Um, dude, do some research, the FairTax is not an income tax. Epic fail!

Posted by CG on 14 June 2009 @ 9am

Presumably that should read “the notion of replacing our existing tax structure with something considerably more regressive, a national sales tax.”

Anyway, you’re welcome to point out how the FairTax is regressive, but I don’t think its supporters care (although they’ll argue about the tax rebate portion of it). There are, to me, many better arguments about how it’d create a huge black market because the advertised 23% sales tax is bullshit (since it actually means that 23% of the product’s tax-included price would be tax, not that you’d add 23% to the price for tax; for anyone who doesn’t understand what this means, it puts the actual sales tax rate around 30%).

Posted by Ben C. on 14 June 2009 @ 12pm

It always amuses me when FairTax opponents attack from the 23% versus 30% angle. That is the difference between an inclusive and exclusive tax. The income tax, which the FairTax replaces, is calculated on an inclusive basis. Thus, the FairTax is quoted that way, as well. If you insist on using the exclusive figure of 30%, then please give the apples to apples comparison by quoting our current income tax the same way. I’ll spare you the number crunching. Income tax (on every penny you earn) right now: around 48%, exclusive. FairTax (on every penny you SPEND):30%, exclusive. Which one is worse?
I thought so.

Posted by Vox Populi on 14 June 2009 @ 10pm

*sigh*

It turns out that mentioning “Fair Tax” on a blog is like mentioning “Ron Paul”—the angry hordes come out of the woodwork. Good to know.

Posted by Waldo Jaquith on 15 June 2009 @ 8am

Uh oh.

Now you’ve mentioned them both.

Run away, run away!

Posted by Sam on 15 June 2009 @ 10am

Vox Populi,

This line of reasoning is ridiculous. You’re still not making an apples-to-apples comparison, because you’re comparing a sales tax to an income tax. Putting 30% and 48% next to each other makes one think that the 30% is going to be less, but if the FairTax is revenue-neutral, as its supports claim, and if the FairTax reduces the tax burden of the wealthiest in the country (as compared to our current income tax), which I haven’t heard disputed, then it will NECESSARILY tax the middle or lower classes at a higher rate than our current income tax to make up the revenue. Thus, that 48%/30% comparison is deceptive.

But that’s missing the entire point. The real point is that support for a national sales tax is highly dependent on the rate, and thus the FairTax supporters choose the lower of the two rates (or the FairTax supporters are self-selected on the basis of whether they believe the lower rate), thus computing their sales tax in a manner contrary to the way we compute all other sales taxes in the US.

Posted by Ben C. on 15 June 2009 @ 10am

Arguing tax cuts arguably helps Republican candidates. Arguing for radical revisions of the entire tax system doesn’t even play in a Republican primary. Ask Steve Forbes.

Posted by Steve Vaughan on 15 June 2009 @ 10am

I encourage Virginia Republicans to continue basing their campaigns on the idea that taxes are the only thing voters really care about. It’s worked so well so far.

Posted by Jim E-H on 15 June 2009 @ 4pm

Personally, I think that the fair tax is very progressive. Rebate portion allows low and moderate income folks NO taxes, and since I belief on reducing persoanl consumption as a matter of resource stewardship, it would encourage that. And the politcians ans rich folks and Hollywood crowd for whom conspicous consumption is a given will be paying the bulk. The black market that may or may not increase is not a bad thing, IMO. of course, I also believe in eliminating the war or drugs and decriminalizing them for dults, and simply arresting people for actual acts of unlawful and hurtful behavior.

Posted by Kathryn Russell on 16 June 2009 @ 10am

The politcians ans rich folks and Hollywood crowd for whom conspicous consumption is a given will be paying the bulk.

Citation or it didn’t happen. This is obviously ridiculous. Even if we taxed Hollywood and politicians at 100%, it wouldn’t make a significant dent in our revenue needs, and as far as rich folks paying the bulk, riddle me this, Batman: how would a group that spends a smaller percentage of its income on retail goods than any other demographic group end up paying a greater percentage of the total collected tax in the US than they already do? Now tell me how this would work when they could totally legitimately buy things virtually tax free in any other country in the world and bring them home. That is, if 30% of your purchase price is greater than the cost of plane tickets to another country plus the comparatively small sales tax there, then it makes perfect financial sense to fly somewhere else, buy the thing, and bring it back.

The black market that may or may not increase is not a bad thing, IMO. of course, I also believe in eliminating the war or drugs and decriminalizing them for dults, and simply arresting people for actual acts of unlawful and hurtful behavior.

Are you implying that you support the FairTax and AT THE SAME TIME you support the black markets that would arise to evade it?

Posted by Ben C. on 16 June 2009 @ 11am

“”as far as rich folks paying the bulk, riddle me this, Batman: how would a group that spends a smaller percentage of its income on retail goods than any other demographic group end up paying a greater percentage of the total collected tax in the US than they already do?”

The percentage of income on retail goods is relative. the gross amount spent is going to be more. Sure, they can sit and figure out…hmm, will it be cheaper and more expedient to call around and see if these fab jimmy choos are gonna be cheaper in moracco or not? There will always be tax dodgers. The current tax system spends an inordinate amount in administrative costs, is unmanageable without specialized accountants, and is non progressive in the extreme when the wealthiest have the tools to evoid–perfectly legally—tax obligations that the rest of us cannot. The system rewards consumption and penalizes initiative. Fact is there is a huge black market now in cash payment for work. Black markets will always be, and the more inequitable government makes taxes in terms of people’s perceptions the more they grow. I consider, in many ways, black markets to be a form of civil disobedience. The K-street lobbyists who produce nothing tangible, the myriads of levels of legislation dealing w/ a convoluted tax code, the cheating and subverting and downright frustration of the income tax/FICA system, a system that penalizes work and initiative while rewarding consumption needs to be gutted. A system which does the reverse—rewards initiative and production and penalizes consumption offers a much better social direction, as well as fiscal sensibility. It would reward re-use, and creative control over individual finance. As far as a smaller percentage of income, $15 out of $100 feels a whole lot more than $150 out of $10,000. The FICA limits benefit those with very large salaries, that 15% stops, while for middle/lower income folks it is a chunk. That is a real part of a system that is stacked against being prograssive in any real sense.

Posted by Kathryn Russell on 17 June 2009 @ 7am

A regressive income tax is one that costs citizens more, as a percentage of their income, as citizens have less money. The poorer that you are, the greater a percentage of your income that you have to spend (probably 100% for a pretty big chunk of Americans). The richer that you are, the greater a percentage of your money that you can save. (That’s how you get rich—save money, don’t spend it.) A national sales tax will thus cost the poor a greater percentage of their income than the rich. Therefore it’s a regressive tax.

Posted by Waldo Jaquith on 17 June 2009 @ 8am

Kathryn,

You’re arguing that the FairTax is better than our current tax system, and while I think that’s totally and utterly wrong for all the reasons I posted, I’m not going to tell you our current system is perfect or even good. I think it’s pretty terrible, myself, and it’s amazingly regressive, especially when you start looking at people with a net worth of 9 figures and more. Where we differ is that I believe we should actually address its problems rather than choose a different horribly flawed tax system.

Oh, and thanks for the “there are black markets now so the black markets in a FairTax program are fine” argument. I have an idea for a criminal justice system you might like: lets kill the ethnic minorities that have the highest crime rates; sure, we’ll execute some innocents, but we’re wrongly executing innocent people now, so you can’t hold that against my proposal.

Posted by Ben C. on 17 June 2009 @ 9am

With a prebate, where a specific amount per household member is applied and eliminates tax on basics, the poor would have no tax. They would also be in a position to retain some of the prebate by being more contientious and frugal about purchasing new items, therefore actual increase the disposable income. I don;t consider that regressive.

Posted by Kathryn Russell on 17 June 2009 @ 9am

Your analogy in regard to the criminal justice system is quite the stretch. My perspective on black markets, i.e. The illegal buying and selling of goods above the price fixed by a government. Black markets usually develop when, because of war, disaster, or public policy, a government tries to set prices for commodities instead of allowing the normal operations of supply and demand to set prices, is that the very act of governmental overburden is the crime, not the relationship between customer and seller. By the same token, crimes that are victimless should not be considered a crime, especially when the only “victim” is bureacracy. Justice should have nothing to do w/ crime rates, simply individual crimes. The income tax system is very broken, and while I truly believe that the fair tax would increase the disposable income in a real way to the lower/lower middle classes (myslef in that batch) and allow a more real opportunity for purchasing choices to matter, I am not opposed to previewing another option. I just have not seen one proposed any better. The fact that I could, under the fair tax, realize exactly what I am contributing, and make choices accordingly, I find refreshing. The current system is unfair, expensive, and a boondoggle.

Posted by Kathryn Russell on 17 June 2009 @ 9am

I say we keep the tax system we have, but stop withholdings. Make Americans write a check to Uncle Sam once a month.

We’ll see how long it takes for people to be OUTraged! Then maybe some real change to our tax code can take place. I’m not sold on the FairTax idea, but something needs to be done to simplify things.

Posted by Meri on 17 June 2009 @ 11am

I recently returned from a country with a version of this consumption tax, or VAT. Everyone, and I do mean everyone was scamming the system. A 30-50% tax is a powerful incentive to look for a “discount”, or label goods as “used” to lower their “value”.

Posted by Bubby on 17 June 2009 @ 12pm

The VAT tax is much different in application. While VATs are also consumption taxes, and better than income taxes, the FairTax is not a VAT. A VAT works very differently. It taxes every stage of production. It is much more complex and is typically hidden from the retail consumer. Second, in industrialized countries that have a VAT, it coexists with high-rate income tax, payroll, and many other taxes that, in some instances, have led to marginal tax rates as high as 70 percent. Third, all other industrialized countries, except Australia and Japan, have a much larger tax burden than the U.S., which requires higher rates and makes tax administration much more difficult. Lastly, a VAT is a lobbyist’s dream, allowing them to install their loopholes unbeknownst to the purchaser. A retail sales tax, in contrast, is a lobbyist’s nightmare, applied as it is under the bright lights of the retail counter…..from the fairtax.org site.

Have any of you guys actually read the fairtax plan?

Posted by Kathryn Russell on 17 June 2009 @ 3pm

Your analogy in regard to the criminal justice system is quite the stretch.

Point being that pointing out that a problem exists is no justification for increasing that problem in the future.

Black markets usually develop when, because of war, disaster, or public policy, a government tries to set prices for commodities instead of allowing the normal operations of supply and demand to set prices, is that the very act of governmental overburden is the crime, not the relationship between customer and seller.

So, you support the FairTax, but you believe the government would be committing a crime by instating it, and you believe the black markets that would result would be an acceptable form of civil disobedience?

By the same token, crimes that are victimless should not be considered a crime, especially when the only “victim” is bureacracy.

Apparently, yes. You just defined all tax evasion as crimes that should not be considered crimes at all.

Have any of you guys actually read the fairtax plan?

Yes. I have all the problems with it that I’ve pointed out in this thread (e.g. doubting the tax-neutral status of it, the increase in black markets which you appear to believe is a benefit, it’s incredibly regressive nature that I touched on in my first reply to you, etc.) for starters.

Posted by Ben C. on 17 June 2009 @ 3pm

Kathryn,
Yeah and I stopped reading when I got to the 30% tax rate and the notion that Americans would be getting a pre-bate check every month. I believe we have enough tax cheats already. I thought you Libertarians wanted to be free of entitlements?

Posted by Bubby on 17 June 2009 @ 3pm

I simply do not agree with your assessment that it is a regressive tax, and while a prebate may not be optimal, in order for lower income people living from paycheck to paycheck to not be penalized, a prebate seems to be the easiest answer. They would have more of their earned money to allocate (no withholdings), and with the embedded taxes removed, retail costs would not necessarily escalate due to the nrst. Entitlement? You are presuming that money you earn is rightly the governments and what you get back is an entitlement. Taxes NOT paid are not entitlements. I think it is a crime for the government to spend the huge amount of dollars it does on things that have absolutely no benefit to the general population, are often quite unconsititutional, meddle in other country’s affairs inappropriately, and leverage a 15%+ tax on the lower levels of income -(less than $106,800)(social security and medicare)while letting the higher income levels slide. I see the advent of fascist government+pharma+medical industry creating huge costs and leaving many people with little health care options while pretending that medicaid is efficient (they conveniently leave out most of the administrative costs). Been to DC lately and seen the splendor the senators work in? IMO things would change quickly if they were working in old elementary schools and Days Inns. While agri-industry is subsidized, creating artificially “cheap” food that is promoted through a warped food pyramid and damages the health of millions of americans, our tax dollars support this. Childbirth is so medicalized that few understand or believe that the less than 10% who need specialized care would get better care if the majority of women were tended by cheaper, more qualified midwives. The industry of diabetes in this country is supported by misinformation and subsidization by tax dollars, while doctors and practitioners that don;t toe the bog-pharma line are scootched to the side. Throwing tax dollars into this mess simply makes it worse. Waldo did a dental care expose—stuff that should be able to be addressed is not, while self care is predominately the best dental care, but we have been deluded into not believing it. People really don’t get that there is a lot of stuff that creates teeth problems. They are too far in the future. The small percentage of people that have real problems often fall by the wayside because of the huge profit in insured care+copay that still does not look at the problem of self care. Folks that need care don’t get it and kids with barely crooked teeth are in braces twice during their childhood/adolescence. If people had to write that monthly tax check there would be many that simply would not—that is why it will not be allowed to happen. There is quite an underground cash economy now where people are avoiding paying withholding by paying cash, and then with no paper trail government benefits can be utilized. The undocumented residents would be paying on retail purchases, and taxes unpaid there would be recooped. One black market that would be eliminated/adjusted.

Posted by Kathryn Russell on 17 June 2009 @ 5pm

So you don’t trust your government, but you would trust it to administer a flat tax bankroll and accurately send out $20,000 prebate checks to a deserving citizenry? There are entire internet business models built around enticing consumers by eliminating state sales taxes, and they work hand in hand with human nature. Didn’t the Wall Street financial disaster demonstrate clearly enough what happens when we incentivise the notion that scamming is a legitimate business? If you aren’t happy with your government, change it at the ballot box, not through the tax code.

Posted by Bubby on 17 June 2009 @ 8pm

Don;t really trust the government, that is true, and the less complicated the procedure the less i have to trust them to do. The wall street fiasco happened in part because of the less than amusing belief in a “rational market” when in fact there were all kinds of corrupting influence, regs being ignored and shell games. As far as sending out prebate check to a “deserving” citizenry, they don;t have to be deserving, they simply have to be a citizen. Changing govt at the ballot box is one way of working at it, but fact is, everyone tends to think it it the OTHER guys congresscritter that is the scummy one. There are a small handful of them that actually ar for a realistic sustainable change, and with the enormous bureaucracy that sucks the money, and everyone wanting to get their pork the ballot alone is not going to work.
As far as internet models to avoid state sales tax, you are right. BUT since a NATIONAL retail sales tax would be inclusive of all states, that would actually be minimized.If i order from MI now, and don;t pay state tax, i couldn’t avoid a national tax, because, well, uh, it would be national.

And where do you get the $20,000 figure? haven’t seen that before. According to the proposal a 2 parent household w/ 7 children would get a check of 990 in alaska, the highest cost of living state, a far cry from $20,000.

Posted by Kathryn Russell on 17 June 2009 @ 8pm