Request for comment from Hank
This blog used to be a place where Fairtax supporters and critics could exchange views in an orderly, polite way. Of late, the blog has been very quiet. On July 26th, the House W&M Committee held a hearing to examine both the Fairtax and a VAT. That was a first for the Fairtax, and reviews of the hearing have certainly been mixed.
Go to this link to watch the hearing: http://waysandmeans.edgeboss.net/wmedia/waysandmeans/wamr/wamr_49file.wvx.
Go here to read the AFFT submittal for the record: http://www.fairtax.org/PDF/WaysAndMeansFairTaxHearingTestimony.pdf
After reading Dr Walby’s submittal, I wrote her the following email:
“Dear Dr. Walby,
I have read and reread your ten page Fairtax testimony you provided to the House W&M Committee on July 26th. I have three concerns that I’d like to tell you about, and ask you to comment prior to my sending them off to the Committee staff.
(1) On page 1, you state that the “prebate” is not an entitlement, but is a rebate (in advance) of sales taxes paid. I believe that no matter what you choose to call it, the Family Consumption Allowance is clearly a cash grant entitlement program costing some $600 billion annually. The WIKI definition of an entitlement is: “An entitlement is a guarantee of access to benefits based on established rights or by legislation.” HR25 does exactly that. The 2005 Presidential Tax Reform Commission concluded that: “A cash grant program to make the tax appropriately progressive would cost at least $600 billion per year—which would make it America’s largest entitlement program.” The FCA is certainly not discretionary spending, so it has to be an entitlement.
A simple test to resolve this matter would be to look in your checkbook. An entitlement adds to everyone’s gross income, while a tax rebate does not. The prebate is an entitlement on all counts. While your marketing papers say that the prebate is intended to offset the sales tax up to the poverty level, it actually is an income supplement that can be spent and taxed on anything, or saved as conditions allow. I would be just as accurate if I thought of the prebate as an alimony offset. Isn’t it time to call the FCA by its proper name? It is an entitlement, and the CBO will score it as an entitlement!
(2) On page 2, you discuss why failure to tax all government agencies consumption would lead to greater incentive to consume government provided goods and services, rather than from the private sector. While true, HR25, Sec. 704 took care of that problem by treating government agencies at any level that sell at least $2500 per quarter of goods or services as Government Enterprises. All Government Enterprises must collect and remit the 23% sales tax. There was no need to tax all government consumption. The playing field with the private sector was already level.
Furthermore, federal taxation of State and Local government consumption is unconstitutional. Sovereign powers do not tax each other, and the Supreme Court will throw out this feature under the long held doctrine of “intergovernmental tax immunity.” Your precedent for such taxation was also incorrect. The Supreme Court approved the Social Security plan because it allowed State and Local government employees a choice of whether or not to join the federal Social Security system. Many S/L government agencies decided to set up their own plan. HR25 wisely gives States a choice as to whether or not to act as the federal tax collector. A constitutional issue was thereby avoided. No such choice exists regarding the taxation of S/L government consumption.
(3) Finally, on page 4, you discuss the compliance costs of the income tax. But, your data is obsolete and terribly overblown. Prior to 2006, compliance cost estimates used a form by form approach, assumed a stubby pencil technique, a $39/hour labor cost, and badly overstated actual compliance cost estimates. In 2006, the IRS adopted a new IBM estimating model which greatly reduced compliance cost estimates. Over the last five years, you have continued to quote the old Tax Foundation estimates, even when the Tax Foundation wrote that they would continue to update the old model only so they could determine trends. Your out year compliance cost estimates are inappropriate and totally inaccurate.
For instance, using the tables on page 95 of the 2010 1040 Instructions, the average dollar cost for all individual taxpayers is listed as $240. Assuming 140 million returns, the total individual compliance cost burden would be $33.6 billion, a far cry from your $110 billion 2005 estimate or the $150 billion 2010 estimate found in the old discarded study. Similar overstatements can be found for the estimates of Corporate compliance costs. There is no longer a current Tax Foundation study that would support the compliance cost numbers still claimed by AFFT. Isn’t it time you overhauled your compliance cost estimates using the new model?
I look forward to any comments you may have.”
Dr Walby may or may not respond, but I would appreciate any comments anyone may have. I remember discussing all three criticisms on this blog, but a fresh look might be instructive.
Hank Van Gieson