Shootout: Fair Tax vs Flat Tax

February 27, 2014  ·  Filed under: Events, Videos, vs. Flat Tax

Shootout: Fair Tax vs Flat Tax from Far North Dallas Tea Party on Vimeo.

At the February 20, 2014 Far North Dallas Tea Party Meeting, Tom Giovanetti and Steven Hayes presented the pros and cons of the FairTax and the Flat Tax as alternatives to the current convoluted and unworkable tax code.

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2 Responses to “Shootout: Fair Tax vs Flat Tax”
  1. Arrgh! I just watched this mutual love-fest. Full of the same misstatements that the FairTaxers have been saying for years. Each of the presenters would have learned an awful lot if they had just read this board periodically. Here goes with the most glaring problems with the “debate.”

    1. Tax Rate. The FlatTax guy pointed out that the 23% tax-inclusive rate under the FairTax was really a 30% sales tax. Then he went on to say that (gasp) virtually everybody who’s studied the issue realizes that 30% is way too low to be revenue neutral, and that the FairTax studies assumed zero tax-evasion. He also pointed out that the FairTax taxed government spending, which was just a way to shift the federal tax burden onto the states in order to lower the rate. Then he made the incredibly honest statement that the reason the FairTaxer’s kept repeating the 23% tax number was to make the tax rate sound low so it would be more palatable to the average person. At one point he seemed to say that the true FairTax rate would need to be around 40% (which, as has been discussed ad nauseam on this board, is still probably way too low.)

    The FairTax guy basically ignored all of these points. Instead, he kept repeating the 23% rate (even implying that it was a tax-exclusive rate rather than a tax-inclusive rate) and said that the FairTax folks had included tax-evasion when determining the rate. So, once again, no FairTax proponent is willing to honestly discuss the true tax rate that would be required if we were to shift to the FairTax.

    2. The Underground Economy. The FlatTax guy acknowledged that an underground economy is going to exist under any tax system. The FairTax guy hemmed and hawed around this. On one hand he said there would still be some cheating, but that it would be a lot lower under the FairTax. This is another myth that we’ve discussed at length on this board. The underground economy is not going to shrink when you tax retail sales at 40% or more. If anything, it will explode.

    3. The “it’s takes two to cheat the FairTax” myth. The FairTax guy repeated this myth. He said that it takes only one person to cheat the income tax, but two to cheat the FairTax. His example was nonsensical. He said if you paid your lawn guy in cash under the income tax system, he probably wouldn’t report it and you’d never know. But he then said that if you paid your CPA under the FairTax, you’d both have to conspire for the CPA to avoid paying the FairTax. What????
    That’s complete hooey. If you pay your lawn guy in cash under the FairTax system, he’s no more likely to pay the FairTax to the federal government than he would pay an income tax. And how would you ever know whether he paid the tax or not? Nor would you know if your neighborhood deli paid the FairTax you were charged for your sandwich on to the federal government. So it wouldn’t take two to cheat the FairTax; it would only take one. And the CPA isn’t any more likely to cheat under the income tax system than under the FairTax. So his whole argument was nonsense.

    He also avoided mentioning that the vast majority of income in this country is currently subject to a dual-reporting system, where both the payer (e.g., your employer, your bank, your brokerage firm) and the payee (e.g., the employee, the stockholder) report the same income to the federal government for tax purposes. If those reported incomes don’t match, the government will know. That’s why there’s very little cheating on dual-reported income. Most of the tax cheating comes where there is not dual reporting. Under the FairTax, the whole dual reporting system goes away. This will make cheating much harder to catch, not easier.

    4. They each said there was around $20 trillion parked abroad that would come back if the corporate income tax were eliminated. I think we’ve shown several times this amount is greatly exaggerated, to say the least. Plus, they each avoided the obvious fact that if businesses are willing to park money abroad in order to avoid paying US income taxes, then surely individuals would prefer to spend money abroad to avoid paying the FairTax on their expenditures. (Actually, they did have a brief aside about whether a rich guy would buy a $300 million yacht in the US if it was subject to the FairTax, but then they quickly dropped the subject to avoid admitting the obvious answer.)

    5. Using businesses to make purchases in order to minimize taxes. The FairTax guy said that many business people today exaggerate their allowable deductions by running many of their personal expenditures through their businesses, and then claiming those purchases as business expenses to minimize their personal income tax liability. He then ignored one of the most glaring flaws in the FairTax: Under the FairTax system those same people would claim that their personal expenditure were actually business expenses in order to take advantage of the “business purchase” exemption under the FairTax. In fact, this problem will increase because of the relaxed record keeping and reporting requirements under the FairTax.

    So, once again, it seems it is simply impossible for a FairTax proponent to engage in an honest debate about the pros and cons of the FairTax.

    Hayden Kepner  ·  Mar 1, 2014 at 12:25 am  ·  Permalink
  2. Hayden Kepner, what he is saying in the CPA example is that if you hired a CPA to do your taxes and then decided not to pay your taxes, that you would have to keep your mouth shut about it, but your CPA would also have to keep his mouth shut about you not paying as well. Therefore it would take two people conspiring together to not pay those taxes. The fact that you did not understand this tells me that the rest of your page long bloviating isn’t worth reading, lol.

    Gene Kelly  ·  Apr 21, 2014 at 2:11 pm  ·  Permalink

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