McCain

Obama

Taxation of Households

Estate Taxation

Taxation of Businesses

Source: Tax Foundation

In Tax Foundation Fiscal Fact, No. 132, Tax Foundation president Scott Hodge uses revenue estimates from the Tax Policy Center to show that Obama’s plan would greatly accelerate the decades-long trend toward a federal government that depends for tax revenue almost exclusively on a few high-income people.  This contrasts starkly with the McCain plan, according to Hodge, which would give every taxpayer a cut and leave the current tax burden distribution approximately where it is. “Under the Obama plan for 2009,” explains Hodge, “more than $131 billion would be redistributed from the top 1 percent of taxpayers to all other taxpayers.”   

I thought the closing comments were interesting.

While many Americans may cheer this outcome as just or equitable, this sort of direct redistribution raises some important questions that should be part of a larger national discussion:

• What is the long-term effect on the economy of so few households shouldering such a large share of the tax burden?
• What are the consequences for our democratic system when a majority of Americans are disconnected from the full cost of government? Will that majority demand more from the government because they bear little of the cost?
• Should the tax system be used as a means of redistributing income or simply as a neutral mechanism for raising money for government services? Can a tax system premised on redistribution also be compatible with economic growth?
• The Obama plan assumes little behavioral change from such a large tax hike on high-income workers. Is this realistic or will the higher rates encourage tax minimization strategies and reduced work effort, which will lead to lower tax revenues?

Abstract: This report examines the macroeconomic and transitional effects of implementing a specific type of consumption tax reform—the national retail sales tax known as the FairTax, as specified in H.R. 25—with a focus on the effects of such a reform on the housing sector, including reform-induced reductions in the prices of existing housing. The analysis is conducted within the context of a dynamic overlapping generations computable general equilibrium model that includes a corporate sector that produces a nonresidential composite good as well as noncorporate rental housing and owner-occupied housing production sectors and allows for the costs of adjusting all capital stocks in response to the enactment of the reform.  

The study also includes an analysis on the tax rate, which they put at 28% inclusive.

The chart nearby, updating the evidence to 2007, confirms Hauser’s Law. The federal tax “yield” (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an “independence theorem,” and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser’s Law says it will also lower tax revenue. That’s a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich — if they knew about it.

Read the full article in the Wall Street Journal for more.

Step 1: Eliminate tax exemptions and deductions.
Step 2: Make any tax reform a tax cut and tax simplification.
Step 3: Continue to shield low-income earners with a super-deduction.
Step 4: Make everyone a stakeholder.
Step 5: Fend off the special interests.

Below is an excerpt from the article, and the full version can be found here.

For the first time since 1986, the stars may be aligning for a grand bipartisan compromise on fundamental federal tax reform.

Regardless of who wins in November, the next president and Congress will have to deal with the collision of two cataclysmic tax events: The 2011 expiration of the Bush tax cuts and the growing irritation of the Alternative Minimum Tax (AMT).

The seeds for compromise lie in the fact that both sides have something to gain by addressing these problems at once. Naturally, Republicans want to avert the largest tax hike in history by maintaining the lower tax rates on income, capital gains, dividends, and married families with children. Meanwhile, Democrats will be brought to the table by the fact that the AMT is largely a Blue State problem, mostly affecting those living in high-tax and high-income states such as California, Massachusetts, New Jersey, and New York.

Right now, the Social Security Trustees forecast the real long-term growth rate of the U.S. economy at about 2.0% per year. This is a reasonable projection of what current policies would yield. However, I believe that adoption of the FairTax would increase growth to at least 3.5%. How significant is the difference between 2.0% and 3.5% real growth? Let’s look at the numbers over a 75-year period, the way the Social Security Trustees do.

Our economy would be almost three times larger in 2082 if we average 3.5% growth than it would be if growth averaged 2.0%. The “present value” of our GDP over the 75-year period would be more than 70% larger. The implications of this difference are staggering

For one thing, the financial problems of Social Security and Medicare, which seem overwhelming today, would simply disappear. For 2007, the combined costs of these programs will total about 7.5% of GDP. Under the Social Security Trustees’ GDP growth assumptions, these costs are projected to balloon to over 17.5% of GDP in 2082. However, if our GDP grows an average of 3.5% per year, the same projected real-dollar costs would total only about 6.0% of GDP—less than today.

Here’s another way to look at the potential impact of the FairTax. If you add our national debt to the projected (75-year) “unfunded obligations” of Social Security and Medicare, the Federal government is in a $48 trillion financial hole. However, assuming Federal revenues at their historic average of 18.5% of GDP, a real GDP growth rate of 3.5% would increase the present value of Federal revenues from about $138 trillion to about $236 trillion. This additional $98 trillion is enough to pay off all of our “debts” and pay for a tax cut equal to 3.9% of GDP. - Read the full article

Virtually all economists agree that the following will promote economic growth: Replacing the income tax with a consumption tax, Replacing a graduated rate system with a flat marginal tax rate system, Lower marginal rates and a broader tax base. The FairTax does all three. Kotlikoff and Jokisch find that the capital stock will be 13 percent higher under the FairTax system than under the current system by 2010, and 41.4 percent higher by 2030, and that long-run interest rates would be 150 basis points lower than under the current system. Their study states that, “the shift to the FairTax raises marginal labor productivity and real wages, over the course of the century, by 18.9 percent and long-run output by 10.6 percent.

Arduin, Laffer & Moore Econometrics finds that investment will be 33 percent higher in the first year and 41 percent higher by the tenth year than under the current tax system. The effect of an increased rate of productivity growth and the reduced efficiency costs yields GDP up to 24.4 percent greater than under the current system by the tenth year. Consumption, fueled by 1.7 percent higher real disposable income in the first year which increases to 11.8 percent higher by the tenth year, is higher by 2.4 percent in the first year and 11.7 percent by the tenth year. Read More...

Poster Jim Bennett offers these thoughts on McCain’s support of the Flat Tax:

I was disappointed in McCain’s speech May 15, 2008 in Columbus, Ohio, in which he endorsed the wrong tax reform plan. McCain, speaking about the Flat Tax, HR1040, claimed correctly that millions of taxpayers would file under a flat tax and save billions in the cost of preparing their returns. The Flat Tax does represent a vast improvement over today’s Byzantine code and has been implemented successfully in 16 foreign jurisdictions, in which former Soviet republics and satellites are strongly represented (Two more are about to adopt it, and three are actively considering it).

The weakness in the Flat Tax, however, is that it continues to be an income tax retaining the IRS. Congress, in increments, is certain to return it to today’s code that serves us poorly.

The Flat Tax has less popular support than the Fair Tax. It has one sponsor in the House, Michael Burges, R-TX26, and 8 co-sponsors (some of whom also are Fair Tax co-sponsors), all Republicans. The Fair Tax, by contrast, has one sponsor in the House and 69 co-sponsors, and can count at least one Democrat. There are other Democratic supporters in the House who have been discouraged by Speaker Nancy Pelosi from signing on as co-sponsors.

The Fair Tax, furthermore, can count several hundred thousand among its supporters throughout the country. The Flat Tax, championed by Steve Forbes, has a more limited following.

The National Association of Realtors opposes the Flat Tax because of the loss of the local property tax and mortgage interest deductions. The NAR does not oppose the Fair Tax - nor should it.

The choice by McCain of the Flat Tax is an unfortunate distraction and will be redressed over time.

On the same note, Julia Malone notes Linder’s concern with a Libertarian candidate endorsing the FairTax and the Republican candidate not endorsing it:

Republican Rep. John Linder is fretting aloud that Libertarian presidential candidate and fellow Georgian Bob Barr could draw enough votes from “fair tax” enthusiasts to tilt the outcome in a close state contest next November.

Linder, himself an ardent advocate of abolishing the IRS and replacing it with a form of national sales tax, said Tuesday that Barr’s support of this “fair tax” concept could win enough votes to affect the results in Michigan, Florida and even in Georgia.

The expected Democratic nominee Sen. Barack Obama “is going to turn out a helluva vote” in the normally safe Republican state of Georgia, Linder said.

He said he is contacting advisers of the presumptive GOP nominee, Sen. John McCain, to urge them, “Do not take this lightly.”

Linder’s prescription for solving the problem is, not surprisingly, for McCain to embrace the fair tax idea too.

Supporter of the Flat Tax of Yesterday (SOFTY): Sorry, I support the flat tax.

Adams: How often do you change your underwear?

SOFTY: What?

Adams: I assume you change your underwear every day?

SOFTY: Yes, what the hell does that have to do with it?

Adams: That means you’ve changed underwear 8036 times in the last 22 years.

SOFTY: And?

Adams: And the I.R.S. has changed the tax code 16,000 times in the last 22 years. They change the tax code twice as often as you change underwear. How long do you think a flat tax would remain flat?

SOFTY: (Silence)

Adams: Would you like to borrow my book?

Pulled from discussion on Yahoo Groups... 

Congressman Linder held a teleconference town hall meeting on April 28th 2008 (tuesday night) @ 7 pm on the FairTax.  In the conference, he said that he would agree to add language to the bill to delay implementing the FairTax until after the 16th amendment is repealed. This was in the context of his meeting with Senator McCain, who said that we would have to repeal the 16th.  Linder seemed to be implying that he was open to that idea, if that is what it took to get Senator McCain on board.  He has no intention of withdrawing HR 25 from this session of congress and reintroducing it under a new bill # unless it would mean a major increase in support, such as getting Senator McCain.  In the past, Linder has decided against making changes between sessions because of the difficulties surrounding informing all of the co-sponsors.  Linder says that the bill will not come out of committee this year - while Chairman Rangel has been verbally supportive, he isn’t taking any action.  He also said that the “flatter” tax proposal that Senator McCain has proposed isn’t revenue neutral.

It is quite common to hear the flat taxers object that we have to repeal the 16th first or else we would end up with both.   In the past, Linder has also considered adding sunset language so that we would not have to delay implementation for several years until the 16th could be repealed.

Summary - When comparing tax systems, we need to consider changes in purchasing power and standard of living. If the value of the dollar changes between two systems, stating that $1 in tax from one system is equal to $1 in tax in the other system is incorrect if the first dollar can buy more goods. If I pay the same amount of taxes, but my standard of living increases - how does that compare? We need to hold standard of living consistent in a comparison, which means adjusting the dollar figures based on changes in purchasing power. In this example, I show purchasing power for a family earning $50,000 is increased by $7,900, dropping their effective rate from 19% to 3.3% comparatively. When computing comparisons in purchasing power, the taxable spending should be multiplied by .855, which is equal to 1.0 minus the tax inclusive value (14.5%) of a 17% price increase. Effective tax rates can also be adjusted to account for purchasing power changes (base income - taxable spending * .855 / base income).

Variables - I will use a base income of $50,000 for the discussion ($48,201 was median for 2006), with an income tax burden of $6,697 (13.4% effective - married filing jointly 2008), a payroll tax burden of $3,825 (7.65%), and a $1000 child tax credit, for a personal tax burden of $9,522 (19%). I’ll use 10% for the decrease in production cost (which is the removal of corporate income taxes, employer payroll taxes, and compliance costs) and a 17% increase in prices after the FairTax is added. Median family size is 3.5, so I’ve used 3 (married w/ 1 child) for child tax credit and prebate allowance. The 2008 base prebate for this family is $5,612, which would be indexed to price increases (17%) making the prebate $6,566. I will assume 100% (including the prebate) is spent on taxable goods and services.

Part I - Purchasing Power

Let’s take a $100 widget under the current tax system

$50,000 - $9,522 = $40,478 under the income tax gets you 404 widgets at $100 each.

FairTax goes into effect - employees receive gross wages, and production cost reduce by 10%. Widgets cost $90 (10% reduction) * 30% (FairTax) = $117 (17% increase in price)

$50,000 + $6,566 prebate = $56,566 under the FairTax gets you 483 widgets at $117 each.

You get 79 more widgets under the FairTax, which is equal to $7,900 under the current system. We’ll come back to this number as this is the increase in purchasing power over the current system. To buy the same 404 widgets under the FairTax would cost $47,268 after taxes, paying $10,872 of it in FairTax, but leaving you with $9,298. The $9,298 can be counted as either a reduction in taxes (bringing you to $1,574) or an increase in spending (buying 79 more widgets).

If we look at the base of purchasing power:

$50,000 - $9,522 = $40,478 for the current system
$56,566 - $13,010 = $43,556 for the FairTax

This seems to be where most people stop. We have a difference of $3,078 (good for the FairTax in this example), but that doesn’t buy 79 more widgets!? The above base of purchasing power does not take into account that production costs have reduced by 10%, allowing you to buy more with less after taxes. So in terms of todays dollars, the cost of 404 widgets is $36,360 ($90 * 404) under the FairTax, which is equal to $40,400 under the current system because it produces the same amount of widgets. To factor this in a comparison, we can multiply $36,360 by an exclusive 11.11% (which represents an inclusive 10% decrease in production cost), making $36,360 equal to $40,400 ($36,360 * 1.1111) in today’s dollars.

So for a proper comparison between the tax systems, we should show the dollar value of the additional widgets gained as an increase in purchasing power. Therefore, when using a partial accommodation model in which production cost decrease by 10% and prices increase by 17%, we need to multiply the total income by 1.1111 (substitute your preferred values as needed). To show the purchasing power, we should have (Income + Prebate * 1.1111) * .77 = Purchasing Power. In this example, (56,566 * 1.1111) * .77 = $48,395, which is $7,917 more than the current system. The $7,917 increase in purchasing power buys the additional 79 widgets in the current system, which is the difference between 404 and 483. For simplification, this is essentially the same thing as multiplying $56,566 by the inclusive value of the price increase. 17% exclusive would be about 14.5% inclusive, which is factored $56,566 * .855 = $48,364.

By making this adjustment, we can show the purchasing power in todays dollars in a comparison, revealing the real changes in tax burden with a consistent standard of living.

Part II - Effective tax rate

I think the standard of living and purchasing power are the real measures of tax burden in a comparison, and a proper effective tax rate calculation should reflect the relative increase or decrease. Let’s consider the effective tax rate using these examples.

If we did nothing to factor purchasing power, our effective tax rate would also be affected. Example: $50,000 * .23 = $11,500 - $6,566 = $4,934 or 9.9%. When including prebate as taxable, we would have $56,566 * .23 = $13,010 leaving $43,556 or $6,434 in tax on $50,000, for a rate of 12.9%. Using the income tax example above, we have an effective tax rate of 19% ($9,522 / $50,000) leaving $40,478 in purchasing power. As shown in the last post, the FairTax increases purchasing power by $7,917 to $48,395 in today’s dollars, leaving this family only $1,605 under $50,000 comparatively. What’s missing here?

While it is correct to say a 12.9% tax rate (as well as paying $6,434 in tax) - is this a proper comparison based on the relative burden? 12.9% under the FairTax includes the removed corporate taxes (income and payroll), but the 19% in personal taxes under the current system does not. We have the same issue as above where there is no factoring for the increase in purchasing power. Going from an effective tax rate of 19% to 12.9% implies that the burden is less, but we know from above that the change should be significantly less comparatively. Using the same base of income reference of $50,000, the $48,395 purchasing power adjustment shows a comparable effective tax rate of 3.3%. 19% to 3.3% better compares the relationship based on the consistent standard of living.

To factor the changes in purchasing power on the effective tax rate, we multiply the amount spent by the tax inclusive value of price increases (14.5% or .855). Using the math above (that resulted in the 12.9% rate), we make the purchasing power adjustment: $56,566 * .855 = $48,364. Therefore, $50,000 - $48,364 = $1,636 for a comparable effective rate on $50,000 of 3.3%.

A more complete measure requires solving for all the main variables in the economy using a complex model but purchasing power is key. The study “A Macroeconomic Analysis of the FairTax Proposal” makes the assumption that only the employer portion of payroll taxes is used to reduce prices (a 5 -6% reduction in pre-tax prices) and roughly a 24 - 25% increase in after tax prices. Given this, the study finds that disposable personal income (adjusted for changes in the price level) increases by 1.7% under the FairTax the first year over what it would be for the current system. This goes up to 8.7% increase in disposable income (same as purchasing power) by the fifth year and to almost 12% after ten years.

Senator Clegg is a supporter of the FairTax and offers this post to The Fair Tax Blog with his thoughts on the “stimulus” package and the FairTax:

This week folks will see checks in the mail from the federal government. As part of the so-called stimulus package, the government is returning $600 that it originally took from your paycheck. Apparently Washington politicians have come to the realization that more money in your pocket will stimulate the economy and create jobs. The cost of notifying you of the $600 being returned to your pocket is somewhere in the neighborhood of $42 million and that didn’t even cover the cost of printing new checks and mailing them back to you!

Imagine if the government had left that money in your paycheck in the beginning. Imagine if the government didn’t spend $42 million to let you know it was sending you back some of your hard earned dollars. Imagine if the government didn’t spend millions more of your money sending you back your money.

That is why I am a proponent of the Fair Tax. Lets leave the paycheck with the family. Let’s not tax the worker who takes on a second job to send his daughter to college rather than sitting back relying on the government to increase taxes to do it for him. Let’s change the system to one where your purchasing decisions determine what taxes you pay and your productivity is rewarded not punished.

It’s time for America to allow a family to work hard to better itself, to feed itself, to nurture the belief that a self-sufficient, self-reliant population is a better place than one that waits for government to do it all. We need to reward hard work. We need to leave the paycheck in the pocket of those who have earned it. The time has come for a Fair Tax.

NH State Senator Bob Clegg

While I have no interest in using government as a tool for social engineering, the fact is that funding a government, regardless of its size, will have an influence on a culture’s behavior. And it seems reasonable to say that the level of that influence will be proportional to the size of the government.

And since our federal government has grown from around 3% of our combined productivity at the beginning of the last century to around 20% at the beginning of this century, it probably makes sense to spend some time considering the manner in which we compel people to commit so much of their personal effort for the collective.

Representative Steve King from Iowa provides an excellent anecdote about the cultural effects of taxation and the contrast in paridigm that causes people to focus on what they want others to pay for under an income tax model as opposed to what they personally want to pay for in a consumption model:

Fairtax-Lite is a broad based 14% national sales tax with

(1) no exclusions,

(2) A targeted prebate,

(3) no taxation of government entities,

(4) leaves payroll taxes and gift/estate taxes alone,

(5) no inventory tax credits and,

(6) implements the plan over five to ten years.

I would be happy to address any criticisms or concerns you might have for each of the Fairtax-Lite components

If you are really serious about getting rid of the income tax and the IRS, I suggest that Fairtax-Lite has a far better chance of gaining Congressional approval than HR25.

Starting with the Fairtax consumption base of $9353 trillion and the Fairtax revenue neutral goal of $2228 trillion, I first added $221 billion in private education consumption back into the taxable base.

I then added the entire prebate consumption allowance of $2112B back into the base, effectively eliminating the prebate which was my original plan. (I’ll restore a targeted prebate later).

Removing government consumption from the base lowers the base by $2009 trillion and lowers the revenue required by $211 billion. (Note: The reduction in revenue was made because Kotlikoff insisted that when BHI included the $916B in the base, an offsetting revenue addition of $211B was also made. Governments can’t tax themselves and raise any new revenue, so the offset was required. However, I’m not so sure any more that a revenue offset was added, in which case, the $211 reduction would be in error. We can check that out at the end and see what difference in the rate might occur if the reduction wasn’t made).

Leaving the payroll and estate/gift taxes in place reduces the revenue neutral requirement by $897 billion.

Eliminating the inventory tax credit reduces the federal budget deficit by $600 billion in the first year of implementation, but does not change the base/rate calculations. This is because the inventory credit was never included in the Fairtax base/rate calculations. It was essentially ignored by the study group.

The five year transition period does not change the rate calculations. (More about transition later.)

By making these changes, the consumption base would be $9679 billion, the revenue required would be $1120 billion, and the rate would be 11.57% inclusive and 13.1% exclusive.

Recognizing that some sort of prebate would probably be needed, even at these significantly lower sales tax rates, I then provided a targeted prebate to 37 million families at or below the poverty level with an annual cost of $59 billion. Adding this revenue requirement back in results in a base of $9679 billion, $1179 billion revenue required, and an inclusive rate of 12.2%, exclusive 13.9%. This is how I arrived at a 14% estimated sales tax.

Going back to the issue of whether or not there was a revenue offset to the inclusion of federal government consumption in the base, if the answer is no, then the revenue required with a targeted prebate would be $1390B and the rates would be 14.4% inclusive and 16.7% exclusive.

As for a transition that would be more evolutionary in nature, and thus more appealing to Congress, in round numbers, just implement a 3% national sales tax in year one, increasing the rate by 3% each year over the next four years to arrive at a total of 14%. The last year, or for that matter any year, can be adjusted for actual needs. At the same time, reduce income taxes by 20% per year with a simple line entry after 1040, line 63-(total tax-20%), and increase the tax reduction by 20% each year until the income tax is zero in year five. Not very complicated and very easy to implement.

Compared to the Fairtax, the Fairtax-Lite proposal would:

(1) Remove any possible constitutional challenge from the States;

(2) Reduce the number of workers that pay no net federal tax to current levels;

(3) Restore fairness to our nations retired community;

(4) Continue to have businesses contribute their share to the Social Security Trust Funds;

(5) Reduce the coming entitlement crunch;

(6) Eliminate the excessive budget deficit in year one of implementation;

(7) Reduce the possibility of future exemptions; and,

(8) Allow the government to “try before buy” with ample opportunity to correct unforeseen problems without wrecking the national economy.

Don’t you wish April 15 were just another spring day? I know I do.

Everyone, (that is everyone that isn’t a Democrat), knows that Americans are over-taxed and over-regulated. As I campaigned for President over the last fourteen months I heard that same complaint time and again when I sat down with families and individuals eager for change in Washington.

Many of these voters also felt that their Party needed to get back to its core principles: less government, lower taxes, a strong national defense and unwavering support for the family and the sanctity of life.

I campaigned to be the agent of that change and while we may have come up short, I remain (and I hope you do as well), undeterred and eager to make a difference.

Enter Huck PAC.

Huck PAC is founded on the principles that make America great: Life, Liberty and the Pursuit of Happiness. And because we believe our Republican Party embodies these ideas and is best suited to lead America forward, we are committed to supporting Republican candidates nationwide.

We will identify candidates who hold firm to these principles, promote their campaigns and financially support their efforts.

Today I hope you will join us. I ask that you first sign up for my Huck PAC email updates on our new website and then make a contribution of $25 or more in support of our efforts.

You can be certain we will invest your support efficiently and in the most effective manner possible. We were known as the campaign that did more with less and we plan to bring that same innovation and spirit to Huck PAC.

Now I know the skeptics say the FairTax and massive tax reform is impossible to enact. We will see. What I also know is that we won’t have a chance if we don’t have the courage and the leadership in Congress to see the task through to the end.

That is where Huck PAC comes in, because the path to a FairTax or additional tax reform is far more certain when you walk into a room full of small government, tax-cutting Republicans.

Help me make April 15 just another spring day. Support Huck PAC and tell your friends and family to do so as well.

With deep gratitude,

Mike Huckabee

Ways To Help Today:

1) Sign up for Huck PAC emails today on our new website.

2) Make a contribution of $25 or more in support of Huck PAC.

“People say all the time: ‘We can’t pick winners and losers.’ Well then fine. Take every single dollar of subsidy out of the federal tax code. Get rid of it all. . . . Let’s have a real level playing field where nobody gets a penny in subsidy.”
– Hillary Clinton, quoted in USA Today, April 5, 2008

Sounds like a FairTax supporter.

The study found that for the tax year 2001, the difference between tax liabilities and what was actually paid was $345 billion. The IRS subsequently collected $55 billion of that amount - but they don’t say in this update what the collection costs were. Let’s say the collection costs were a conservative 18% and call the net evasion an even $300 million.

The average taxes paid on the 130 million individual returns that year was $8,265. The $300 billion of unpaid taxes work out to $2,307 per individual return. That means that 28% of the average individual tax bill went to cover evasion in the current system.

One of the popular criticisms of the FairTax is that evasion will run rampant. What would it take to reach the current levels of evasion under the FairTax?

Instead of 135 million individual tax returns that we have today, the FairTax would have about 20 million collection points. So to break even on current levels of evasion, each collection point would have to not collect $15,000 of sales taxes per year and then cook the books to hide it from the treasury. In terms of sales, that means that each and every one of the 20 million businesses required to collect tax would have to sell $50,000 of goods under the table.

And that is just to break even with the current system. To run rampant would seem to indicate substantially more evasion under the FairTax than what we have now.

Now consider that 80% of the collection points are retailers like Costco, Home Depot, Kroger and Wal-Mart. And the federal offense of tax fraud, commited consistently year in and year out, would necessarily have to involve the cooperation of their customers.

In this environment, how will evasion under the FairTax approach, much less exceed, what we currently have?

Mid-last week there were emails circulating that there were 4,000 more signatures needed to hit the 100,000 goal. By the end of last week they had 106,000. Click here if you want to sign.

Here is the text of the petition that will be sent to Congress:

Whereas the United States Constitution guarantees the right of the people to petition their government for a redress of grievances and;

Whereas the income tax code has 67,500 pages of regulations that are so difficult to understand that the nation spends $265 billion annually on tax preparation and;

Whereas American businesses are at a distinct price disadvantage with foreign competitors because of income tax costs embedded in the price of American goods and;

Whereas the income tax system taxes labor and investment making productivity and saving more difficult because of such taxes and;

Whereas the FairTax will make the United States economy a worldwide magnet for robust investment and job creation and;

Whereas the FairTax “untaxes” the poor and lowers middle class tax burdens while allowing every wage earner to take home paychecks without federal withholding or payroll taxes deducted and;

Whereas April 15th is dreaded by every taxpayer because of the consequences of errors, the complexity and the cost of faithfully obeying tax laws;

Be it therefore resolved that the FairTax legislation deserves full consideration and debate on the floor of the House of Representatives and Senate and that enactment of the FairTax will greatly help the American people, our nation’s economy and the well-being of future American generations.

And the basic function of the prebate is consistent with this as it removes taxation on consumption up to the poverty level while eliminating the huge complexity of consumers having to file income with the government.

However, at the end of this thread, the discussion turned to details of the prebate’s implementation and the number of different classes - single, married, children - and all the combinations possible in a household.

As poster Ellen correctly pointed out, the two areas prone to political manipulation are, 1) the types of products and services subject to the tax and, 2) the prebate. If there are already 3 classes plus combinations for the prebate, is a precedent being set for economic interest groups from the beginning? Would a single value per person, regardless of age or marital status, be a safer design to insulate from political interference? Or are there other options?

(1)  When the study team added federal consumption of $913B to the base (denominator), did they add an offsetting amount to the revenue(numerator)? 

(2)  When the study team divided the revenue by the base, why did they label the rate as inclusive?  (Ti = 2228/9355 = 23.8% exclusive) 

(3)  If we multiply your 30% exclusive rate by the base of $9355, the revenue generated is $700B more than the revenue neutral goal of $2228T.  Is the Fairtax really revenue neutral?

(4) How does the equation, te x (C+G) = G x (1+te), become equation 27 from the paper.   ti = 2,228 / (9,189 - 0.01 + 913 + 1,089 + 276 - 2,112) = 23.82%

(5) The BHI study assumed a deficit of $476 billion for 2007; however, the deficit turned out to be only $162 billion.  Did BHI overstate the deficit in factoring the rate or would the economic growth for 2007 balance this out?