Sunday, January 16, 2011

Analyzing the Fair Tax

Fox Business Network's Follow the Money Panel analyzed the Fair Tax. The panel included: Eric Bolling, Steve Adubato, Mike Gallagher, Kimberly Guilfoyle, and David Webb.



Back in September of 2010, Mike Huckabee highlighted the Fair Tax in a response to an editorial attack in the Arkansas Gazette against he and John Boozman, the newly elected Senator of Arkansas:
Facts and the Fair Tax
"The Fair Tax is hardly a “half-baked” idea. It is the result of over $22 million dollars of scholarly research involving economists from Harvard, MIT, Stanford, University of Chicago, Boston University, and other prestigious universities.



In a nutshell, the Fair Tax is a flat tax, but instead of taxing our productivity (income, investment, savings, capital gains, or inheritance), we are taxed at the point of consumption at the retail level on new items. It is flat, fair, finite, and family friendly. It is totally transparent, unlike the hideous tax structure we currently have and is not a VAT that assesses taxes at production points, but remains largely hidden to the consumer.

The criticism that it would “hurt the poor” is the surest evidence that the critic is ignorant of the pre-bate built into the fair tax, which un-taxes consumption of our basic necessities, and which the studies show actually creates the greatest benefit to those in the lower third of the economy, significant benefit to the middle third of the economy, and some benefit, but less to those in the top third of the economy.

Here’s what the Fair Tax will do:
1. Eliminate the IRS and its indecipherable 67,000 pages of tax code so complex that even Treasury Secretary Timothy Geithner and 41 members of the White House staff seem unable to understand it (or else simply unwilling to comply with it.)
2. Release $13 TRILLION of U. S. capital back into our economy that is presently legally, but unfortunately parked offshore to protect it from the ravenous tax rates.
3. End the nightmarish accounting and legal nightmare for small business operators (and large ones) and allow them to actually make BUSINESS decisions instead of TAX decisions.
4. Eliminate an estimated $500 Billion of expenses related to compliance with the complicated tax code that produces nothing but government paperwork.
5. Virtually eliminate the underground economy by making taxpayers out of illegals, prostitutes, pimps, drug dealers, gamblers, and others who work “off the books.”
6. Restore a person’s full paycheck—one will receive in many cases his or her first full paycheck with no deductions taken out.
7. Eliminate the hidden and embedded tax on all the things we purchase, which is approximately 22%.

Unfortunate and misguided or perhaps dishonest statements have been made about the Fair Tax, some of which stems from the utterly nutty critique some years ago by Robert Bartley of the Wall Street Journal who went so far as to try and allege that the Fair Tax was a secret plot of the Church of Scientology. Some point to a supposed study of the Fair Tax by the Bush administration, which was a consumption tax, but not one that involved the all critical pre-bate. Some simply fail to understand the power of the pre-bate for low income earners or have failed to recognize how significantly the political dynamics of Washington would change if Congress were no longer able to manipulate the tax code so as to create winners and losers according to the whims of Congress rather than to the free marketplace.

The so-called “sticker shock” of a 23% tax rate seems ominous until one realizes that with the various payroll taxes, hidden taxes in our purchases, etc., the average American already pays almost 33% in taxes now at the federal level.

The Fair Tax would be a legitimate economic stimulus package by creating a level playing field for manufacturing. When U. S. companies are having to factor in the embedded taxes on our side, but our competitors in China don’t, we have a hard time keeping our manufacturing and our jobs here.

I recommend that one read The Fair Tax by Congressman John Linder and Neal Boortz or the follow-up book by the same authors, The Fair Tax Answers, or go to FairTax.org and then at least base whatever criticism on something other than internet chatter and less than complete understanding of the facts of the Fair Tax."



On January 5, 2011, the Fair Tax Bill, H.R. 25, was introduced in Congress. There are 48 co-sponsors of the bill. You can use the Fair Tax Calculator to assess the impact on your own finances.

President Obama was asked the question: If the Fair Tax were passed by Congress and you were President, would you sign the bill into law? President Barack Obama has no answer.
FairTax.org has briefed Obama's staff about the Fair Tax Act. When asked about the Fair Tax, Mr. Obama has said he believes it needs more study. His office has not issued a public position statement on the Fair Tax.
Race42012's own Adam Graham has a post highlighted on the Fair Tax website, We call it the Fair Tax -- not the Perfect Tax, where he states:
It's time for opponents of the Fair Tax to explain how to fix the problems with our current tax code without fundamental change rather than trying to find some group of people that may not do as well under a Fair Tax. Consider this, the government pays out $64 billion in Home Mortgage Deductions. Without taking anything else on my list into consideration, is $64 billion in Mortgage Deductions worth $350 billion in tax compliance costs? If not, then this piecemeal selective attack on the Fair Tax is irrelevant. And it's time to have a serious debate.


Cross posted at: I Like Mike Huckabee 2012

31 comments:

Anonymous said...

What will happen to all of the jobs that will be lost due to an implementation of the fair tax? And I'm not just talking about IRS jobs...I'm referring to payroll jobs at small businesses and corporations around the country? In theory the fair tax sounds good but what happens when people stop buying some items they might have otherwise bought due to the increase in final price of that item. I know, I know they'll have more money but it soesn't mean they'll want to pay more in taxes. It would need a slow implementation to fully work...IMO. I think they'll also be an increase in theft due to the added price of goods. I think the flat tax is a much better way to go and will require a much easier transition than the fair tax. IMO.

jerseyrepublican

Anonymous said...

Also, I think that inflation could arise due to this type of tax. I know in theiry it shouldn't but if corporations could justify another cost in their creation of a product, they will definitely raise the price of that product. Will health insurance or health care be immune from this tax? Will new subsidies arise due to this fair tax?

Just thinking out loud.

jerseyrepublican

ConMan said...

This is one of the problems with the "Fair Tax":

Family "A" receives food stamps and other gov't subsidies.

Family "B" is managing to get by without food stamps and govt subsidies.

Under Fair Tax. If there is a 35% tax on goods. WHO do you think is going to pay for the increase to pay for family A's increase in costs, YOU!

Family be, can't get by any more and fall into the needs help from the Gov't group.

The Fair Tax is BS!

TexasConservative said...

Here is a list of Representatives who co-signed the HR 25 bill:

Robert Woodall, GA (Sponsor)
Tom Price, GA
Dan Boren, OK
Steve King, IA
Todd Akin, MO
Brian Bilbray, CA
John Carter, TX
Michael Conaway, TX
John Duncan, TN
Virginia Foxx, NC
Michael McCaul, TX
Pete Olson, TX
Mac Thornberry,TX
Tom Sullivan, OK
Tom Gingrey, GA,
Roscoe Bartlett, MD
Don Young, AK
Ander Crenshaw, FL
Lynn Westmoreland, GA
Gus Bilirakis, FL
Ted Poe, TX
Tom Graves, GA
Randy Neugebauer, TX
Jeff Miller, FL
Robert Wittman, VA
Jack Kingston, GA
Marlin Stutzman, IN
Jeff Flake, AZ
Billy Long, MO
Cliff Stearns, FL
Tim Walberg, MI
Dennis Ross, FL
Darrell Issa, CA
Mo Brooks, AL
Richard. Nugent, FL
Tim Scott, SC
Blake Farenthood, TX
Jeff Duncan, SC
Rob Bishop, UT
Mike Pence, IN
Sandy Adams, FL
John Mica, FL
Sue Myrick, NC
Dan Burton, IN
John Culberson, TX
James Lankford, OK
Mike Pompeo, KS
Gary G. Miller, CA

Anonymous said...

TC, okay, so they co-signed the bill, that doesn't address the problems I think could arise if the fair tax is implemented.

jerseyrepublican

Anonymous said...

BUT, I do admit that I do not know the ins and outs of the bill...so I am a little ignorant on this topic. Perhaps my concerns are addressed, unfortunately I do not have the time to thoroughly research it at this point. Perhaps you could address my concerns?

jerseyrepublican

Revolution 2010 said...

Conman raises a good point. The increased cost of goods will put those people in a lower income bracket at the poverty level.

If you pay 10-25% in taxes now and very little left at the end of the month, How is paying a 25-35% tax on goods, a good deal.

The Gov't will end up subsidizing these people. That means us when the raise the fair tax level.

OhioJOE said...

"Family "A" receives food stamps and other gov't subsidies." The solution to that is to cut back on food stamps and make people rely on themselves and charities instead of the government. While I never experienced poverty, there have been times in my career when money has been tight. Instead of applying for food stamps, I did what I could (spend a bit of savings, do odd jobs) until things got better for me.

Jersey, you make a good point that a Flat tax might be as good (or better) than the Fair Tax. However, the Flat Tax does not get rid of the IRS. Further, the Fair Tax would not totally get rid of the need for Accountants and Payroll experts.

To use Pablo's lingo, I'd like to thank Mr. Huckabee for his Crazy talk on the Fair Tax. We need a debate of taxes in this country.

John said...

Such ignorance from conservatives can never be tolerated.

Don't you understand, JerseyRepublican, that consumption must be efficient? That wasting money can never be good?

The money that is now spent on accountants would be spent on something else, creating jobs elsewhere. Accountants will always be needed, they aren't only doing tax stuff.

Anonymous said...

John, I beg your pardon but I don't understand what you mean...that consumption must be efficient. I never said wasting money is ever good but I also don't think the "fair" tax wil solve the problems you want solved. Maybe in some fantasy land but not in the real world. Maybe you can elaborate more and we can have a discussion on this.

jerseyrepublican

Anonymous said...

OJ, what's the difference if we have the IRS or the FTS(Fair Tax Service) Don't believe for one second that an implementation of the fair tax will completely annihilate the politicians from forming some other beaurocratic organization to oversee it. You're right, the fair tax would not eliminate all accountant or payroll jobs but there will be a loss of some.

jerseyrepublican

OhioJOE said...

Well Jersey, as John G suggested, I do not believe it is a good to make jobs for accounts just for the sake of it. I myself am essentially and accountant/ Finance guy and I do not deal with tax policy at all. Thus, I am proof that there will still be jobs in this field if the IRS is dead. If not, I will just look elsewhere. I certainly hope that an FTS will not become like an IRS and I sincerely doubt it would.

Anonymous said...

OJ, I never said that it is good, I never actually said it was good or bad...I just asked a question to TC regarding the loss of jobs.

jerseyrepublican

Jeremiah said...

Ok where are your numbers coming from ( obviously no where as you admit to have no knowledge on this subject) but its a 23% sales tax only on new goods and services. now it will not increase the price of goods more then +/- 1% due to the average 22% of embedded taxes in all goods and services now. I do implore you do go to FairTax.org and read up on it before making false assumptions.

Jeremiah said...

Also on the whole idea that the politicians will take it over and or evil bad guys will make it evil and bad could be applied to absolutely everything ... the Fair Tax bill has the prebate built in to protect it from politicians by saying no exceptions are needed thus keeping the bill at 131 pages instead of 67500+. Have we all forgotten that we live in the United States and we have a Republic thats is by the people for the people? We are the only ones who can keep things in check... of course things can go bad... if we let them.

Keith Reynolds said...

Re: What will happen to all of the jobs that will be lost due to an implementation of the fair tax?

Would it benefit the Economy if Congress said we are going to spend $350 to $450 billion dollars a year digging ditches along the shores for the tides to wash them in every evening just because it will create jobs? That is what our income tax does, but it does not create a product or service people want or need. Instead congress makes the Tax laws so complex, that it is costing us between $350 billion to $450 billion to files forms. Enacting the fairtax will phase out the IRS over a period of a few years as they continue to collect back taxes. IRS agents, tax lawyers and tax accountants will be in demand for awhile but will slowly be phased out and reabsorbed into the productive part of the economy helping companies produce products and services people actually want or need.

The IRS tells us Americans spend 7.4 billion hours preparing taxes.
Why are we not asking:

What would happen if we could return about 6.6 billion hours back to the american people so that they can spend their time as they wish with friends family or building their businesses providing products and services people actually want. This is what happens, more goods and services are provided that take care of peoples needs, or make life more pleasant as cost go down.

Keith Reynolds said...

Re to jerseyrepublican "I think that inflation could arise due to this type of tax. I know in theiry it shouldn't but if corporations could justify another cost in their creation of a product"

All business with inventory on December 31st prior to the fairtax going into effect receive an receive an inventory tax credit on January 1st the year the fairtax takes effect. The transitional tax credits is 23% of the cost of product, removing prior income taxes already payed from the cost of the product. This drops a $100 item down to $73. The business collects $23 in tax and the item again cost $100 with taxes included. The government taxes you at 23% of what you consume.

But the fairtax is easer to comply with dropping the now $350 to $450 billion spent preparing taxes born mostly by business who higher tax lawyers and tax accountants, and embed those compliance cost into the price consumers pay.

Last I checked there were about 305 million people in America. That means we are spending at least an average $1,100 for every man woman and child because of the complexity of the code. Enacting the fairtax will reduce that cost by about 90%, or save an average $1,000 for every man woman and child in America.

Anonymous said...

Jerseyrepublican,

Jobs & businesses come and go every day. With the advent of the automobile, we needed a lot less horse shoes, so some of them were out of that job, and had to learn to build cars.
With the use of email, we could eventually see a lot of postal workers out...It all comes around.

Some people are just afraid of change that they can’t wrap their thoughts around.

Yes, there will have to be some sort of structure in place to collect the taxes. But it would not be a 100,000 + employee, heavy handed, extremely powerful bureaucracy. That’s why I always try to say the IRS “as we know it” will be gone. Much more controlled with most collection at the state level.

ConMan,

I am not sure where you come up with your 35% tax. Just pulling your own #s as most who don’t know about the bill do?

The FairTax has been thoroughly studied and the rate on all NEW goods and services will be 23% to be revenue neutral. Meaning funding the government at the current levels, no more, no less.
The cost of the current tax system to businesses averages between 18-25% that is embedded in the price of what we pay now.

In reality, the cost of most things may go up around 4-5%, but the average persons purchasing power will increase by around 27% More than enough to cover any additional costs in purchases.

More jobs, more money in pockets. And if you are familiar with the bill, the “pre-bate” addresses the issues of those of lower income levels. I can go into more detail if needed...but you may want to research for yourself.

Please look at www.FairTax.org to help you understand the legislation. That way, even if you disagree, or like another way, you will at least have some idea of what you are talking about.

ShreveFairTax

Anonymous said...

Anonymous is correct that some jobs will disappear. After all, if tax returns don't need to be filed, then H&R Block will not have much to do prior to 15 April every year.

However, since the FairTax is expected to increase economic activity by about 10% the first couple of years, which translates to about 10 million new manufacturing jobs, I doubt that displaced from low-paying, part time, jobs in the tax return prep industry will be too upset.

You really have to see the whole picture, and not focus on one small part. And that doesn't even take into account the fact that, if we continue down the present road, our economic system is headed for a catastrophic collapse within a few years. We simply MUST do something to change our economic trajectory. And the FairTax is the best choice of all those available. (Unless, of course, you think the Greek model really worked out well for them!!!)

Anonymous said...

Jeremiah I can only assume you're speaking to me, since I was the person who admitted to having little knowledge to the ins and outs of the fair tax but I didn't supply you with any numbers because I don't have any.

I also must assume you're figure of 23% tax is correct, since you seem to be an expert in all things fair tax, perhaps you could explain your claim that the tax will definitely not contribute to the inflation of goods and not just due to the obvious 23% tax.

I would imagine that corporations will be charged the 23% tax on all materials needed to create the product SO it's fair to say that the corporation will have to recoup that cost SO the price of the product will/should rise? If the materials for, or. the entire product is purchased over seas, then I imagine a 23% tariff will be charged to the corporation? Am I correct in these assumptions?

jerseyrepublican

Keith Reynolds said...

Re: Revolution_2010 "If you pay 10-25% in taxes now and very little left at the end of the month, How is paying a 25-35% tax on goods, a good deal."

The fairtax is Fair
Every one pays the same tax
No one (rich or poor) pays taxes on their poverty level spending.

1. The fairtax rate is 23% of your spending, but in enacting the fairtax, society will have said "We do not want to tax your poverty level consumption". This rebate in the amount of taxes you over payed. It is your money. The effect of a 23% consumption tax and rebate that reimburses taxes spent on a poverty level spending is a progressive consumption tax.
If you spending is
1 x poverty level; effective tax rate is 0%
2 x poverty level; effective tax rate is 11.5%
4 x poverty level; effective tax rate is 17.25%
8 x poverty level; effective tax rate is 21.125%


2. Right now the income tax makes some people think they are paying less taxes then they really are. the only reason you have an income or profit to tax is because a consumer purchases your product or services. Though the lens of consumption then American income taxes are just convoluted consumption taxes that punish consumers of American made products.

3. As a consumer your also paying the cost of corporate income, capital gains, employer payed payroll taxes, self employment taxes, and others embedded in every purchase. The fairtax eliminates the cost of those convoluted productions taxes replaces it with a simple and more efficient tax on consumption. that does not punish consumption of American made products.

4. We need the fairtax to make free trade more fair to domestic produces who compete with imports from countries like china reduce the amount of taxes embedded in their exports by reimburse up to 17% of the value of their exports to be eventually sold in America virtually free of the cost of embedded taxes while our production taxes punish only the consumers of American made products.

5. The fairtax brings jobs back to America by making America the number one place in the world to produce in tax wise.

Keith Reynolds said...

Re: jerseyrepublican

The fairtax is levied only once on retail consumption of new products and services.

Intermediate and export sales are not taxed. Intermediate is defined as property or service purchased for a business purpose in a trade or business, or investment purpose and held exclusively for an investment purpose.

Keith Reynolds said...

Re: jerseyrepublican

A tariff is a tax levied solely on imports.
The fairtax is not a tariff. It is a domestic consumption tax, that taxes consumption of domestic or imported products the same.

Anonymous said...

Thanks Keith. When I get time I will read all about it. In your opinion what will deter Americans from moving away from consumerism? I mean if I could save money on taxes I would strongly consider growing my own fruits and vegetables...then I'll only have to pay taxes on the seeds.

What about large purchases such as a car or a house...will only a newly built house be taxed or a brand new car?

For lower income people that have shady backgrounds, do you think there will be a rise in thefts or even black market merchandise?

Like I said, I will research more later but on but you guys seem to have a good grasp of the plan and have probably already thought about these possibilities.

Any thoughts?

jerseyrepublican

Keith Reynolds said...

Re: jerseyrepublican and imports products and raw material.

Value is created domestically though further processing, transportation, and retail markup.
The fairtax will drop the pretax cost of domestic value by 23% but not the imported value.

If your product cost 100$ at retail and the imported value represents 10% or $10 and the domestic value created is 90$ udner the income tax, then switching to the fairtax will drop $90 the domestic cost by 23% or .23*90= 20.70 making the new domestic cost $69.30. Now you can add the imported value $10 for the total tax exclusive cost of $79.30. Once you add 23.6869 the total tax inclusive price is 102.9869 or about 3% more then what it started.

In an effort to keep cost down after the fairtax has passed and before it goes into effect, forward thinking businesses will seek out purchasing agreements with American companies that will no longer be burdened with production taxes in a global economy. The fairtax will bring lots of jobs back to America.

Jeremiah said...

Jersyrepublican ... Keith is much better with the answering of questions than i am and will let him continue to fully educate you on the intricate details of the fair tax.

There is good and bad in all things... we have the obligation to make sure the good triumphs over the bad...

Keith Reynolds said...

Re: jerseyrepublican consumerism and tax avoidance.

Your already paying these taxes directly or embedded in your purchases. If the prices remain largely the same, their is really no more incentive then presently to grow your own garden

Large purchases like a house
Your already paying the cost of taxes embedded in the purchase and most mortgage it over 30 years. Under the fairtax the builder gets a transitional tax credit that drops a 200,000 house to 154000, Add 46,000 in taxes and the New house cost 200,000 again.

If cost remain the same, theft should not increase.

tax cheating
if your a proprietor who would have to pay 8% income tax you would also have to pay 15% self employment tax making your total tax liability 23% of your income. the fairtax is 23% of your spending. the rate in itself does not indicate much change.

If your an unregistered proprietor, you pay the fairtax in every purchase of tools and supplies used to make your product and pass those cost onto their consumer. This lowers the benefit to cheating under the fairtax while not effecting risk.

Registered proprietors are able to buy products with out taxes embedded in their cost. If they do not collect and remit their taxes they can easily be found in a tax audit. With about 86% tax filers under the fairtax the fairtax is much easer to police. Tax cheating by registered businesses do not benefit any more then they would not reporting income under the income tax but they face increased risk under the fairtax.

Keith Reynolds said...

correction to my last post.

With about 86% tax filers under the fairtax the fairtax is much easer to police.

Should read
With about 86% fewer tax filers and the ease with which an audit can be completed makes the fairtax much easer to police.

Anonymous said...

Thanks for the primer Keith and Jeremiah, there seems to be some interesting ideas and definitely some food for thought but it also seems that it will require nearly as much oversight as the IRS does. It just seems a simplification of the tax code with a 20-25% flat income tax would be much easier to implement, sustain and manage.

But I will keep an open mind and read up more on the legislation in the coming days.

jerseyrepublican

Keith Reynolds said...

jerseyrepublican

If you do facebook send me a message on any question or concern you may have or develop
http://www.facebook.com/profile.php?id=1304741148

You will find a lot of information. You will also find a lot of miss information by some well intending yet missing a piece of the larger picture and some times by people more interested in disinformation. Do the research and don't just take any ones word for it, use your logic and seek the truth. If something doesn't sound right pro or con, just ask them to explain. I started like you. Question everything, take nothing for granted. The Fairtax sounded good but if I was going to support it, I better know with all my being that it will be good for America. The more I learned, the more I came to love the fairtax for the potential it has to fix the problems created though how we collect taxes.

TheFairTaxMan said...

@Anonymous said...
You have a valid question? What do accountants do for business throughout the year, Payroll, credit, debits, investments etc... Many more businesses would be started doing investments for individuals receiving 30% more of their paycheck. ex: If today you won the MegaMillion lottery, you would seek an accountant to help you make excellent choices in investing your winnings, payoff your home, purchase a larger home or a new car, pay for kids education, etc...you now become in total control of your earned income and not the gov't.