Boortz: “When Democrats attack the FairTax!”
Agree or disagree with the FairTax, this campaign season has seen a wave of false advertising around the FairTax in a desperate attempt to maintain seats. FackCheck has written several times about the misleading ads as have other publications, but they still keep coming. Time for Boortz to get into the ring…
Incumbent Democratic Senator Blanche Lincoln .. struggling for her political life in Arkansas.. runs an ad saying that her opponent, Republican John Boozaman, is “excited about putting a 23 percent national sales tax on everything you buy.” In the Colorado Senatorial race polls show Democrat Michael Bennet trailing Republican Ken Buck by as much as five percent, Bennet is running ads saying that under Buck’s tax reform plan a bag of groceries could cost $11 more and your prescription drugs could cost over a hundred dollars more.
In North Carolina’s 8h Congressional District Republican Harold Johnson is hoping to oust Democrat Larry Kissell. There we have the NEA (National Education Association) Fund for Children and Public Education running an ad replete with the sounds of a crowd attending a college football game (note the appeal to sports fans) and an announcer saying “It’s Harold Johnson Tax Day at the game, where every fan pays a 23% national sales tax.” The ad goes on to say the tax would be added to tickets, hot dogs, groceries and gas.”
That’s all rather frightening, isn’t it? After all, who would want to see their grocery, gas, food, prescription drug – or any other bill, for that matter – increased by 23%? Answer: Not a soul. So what sane candidate would ever propose such a tax increase? Answer: No sane candidate would.
So … where are these ads coming from? Even the most baseless of attack ads must have a grain truth to hold on to, if for no other reason than to avoid generating nothing other than ridicule and laughter.
Read the full article on his site
There is one bit of campaign speech I would like to see legislated. There should be a honesty clause. If based on facts, a reasonable group of citizens finds an attack ad to be false or an out right lie – if sponsored by the candidate, the candidate is immediately eliminated from the race. If not sponsored by the candidate, the organization gets heavily fined and restricted from running ads for that election cycle. These people need to be responsible and held accountable for what they present to the public in ads while campaigning. That’s the big problem today, you can’t trust a damn thing you hear. With all the time and money spent on campaign reform, you would think they would at least target honesty. I don’t care how much they spend, so long as what I’m hearing is an honest criticism of the other person or promotion of their own policy beliefs.
Morphh,
Not a bad idea, except we need to agree on just what is a lie, and if a claim is just false, did the claimer have good reason to make that claim?
For instance, take the recent “attack ads” that the DCCC and others are putting forth. The only false statement I can find is that the ads should read that “my opponent wants to add a 30% tax to the cost of everything we buy”, not a 23% tax. ( I’m sure there are still some of you that don’t agree with me that there is a difference between cost and price). But, no one can disagree that the retail merchant has to add 30% to the cost of goods and services in order to get a 23% tax inclusive price. So, should any candidate that says that his opponent wants to add a 23% tax be eliminated? The statement is false, but who understands that? Fairtax proponents are strong believers in inclusive taxes, but inclusive sales taxes aren’t recognized by the vast majority of Americans (yet), so is that grounds for elimination?
As for being a lie, I think a claim is only a lie if the person behind the ad knows the claim is a lie. Is an incomplete claim a lie? I don’t think so. Misleading, perhaps, but not a lie. The ads in question are certainly incomplete, but is incomplete the same as telling as lie?
If the ads in question read that “my opponent wants to add a 30% sales tax to the cost of everything”, then that is neither knowingly false, nor is it a lie, imho.
Morph — I whole-heartedly agree with you on the honesty aspect of political ads. Unfortunately, for better or worse, almost anything can be said in political ads — no matter how false, misleading or defamatory — and it is protected speech. Of course, this becomes an even bigger issue when the idenities of the people or corporations behind the ads have complete anonymity. If the folks behind false ads were exposed, then at least they might be forced to suffer a little shame. When they’re anonymous, they don’t even need to worry about that.
I realize this is not a “political” board, but the Democrats tried to pass a law to force the donors to these attack ads to be disclosed. Every Republican — including every supporter of the FairTax – opposed that disclosure requirement and, due to the filibuster, were able to keep it from even being voted on. So I find it more than a little ironic that a FairTax supporter (especially Neal Boortz, of all people) would complain about misleading attack ads.
Having said all that, I agree with Hank. About the only thing I find misleading about the Democratic ads about the FairTax is that the rate they use to attack the FairTax is much too low.
You’re right Hank, it’s just intentionally misleading, which is essentially a lie, it’s a half truth that completely changes the context. In my mind, that’s a lie, but you’re right that the statement in itself is not false. It is a deliberate attempt to hurt the other candidate by intentionally misleading voters to the other persons beliefs. They should run on their record and the other person’s record (or beliefs).. be honest about it and let the voters decide.
To All,
Sending Boortz in to set the record straight is a fine example of sending a boy to do a man’s job! Boortz is clueless about the Fairtax details, and he is too arrogant to listen to any criticisms.
I read his piece and found an even dozen lies, misstatements, and just plain bad information. Here is my list for you to critique. By the way, I’ve sent countless emails to the Boortz site over time, trying to set him straight, but I was never even acknowledged once.
(1) Boortz starts right out by claiming that retail prices will be the same. Just not true.
(2) Boortz claims that all the embedded taxes (22%) will be removed. Again, just not true.
(3) Boortz then launches into a lengthy discussion about how percentage cost savings accumulate or cascade upward through the many levels of production. Again, not true!
(4) Boortz claims that the IRS will be gone, which is sort of true, but another agency, perhaps with a different name, will still be there.
(5) At this point, Boortz confirms that the 22% in embedded costs will be eliminated. He has no idea what the Jorgenson study is all about.
(6) Boortz claims that a $50 dollar bag of groceries under today’s prices would cost $50.50 under the Fairtax. Wrong again, and if you agree with my retail price analysis, that bag will cost $59.15, assuming a 9% drop in producer costs and a 30% sales tax.
(7) At this point Boortz makes it clear how little he knows by stating that we will all get 100% of our pay. If there was any doubt about his previous price claims being based on a large reduction in gross pay, forget it. He now makes it clear he supports the “free lunch” myth. Total ignorance!
(8) Boortz also should never do his own taxes. He doesn’t seem to understand that you can’t add a tax bracket and a tax rate and get anything useful. He asks if we would rather pay taxes of 25% on what we earn, or pay 23% on what we spend. I did a little figuring about people in the 25% tax bracket and now know what their effective tax rate really is. A single in the 25% tax bracket has an effective tax rate of 10.8% at the low end of the bracket and up to 18.3% at the high end. Average is 14.6% and after adding the FICA of 7.65%, total federal tax effective rate averages 22.25%.
The average effective tax rate for a married couple is 21.6% and the average effective tax rate for a married couple with two kids is 19.82% for the 25% tax bracket, including FICA contributions.
(9) Boortz then claims that investments won’t be taxed, but fails to understand the implicit tax provisions in HR25, Sec. 801.
(10) He then again demonstrates his ignorance by stating that the poverty level for a family of four is $22,000. Why doesn’t he know that AFFT wickered the HHS poverty level numbers by getting rid of a perceived marriage penalty and thus, the poverty level for a family of four becomes $29,140 according to AFFT.
(11) Boortz is still stuck on the faulty compliance costs of $300-600 billion, but doesn’t understand that the IRS abandoned the old compliance cost model in 2006, and now uses a new model that results in drastically reduced costs, and is far more realistic.
(12) Boortz ends with a suggestion to read the two “comic books” he and John Linder wrote. Based on the quality of his rebuttal here, that is the last thing I would recommend to anyone. Sending a boy to do a man’s work never works. I’m reminded of the old maxim which says “Better to keep your mouth shut and let people think you are stupid, than to open your mouth and prove it!”
Cheers!
Morph — When you think about it, this board is Exhibit A as to how difficult it would be to implement your suggestion.
We all agree that political ads should not be dishonest or disceptive. Yet, we can’t agree on whether it’s the pro-FairTax ads or the anti-FairTax ads that are being dishonest and deceptive.
We just know that at least one of them is!
Hayden, are you saying that you don’t believe ads like these are dishonest or deceptive? Maybe it’s the lawyer in you, but most people, pro or con for a topic, should see the intention to misrepresent the other candidate’s belief to voters. FackCheck covers this point fairly well, and if you remember, they were critical of the plan’s presentation.
Hank, 1 & 2 would be true under non-accommodation. 3 is true (costs cascade, percentages don’t).
Morphh,
Forgive me, but I need your help in understanding monetary accommodation. Despite all our previous discussions on the subject., I still don’t get it.
You wrote that prices wouldn’t increase under a non accommodation model. Therefore, I assume you believe that the Fed has to take action in order to allow a retail price increase, and that action is to print more money, isn’t it?
Let’s look at each player in this puzzle. The consumer gets a huge increase in spendable income from both the prebate and the increase in take home pay. The two add up to over $2.3 trillion, $1.53T from pay and $600 B from the prebate.
The retail merchant saves 9% in tax costs, but has to add the 30% sales tax, so retail prices increase 18%. No choice if the retailer is to maintain the same business plan. The retailer can’t send 30% off to DC without either raising prices or going bankrupt. Easy choice!
The federal government loses the current tax income, and has to pay $600 B in prebate checks, but the government now gets offsetting income from the sales tax revenue. It’s revenue neutral, and a wash for the Fed.
That $2+ trillion in the hands of consumers can easily support an 18% price increase.
My questions are:
(1) What can the Fed do to head off that price increase?
(2) Why does the Fed need to do anything to allow that retail price increase?
Help!
Hank, non-accommodation assumes that your gross becomes your current net, meaning you gain no windfall from the removal of income taxes (you have the same take home income). The entire cost of the current income tax system is applied to reducing business cost, resulting in estimated 22% decrease. The FairTax is then added leaving prices approximately the same. You have no more nominal money than today and prices are not noticeably higher (this is my preferred method of implementation as it limits inflation). However, due to contracts, we on this board have assumed that employees would get gross pay, with the rest used to decrease prices (partial accommodation). Since we’re increasing net income and thus prices by approximately the same amount (i.e. 17%), the money supply needs to be expanded to accommodate that change.
Morph — My point is, who would be the one deciding what is false and misleading?
If you ran an ad claiming that the FairTax would be 23%, would not raise prices, and would stimulate the economy, I would say you were being intentionally deceptive, at best.
If I were to run an ad claiming that the FairTax would be 50%, would raise prices and would destroy the economy, you’d say the same thing about me.
Yet, we would each be basing our ads on our own honest beliefs based on our review of available research and using logic and common sense.
Now, you might say a truly honest ad would explain the distiction between tax-inclusive and tax-exclusive, discuss why different economists come up with different rates, and discuss the pros and cons of the FairTax on different industries, but how are you going to do that in 30 seconds, for heavens’ sake.
Besides, the purpose of a political ad isn’t to inform a voter on the merits of a particular tax plan, but to influence the the viewer to vote for or against a particular candidate.
Now, for example, I think Michael Bennet’s ad was completely truthful. The FairTax would be a new tax. It would raise prices by (at least) 23%, assuming that wages aren’t slashed. And it would eliminate the mortgage interest deduction. So, it’s completely factual.
Buck, on the other hand, might spend his thirty seconds saying the FairTax would repeal the income tax, sociail security, tax and the Medicare tax, that it wouldn’t raise prices (though he wouldn’t mention anything about wages being slashed, and that you wouldn’t need the home mortgage interest deduction if you’re no longer paying income taxes. That might be factual, as well, though I’d consider it misleading.
Incidentally, Michael Bennet is a former client and a friend of mine. I remember discussing the FairTax with him in a bar in New Orleans 12 years ago. Since some other clients were there who seemed to like the idea, I was quite circumspect in my criticism of it. If I’d known he was going to be a Senator one day and the FairTax would actually be a campaign issue, I would have done a better job educating him!
Hayden, I don’t think it could actually be done. It was an expression of frustration about the dishonesty of politics. Seems clear enough though that the intent is to make the public believe the other candidate wants to add an additional tax, not replace one. We don’t have to get technical.
Morphh,
I agree with everything you wrote about monetary accommodation, right down to the last line? You seem to be saying that because prices are increasing, then the money supply has to also be increased. That logic simply reflects the theory of money equation–MV=PQ. But, what if that economic theory doesn’t apply to this very unusual event called the Fairtax?
Under the Fairtax, the money we are currently sending to the federal government in the form of income taxes and payroll contributions will stay with us to the tune of over $2 trillion annually. In essence a pay increase that uses money already in circulation. That $2 trillion will support a lot of purchases at the increased prices. The federal government, which used to spend our income and payroll taxes, now can spend our sales taxes. No change there, revenue neutral. So, just who is limited in their consumption by the need for more money? Until you can explain that without the use of monetary theory, I will continue to believe that monetary accommodation has no role to play under the Fairtax.
Why do we need more money??? And, while we are at it, what could the Fed possibly do to prevent the retail price increase? Prices have to increase or businesses go bankrupt. That is a simple fact if we all believe that we will get 100% of our gross pay, which most of us do? I’m trying to “follow the money trail”, and I can’t find a need for Fed accommodation.
Hank, I admit that the details of this monetary policy are beyond my understanding at this point. I haven’t studied it in detail. According to Bruce Bartlett, every nation that has enacted a similar consumption tax (like a VAT) have accommodated the tax. It’s also described by most of the economists that have written about it: Gale, Kotlikoff, Tuerck, et al. I’m not willing to dismiss what they’re saying based on my lack of deep understanding – I trust there is a reason. But aside from monetary changes, if you agree with the rest, then Boortz’s statement was not false with that scenario (employees getting net pay). Problem comes when they talk out both sides of their mouth, suggesting higher wages and consistent prices.
Morphh,
But. adding a VAT does require accommodation, just as Bartlett wrote. The Fairtax isn’t adding anything, just replacing one tax collection method with another. Could that be one reason for my “accommodation is irrelevant” logic?
I could be wrong, but I don’t think Gale, Kotlikoff, Tuerck, et al ever did a retail price study, did they? Accommodation wasn’t really required in support of any of their models or rate studies.
Boortz’s statements were certainly false the minute he wrote that we would get 100% of our gross. There is just no papering over the lies made by a supposed Fairtax expert.
Good points Hank. I don’t think the change in the money supply effects any of our figures or calculations – as you stated, it may be irrelevant (at least for what we consider). We’re still dealing with price inflation and the same real/nominal changes. I guess the question comes down to deeper economic thought; can you have this level of price inflation without monetary inflation (quantity theory of inflation)? At one point in economics, the terms were the same (price inflation was monetary inflation, a view still held by the Austrian School), but other schools of economics have added additional causes to price inflation. Currently, the quantity theory of money is widely accepted as an accurate model of inflation in the long run, where the inflation rate is essentially dependent on the growth rate of money supply. However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates. The question of whether the short-term effects last long enough to be important is the central topic of debate between monetarist and Keynesian economists. So, I guess I wonder if we can have price level increases like this without monetary inflation. Maybe your correct – this is beyond my current understanding of economics. I’d have to read more about it, but again, I’m not sure it’s relevant. For our use, the models still hold, whether monetary adjustments are made or not.
As for Boortz’s comment about getting 100% of your pay. I agree that it’s false in the same way the ads are false. I don’t like that AFFT tactic – it’s deceptive. Like the ads, it’s true (you would get 100% of your pay excluding non-federal withholding) but it’s a deceptive half-truth as it leads people to believe that 100% is your current Gross in that model, which is not true. Gross would be your current net.
The citizens of this country has been indoctrinated into thinking that the Income Tax system is the way to fund the government.
But the Income Tax code itself is close to 70,000 pages and has thousands upon thousands upon thousands of additional pages written to explain what the original 70,000 pages of Income Tax code actually mean.
And in many cases, these Income Tax guides or explanations known as Revenue Rulings, Letter Rulings, Tax Memorandums, Tax Publications and Tax Court cases contradict each other.
Thus the whole system has turned into one big contradictory and unintelligible mess and only gets worse each year it remains in existence.
According to President Obama’s own tax commission, citizens of this country (on a yearly basis) pay close to 140 BILLION DOLLARS in tax preparation fees and spend over 7 BILLION HOURS on Income Tax record keeping.
This is time and money they spend in addition to what they pay out in Income Taxes.
And in many cases, the cost of Income tax record keeping and preparation is higher than the actual amount of Income taxes owed.
Those candidates putting out ads lying about the Fair Tax are in support of the current Income Tax system.
They support a taxing system that forces themselves and other citizens to spend 140 Billion Dollars and 7 Billion Hours preparing Income Tax reports.
This is money and time that is wasted.
So the only solution is a new tax system.
And the only argument that should be occurring is what that new tax system should be.
Anyone voicing support for the current Income Tax system is supporting a tax system that is woefully inefficient and is made up of mind numbing rules and laws that the majority of citizens do not understand.
Scott — Good to see another participant on the board, though I disagree with some of your claims.
First, you talk about “Obama’s own tax commission.” I’m not aware of that. Can you please provide a link?
Second, there are about 100 million tax filers in this country. If they spent 7 billion hours in preparing income tax returns, that would translate to 70 hours per filer. I don’t think that is true, particularly given that most people fill out 1040EZ forms or 1040A forms, which take between 15 minutes and and hour to complete.
Third, the claim that US taxpayers spent $140 billion on preparing tax returns is equally suspect. That comes to $1400 per tax filer. It just isn’t true.
Now, where I would agree with you is that tax returns for individuals with their own businesses and rental property is overly complicated, as is the corporate income tax. But that could be remedied by simplifying the tax code, and reducing or possibly eliminating the corporate income tax. You don’t need to switch from an income-based tax system to a consumption-based tax system to remedy much of the complexity of our current system.
And, incidentally, the FairTax will be equally, if not more, complex for people with their own businesess or rental property as is our current system, because they will need to allocate their purchases between taxable personal consumation and non-taxable business consumption, and keep records and receipts to verify their busines consumption (which is what causes much of the complexity of our current system.)
Finally, you won’t find may people on this board who supports our current tax code. We all want rtax eform; we just disagree on what form it should take.
Scott,
Your tax code stuff is way off. Please go to this link and review the Tax Foundation information. http://www.taxfoundation.org/taxdata/show/1961.html
You will find out that the tax code had only 1.2 million words which, at 250 words per page, amounts to just over 5,000 pages, not 70,000 pages. It is easy to demagogue the tax code, but you seem to have gotten a little carried away. Stick to the facts, please.
As for the claim that individual tax compliance costs amount to $140 billion, that number is also grossly incorrect. You may not realize it, but the IRS adopted a new compliance cost model in 2006 which shows the individual compliance cost is somewhere between $25 billion and $30 billion, depending on the number of individual tax returns filed. If you have any questions, just look at page 98 in the 2009 1040 tax instructions.
Ever notice that Fair Tax advocates never answer serious questions? Here I find a Fair Tax blog, and the two posts above have legitimate questions backed by facts that receive no responses.
Heading the list of the Fair Tax claims is the abolishment of the IRS. How does anyone in their right mind think the Fair Tax would do that?
Does anyone that favors the Fair Tax have any idea of the fraud and theft that occurs at the state level in collecting sales tax? Do they not realize that the amount of fraud and theft will increase with a higher sales tax? Have they ever even heard of a Zapper program for cash registers? How many regulators do people think will be required to keep theft and fraud at remotely acceptable levels?
Here is an example. I run a sports bar. During Happy Hours I charge $1 for a bottle of beer($1.30 under Fair Tax). Regular prices are $3 for a bottle of beer($3.90 under Fair Tax).
I take a little Zapper program which takes one out of every five regular hour sales and puts it into my Happy Hour Sales. I have then stolen .60 of Fair Tax revenue for every sale I changed. With absolutely no chance of getting caught unless the enforcement arm of the Fair Tax is many, many times the size of the IRS.
Why do people think enforcing the collection of individual items that are sold in this country will be easier than what the IRS does right now?
There’s still not one major country in the world who has converted to a sales tax-only system, while there are about two dozen that have converted to a flat tax system, and with great results. I still say flat tax is the best way to go.
Personally, I wouldn’t mind trying any new plans. Fairtax, flat tax, Hayden’s Deductionless Progressive (although I hate progressive taxation), Hank’s Fairtax Lite. All of these are better than the current system.
Actually, having a desire to return to more of a federal system of government, I’d prefer the states pay the federal tax burden based on their proportioned representation. That way we could try all the new plans and it would be easier to convince say 6 million people rather 300 million. We could really put to the test this ridiculus notion that removing the income tax is somehow riskier than our current path.
I am all for a new tax system. I just do not want to see a system, like the Fair Tax, that would result in an increase on the current tax burden on those making between $25,000 and $100,000 a year.
I am not familiar with the tax programs you mentioned, but I believe in a flat tax. Difference is I believe all income should be treated the same, labor and capital. One deduction based on family size, and then the remainder taxed at one rate.
There is also falsehood in the promotion of HR 25 as the FairTax. HR 25 is falsely and fraudulently promoted by Boortz as the Fair Tax. HR 25 IS NOT the FairTax because:
1. It retains an income tax (Section 905)
2. Has hidden imbedded taxes (Section 2)a)7 )
3 It fails to give the ‘employers’ share of withholding to the employee
4. It fails to prevent ‘double’ taxation of existing savings and other accounts
5. It pays the prebate in cash, spendable for beer and lottery tickets, instead of a credit good for the FairTax ONLY
6. Keeps individuals (purchasers, not sellers as it should be) liable for the tax and under the cruel fearful yoke of new IRS – the STB – just like we are now. Lose your receipt, and you are jail bound. (Section 101 d) 1 ).
7. Requires a SSN for the prebate (Section 302 b) 2) a ). It should give the prebate to all who are legally and lawfully ELIGIBLE for a SSN, not require a SSN. Legitimate citizens (such as the Amish) will be denied the prebate because they choose not to enroll in the bankrupt, fraudulent SS system.
Boortz is not a good spokesman for the FairTax – only the deceptive HR 25. He is fixed and frozen in his position, and dismisses any honest, constructive criticism by name-calling and dismissing any questioners as idiots.
All the fatal flaws of HR 25 are readily fixable, but the business and congressional money interests in their windfalls from HR 25 prevent it.
Thanks
Phelbers
Strong Fair Tax supporter, Very strong HR 25 opponent
Ed (entry 19)
The new IRS – the STB, or Sales Tax Bureau – will only have to be 1/100 th as big as the old IRS. There are relatively very few businesses compared to the number of individuals. We could probably have a whole team of STB agents assigned for every sports bar.
But relax, under HR 25, the seller IS NOT LIABLE for the tax – only the purchaser (Section 101 d) 1 ). And if the buyer loses his receipt, he will be hounded, audited, levied upon, seized form, and jailed – not you.
Note also that as a businessman, you will get to keep the 7.65% ‘employers’ share windfall under HR 25. Instead of having to give that to your employees rather than the IRS, you can pocket it. That’s one of the dirty little secrets of HR 25.
By the way, you’ll have to falsify the receipts you give out, too, to steal the tax. You wouldn’t want an over-imbibed customer bringing in the STB on you with a mismatched receipt.
Also, don’t confuse true Fair Tax supporters with uninformed or corrupt, self-interested HR 25 proponents. Legitimate FairTax supporters welcome fair questions – HR 25 proponents will never rationally discuss any issue.
Thanks,
Phelbers
Phelbers,
You are saying it will only take 1/100th of the IRS. I think you are being silly beyond words. 140 million checks mailed every month. To people who move, gain dependents and lose dependents.
There are approximately 12 million retail establishemnts in the US. If you think tracing individual sales of billions of items to 300 million people will be easier than doing 140 million tax returns, I do not know what to say.
It would take many, many more people to collect, enforce and investigate the FairTax than the income tax.
And guess what? The evasion would dwarf current evasion. It wouldn’t even be close. I have placed links on this in several areas here. Let me know after you read them.
That thing about the SS numbers brings up a thought.
Am I right in saying that SS payments will be based on the wage data sent to the SS office eventhough there will be no SS tax?
So, my wages will determine my SS payment under FairTax while the actual taxes will be accrdoing to my consumption. How does that work on a fair basis?
If I make twice as much as someone else but spend the same, my SS payment will be much larger than theirs while my taxes were the same.
Can you say lawsuit?
Ed (re 25)
You are dissing HR 25, not the Fair Tax. I oppose HR 25, but not a properly drafted FairTax.
Checks should not be mailed – only Food Stamp style credit cards GOOD FOR THE TAX ONLY, not spendable. I agree with you on this about HR 25.
Keep in mind that it’s easy, relatively, to audit 12 million retail establishments. Remember that these businesses will still have tax ID numbers, and no privacy in their cash registers or bank accounts. And all their past tax returns can and will be used against them in ANY criminal case.
There will be evaders. But, evaders are rampant now – in 1996, Senator Roth gave IRS statistics in his book “The Power to Destroy”, page 26, that 17% of those required to file and pay taxes do not. I doubt that it is less now.
I see no links.
Thanks,
Phelbers
Ed (re 26)
Dissing HR 25 is not dissing the Fair Tax. Under HR 25, SS will be unconstitutional since it earmarks part of the tax for a trust fund (Section 904 c) 2 ). The present SS system was held constitutional because the SS taxes were not earmarked – there WAS NO TRUST FUND.
The HR 25 SS plan is unworkable. So is the present plan.
Remember, I favor the Fair Tax, not HR 25. HR 25 IS NOT the Fair Tax. You can properly shoot down most of HR 25.
The only workable SS plan will be one that is actuarially sound. That is, one that establishes real savings accounts made up of real money deposited by the individual who will draw from it upon retirement.
Thanks,
Phelbers
Ed #26,
Very interesting! I don’t believe we have ever discussed or even thought about that aspect of switching to Fairtax SS payments.
You are correct that income data gets sent to the SSA and is the basis for benefit payments when eligible. Currently, the amount of those benefits is a function of the amount of the 7.65% payroll contribution (FICA). Basically, the higher the “premiums”, the greater the benefits.
You are pointing out that under the Fairtax, the “premiums” are not set in concrete, but are a function of consumption. The bottom line is that if I make twice as much earned income as you, my SS benefits would be significantly greater, but if I control my consumption, my sales taxes paid could be the same or less than yours. Seems basically unfair, and is certainly an unintended consequence of adding FICA to the Fairtax list of taxes to be replaced.
Another unfair aspect of changing the way SS gets funded is that after paying in to the SS Trust Funds for 45 years or so, and now enjoying my benefits at no extra cost, I would be forced to resume paying for my SS benefits with my sales tax dollars. Approximately 9% of the 23% tax rate is dedicated to paying SS benefits according to language in HR25. To be fair, shouldn’t my sales tax rate as a retiree be 14%?
Hank,
Your last thought is certainly correct. And the entire SS thing(in re FairTax) is a nightmare.
Phelbers,
When you say “no privacy in their cash registers” I have to laugh. What country do you live in?
Here is a link to tax fraud in one state where the sales tax is 6%. Multiply by 500% with the Fair Tax. Then multiply is by 25(state is 4% of the US population) to see the average theft in just one industry in this country.
http://www.bu.edu/law/faculty/scholarship/workingpapers/documents/AinsworthR092010.pdf
In terms of your enforcement scenario were you state that all of the buyers must keep all of their receipts, that is nonsensical. I thought the idea of the FairTax was to make taxes simple, not imposssible. Imagine trying to get 4 or five hundred people together who were in a sports bar from lunch through closing, have them showyou their receipts and then compare them to the bar’s cash register. Of course, the register “tape” would be needed. And the one provded by the sports bar would match up perfectly with the rceipts.
NO sense discussing the Fair Tax you want, HR 25 is real. And let me know when the FT advocates and teh bill states in clear concise language that all receipts for all purposes must be kept in the buyer’s possession for X amount of time and if not done so, could result in prosecution.
Which we both know would never, ever happen.
Ed
The idea of the Fair Tax is to make taxes simple. That’s why HR 25 is no good.
Under HR 25, buyers MUST keep their receipts to show they paid the tax. They are liable for the tax, whether paid or not, UNLESS they have a receipt. No receipt, and the new IRS – the STB – will assume the tax was not paid, and assess, fine, levy, seize, indict, try, and imprison the individual – not the sports bar owner.
How will the STB know to audit the individual? Easy – if they use their ‘prebate’, the STB can demand to see receipts. No receipts, and the STB will assume no tax was paid, and that the ‘prebate’ was simply exchanged somehow for cash. The individual will be liable again even if they really paid the tax.
Don’t believe me. Read Section 101 d 1 of HR 25:
`(d) Liability for Tax-
`(1) IN GENERAL- The person using or consuming taxable property or services in the
United States is liable for the tax imposed by this section, except as provided in paragraph
(2) of this subsection.
`(2) EXCEPTION WHERE TAX PAID TO SELLER- A person using or consuming a
taxable property or service in the United States is not liable for the tax imposed by this
section if the person pays the tax to a person selling the taxable property or service and
receives from such person a purchaser’s receipt within the meaning of section 510.
Note the ‘and’ before ‘receives . . . receipt . . .” This is why HR 25 is a non-starter.
The seller is only liable for the collection and remittance of the tax – not for the tax itself.
There is every reason to discuss a real Fair Tax. Nothing is to be gained by simply badmouthing HR 25 without correcting its flaws. We need a sales tax. and we do not need the income taxes.
As far as your absolute certainty that all or nearly all of any Fair Tax being evaded – HR 25 or the real Fair Tax – I think you are not considering that most Americans are law abiding. Any real Fair Tax will have to consider that the evasion rate – presently 17% according to the IRS – will stay at least the same.
If the sales tax was so utterly useless and unenforceable, why do 45 or so states have it?
And, it is easier to audit 16 million retail outlets than 120 million individuals.
Thanks,
Phelbers
Hank (29 reply to Ed)
When you say, “. . . after paying in to the SS Trust Funds for 45 years or so . . .” you are incorrect. You were simply taxed for 45 years or so – not a penny went into any trust fund whatsoever. All this ‘trust fund’ nonsense is a big lie. Only George W. Bush (and now Gov. Perry of Texas) had the fortitude and resolve to call it what it is – a pyramid Ponzi scheme.
The SS system was held to be constitutional only because there was no trust fund in the scheme. To quote the Supreme Court, Helvering v. Davis, 301 U.S. 619 (1937), upheld the program because “The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way”. And the Court later in the same case said. “The argument for petitioners is that the tax moneys are not earmarked, and that Congress is at liberty to spend them as it will.”
So, you can see that your SS ‘contributions’ were simply taxes put into the general treasury, not a trust fund. And Congress does indeed spend the SS taxes as it pleases – not for SS payments.
You can read this for yourself at http://www.law.cornell.edu/socsec/course/readings/301us619.htm
That’s also why the program is, and always will be, broke.
Further, the HR 25 SS scheme is unconstitutional on its face. It earmarks a portion of the sales tax for a trust fund – just what the Court says is unconstitutional.
The sheer magnitude of the SS scam just means that Congress, and just about all the rest of the government, has no credibility, and has abrogated any moral authority to govern.
Thanks,
Phelbers
Ed
I just read your linked article. It’s interesting that it says on page 11 that ” . . . Finances Quebec, found that 16% of all sales went unreported.42 This of course is a consumption tax as well as an income tax problem. ”
Looks like 16% -17 % of businesses and individuals are tax cheats everywhere.
Should we also do away with the income tax without any replacement because there are tax cheats?
I say lets have a decent sales tax, and deal with the 16% of zappers. 16% of 16 million is a lot less than 17% of 120+ million.
Thanks,
Phelbers
I agree that a certain amount of people are honest. I also believe that percentage goes higher as the “reward” goes higher.
Oops, should have said dishonest.
Phelbers, #32,
With all due respect, your rants about Social Security are both inaccurate and pointless. In Helvering V Davis, the Supreme Court found that:
“Title II has the caption “Federal Old-Age Benefits.” The benefits are of two types, first, monthly pensions, and second, lump sum payments, the payments of the second class being relatively few and unimportant.
The first section of this title creates an account in the United States Treasury to be known as the “Old-Age [p*636] Reserve Account.” ‘ 201. No present appropriation, however, is made to that account. All that the statute does is to authorize appropriations annually thereafter, beginning with the fiscal year which ends June 30, 1937. How large they shall be is not known in advance. The “amount sufficient as an annual premium” to provide for the required payments is to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 percentum per annum compounded annually.”
Contrary to your claim, there is a special account within Treasury that was called the “Old Age Reserve Account”, and very likely became known as a Trust Fund following the creation of the Medicare Fund in 1965. Both Trust Funds use the funds in those special accounts to first pay benefits to those eligible, and any unspent funds are “sold” back to Treasury in exchange for a Special Treasury Bond currently drawing 5% annual interest. It is those bonds that reside in the Trust Funds, and when receipts fail to match payments, those bonds will be “sold” to raise the needed payment amount. We are approaching the point where the bonds are being redeemed, and by 2037 reportedly, the bonds will be gone, and FICA revenue will only pay about 80% of claims. It is that 20% shortfall that needs to be addressed by higher rates, raising the eligibility age, eliminating the cap on taxed income, etc. etc., all of which are under consideration at this time. The Trust Funds have never been “broke”, and never will be, imho.
You may choose to believe there is no Trust Fund, but the facts indicate otherwise. By the way, your quote from H V Davis to the effect that the Court found that the funds can be spent by Treasury any way they choose is incorrect. That was a claim made by one of the parties in the lawsuit, but the Supreme Court didn’t address that claim. I would submit that Treasury can spend the excess funds any way they choose after properly borrowing those funds from the Trust Funds in exchange for a special Treasury bond.
Perhaps you would share with us just what is the point of your rant? Seems pointless to me?
Hank
The point is that the truth – which is never a rant – must be agreed upon before any progress can be made.
Title II only establishes a separate account – note “account”, not a trust fund – each year, to pay current SS recipients out of the general treasury (not a trust fund consisting of held payroll taxes). Calling this bookkeeping trick a solvent actuarially sound trust fund in no way makes it one.
The actual payroll taxes do not go into a sequestered fund, separate from the general treasury, held apart in a lock box out of reach of Congress. (Recall all those calls from some for a ‘SS Lock Box’?).
All the payroll taxes since day one of the present scam have been ‘borrowed’ and squandered by Congress.
The ‘borrowing’ has now exceeded 107 TRILLION dollars – bankruptcy on a galactic scale, an unrepayable sum.
Take a look at this website
[ http://www.ncpa.org/pub/ba662 ]
and let us know if you still believe there is a flush, fully funded, actuarially sound bona fide trust fund that will cover all present and future SS recipients. This includes Medicare, but both it and SS are just welfare programs, so it’s not essential to separate the two for this analysis. Also note that the tax increases they estimate only pay projected recipients, Not a penny goes to retire the unfunded liability – it continues to increase geometrically.
I admit that the scam has been so expertly foisted, with all of elected and civil servant government, the media, all of academia and the legal profession in on the scheme through ignorance or corruption, that it is easy to go along and buy into it. You are in very good company – many many tens or hundreds of millions have been conned, scammed, and fleeced along with you. I, too, was for a long time in sync with you. I actually believed what government was telling us.
If we could just start by reaching a consensus on what the Helvering holding says, that “The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way”, and “The argument for petitioners is that the tax moneys are not earmarked, and that Congress is at liberty to spend them as it will.” that would be a good start.
How do you read this as a trust fund?
Thanks,
Phelbers
Phelbers,
I read it as a trust fund because that is what it is. And, you are misreading Helvering. Congress is not at liberty to spend the funds as they wish. Congress is at liberty to borrow the money from the Trust Funds in exchange for special Treasury bonds, and then spend the funds any way they choose.
You also misread the study paper you linked me to, in that Congress has not borrowed $107 trillion! The $107 T is the current estimate of unfunded liabilities. And estimating unfunded liabilities is a very inexact science. For instance, Medicare unfunded liabilities just went from a $37 trillion deficit to a $600B surplus, presumably due to the recent health care adjustments.
I think there are better issues to rant about than SS. But it’s your choice.
Hank
There is no more important issue than the SS fraud.
If you read “the funds are not earmarked in any way” as “the funds are earmarked for a trust fund” the English language has lost its usefulness.
I put ‘borrowed’ in quotes for a reason, just to illustrate how the English language can be manipulated through Clintonesque equivocation to give meaning absolutely opposite to the actual intended usage.
You are comfortable with the government arguing before the Supreme Court that there is no trust fund with earmarked payroll tax funds, and them at the same time saying there is a trust fund with the payroll tax funds specifically earmarked to it. Even the Supreme Court wouldn’t try that.
I guess it depends upon what you wish to say the meaning of “is” is . . . .
We can’t have a rational discussion until we can agree upon a common definition. You call a rigged accounting of non-existant deposits a trust fund – I do not.
How do you define trust fund? Is a 107+trillion (less the medicare amount) unfunded liability a solid trust fund?
Thanks,
Phelbers
geez, Sephen.
It is not an unfunded liability.
In your portfolio do you have any treasuries? Are they “unfunded”?
Hank
Go back a step and look at what you are saying. As preposterous as this is when compared to every economist’s or accountant’s analysis, you are saying that the payroll tax is earmarked and saved safely away in an untouchable trust fund, where the locked sequestered funds have been kept isolated and draw 3% interest, and all SS payments come from this earmarked fund.
The government argued in the Supreme Court – and this is in the record so I doubt you will deny it is so – that “The funds are not earmarked in any way. Congress is at liberty to spend them as it will” This is in the decision of the Supreme Court. Yet you say the government now says “The funds are expressly earmarked for a special trust fund. Congress is not at liberty to spent them as it will.
These two positions are directly opposite to each other. Either you see the two statements as identical, which is silly, or FDRs solicitor general lied in the Supreme Court.
And, the borrowing parallel I intended is this: my mortgage is an unfunded liability to us, and we ‘borrowed’ the money from a bank to buy our house. The similarity ends here – we will have to pay the money back – government never will, except perhaps as Senator Proxmire stated when Congress ‘saved’ socoal security in 1977:
Senator William Proxmire: “…there are 37 million people, is that right, that get Social Security benefits?”
Social Security Commissioner James Cardwell: “Today between 32 and 34 million.”
Proxmire: “I am a little high; 32 to 34 million people. Almost all of them, or many of them, are voters. In my state, I figure there are 600,000 voters that receive Social Security. Can you imagine a senator or congressman under those circumstances saying, ‘We are going to repudiate that high a proportion of the electorate?’ No.
“Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid.”
Cardwell: “I tend to agree.”
I don’t find a direct link to this, but it is in ‘The Social Security System’, Hearings Before the Joint Economic Committee, Congress of the United States, 94th Cong., 2nd Session, May 26 and 27, 1976, pp. 27-28. Washington: Government Printing Office, 1977.).
Some trust fund, the printing press.
Thanks,
Phelbers.
Phelbers,
Do you have any treasuries in your portfolio?
Ed
No, absolutely not.
It’s the Social Security Administration itself that issues the unfunded liabilities total.
That figure means that’s how much it has promised to give out that it does not have covered by present of future taxes. By 2060, it says it will consume the entire federal budget to pay SS, Medicare , and Medicaid.
this is not a fully funded trust fund, as Hank insists.
The website [ http://www.ncpa.org/pub/ba662 ] references this.
Hank refuses to read what the Social Security ‘Trustees’ themselves are in essence saying in their annual report that there is no trust fund, only an accounting gimmick:
The Social Security and Medicare Trust Funds exist purely for accounting purposes: to keep track of surpluses and deficits in the inflow and outflow of money. The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet in a government office in West Virginia. These bonds cannot be sold on Wall Street or to foreign investors. They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself.
Why are you asking about ‘treasuries’?
Thanks, Phelbers
Concerning the original issue of this page, the Democrats in the ads falsely are implying that a 23% tax will be enacted IN ADDITION TO the income tax, and that the FairTax proponents want BOTH it AND the income tax. This is the real lie of the ads.
They liars miss the fact that it is actually a 30% sales tax in conventional terms, which would boost their intended propaganda value considerably.
Thanks, Phelbers
If anyone is deluded by Fairtax nonsense — read this blog, which is by a former Fairtax cult member (me).
I thought Fairtax was fantastic — trouble was, it was just that fantastic. Not real at all. It’s not only a farce — literally — it’s own leaders know it’s a farce.
In the fine print, admitted to only 10 years after the “plan” emerged, Fairtax leaders said in two sentences what they had hid in 50,000 sentences. Fairtax is a huge NEW tax on city and state government. Oh, it’s a “people tax” too, but this part they don’t tell you about.
Fairtax fine print shows direct tax from city and state government budgets TO the federal government. It’s preposterous nonsense of course, which is exactly why they hid it.
If you were fooled by this nonsense — shame on you. The outlandish promises of Fairtax to create massive wealth from nothing, should have been a clue something wasn’t right. All prices will DROP 22%?? The new tax of 23% -”won’t matter” said Boortz, because prices will drop by that much. “It will be a wash”
So the 3 trillion dollars or so of government revenue would be paid for — by essentially a 1% rise in prices?
Hello! Anyone with a brain should have seen this as a farce, without knowing the fine print.
But Im telling you the fine print.
See this blog -http://fairtaxhoax.blogspot.com/
If you think Fairtax is simple — think again. It’s simple as Bernie Madoff’s investiment schemes. How is a massive new tax on every city and every state government simple?
Wednesday, October 6, 2010Fairtax leaders have written THOUSANDS of pages of BS — to hide this in fine print, hoping you wouldn’t notice.
“Under our plan, all city and state goverments will pay to the federal government a tax on all their spending — on all their purchases, and on anything they pay for, including labor (wages).”
Fairtax -The Truth. Answering the Critics. Page 138.
If you think Fairtax is transparent — think again. If it were transparent, it would not hide this massive tax on city and state government in two sentences, in books years apart. A transparent plan that taxed city and state governments would say so — on page one.
And a transparent plan to tax city and state government would have a list of every state, and 90% of the cities, and show how much their tax would probably be.
That would be transparent.
Fairtax has done just the opposite- – hide this tax on government, not make any list of states or cities.
Sorry folks — I was a Fairtax sucker too. But it’s own leaders know this is not a valid plan.
Sorry. Really, I am. But it’s nonsense.
Another Boortz “foot in mouth” example that seemed to be appropriate for this thread.
On a recent TV business show, Boortz clearly stated that HR25 mandates that the Fairtax can’t be implemented until the 16th Amendment is repealed? He even seemed to quote a specific passage in HR25.
I can’t find any such restriction, only the recently added section that says that if the 16th isn’t repealed within seven years, then the Fairtax is withdrawn and we return to whatever? Talk about a bad idea, think of the utter chaos that would occur.
Does anyone agree with the Boortz interpretation???
I agree with Hank’s reading and interpretation.
But also agree with Boortz, even though there is no language or intent in HR 25 prohibiting implementation of the Fair Tax before the 16th Amendment. In fact, there is nothing in HR 25 delaying implementation even if Congress NEVER repeals the 16th Amendment. Using the language of HR 25, Boortz is a bald face liar, or has not read the text.
Until the ‘sunset’ provision, section 401, the only text relating to the 16th Amendment is in Section 2 (f):
“Sec.2.(f) FINDINGS RELATING TO REPEAL OF PRESENT
FEDERAL TAX SYSTEM.—Congress further finds that the 16th amendment to the United States Constitution should be repealed.”
“Should” is not “must, and implementation of this Act is prohibited until repeal” – except to Boortz. Boortz equates “sunsetting” to “prohibition of any implementation ever.”
Why then do I agree with Boortz?
I agree because he has sufficient blather power to misstate any fact, any text, any truth with falsehood that suits his fancy. He controls the ‘kill’ button on his radio show to simply silence anyone who raises a legitimate question on any part of the Fair Tax. And, of course, he is a lawyer.
So, when he says HR 25 prohibits, forbids, and precluded implementation of the Fair Tax until 38 states have ratified repeal, it is not debatable regardless of the letter and intent of the law diametrically opposing such an otherwise laughably preposterous statement.
The FairTax itself includes an income tax.
But, this same ego-driven self-redefifition of plain language sadly is the case with those who insist there is a legitimate SS Trust Fund, or that the whole amount of wages are by the text of the statutes gross income, when the clear text of the laws and the Supreme Court decisions say exactly the opposite.
Words have meaning, except to Boortz, or to many Fair Tax bloggers.
Thanks,
Phelbers
Boortz is right — they would need to pass constitutional amendment, but NOT why you think.
They can’t possibly tax states 400 billion (IN ADVANCE NO LESS) without a Constitutional Amendment.
Got that? Fairtax has a massive tax on city and states, on PENSIONS, on WAGES, on benefits, that must be paid IN ADVANCE. See Fairtaa document “A Comparison of the FairTax Base and Rate with
Other National Tax Reform Proposals” Page 10.
Go read that page 10, and footnote 19. Go on, really, read it. Fairtax has this part of their goofy tax, to be paid IN ADVANCE.
Of course, states won’t agree to this nonsense — EVER. It would take a Constitutional Amendment to force them, but 3/4 of the states have to agree, to get an Amendment passed.
Fairtax is goofy goofy stuff. Go see the my youtube video, I am making videos exposing it.
I can’t post a link here, but you can You tube search it. Fairtax deception Fairtax calculator –
Mark
HR 25 is not the FairTax, even though the bill may be so titled.
HR 25 will ensure a massive, far more powerful IRS (the Sales Tax Bureau) with unlimited power to audit, search, and demand receipts for every item we possess, and seize any possession or imprison any person unless the sales tax, interest, and penalties are paid. This is just the opposite of the FairTax.
The state and local taxation scheme of HR 25 effectively federalizes all government, giving infinite power to the STB. Again, this is contrary to the FairTax.
You are exactly correct in that Fairtaxing local and state governments is blatantly and unquestionably unconstitutional. But don’t be so naïve to think the federal government can’t get away with immediately taxing state and local governments! No federal court in this era would enforce the Constitution over such a glorious federal power grab. They will simply use the Boortz argument that, since there are now ‘hidden taxes’ in every government purchase, overt direct open taxation is perfectly legal, constitutional, proper, and wonderful!
Of course, these taxes will simply be passed, hidden, obscured, camouflaged, onto the ultimate sales tax payers (you and me), making the true rate 74.7% (inclusive), again an anathema to the FairTax.
Don’t confuse the FairTax with HR 25!
Thanks,
Phelbers
Can we all agree that under the FairTax the taxpayer would be able to choose what they value enough to pay the FairTax? Can they choose not to pay payroll or income tax?
Braxton,
No, I don’t agree. Under the Fairtax, all services are taxed, and services typically make up more than half of the family budget. All groceries are taxed as well as restaurant meals. All heating oil and gas for your car are taxed. There is nothing “used” (untaxed) at Wal-Mart or any of the other big boxes that do 80% of the retail business. I checked last years budget and couldn’t find a single “used” purchase. How about you?
In addition, if you don’t frequent Goodwill today, there will be no economic reason to do so under the Fairtax. The basic laws of supply and demand will quickly restore the new/used price relationship that currently exists. (buying a dozen used cars prior to Fairtax implementation could net you some significant profits after the 30% tax on new items kicks in.) I doubt very much that many people will lower their standard of living just to avoid the federal sales tax.
The whole notion of “choosing how much tax to pay” is highly overblown, imho!
I disagree with my friend Hank on this one. I agree with Braxton that under the FairTax people (at least, many people) would have more control over the amount of taxes they pay. As has been discussed endlessly, they can choose to reduce their consumption or choose to shift at least a part of their consumption to non-taxable goods and services.
The problem, of course, is that most of us will “choose” to pay as little taxes as possible, all hoping the next guy will be the sucker who buys the expensive new car or the big new house and gets hit with the tax bill.
What happens under the FairTax system when we all choose to pay as little in taxes as possible?
Tax revenues decline.
Which increases the deficit.
Which means the government would need to raise the FairTax rate even higher.
Which will cause people to consume even less.
So tax revenues decline even further.
It’ll be an endless cycle.
A little disagreement presented agreeably is a good way to learn. I would agree that many people may have a LITTLE more control over their taxes, but only a little. Hayden, you suggest that folks can reduce their consumption or shift some consumption to non taxable goods–and services??? (There are no non taxable services, my friend.) Your solution can be summarized as lowering one’s standard of living in order to avoid taxes, and that isn’t going to happen very often. You see, the combination of the prebate and the increased take home pay will basically offset any rise in retail prices caused by the sales tax. “Real” purchasing power remains about the same for most of us (senior retirees excepted). Why would anyone lower their standard of living when avoiding taxes isn’t that important to most of us? Tell me Hayden, how much used stuff did you buy last year? I couldn’t find a single used purchase in our budget, and I don’t expect you did either. Buying your underwear at Goodwill under the Fairtax doesn’t seem like something you would do just to spite the US Treasury!
I also disagree with your “sucker” scenario. We may have had this discussion years ago, but I fully expect the sales price of a used car or whatever to include some portion of the original sales tax. Surely you don’t believe that the new car buyer is just going to forget about that 30% sales tax? The price of used stuff is going to rise until the current new/used price equilibrium is reached.
Bottom line is that I don’t buy your doomsday scenario and your endless cycle. That can only happen if everyone suddenly gets stingy, lowers their standard of living, and saves the difference. Not a bad idea, but unlikely with Americans that prefer instant gratification. And, we can afford to pay the higher retail prices, so what’s the problem?
Hank — If you think people won’t take drastic measures to save on sales tax, you’ve never met my wife! She’ll drive to the next county to save a penny of sales tax. That’s a bit of an exaggeration, but not by much. Let me give you a few examples:
1. People will buy books from Amazon.com in order to save the sales taxes they’d pay at a bricks-and-motor bookstore. (Bye-bye Borders.) It’s not just the price discounts at Amazon; you could get them at Borders as well.
2. Many states have “tax holidays” at the start of going-back-to-school season where many items are sales-tax free. Many people will delay their purchases for months in order to take advantage of the tax holidays.
3. People that live near state or county borders will cross the state or county lines for lower sales taxes or lower gasoline taxes.
4. When the government imposed the 10 percent “luxury tax” on yachts back in the 80′s, people stopped buying yachts (at least, they stopped buying them in the US).
5. Many people will work “under the counter” for cash for less than they’d get if they were paid “over the counter,” just to avoid paying taxes. (And, ironically, due to the Earned Income Tax Credit, many of them would have gotten extra money from the government if they worked over the counter.)
6. If you go back and look at the summary from Dr. Jane Gravelle at the AEI “debate” between Kotlikoff and Gale, she showed high levels of non-compliance with sales tax rates in various states and countries.
So, yes, there will be plenty of non-compliance with the FairTax, even if the rate were as low as 30% tax-exclusive. Rember, when combined with state and local sales taxes, the rate would be at LEAST 37% (and, realistically, much higher than that.) If you don’t think people will jump through hoops to avoid paying a 37% sales tax, then I would respectfully suggest you aint’ living in the real world. : )
regarding post 54:
I am sure the the ‘new car buyer’ will not forget his 30% sales tax and try to recoup that expense when he attempts to resale his car years later. However, in the end, the price he is able to get will be the price others are willing to pay for it. So it comes down to value. If he values his car more than others do, then he will retain ownership of the vehicle. It’s when he values it the same or less than a potential buyer that he will be able to sell it.
IMHO, the used market will get more competitive as more demand is placed on used cars and fewer used cars are put on the market (because owners don’t want to drop the price enough to sell it). The result will be that used cars become more valuable (higher in price). However, the new car market may have a lower demand as more car owners keep their cars longer…resulting in lower prices for new cars.
Hank — There’s another flaw in your argument (or, I should say, an “unintended consequence.”
Let’s assume you’re correct and that prices of “used” items go up after the FairTax is implemented. Who does that benefit? Those who have substantial assets. In particular, those who own multiple luxury homes, private jets, yachts, luxury cars, etc. The will all see a huge windfall as their assets immeidately appreciate in value upon the passage of the FairTax.
Now who gets hurt in that scenario? People just starting out in life who have no assets. Under your scenario, the price of new AND used cars will increase, as will the price of new AND existing homes, etc., etc. But, you might say, people are taking home more in their paychecks. Yes, but so are the people who already own substantial assets, their paychecks would increase as well, but they’d get the extra benefit of their net worths increasing as well.
So, the FairTax really would benefit the “haves” at the expense of the “have nots.”
Hayden. Re #55
I sort of think you may be missing my point. I’ve met your wife–because she sounds a lot like mine. Do me a favor, and sit down with her and try to explain that under the Fairtax, you want to avoid paying that 37% sales tax, so she will have to buy all her clothes used at a consignment shop. And please inform her that she doesn’t get a new car every year, but you will be glad to buy her an extended ten year warranty. In addition, please show her the new location of her vegetable garden where you expect her to grow all your food. Perhaps a new chicken coop for eggs and drumsticks?
Now, if you are still married, which would be doubtful, you might want to reconsider this issue. After all, your gross income rose, the prebate is arriving monthly, and “real” prices haven’t changed. If you want to spite the government by taking the actions I described, go ahead, but your neighbors might find that a little unpatriotic?
Avoiding sales taxes by crossing State borders is one thing, but avoiding the Fairtax is an entirely different matter involving a significant lowering of your standard of living, which may not go down very well at home!!
Good luck!
Hank — We will just need to agree to disagree. With all due respect, I don’t believe you are properly gaging human nature and our desire to pay as little in taxes as possible. Up to some amount, we tend to live with taxes. But at other levels, we start to rebel. Believing that people will just accept paying a 37% sales tax (really, much higher) on their purchases without doing everything possible to avoid paying that sales tax just flies in the face of reality. Even if, on average, tax burdens under the FairTax would equal those under our current federal tax system, people aren’t going to care. They aren’t going to say, “Aha, since I’m no longer paying $30,000/yr. in income taxes and getting a $6000/yr. prebate, I should now do my patriotic duty and go out and spend enough money to make sure I pay $30,6000 in federal sales taxes under the FairTax.
Yes, peope really real voluntarily lower their standard of living to avoid paying a high sales tax just as the folks that could have bought yachts when the 10% luxury tax was in effect decided not to. But, as I’ve showed repeately, people (especially the rich) could still maintain their desired levels of consumption under the FairTax plan by simply making common sense substitutions on purchases. A “used” mansion is not going to be any materially different than a brand new mansion at the same price. The only difference is that the “used” mansion will be tax free. A luxury jet for business use is not going to be materially different than a luxury jet for personal use, but it will be tax free. Having a luxury yacht in the Bahamas isn’t going to be much different than having a luxury yacht in Florida, except that it will be tax free. The mountains in Canada aren’t much different than the mountains in Colorado (actually, they’re nicer), but ski vacations there will be FairTax-free. Etc., etc., etc.
What gets me is that this is all so OBVIOUS. I’m just amazed that intelligent guys like you and Morph can’t grasp that. Why in god’s green earth would people pay potentially millions of dollars in federal sales taxes when it would be easy to avoid paying those taxes by simply choosing their high-dollar purchases a little more carefully? (By the way, I’ll be my bottom dollar that’s one of the reason Kotlikoff came up with his Purple Plan, because he realized the FairTax could be so easily avoided by just moving overseas.)
Hayden,
I don’t know which of us has a better handle on human nature, but your comments seem to reflect those from a wealthy perspective. You talk about saving taxes by buying used mansions, luxury business jets, luxury yachts in the Bahamas, and luxury ski vacations in Canada. And you wonder why Morphh and I don’t get it?
Back your thinking down to the average American family making $50,000 per year and tell me how they are going to legally avoid the federal sales tax. I’ve gone through this litany before, but once again, all services are taxed and services now make up over half of our economy. There are no untaxed groceries, no untaxed restaurant meals, no untaxed heating oil or gas for the car, nothing used at Wal-Mart or any of the other big boxes that do 80% of all retail business. The only tax savings I can envision would require a significant reduction in the current standard of living, and I don’t agree that will happen just to spite the federal tax collector.
I’m currently running our one car for ten years or more, I’m not giving up our one night a week eating out, and I’ll be damned if I’m going to buy my underwear at Goodwill. So, please tell me how I’m going to beat the tax collector? Inquiring minds want to know.
Hank — As I’ve discussed ad naseum, it would be far easier for the wealthy to avoid paying the FairTax than the average working American for the reasons I’ve repeatedly pointed out. It’s the average working family that would get screwed.
How can you — a retired American — beat the FairTax? Easy. Just retire to Central America. Tens of thousands do every year, and many more would do so if the FairTax were enacted.
If you don’t want to move to Central America, then you’d better hope you never get sick or have to move into an assisted living facility. The taxes alone would kill you for sure.