundry paid for with tax dollars? I don’t!

    Finally, the Supreme Court decisions made to date that might impact intergovernmental tax immunity don’t come close to providing a precedent for federal taxation of State and Local operations. I wouldn’t put all my chips on Jim’s position if I were you. However, if the Court should allow such taxation, I would expect the States to begin the Nullification process, the only avenue left to them to prevent an unconstitutional action by the federal government. (Keep an eye on Texas and the other 35 States who are already preparing to nullify any health care plan that mandates insurance coverage with fines and jail for failure to comply!)

    Hank Van Gieson  ·  Mar 6, 2010 at 1:14 am  ·  Permalink
  3. I think we’ve both agreed in the past that the measure of a tax is the impact to personal purchasing power. You’re measuring percentages and nominal dollars, which I agree would increase, but this is deceptive as it’s not the proper measure under such a transition to accurately reflect the impact. With income increasing, prices increasing, percentages changing – the measure of the State burden and the Federal burden under the FairTax should be calculated by the change in purchasing power, then converted to a compatible percentage and real dollar values (similar to this post – Purchasing Power – The Forgotten Factor).

    Under the FairTax, a portion of personal purchasing power currently lost to the State, is shifted as a loss to the Fed and a gain to the people. This transfer results in the State taking less since their tax base is decreased, even if their percentage increases. Keep in mind that there is also a reduction from education payroll, which is a large portion of State/Local budget.

    I also do not understand why a change in the money supply would be needed. Like you, that part makes no sense to me. And from an economic standpoint, we already have an overinflated money supply, so further expansion could be pushing into a dangerous area.

    As for examples of non-enterprise government, it could be for services as simple as free trash pickup or high speed internet access. A stronger libertarian view would even consider such services as police, fire, roads, etc. If one portion of government was untaxed and another not, they would make all efforts to structure government in a way to avoid the tax, as would any business. This would not result in a decreased tax burden for the citizens though, it would just shift it from the State to the Fed, while at the same time giving unfair advantage to the state run service.

    Taxing government State/Local/Federal will not change the tax burden on the citizens. It just shifts the collection to the respective government as they adjust to maintain real revenues. You seem to argue that the FairTax shifts part of its burden to State/Local government, giving it a deceptively lower rate, however, this is not the case. The loss of purchasing power to citizens by the State is less or equal to what it is under the current system, thus the FairTax is not hiding revenue in State/Local taxation (at least not any more than it is today).

    Morphh  ·  Mar 6, 2010 at 7:45 am  ·  Permalink
  4. Morphh,

    On another blog, I have been having a discussion with Dr Tuerck about some Fairtax issues. I took the opportunity to ask him to explain just what the Fed role would be under the Fairtax. What could they do or not do with regard to the retail price increase? Here is his response:

    “My point about the Fed is this: When we remove existing federal taxes and impose the FairTax, one of two things can happen: (1) Factor costs can fall by 23% and the new tax imposed on top of those costs, so that there is no change in retail prices. Or (2) factor costs can remain unchanged and the new tax imposed on those costs, so that retail prices rise by 30%. Your scenario is #2. Which scenario we get (or which combination of the two we get) is up the Fed. The prebate money is irrelevant here because that money is raised through the new tax, rather than the printing press. Anyway, the Fed can keep the money supply fixed and thus push down factor costs, leaving retail prices unchanged (#1) or “accommodate” the tax and push up retail prices (#2). That choice is up to the Fed and out of the hands of the architects of the FairTax.”

    Morphh, I do have an economics degree, but must admit I don’t understand a word of what he wrote. Can you or anyone else translate this thing using words of “one syllable”? It doesn’t seem to me that he answered the question? Is that $2 trillion in tax withholding and payroll contributions real or not? Instead of businesses sending that money off to the Treasury, they are going to give it to us. And we are going to spend it! Won’t that mean that prices will rise no matter what the Fed does. Help!

    Hank Van Gieson  ·  Mar 6, 2010 at 12:33 pm  ·  Permalink
  5. With regards to the federal government imposing a tax on state/local governments (which is what I believe we are talking about. Intergovernmental taxation also encompasses the states taxing the federal government. This was the case for McCulloch v. Maryland (1819) from which Hank often quotes John Marshall, “The power to tax involves the power to destroy.”):

    The constitution specifically allows for direct taxation of states, but it must be apportioned based on representation. So not only would our founders accept this, they wrote it into the constitution. But they also allowed for excise taxes. I don’t believe state or local governments were given exemptions on purchases of products they made that contained excise taxes. This is exactly the same thing. What is the tax based on, the product or consumer?

    As far as current court situation, I think there would be little hope of the supreme court taking a stand here.

    Andrew Martin  ·  Mar 6, 2010 at 2:48 pm  ·  Permalink
  6. With regards to public/private competition:

    Morphh is absolutely correct, it’s about the services that state/local governments provide based on collection of tax dollars.

    Example, a company charges you $1000/year to collect garbage. Of course, they have to send $230 to the federal government. The local government only has to pay that same company $770/year for everyone to get the same deal, except of course for the feds (who lose their $230) and the consumer (who on average has to pay $230 less). It’s the exact same thing if they exempted companies that hire unions instead. The union company is $770 and the non-union is $1000. Which do you prefer?

    Note: Of course I left out things like the cost of the government’s bureaucratic ineptitude and the union’s distortion to labor market. In many cases those will consume the $230 and more. But it is still an advantage.

    Andrew Martin  ·  Mar 6, 2010 at 2:55 pm  ·  Permalink
  7. With regards to monetary accommodation:

    The sentiment of the quote Hank attributed to Dr. Tuerck has been stated here many times. So I hope it’s not the no/full/partial accommodation part that has Hank confused, but rather how does the federal reserve supply the nation with currency. Because in the end, that is all we are talking about. And I’ll agree it’s hard to understand, but here is my best shot.

    The only business that can literally make money is a bank. So all the other businesses you refer to, that will keep paying people their gross, have to get that money from somewhere. At the end of all level of money out, backing every dollar in our wallet, is money that has been issued (or loaned) by the federal reserve. I believe the amount that the fed has loaned out is called M1. Based on certain accounts this gets expanded to M2 and then with additional accounts get further expanded to M3.

    The Fed also controls the “price” of money via the prime rate. So a higher rate leads to less lending because borrowers now have more to pay back (hence the fed fueled housing bubble that put the prime rate at a (at least then) historically low 1% for over a year). So the Fed actually controls the amount of currency available to purchase goods.

    If they don’t do anything to increase the money supply, how can goods be even 17% (for Hank’s sake) more expensive in nominal dollars when those dollars don’t exist. In other words, if the fed doesn’t increase the money supply by 17%, things cannot be 17% more expensive. An individual can decide to make his product 17% more expensive. That’s true. But if all business did that, there would literally not be enough money in the system to pay for it. Now we get back to basic (I hope) economics. A surplus occurs, businesses start lowering their prices to get rid of the surplus, and we go right back to the same price equilibrium we had before the fairtax.

    Now with monetary accommodation, we will again reach equilibrium, but in real dollars, not nominal dollars. In this case, the biggest loser are holders of cash assets. Which, as I’ve probably mentioned before, is why I agree with the 5 year phase in. I’d like to mitigate the chances of a heavy inflationary tax as much as possible.

    Andrew Martin  ·  Mar 6, 2010 at 3:24 pm  ·  Permalink
  8. Andrew,

    You are correct to assume that my confusion is only over “where are the dollars?” Look, the dollars are there today in the form of withheld amounts for income taxes and payroll contributions. Rather than give those dollars to the government, the dollars will go to us, the American people. We will spend those dollars, prices will rise–more dollars chasing the same amount of goods__and the federal government will be funded by sales tax dollars.

    Color me ignorant -and aging?- but I can’t understand how the Fed can have anything to do with this one time, unique price increase. The Fed doesn’t need to do anything to make it happen, nor can they stop it without severely tightening the money supply. In short, we don’t need more money to support a price increase, we just need to shift around the dollars that are already there. Over!

    Hank Van Gieson  ·  Mar 6, 2010 at 4:19 pm  ·  Permalink
  9. It’s not about the Fed doing or not doing something. They are always doing something, by controlling the discount rate (rate charged by the fed), the exchange rate (intrabank short-term lending rate), and choosing the size of the US monetary base (I believe M1 is just this, but it may have more). So the bottom line is, the Fed will respond with these values like they do everyday (or whatever duration they pick for certain aspects).

    The Fed currently (or at least in the recent past) targets a 2% percent annual inflation rate. So they keep their eyes on the money base and velocity to try to keep that rate. If they actually made the same 17% prediction you’ve made, they decrease the supply and increase rates (in order to keep 2% although this may not play well politically, so it is anyone’s guess).

    “In short, we don’t need more money to support a price increase, we just need to shift around the dollars that are already there.” In other words, the same amount of money (shifting dollars not increasing) chasing the same amount of goods. We know what that is not.

    Andrew Martin  ·  Mar 6, 2010 at 5:12 pm  ·  Permalink
  10. Andrew,

    Are you trying to convince me that putting $2 trillion in the hands of consumers, instead of sending that $2 trillion to the Treasury, is non inflationary? Are you suggesting that the Fed, with that 2% inflation goal, could tighten the money supply so as to effectively make that $2 trillion disappear?

    I certainly agree that “real” prices should be roughly unchanged. But nominal prices will rise by an average of 17% after the inventory tax credit works through the system.

    The question remains: what can the Fed do to head off that 17% price increase? By restricting the money supply, would workers suffer a gross pay decrease? Is the $2 trillion real or not?

    Hank Van Gieson  ·  Mar 7, 2010 at 2:58 am  ·  Permalink
  11. Thanks for your explanation Andrew. I’m think I’m starting to see.. you can’t have a increase in income and an increase in prices without the fed doing something. My confusion on it is that getting full pay is sort of an illusion. Take it before or take it after.. That income goes to the fed. So I don’t see a new $2 trillion. I see the same $2 trillion go into our pocket, then come back out, where before it went directly to the fed before entering our pocket (although it could have if not withheld). Consider this full accommodation example…

    I make $10 gross, the government takes $3 withheld from my income. Business pays me $10, and thus the price of their product is $1.00 (instead of .77). This is today… we have.
    $7 me
    $3 fed
    $1 work

    After the FairTax, I get $10 gross, the government takes $3 on consumption. Business pays me $10, and thus the price of their product is still $1.00. They apply the FairTax and the product is $1.30, which I pay to the fed with my extra $3.
    $7 me
    $3 fed
    $1 work

    So this is where the confusion comes in… where exactly is the expansion and why is it needed? It seems that expansion would provide someone or everyone a 30% windfall, which is eliminated by the devaluation of the currency and purchasing power, but I don’t see anyone getting a windfall.. it just seems like a different exchange of the same money.

    Morphh  ·  Mar 7, 2010 at 7:24 am  ·  Permalink
  12. Morph,
    I like what you are trying to show with your example, but I’m not sure if it best makes the point. I don’t see how government would take $3 from consumption unless I used all my gross to buy taxable goods…so lets say I do spend it all, then

    Pre Fair Tax
    $10-$3 = $7 for me to spend. I spend it all on goods costing $1.00…so I am able to purchase 7 items.

    I have 7 items
    Fed has $3
    Business has $7

    Post Fair Tax
    $10-$0=$10 for me to spend. I spend it all on goods that I will pay $1.30 for so i am able to buy 7.69 items (let’s not worry at the moment about purchasing a partial item yet).

    I have 7 items (actually 7.69)
    Fed has $3
    Business has $7

    John Bailey  ·  Mar 7, 2010 at 5:05 pm  ·  Permalink
  13. I’ve also been trying to reconcile in my mind how this work. Here is my best shot. I’m going to try it to do more on the entire economy level:

    Assume pre fair tax, there are exactly $10T to consume $10T worth of goods. We can imagine about $2T going directly to the federal government and everyone else recieving money to make up the difference of the $10T for purchasing.

    Now the fairtax is enacted. If the base price of goods still cost $10T because employers and employees recieve the same amount of nominal dollars as before, then the actual cost in dollars of the $10T in goods pre fair tax is $13T post fairtax. We have to add in the fairtax to the base cost. But, under our no accommodation model, there are still only $10T to purchase our collection of goods that cost $13T. That means we have to have $3T in surplus. Of course, as we all know, when there is surplus, prices necessarily have to come down. How are they going to come down? Are the benevolent businessmen just going to take the hit? No. The markets will shift and equilibrium will soon be reached again. If the $10T for purchasing product is all that is available, the end result will be products will go down by the 23% fairtax and people will eventually just recieve their net. It won’t be businessmen’s choice about whether this happens. They either or adjust or don’t survive.

    Andrew Martin  ·  Mar 8, 2010 at 10:13 pm  ·  Permalink
  14. Andrew,

    I like your example too. I don’t think the only thing that could happen is prices coming down. If there are $10T available to purchase $13T worth of goods (and services), I agree one thing is prices can come down….but couldn’t the Fed print another $3T so we have $13T chasing $13T worth of goods? Or we could have an infinite number of combinations in between (i.e. Feds print $1.5T and prices come down $1.5T). I don’t think it really changes the basic point of your example (real vs. nominal).

    John Bailey  ·  Mar 9, 2010 at 3:10 am  ·  Permalink
  15. John,

    You are correct. The fed could add another $3T for full accommodation. I was just showing why prices would have to come down if they didn’t add anything, or in the no accommodation model.

    Andrew Martin  ·  Mar 9, 2010 at 9:14 am  ·  Permalink
  16. Andrew,

    I just re-read your post and now see where you mentioned the no accommodation model.

    John Bailey  ·  Mar 9, 2010 at 8:34 pm  ·  Permalink
  17. Gentlemen,

    I’ve been patiently reading your posts and hoping that someone will show me why the Fed has any role to play during the transition to the Fairtax. All I’ve seen is some charts that deal with monetary accommodation scenarios. And, Andrew, your scenario is the least likely in my view. Gross pay and pensions will not change for reasons of legal, contractual and fairness.

    (1) Legal–don’t mess with minimum wage laws by thinking you can give minimum wage FICA withholding to business owners for use in cost reduction. Can’t happen without changing minimum wage laws.

    (2) Contractual–Many workers are under annual contracts, so unless you want to see legalman get rich, don’t mess with existing work contracts, whether a document or a hand shake!

    (3) Fairness–Folks making the same pay do not withhold the same amount for a variety of reasons. How would you propose to fairly reduce everyone’s gross pay? Can’t be done!

    The only scenario that makes sense is to assume everyone gets their full gross pay, and businesses will have to decide about retail price increases needed to stay in business. There is no way a business can send 23% of sales to the Treasury without raising prices.

    The issue remains as to whether or not the Fed has a role to play in this one time inflation event. Setting aside the prebate for now, I believe there is $1.1 trillion in individual income tax withholding and $500 billion in individual payroll contributions, for a total of $1.6 trillion in money that will go to consumers rather than the Treasury. No new money is required, imho. With $9.5 trillion in retail sales, that $1.6 trillion in additional money would support a 17% retail price increase. And a 17% average price increase is just exactly what we have been predicting. That is, lower producer costs 10% and add the 30% sales tax and retail prices rise by 17% on average.

    All of our economic experts are hung up on their favorite formula MV= PX. (Forgot what X is?). But as Kotlikoff wrote, if X and V are unchanged, then P (prices) can’t rise unless M (money) rises. That may well be true, but in the transition to Fairtax, I think M is already there.

    I also sent an email to a Fairtax skeptic to get his take, and will provide whatever he sends.

    Bottom line–I don’t think there are two possible outcomes, just one, and the Fed can’t (or won’t) want to interfere!

    Hank Van Gieson  ·  Mar 9, 2010 at 8:44 pm  ·  Permalink
  18. Hank,

    In 2003, the Fed targeted the Federal Funds Rate at 1% (lowest since the early 60’s) for about a year. This fueled the housing bubble. After returning it to a historically average number, the bubble burst. Their response: another bubble. It has been between 0% (yes, free) and 0.25% since December 16th, 2008 (yes, over a year). You may think a Fed that does this will sit back and let the economy take a 17% inflationary hit, but I think it’s inconceivable. I’m not saying they will immediately make the correct decisions, but I’m without a doubt that they will attempt to do something. And again, keeping the monetary base the same as before the fairtax will make inflation impossible (unless of course production goes down).

    I do have to quarrel a little with the workers keep all their pay and businesses make the same nominal profit they make before the fairtax. That would mean that business people would be willing to accept less reward (since things will cost more nominal dollars) for the same risk. That’s just not going to happen.

    With regards to your three reasons:
    1. Minimum Wage – Yes. The fairtax will in effect give every minimum wage worker that can retain their job more money (but of course this raise will cost many their jobs).
    2. Contracts – I’ve worked many a job. In at least one, I was the member of a union. Not one annual contract. In fact, everyone pretty much had the ability to let me go with two weeks notice. Where are these annual contracts coming from. And unions only make up 7% of the private workforce (they make up a lot more of the government workforce, but those workers will still be taxed).
    3. Fairness – Withholding has nothing to do with what I speak of. I’m not sure what you mean about fairly reducing everyone’s pay. Assuming you believe everyone’s current pay is fair, there future pay will be set the same way: the market. Of course, like I always say this may take a while to reach equilibrium, but it will happen.

    Andrew Martin  ·  Mar 9, 2010 at 10:31 pm  ·  Permalink
  19. Andrew,

    It’s clear that your scenario doesn’t have to be concerned about any Fed actions. Everyone’s gross pay gets cut, prices remain about the same, n o inflation to worry about. But I’m still waiting for comments on my scenario where everyone gets their full gross, prices rise by 17%, so what does/can the Fed do?

    I think you are a minority of one who honestly believe that gross pay will be cut. Hell, even that noted Fairtax expert writes in his new book, the Fairtax Solution by Ken Hoagland, that gross pay will remain the same!?!

    You and I can never agree, so will add just a few comments about why I believe gross pay won’t be cut.

    (1) Minimum wege earners won’t be getting a pay increase as you suggested. They will simply have fewer deductions, i.e.FICA. Surely you don’t believe that a $7.50/hour minimum wage worker that has $.57/hour deducted for FICA is going to let that $.57 go to the employer? Minimum wage is $7.50, not a penny less unless the law gets changed.

    (2) When you went to apply for all those jobs, surely you inquired about the pay scale, and you might have even shook the hand of the employer rep when you took the job? That my friend is a contract. And, you can’t tell me that the union you joined didn’t have a contract with management? I do agree that employers could have let you go if you couldn’t put a round pin in a round hole, but that has nothing to do with contract employment.

    (3) I haven’t made clear just why cutting pay by the amount of tax withholding is unfair. Cutting everyone by 7.65% FICA is easy. It’s the income tax withholding that leads to unfairness. As I said, workers with the same pay withhold differently for a variety of good reasons. You need to tell us specifically how a business owner would go about lowering their workers gross pay in the amount of their income tax. Employers don’t know how much income tax each worker pays, so what would you do? And just wait until workers get wind of a coming gross pay reduction based on withholding. There will be a mad rush to submit revised W-4’s in order to protect as much gross pay as is legally possible.

    My bottom line remains the same. There are two possibilities (1) Everyone accepts a reduction in pay and hopes that after tax retail prices remain about the same. Trust business owners to do the right thing with those payroll savings??? Or (2) Everyone fights like hell to keep all their gross pay, and business owners raise their retail prices as necessary to avoid bankruptcy when sending 23% of sales off to the Treasury. I know which scenario I prefer!

    Hank Van Gieson  ·  Mar 10, 2010 at 10:05 am  ·  Permalink
  20. Hank,

    I’m still utterly perplexed by statements like “But I’m still waiting for comments on my scenario where everyone gets their full gross, prices rise by 17%, so what does/can the Fed do?” If those people are paid with dollars, the Fed can restrict the availability of those dollars. Period. If so inclined, the Fed could restrict availability of dollars right now (which they’ll actually have to start doing soon if they don’t want runaway inflation).

    (1) Minimum wage – We agree.

    (2) The union I was in must have had a contract. I’m sure my pay scale was based on that, so you are correct there. Different unions have different rules for firing or laying off, but again only 7% of the private workforce is union. Shaking someones hand is not a contract unless the terms of the contract are laid out prior to shaking and it is agreed that the shake commences the execution of the contract. Maybe in your state there is some implicit employment contract enacted when the shaking of hands occurs signifying employment at a fixed rate for period of one year, but I doubt it.

    (3) I wouldn’t expect any employers to use the withholding number. That is a personal choice. Removing FICA is easy. Employers would have to make their own estimates on what payroll should be based on the costs they decide to pay. By people getting their net, I am not indicating that everyone will get the same net they get to do. The income tax has incentives to do certain things, e.g. have a mortgage. So those distortions will be removed. What I am saying is that the current labor market has the addition of an income tax as cost needing in wages. Once the fairtax is enacted, this cost will be removed and the labor market will adjust wages.

    We are probably talking past eachother (again) because I’m expressing things more in the sense of the market making adjustments while your expressing what will happen on day one (although I still think your assumption of a collective business decision is erroneous).

    Andrew Martin  ·  Mar 10, 2010 at 2:26 pm  ·  Permalink
  21. Andrew,

    What sort of dollar restrictions would the Fed have to employ to stop a one time 17% inflation? The Fed currently deals in fractions of percentage points, so do you really see the Fed dealing with 17% inflation by tinkering with their rates? I don’t, but my name isn’t Ben!

    If I understand you correctly, you are saying that businesses will gradually set aside any employment contracts and start to reduce payroll costs as the bite of the 23% sales tax drives their costs higher than their revenue? In other words, raising their retail prices to balance the books isn’t an option in your opinion?

    Actually, you are getting into an issue that we might need to discuss. I have been talking about businesses as a group, but consider what happens to large or small, profit making and S-Corps for instance as the Fairtax is implemented. I see a high likelihood of absolute chaos in the business world as the more prosperous businesses resist price increases by drawing down their profits, borrow additional capital, etc. in an effort to destroy competition from smaller businesses. I think the largely non profit S Corporations will be the first to fold, and marginal businesses including any remaining mom/pop shops will follow. There is no way small businesses can send 23% off to Washington and still survive, imho. Also, I doubt that the inventory tax credit will help smaller businesses much, only the big boxes with significant levels of tax free inventory. All in all, isn’t there a potential for a total economic meltdown? Just thinking out loud?

    Hank Van Gieson  ·  Mar 10, 2010 at 3:07 pm  ·  Permalink
  22. I have never worked in a union environment. Every company I’ve worked for had essentially a verbal contract as Hank mentions. But as part of that contract, both sides have the right to terminate with just two weeks notice (at least in states where I’ve worked).

    Hank, you imply that the employer can not let someone go for any reason other than poor performance. I don’t think that’s accurate. One company I worked for had employees take one vacation day a week or be laid off….then it went to a 20% reduction in pay or be laid off. That was a necessity for the company to stay in business. The employees weren’t happy about it, and some left. But that’s better than all being out of work.

    Companies have the ability to modify the terms of verbal contracts (i.e. increase or decrease pay, change job tasks, change working hours, etc.).

    John Bailey  ·  Mar 10, 2010 at 4:44 pm  ·  Permalink
  23. I can’t predict what would happen, but what seems most likely to happen in the majority of cases is that employees would keep their gross pay. It would be easier for companies to impliment giving the gross as they would not only need to spend little time accomodating the change (i.e. don’t subract FICA and witholding) they would not have to deal with complaints from employees regarding reduction in salary (even if they have more money in their pocket).

    I guess I don’t see why either scenario (employees receiving gross or receiving net) has any bearing on the topic. Either way, there is a given amount of $ chasing a certain amount of goods and the federal governement will be getting the same amount (revenue neutral) of the pie.

    John Bailey  ·  Mar 10, 2010 at 4:54 pm  ·  Permalink
  24. John,

    But isn’t it true that under current tax law, within that given amount of dollars $1.6 billion annually isn’t chasing any goods, but is being sent to the Federal Treasury as tax withholding? Once those same dollars go to the consumers under the Fairtax, the chase for goods would definitely be on, wouldn’t it? All I’m trying to get at is that those same dollars will support a 17% retail price increase with no action by the Fed. Why isn’t that common sense analysis accurate?

    Hank Van Gieson  ·  Mar 10, 2010 at 7:31 pm  ·  Permalink
  25. Hank,

    Whatever goes to the federal government IS chasing goods. The federal government spends all that withholding (plus some).

    Andrew Martin  ·  Mar 10, 2010 at 8:13 pm  ·  Permalink
  26. Hank,

    re: Post 17 you refer to MV= PX….I’ve seen it as MV = PQ where M is the money supply, V is the velocity of money, P is the average price level and Q is the number of items purchased.

    If the money supply stays fixed and the quantity of goods is fixed, then if prices increase by 30%, the velocity of money (number of times a unit of money changes hands in a given period) must also go up 30%.

    Of course that’s just a theory and is not supported by all economists. I’m not sure if any economist would even agree that the equation is valid for the scenarios we are discussing.

    John Bailey  ·  Mar 10, 2010 at 8:17 pm  ·  Permalink
  27. John,

    Thanks for clarifying that economic equation. As I mentioned, I couldn’t remember what Q was, so called it X.

    My problem is that all of the Fairtax economists use this equation to explain what the role of the Fed would have to be if the Fairtax was implemented. It’s almost a knee jerk response when they say that if the money supply (M) doesn’t increase, then prices (P) can’t increase. They tend to bound the problem by claiming that if producer costs fall by the amount of the tax, retail prices remain about the same, and if producer costs are unchanged, then prices have to rise by the amount of the tax. All true, but I don’t agree with either scenario as being the most likely outcome as you know.

    Setting aside Andrew’s belief that everyone will get their current net pay as their gross, my most likely scenario is that everyone will get their gross pay, producer costs will fall by 10%, and retail prices will rise by 17%. Simple math.

    I wrote to Dr Gale, noted Fairtax skeptic, and asked his views on the role of the Fed. His response was: “What happens to the price level is (a) hard to tell (b) dependent on monetary policy and (c) NOT IMPORTANT. No real outcome changes — real wages don’t go up or down — if prices go up, wages will go up too. See my 2005 Tax Notes paper. Leah can send it if you would like a copy — sorry to be brief, I am on the road right now”

    In his 2005 paper, he discusses the two possible extremes, but does not address the role of the Fed, so I still don’t have an answer.

    I still believe that the Fed has nothing to do with my most likely Fairtax scenario. Over $1.6 trillion will be placed in the hands of the consumers, money that previously went to the Treasury in the form of withholding. That amount of cash infusion will support a 17% retail price increase almost to the penny. So, the question remains, what action by the Fed would be needed to allow a 17% retail price increase? My current answer is, NOTHING!!!

    As for the equation MV=PQ, it doesn’t seem to apply unless (1) giving consumers $1.6 trillion would increase (V) velocity; or (2) the 23% sales tax actually creates new money (M). I’m not sure either is true?

    Hank Van Gieson  ·  Mar 13, 2010 at 10:50 am  ·  Permalink
  28. Hank,

    You’re welcome.

    I don’t pretend to know more than economists who have studied this issue, but I don’t necessarily want to take their word for it either.

    If economists believe a given scenario is more or less likely, it would be nice if they could explain their rationale. That being said, in non-precise sciences such as economics there are so many variables that are difficult to quantify therefore one has to make assumptions. Some assumptions are simple and easy for the lay person to follow. Others may not be, especially when attempting to factor in human behaviour. I guess I don’t get too worked up about it because I believe in the end, the country and citizens will be better off. I think changing to the Fairtax may cause some turbulence and some unexpected consequences (desirable and undesirable). I think the desirables outweigh the undesirables with some of the undesirable existing only during the transition time.

    As far as what the Fed Reserve will do, we don’t really know. I suspect they will do what they think will keep inflation (real or perceived) in check….or that’s what they will say. Does the MV=PQ apply for a single event? No….probably not. If I’m not mistaken, most macro economic theories are based on events that happen over time as the economy is a dynamic system. A single event may cause a ripple and can even cause harm if it’s significant enough. I would not dream of arguing that switching to the Fair Tax could be classified as an insignificant event. But that doesn’t mean it will be harmful. The economic term ‘short-run’ is defined (in my book) as the period of time over which nominal factor costs do not change and it gives as for examples of nominal costs being dollar wages workers are paid, dolalr cost of machinery and plants, and dollar interest payments that firms pay on their borrowings. So if workers receive the same wage (gross) pay then one could consider their nominal wages to not change, thus indicating the Fair Tax changeover event could be evaluated using short-run analysis. But I think one could equally argue that the worker wages somewhat increase as he now has more money in his pocket to spend (on taxable or non-taxable stuff) thus meaning his wages have changed and long-run analysis might apply. I suggest that neither apply as the event is too outside the bounds of the assumptions those theories were developed from.

    If current theories don’t apply, do we make up new ones? Possibly, but I think most would be meaningless until time has gone by to validate them and determine which ones apply. While doing so might be an interesting mental exercise, I think it’s pointless as the event is too short for the theories to be useful. Let’s say 5 competing theories become well acceptable as plausible prior to Fair Tax change over day. One may end up actually predict the economic outcome. But so what. There’s no way to know which it will be. Besides, it might be correct for the wrong reasons.

    As for MV=PQ, I’m not sure that applying it would indicate giving $1.6 trillion to consumers. As I understand it, M is the quantity of money in circulation. So unless the Fed actually changes the supply of money, M would stay constant. Overnight the quantity of goods should not change much so Q stays the same. So if we take the view that adding the Fair Tax to the price of goods equates a price increase, then that would imply that V (velocity of money) would have to also increase. However, reveiwing what my text book says about the quantity theory of money, it’s all based on the long term. So who knows what those terms will be on day one or two or thirty one, but in the long run, with a fixed money supply, either velocity of money goes up or number of goods goes down. The fed could certainly step in and increase M in an attempt to keep V and Q fixed.

    I think the key thing in Gale’s response is sort of what Morph was pointing out in a previous thread – while Gale is stating real wages won’t change (if prices go up wages go up), Morph’s approach was purchasing power which is basically the same thing.

    John Bailey  ·  Mar 21, 2010 at 4:29 am  ·  Permalink
  29. As an individual needing to live comfortably in my town, I need to make $35,000 a year before taxes and deductions.

    I need to put aside every year $10,000 for retirement. I believe it is necessary for every American to save for several reasons.

    Those making less than 2x the poverty level need to get a 2nd job and under the FairTax if the unemployment rate is over 10%… could a stimulus check be issued to help those in need…??? Is it written in the FairTax Bill how difficult would it be to make small changes to help more of those in need?

    James Russell  ·  Jun 10, 2010 at 10:07 am  ·  Permalink
  30. James,

    I’m not sure what your question is, but I don’t believe there is anything in HR25 that would allow any more stimulus checks. You have identified one major issue in that under current law, if you are unemployed, you pay no taxes, but under the Fairtax, folks would still be paying that 23% sales tax if they want to stay alive!

    I don’t know what your family size is, but assuming a typical family of four, you should have paid no income taxes in 2009, and you contributed $2677 in FICA taxes. Your FICA payments should net you around $1000 per month when retired plus most of your medical expenses. Saving 30% of your gross pay seems to be way above average. What did you base that savings plan on?

    Hank Van Gieson  ·  Jun 12, 2010 at 10:38 am  ·  Permalink
  31. Hank, if you’re unemployed, then you’re likely not spending above the poverty level, thus your not paying 23% to say alive; the government is likely paying you to stay alive via the monthly prebate. I think non-profit charities and churches offering free services (like a soup kitchen) would also be tax free. If you are consuming more than poverty level with no income, then you have wealth, which is what the FairTax claims to collect.

    James, the FairTax has a simple philosophy – it’s tax policy. It should not be used as another means for a politician to dish out favors. If you want a stimulus bill, welfare, or whatever, that is a spending bill, not a revenue bill. Don’t hide stuff in the tax code. Now the FairTax does provide a prebate to everyone to make sure they pay no taxes up to the poverty level. If you’re living below the poverty level, than the government is paying you more than your paying them. This concept is similar to the child tax credit in application.

    Morphh  ·  Jun 13, 2010 at 6:25 am  ·  Permalink
  32. On the original matter of the federal government taxing state and local governments, any such tax would be an embedded tax on the citizens of the taxed governments.

    Any such amounts would be paid for by the citizens in the form of higher state and local taxes, or additional ‘fees’, since those are the is only revenue sources for any government.

    The HR25 government taxing scheme is wholly fraudulent and bogus, and does exactly what the fair tax pretends to eliminate – hidden embedded taxation.

    Phelbers  ·  Sep 3, 2010 at 9:09 am  ·  Permalink
  33. First, for those that love used words like fraudulent and sale job, your remarks are not appreciated by anyone here that is of honest intention, you seem to forget, That every accountant and Tax attorney have many sales jobs on TV every day, feeding like sharks on the remains of a fraudulent Tax System, that was sold to the American people in 1948 as a “Victory Tax” just after we won the war. The Fair is undoubted the best thing that can happen to our Economy, we leave the money in the hands of the people, until they spend, and with Government now on the side of small business, instead of draining their cash flow and costing them more money that any of you can count in book keeping and Accountant and lawyers, that all businesses pay, beings they are the tax collector for the government, but not on sales. How Much you need to count it.When you say the cost of goods goes up do to fair tax you a dreaming again, businesses compete with businesses and with an increase in cash flow, and the savings on book keeping and accountants, respectively being now equal to all businesses competition drives prices down as more business is created. As for raising the Fair Tax, it will be harder than the current system which for those that didn’t know this it gets raised easier, now last but not least if you find the new Health Care 2000 page to be nontransparent and easy to corrupted, then what do you think the corruption current tax law is with some 30,000 pages. Also the illegal immagrants and the huge underground society would finally pay tax takeing the burden of a few Americans and an America that is frozen compared to anyother time in history, ask not what your country can do for you but what you can do for your country and the rewards in JOBS and Increase wages more than makes up the difference, give America A future, and realize the fraud and sales pitch happened years ago and the Fair Tax puts everything in prospective. Now the mother with baby making a hundred and fifty dollars a month, would pay 35 dollars in tax if she spent all, that same mother would also be on numerous programs, such as food stamps housing assistance, transportation assistance, medical assistance as id now the case, but with a healthier government and a better shot a job. And when she gets her 150, 20 isn’t taken out for the Feds that pay no interest either. The reasons for fair tax is endless, there is not an accountant of tax lawyer that will not lobby against it and miss inform the people to stop it. Fraud, corruption and increases all exist now, and we to the accounting and collecting and the cash flow for the government for free.

    Paul black  ·  Oct 10, 2010 at 9:24 pm  ·  Permalink
  34. Paul

    I am a very strong proponent of the Fair Tax.

    But I oppose HR 25 – it is not the Fair Tax.

    I agree fully with you that the present system is no good – except to those who profit from the administration or manipulation of it – the IRS, Congress, and the accounting and tax preparation industry.

    The Fair Tax, as proposed by the old Americans for Fair Taxation before it was corrupted by its present leadership, has my full support.

    HR 25 is fatally flawed, and the use of the words ‘fraudulent’ and ‘bogus’ applies solidly.

    Thanks,

    Phelbers

    Phelbers  ·  Dec 9, 2010 at 12:04 pm  ·  Permalink
  35. I’m not sure why everyone is making this so complicated in regard to the Federal Reserve and the 17% inflation… Are you forgetting that the free market is self-adjusting? Anyway, this is how I see it… Please, correct me if I’m wrong here…

    I. It’s not like this bill would be passed in some secret dark room, where businesses and consumers just wake up one day completely ignorant of the new tax system… Both consumers and businesses will be well aware of the new change, and will have ample time to prepare…

    II. Consumers would act on the *expected* inflation, and will probably increase spending until right before high prices kick in…

    III. However, businesses will know that the increase in spending would be temporary and will prepare for a short slowdown once the Fair Tax kicked in (treating it just as businesses treat increased spending during the holidays)… Businesses will have been advertising weeks or even months in advance about how they will be having huge sales or deals promising low “Fair” prices and stuff like that… With that in mind, it is easy to see how extreme 17% inflation sounds…

    IV. However, it is true that business would certainly like to retain as much of the higher price advantage as possible, but they would obviously also have to account for the loss in demand that comes with higher prices… So, it possible that the price will only rise approximately the same amount that wages would rise, in terms of people getting to keep their whole paycheck, not actual wages… However, demand will slow as people realize their wealth hasn’t changed, and higher prices would be very short lived, perhaps as short as a few weeks or months…

    V. As far as the Federal Reserve, the Fed is certainly incompetent enough to try to “do something” about the inflation, but, in reality, seeing as it is very temporary inflation that has nothing to do with an increase in the money supply, the Fed could probably slow down the printing press slightly for a short period of time, but then resume its normal course (which, sadly, is debasing the crap out of our currency :(… )

    So, to recap:

    1. Consumers increase spending prior to Fair Tax implementation…

    2. Businesses prepare for sharp contraction after the increase in consumer spending prior to implementation with *planned* cutbacks (in both wages and prices) just like they would after a holiday or tourist season, and compete for the best Fair Tax sale, promising low prices…

    3. Businesses keep as much of the pre-Fair Tax price as possible, (which would likely match the rise in take-home pay from whole paycheck)… However, this will decrease demand until prices fall to equilibrium…

    4. Fed only slows presses temporarily, as inflation will be short-lived, since the money supply was not increased… (The Fed may speed up presses shortly after that, because the savings rate will also increase)…

    5. Economy starts regular growth pattern from a MUCH healthier (but not perfect) tax system…

    The Ellipsis  ·  Jan 1, 2011 at 1:10 am  ·  Permalink
  36. Of course a hidden deceptive tax is unconstitutional.

    I changed emails with Bennett, who admits that not only has no one ever “educated” city and state officals about his massive tax — there is also, according to Bennet “no plans to do so”

    Do you grasp this? A trillion dollar tax on city and state governments — WITH NO PLANS TO TELL THEM.

    NO PLANS. No notice. No letters. NOTHING.

    Yeah, that should fly !! I can see Bennett out there trying to force Texas state government into paying 13-14 billion dollars to the federal government — after NO information, NO notice, NOTHING is given to the states.

    It’s insane, folks. Bennett is a nice enough dunce, but it’s INSANE. There is never going to be this trillion dollar tax on city and state governments.

    There is no research on how much California, for example would pay. None. Not one paragraph in their “research” about it. But you can find Calfornia state budget, for non educational purposes. It’s about 700-800 billion dollars.

    That means Califormia would owe almost 1/4 of that 800 billion to the federal government.

    I can just see Jim out there “GIMME 200 BILLION OR I TAKE YOU TO JAIL”

    Bennett and his delusional buddies are wacked out fud puckers.

    Mark  ·  Feb 7, 2011 at 10:31 am  ·  Permalink
  37. Mark — I agree wholeheartedly with what you are saying. This is just another one of the many fatal flaws of the FairTax that is not generally communicated to its supporters.

    Now, obviously if the FairTax were ever seriously considered by Congress, this issue would be raised and debated at that time. And, since it is almost certainly unconstitutional for the Federal government to tax state and local governments as the FairTax would do, this issuew would also be considered by the states connection with any Constitutional Amendment that would be required to implement the FairTax.

    As you point out, it is inconceivable that California, Texas or any other state would vote to approve a Constitutional amendment requiring them to pay hundreds of billions of dollars a year to the federal government while getting absolutely NOTHING in return.

    I share your frustration with Bennet and others who are clearly aware of all the many, many irreconcilable problems with the FairTax yet seem to take the attitude that it’s best to keep the flaws secret at this point and we’ll somehow deal with them at some distant point in the future once the income tax is repealed.

    Hayden Kepner  ·  Feb 7, 2011 at 11:29 am  ·  Permalink
  38. Hayden,

    You think Jim Bennet, Karen Walby, Ken, Boortz and the rest care one iota of a Constitutional challenge to Fairtax?

    Your mistake is taking them seriously, as if they intend to pass Fairtax.

    Have you ever seen the movie “The Producers” with Zero Mostel and Gene Wilder? Two con artist who are worried to death their play will make it past the opening night, because then their BS would be exposed?

    RIght now, Huckabee, King, Boortz, Karen, the whole she-bang are far more worried someone will pass Fairtax, or at least get hearings under oath.

    They are shaking in their boots that would get any real exposure — a USSC challenge? Ha! Huckabee is scared to death that the state government of Texas will find out his plan is for them to pay 12 billion a year in taxes. And for the cities of Dallas, Houston, etc to find out Huck’s plan for 500 million dollar tax on those city governments.

    Can you imagine Huckabee trying to force Texas state goverment to pay 12 billion?

    Karen doesn’t want any part of any testimony under oath. Someone would ask her “Who told you to put in your fine print a 1 trillion dollar tax on city and state governments, but only call it “putting the government on equal footing”?

    To describe a trillion dollar tax as “putting government on equal footing”!! And does she really, really expect the state government of California to pay 18 billion, because she wrote “put government on equal footing”?

    They have nothing set up to tax state governments — NOTHING. They have nothing set up to tax city governments — NOTHING. It’s all smoke and mirrors and they know it.

    I hope Huckabee stays with this tax on government plan, and gets the nomination for POSTUS. Because with Huck as the candidate, and Fairtax as his cause, Obama will win 50 out of 50 states. No state governor will support Huckabee on this plan. No city mayor. NONE. NOT ONE.

    SO Huckabee — if you are listening – STICK with Fairtax! it’s a great plan! You can tax city and state governments ! You can tax renters and cancer victims and moonbeams. You are a tax genius, don’t change a thing!

    Mark  ·  Feb 11, 2011 at 4:10 pm  ·  Permalink
  39. Mark — I agree with you that none of the propents of the FairTax (other than Morph, of course) have any desire for a real discussion or debate of the FairTax. They’d rather preach to the choir, ignore all of the evidence and arguments that refute the FairTax, and then claim that the “mainstream media” and lobbyiests are preventing the FairTax from getting a fair hearing.

    That keeps the supporters riled up and the campaign contributions and free labor coming. However, it is nevertheless clear that there are some thoughtful people that are aware of all the criticism of the FairTax and yet still support it. I have no idea why, but there are a few. Morph and Kotlikoff come to mind. But I think the vast majority of FairTax supporters would abandon it for some other tax reform proposal if they knew the truth about the FairTax.

    Hayden Kepner  ·  Feb 11, 2011 at 8:11 pm  ·  Permalink
  40. Forget the Constitutionality of this Farce tax. Doesn’t matter.

    You physically CAN NOT – CAN NOT tax city and state governments.

    It’s impossible. Remember – ONLY PEOPLE pay taxes?

    Anyone recall that? Fairtax dot org says that is their “No 1 AXIOM.” That is their “unending truth” their “guiding light”

    Only people pay taxes. Oh, but then they say, gosh, we gotta tax city and state governments a trillion or so.

    Hello. Hello? Anyone home? Anyone at all?

    Only people pay taxes. City and state governments will not, can not, should not, and it doesn’t matter if they do, they can’t.

    You want LA to send in 900 million dollars a year? Well, you aren’t even telling them for one thing, this is hidden in your fine print.

    But besides the goofy deception, LA can’t pay 900 cents, much less 900 million. They have to — you know – pass the cost along. So guess what? The people that live there would have to pay it.

    And there are other reasons. Steve King, and all the Supposed “sponsors” are never – ever – ever – ever, did I say ever — going to even try to make city and states pay it. Can you see Cornyn saying ” Yes, Texas state government, you MUST pay 10 billion to the federal government!”

    Don’t think so. ANyone want to bet on it?

    Mark  ·  Mar 2, 2011 at 8:16 pm  ·  Permalink
  41. Mark is right. The tax will be imposed on the state and local governments, but passed on to the individual through sales. property, and income taxes, and added fees.

    Boortz bad-mouths anyone raising this point. He says, “Well, you’re paying 22% hidden federal taxes on state and local governments now for everything they buy, so it’s perfectly proper and good and true and just and reasonable and fair that you continue to pay hidden Fair Taxes after the implementation of the Fair Tax.”

    That settles it as far as Boortz is concerned. He is not challengeable, and the issue is not debatable with him.

    HR 25 is NOT the Fair Tax. AFFT is NOT a legitimate representative of the Fair Tax (only of HR 25).

    I am pro-Fair Tax, but very anti-HR 25.

    Thanks Mark,

    Phelbers

    Phelbers  ·  May 25, 2011 at 5:14 pm  ·  Permalink