Comments on Real Honest Thinking: FairTax Friday: The FairTax Explained

Murph, glad you asked. Remember, there never have ...

2009-06-27T17:14:52.688-04:00

Murph, glad you asked. Remember, there never have been any price impact studies done by AFFT, or their so called expert economists. But it isn't rocket science as you will see.

Using the Kotlikoff/BHI 2006 Fairtax study data, businesses paid $291 billion in income taxes in 2007, the business share of payroll taxes was $435 billion, and the 2007 estimate for compliance costs according to the Boortz bible was $265 billion. Retail sales, including durables, non durables and all services were $9.5 trillion for that year. Therefore, on average for the 20 million businesses, income taxes were 3%, payroll contributions were 4.5%, and compliance costs were 2.7% of retail sales. These business tax costs totaled 10.2% of sales and are embedded costs which could be removed if the income tax was replaced by the Fairtax.

Removing 10% of costs and adding the 30% sales tax results in a 17% increase in retail prices on average. Simple math!

I would agree with you that a consumption tax might be better for our country than the income tax, but the Fairtax is not! Try looking at it through my old retiree eyes and try to understand that taxing wealth is most unfair to not only all retirees but younger families that use "borrowed wealth" to pay their bills. For example, a retired couple, living on $25,000 from two SS pensions plus $8,000 in income from their $200,000 nest egg invested at 4% interest, would pay zero income tax and, of course, make no payroll contributions under current law. Under the Fairtax, they would pay $7590 in sales taxes, offset by $4784 from the prebate (2008), a net increase in taxes of $2800 under the Fairtax. Why on earth would they support such a scheme? The same result might apply to younger families who use maxed out credit cards to balance their budget, a not unusual situation.

Do your due diligence, but please understand that reading two marketing comic books by a radio talk show host and an obscure Georgia Congressman doesn't make anyone a Fairtax expert. Why don't you come on over to fairtaxblog.com, and check out the research section. Lots of studies by economic experts that don't have an axe to grind. And plenty of civil discussion about the details of HR25 by both advocates and opponents of the Fairtax.

Cheers!

Dutchman3, I absolutely do understand the FairTax....

2009-06-27T11:39:53.872-04:00

Dutchman3, I absolutely do understand the FairTax. I just made a couple of mistakes. If you're going to use numbers to back up your claims, show me where you got the data. For all I know you're just making them up. I didn't correct anything about the embedded taxes, because I haven't verified your claim. I would hope that you would appreciate that type of due diligence on my part. I'm not just going to automatically agree with anyone who disagrees with the FairTax and cites numbers without citing sources.

The FairTax isn't perfect, but it's a heck of a lot better than the current system.

Glad to see your corrections. But you avoided per...

2009-06-27T06:34:13.614-04:00

Glad to see your corrections. But you avoided perhaps the most important issue--retail prices. You can't on the one hand state that everyone would receive 100% of their pay, and then claim that prices would remain unchanged. That is the much discredited "free lunch" claim that even Boortz now admits won't happen. If you want to believe that everyone will willingly give their payroll and income tax withholding amounts to their employer, then business costs might fall by 22%. Even that reduction in costs is unlikely because businesses have many other uses for cost savings, including business expansion, increased shareholder payments, debt retirement, increased profit margins, payraises, etc. etc. Competition may force price decreases, but it's not a sure thing. Prices are very "sticky downward" according to most economists.

The good news is that everyone will most likely be getting a takehome pay increase so purchasing power should remain relatively unchanged. Less so for retirees because they don't currently withhold payroll taxes from their pensions.

You don't really understand the Fairtax. do yo...

2009-06-26T23:00:25.160-04:00

You don't really understand the Fairtax. do you? (1) The Fairtax does not repeal the 16th Amendment. That would take a much more difficult path than simply passing HR25, the Fairtax. And the fact that all 50 State Governors oppose the Fairtax will make it very difficult to ever repeal the 16th. (2) If the poverty level for a family of four is $24,000, then each month that family would receive a government check for $460, not $2000 as you wrote. The $460 represents the tax on poverty level spending spread over twelve months. (3) Those embedded taxes that you believe would disappear consist of employee payroll and income tax deductions as well as business taxes and compliance costs. 60% of the embedded costs can be attributed to employees, and those costs aren't going to go away for fairness and contractual reasons. The best we can hope for is a 10% reduction in business costs, and a 17% rise in retail prices after adding the 30% sales tax. (1.00 x .9 x 1.30 = 1.17)

I might also add that it would be inappropriate, if not unconstitutional, for the federal government to tax state and local consumption as proposed in HR25. The Fairtax rate will have to be increased by 4-5%. As a retiree, I also object to having to resume paying for my SS pension after paying into the Trust Funds for 45 years. Very unfair!

The Fairtax taxes wealth, which means that all my accumulated after tax savings would be taxed again when spent. Also, younger families who use borrowed wealth (credit cards) to support their standard of living will be hurt badly by the Fairtax.

A national consumption tax might be better for the national economy, but the Fairtax isn't the way to get there!

Sounds reasonable, but would this not just lead to...

2009-06-26T16:27:19.895-04:00

Sounds reasonable, but would this not just lead to people purchasing goods in other countries where they wouldn't have to pay high taxes?