Tuesday, August 14, 2007

The unfair Tax

Death and taxes are referred to as the only two certainties in life. Of course there are certainly more certainties than these two, but an obvious certainty that relates to death and taxes is the word “fair”. We can be absolutely certain that when someone uses the word “fair” as a modifier, their idea or proposal may seem fair to them but it is anything but fair for most everyone else.

The Fair Tax is not only unfair to those Americans who have spent a lifetime, or anytime at all, saving for retirement, it is also a proposal based on ridiculous assumptions.

Basically, the fair tax would replace income and payroll taxes with a national sales tax. This change would have the immediate effect of rewarding those who are in debt, since those in debt bought before they earned, and punishing those with savings, since those with savings earned before they bought. Those who are in debt paid a lower sales tax when they bought and will payer a lower income tax when they earn. Those with savings paid a higher income tax when they earned and will also pay a higher sales tax when they spend. How is that fair?

The big hook of appeal of the Fair Tax is the claim it would Abolish the IRS. Is it logical to assume some employees cheat when calculating their Income Taxes but no Vendors will cheat when calculating their Sales Tax? Of course not; any and every tax system needs a form of oversight and enforcement. Black market, under the table, employment transactions in the current system will be replaced with black market, under the table, sales transactions in the new system.

The so-called Fair Tax also proposes to give money to those under poverty limits. This payment is called a “prebate”. Those who don’t work, or who don’t choose to do productive work, will have enough money to meet their basic needs. How can this prebate possibly exist without cheaters gaming the system? How can this prebate possibly function without tons of administrative costs for oversight?

The best tax system is a tax system that taxes a little bit in a lot of places. Ideally, it would tax so little that decisions are not influenced or controlled by the tax implications of the decision and cheating on taxes is minimized. The best society is a society that does not depend on government to tax, regulate, and spend.

Mike Huckabee seems like a really good guy, but if he thinks changing one bad tax system for another bad tax system is a good idea, he isn’t a good choice to be the next President of the Untied States. If Governor Huckabee and others want to improve the tax system, they should start by reducing all taxes and limiting the role of government in our lives. Somehow, I don’t think Governor Huckabee could buy enough votes without proposing new ways to spend our money.

In the mean time, using the word fair, combined with the word tax, should be against the law.


Ian said...

First, excerpts from . . .
Where is the outrage over sky-high taxes, regulatory costs?
by Steve Higgins
7/15/07 - New Haven (CT) Register (Fair Use excerpts)

"Reports last week from two nonprofit groups should serve as a wake-up call to Americans to start agitating for tax reform . . .

"On Monday, the Competitive Enterprise Institute reported that the cost to consumers of complying with federal regulations exceeded $1 trillion in 2006 . . . almost 10 percent of the nation's gross domestic product. It's nearly half the amount of government spending !

"Even more worrisome, the cost of complying with these multitudinous regulations exceeds the amount of individual income tax paid in 2006, about $998 billion, as well as corporate incomes taxes of $277 billion.

"According to the Washington, DC-based advocacy group [ Americans for Tax Reform ], the average American had to work through July 11 this year just to pay all federal, state and local taxes, as well as regulatory costs including workers' compensation and unemployment benefits.

"Congress should take one of two paths: Either cut tax rates and government spending drastically, or adopt the FairTax, an innovative proposal that would involve abolishing the Internal Revenue Service and its income tax and replacing it with a simple national sales tax."

Full article here: http://snipr.com/wherestheoutrage

. . . The U.S. income tax system and the U.S. economy are inter-related, and are in DIRE trouble. If we, the citizens of these United States, do not act aggressively to spread the FairTax plan with family, friends and associates - our "nest eggs" stand to be devastated through a coming economic meltdown. ( "Laurence J. Kotlikoff on Long-Term Fiscal Problems in the U.S.," summary and podcast at http://taxfoundation.org/news/show/1859.html - Dr. Kotlikoff is an expert economist, and advocate, of the FairTax plan)

Politicians are putting demogoguery and pandering above responsible governing - and they're able to do it because Americans do NOT understand - at the "get go" - politicians' / bankers' hunger for ever-increasing shares of the working person's bi-weekly paycheck; Americans do NOT understand the totality of taxes they pay. The FairTax shines the "light of day" on this, putting citizens back in charge to forcefully demand spending reductons.

YOU AND I MUST ACT to mobilize public opinion, and get the FairTax enacted, because the signs point to a probable devaluation of the dollar (for reissuance of an "Amero" ? - under a U.S.-sovereignty-busting North American Union ? http://youtube.com/watch?v=6hiPrsc9g98 )

[ NOTE: Does this help clarify your understanding of what's going on globally? a) Bush's persistence on rewarding illegal immigration? b) the North American Highway now under construction in Texas (to stream cheap labor into the covertly-planned North American Union marketplace designed to compete with 21st-century China market? c) the gradual increase in value of the Chinese yuan by China corresponding to China's economic growth? (This will result in the dumping of dollar-denominated debt as its manufacturing economy grows stronger - which guarantees devaluing and ushering-in of the Amero.) ]

Keep in mind, this NAU strategy - supported by the "super-rich" (member-owners of the Fed) - together with their politician buddies who want NOTHING to do with FairTax - runs contrary to simply making the U.S. a "tax free zone" for business under the FairTax. Politicians and bankers lose power when the U.S. is returned to a "savings-driven economy" from a "debt / interest-driven" economy).

Powerful "elites," members of political and monied-interest "clubs" reaching into the halls of power in Washington, depend on keeping you and me uninformed of their plans. It is up to YOU and ME to ACT - and not live in a state of denial - based on what we now know is clearly happening to our financial futures.

After you consult the Kotlikoff interview (above):

• (If you're a member of your State FairTax organization) Contact your state or local FairTax Director to learn what you can do. Find yours here: http://snipr.com/localftleaders

• (If you're just learning about the FairTax bill) Join FairTax.org here: http://snipurl.com/scrapthecode

David M. Smith said...

Hi Ian,

So many words, yet so little refutation of anything I wrote.

Would you like to discuss the Fair Tax?

Kevin said...

Succinct and incisive, David. You cracked me up. :)

Rage said...

Mr. Smith, with all due respect, have you read the FairTax book, or are you just basing your opinions off of some others assessments of the proposal? I say that not to be rude, but to point out how very very mistaken you are in some of your opinions of the FairTax.

Firstly, you said, "This change would have the immediate effect of rewarding those who are in debt, since those in debt bought before they earned, and punishing those with savings, since those with savings earned before they bought."

Its true. The new system of taxes would definitely do what you are saying. Nobody says that a switch, any switch, to a new system is without a cost or a consequence. So if I follow your logic on this, if it changes anything, then just scrap it, even if the current system is broken. The benefits far outweight the costs.

There are a few things that will help to offset these immediate costs.
1. Americans will get to keep more of their money (because of no income taxes). Couple that with prices staying relatively close to the same. More money, same cost. As for those that are retired, they will recieve the prebate (which I will address your faulty assessment of later) that will pay them money that they would not have recieved under this system.

Okay, about the Prebate, you said, "The so-called Fair Tax also proposes to give money to those under poverty limits."

The Prebate goes to every single American based on family size and the Federal government's calculation of poverty level. It will not just go to the poor.

"Those who don’t work, or who don’t choose to do productive work, will have enough money to meet their basic needs. How can this prebate possibly exist without cheaters gaming the system?"

I ask you, what happens to those who choose not to do productive work in this system? Welfare? Food Stamps? I also ask, how can a system of taxation possibly exist without cheaters gaming the system? You can't stop everyone. As for the IRS, there has to be some oversight, but the proposal cuts the number of personnel needed as well as all the lawyers who "know" the tax code, as if thats possible. (66,000 some odd pages). In addition to that, I found on FairTax.org (have you been there?) that since there will be vastly fewer amounts of filers, it will be vastly easier to catch those that feel cheating is the way to go, though cheating can never be fully stopped.

There is no reason for people to go to the black market. Of course some will, that is the same a cheating. Some will take the risk, no matter what. But the fact is, prices will remain the same and there is more money in your pocket. The vast amount of people are not going to go out of their way, not to mention risk getting caught, saving money on products that are priced the same as they were when they had less money.

"In the mean time, using the word fair, combined with the word tax, should be against the law."

I realize it was a joke, but maybe you ought to think back to what you said about limiting gov't. The FairTax does this by taking away the power of the Congress to influence our decisions (ie the marriage deduction, the mortgage deduction).

Again, I hope that I have not been too obnoxious (I prefer passionate). I would encourage you to read the FairTax book and look through www.FairTax.org. They will answer a bunch of the criticisms you pose and in a much better way than I have. From a fellow blogger, I enjoyed reading yours and writing mine.

David M. Smith said...

Hi Rage,

Thanks for stopping by and leaving a comment.

My piece was my assessment only, not based on anything I have heard or read. I did get the prebate wrong. I do see now where the prebate is supposed to go to everyone, not just those below the poverty level. This will be another administrative function that will add to the cost of the new tax system.

I don’t see where the fair tax changes anything about taxing and spending by the government other than the place where the tax is collected. In the short run, this will hurt those who have chosen to be frugal. It seems like you agree with me on the short term. In the long term, cheaters who purchase products on the black market will be rewarded unless the cheaters are caught and prosecuted by the IRS or some other government agency. Again, this shifts the problem, but doesn’t solve the problem.

The Fair Tax is not a solution to the problem of too much government. Less government is the solution to too much government. This is done by reducing current taxes, not creating new ways to take money from citizens.

Please don’t worry too much about being rude or obnoxious. I like a good debate. I just try to be reasonable and try to clarify areas of agreement and disagreement. It sounds like you and I have the same goal, we just don’t agree on the method.

Rage said...

I'm pleased that you enjoy a good debate, as I am the same way.

Alright, the FairTax was never meant to be a solution to the problem of our massive government. It is simply a step in the direction of putting power back in our hands. The power we have is to choose when we want to be taxed and what we want to be taxed on. It is true that the IRS will be abolished, though from what I've read of the book and website, it will be necessary to have oversight. The thing is it will be much smaller and thus less wasteful (lets hope). Its shrunken size will be due to the fact that when you collect from businesses, the individual filing process is by far much smaller than if each person has to do it (like now). Therefore, catching cheaters will be easy since there is less of a crowd to hide in.

I am with you on shrinking government. Its hulking mass threatens to invade every facet of our lives and I do not want that (as I think you don't either). Neal Boortz and John Linder specifically state that this tax plan is not designed to lower taxes or shrink government, that is a separate battle. I support the idea simply because I like the idea of being able to see exactly what I get taxed, in addition it will save us from having to deal with the chaotic frenzy that is our tax system. It will save us money by cutting out middle men like H&R Block types. Not that I have anything against them, I just despise taxes. Also, the tax system becomes so much simpler, which makes it less stressful and again, lest costly.

Rage said...
This comment has been removed by the author.
David M. Smith said...

Hi again Rage,

I wish I could agree with you, but I can’t. I think the so called Fair Tax is a step in the wrong direction. It won’t solve very many problems at all and it will surely create new problems.

One aspect of the Income Tax is that the person who owes the tax does not pay the majority of what is owed. Employees owe the tax, but employers pay the tax. This is part of the mechanism that reduces the need and cost of enforcement. Employers don’t have an incentive to cheat.

With the so called Fair Tax, the person who owes the tax will also be the person who pays the tax. There will be tremendous incentive and also pressure to cheat. Contrary to your belief that the need for enforcement will go down, I see the need for enforcement going up.

Another aspect of the Income Tax is the way the burden is spread throughout the citizenry of Americans. The vast majority of people who work, who use government services, owe a small part of the overall burden.

Since there are less vendors than employees, the burden of owing taxes will fall on fewer Americans. This will cause some Americans to disassociate the cost of government from government services. The demand for government services will go up, not down.

Additionally, the rules for who owes a sales tax and what is owed will be just as complicated and burdensome. Does a maid or gardener pay a sales tax on their services? Do you pay a sales tax when you sale your old couch? If not why? If only certain transactions fall under the rules, there will be an incentive for government to pick winners and losers.

We already have an infrastructure for collecting the Income Tax. There is no need to change the infrastructure. There is a need to lower the amount of government. The simple and most fair solution is to lower the Income Tax, not create another inefficient and burdensome system.

Buz said...

Actually, I see two problems with a national sales tax:

(1) Our current system, however misguided is loosely based on the idea that "them what has more pays more". So, if you have an income of $5M a year, you pay a whole lot more that someone who has an income of $50K per year.

You may not consider that to be "fair", especially if you are the one who makes the $5M, but it is at least an attempt to remove some of the burden from the poor.

In a sales tax situation, this may not be true. If I make $5M per year, and it is just me, and I am happy to sit in my 66 degree, 1600 sq.ft. house, I would most certainly pay less than a family of 6 living on $50K per year in their 3000 sq.ft house.

(2) Absolutly positively do NOT vote for any new form of tax until AFTER the govt. as repealed the ammendment authorizing the federal income tax. If a new tax is voted in, the old one will NOT disappear, we will simply have two different taxes.

I don't care what they say or what they promise. You know two things for an absolute fact (a) they do NOT keep their promises, and (b) they will never voluntarily lower taxes. The only thing they will call a tax cut is a decrease in the rate of increase of the taxes.


Ian said...

There is no reasonable equity of distribution under the current INCOME tax system. What's more, the Tax Code has become a "tinkerer's paradise" for 53% of the lobbyists who game it in Washington DC. It's a lucrative business, and the U.S. TAXPAYER pays for ALL of it in higher prices (i.e., a hidden tax which is incomprehensible to the average working person).

Prices after FairTax passage would look similar to prices before FairTax - not "30% higher" as opponents contend - competition would see to it. So, the FairTax rate on new items would be 29.85% (on the new, reduced cost of items because business isn't taxed under FairTax - thus lowering retail prices by 20% to 30%), or 23% of the "tax inclusive" price tag - this is the way INCOME TAX is figured (parts of the total dollar).

The effective percentages, that different income groups would pay under the FairTax, are calculated by crediting the monthly "prebate" (advance rebate of projected tax on necessities) against all likely spending that citizen families (1-member and greater, Dept. of HHS poverty-level data) are likely to spend. (A single person would receive ~$200/mo. A family of four ~$500 - in addition to working members no longer having tax withholding confiscated from the fruits of their labor every two weeks.) Prof.'s Kotlikoff and Rapson (10/06) concluded,

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Further, per Jokischa and Kotlikoff (circa 2006?) ...

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

Buz said...

I'm sorry, maybe I'm too sleepy, but I still didn't see an answer to my question.

If I am single, make $5M per year, but live a very frugal life-style, I will pay less in a national sales tax than a family of 4 making $50K per year, and living a "normal" life-style, true or false?

Buz said...

Oh, and as to my second question, if a national sales tax is enacted, and the income-tax ammendment is not repealed, what is to stop the govt from keeping both taxes? (In 25 words or less, no links to the congressional record, please.)

Eric said...

This is in response to Buz' last two posts. No, you weren't sleepy, you didn't get an answer to your questions.

The answer to your first is "true". The FairTax is voluntary, and depends on your consumption of new goods and services at the retail level. While the family of four will receive a higher prebate than the individual miser, if they substantially outspend him, they will pay more tax. The FairTax is fair from the standpoint that it treats every retail purchase of new goods and services the same.

However, data shows that higher income households will pay the most amount of tax, because they on average drive the most consumption. And, due to the prebate, lower income households that can only afford to spend up to the poverty level or less will pay no or negative tax.

Your second question is important, because the LAST thing we would want is to wind up with both. The assurance provided in Bills H.R. 25 and S. 1025 (current versions of the FairTax bill in the House and Senate) include a sunset provision in the event the 16th Amendment is not repealed within 5 years.

A bit of tax history is instructive. While the Union introduced an income tax to fund the Civil War, due to popular discontent it was repealed in 1873. After 68 subsequent attempts to reintroduce the income tax, Congress succeeded by passing it in 1894 through a bill curiously called "an act to reduce taxation." The Supreme Court, during Grover Cleveland's administration, declared it unconstitutional. The effort to ratify the 16th Amendment, based on mollifying the public that only the top 0.5% of wage earners would ever be impacted (yeah, right) spanned two administrations, and it wasn't until 1913 that the income tax become constitutional.

For most of our nation's history, it has been unconstitutional for our federal government to impose direct taxes on citizens. We need to restore that protection.

Eric said...

In response to David's comments, you really need to read the books, and then we can have a spirited debate. The fact is that the FairTax is far superior to our current system of income and payroll taxes along every important measure: positive impact on economic growth, fairness, certainty, compliance, efficiency, simplicity, transparency, convenience, and protection of individual rights. It allows our companies to compete with no embedded taxes in their cost structure, will encourage the repatriation of foreign profits, will encourage foreign firms to invest in operations here (read: create jobs), untax savings and investment which will encourage trillions of dollars currently sitting in offshore financial centers to return to our economy, tax foreign visitors and those operating in our underground economy who currently pay no income or payroll tax, is incredibly simple, efficient and convenient, eliminates staggering compliance costs from society (estimated to be $400 to $500B a year), restores our rights to privacy from the prying eyes of the IRS, leverages the sales tax collection infrastructure that already exists in 45 out of 50 states, and on and on. Furthermore, your assertion that employers paying a share of payroll taxes reduces employee taxes is incorrect. Companies embed those taxes and corporate income taxes in the prices that we ultimately pay. Detailed analysis shows that about 22% of every purchase of new goods goes to pay those embedded taxes, and that is on top of your individual income and payroll taxes. The bottom line is, our system is far from transparent...we have no idea how much we are really paying in federal taxes.

While I strongly agree with your comments regarding the need for lower taxes and less government, the FairTax is intentionally designed to be revenue neutral out of the gate. But as a completely transparent system, we will finally understand how much our federal government is costing us and that is an important first step in holding them accountable for reductions in spending.

Read the books and then let's chat some more.

David M. Smith said...

Hi Eric,

Thanks for taking the time and making the effort to argue your position.

Reading more about the Fair Tax will not change my position on the Fair Tax. I recognize most of the advantages of the Fair Tax. However, I do not agree with you that the Fair Tax is an overall superior tax system and I certainly do not agree it is superior in all or even many of the areas you mentioned.

I do not want a tax system that is primarily based on what consumers choose to spend legally above the table. We don’t need the turmoil or the unfairness of such a system.

I do agree with you the tax system needs to be more fair and more transparent. A tax on real property is the only way to make the tax system transparent because real property is the only asset or transaction that cannot be hidden.

Eric said...

You're welcome, David, and thanks for your response. Our system of taxation is very important to me, so I am happy to take the time.

Actually, we already have consumption based taxes in the form of state and local sales taxes. These systems work a lot better than income taxes in all the areas I mentioned. Unfortunately, in most states these are also levied on top of state income taxes. However, Texas and Florida are interesting case studies. They have essentially implemented the spirit of the FairTax and have no state income taxes. I have family and friends that live in those states and love it. Well, as much as you can love taxes.

Property taxes in my view are one of the worst forms of taxation for several reasons. One, unless you own rental property, property generates no cash income, yet taxes are due every year. If you can't come up with the cash, you have your property confiscated by the government. If you die, your heirs have to come up with the cash or sell the asset. Two, only property owners and, indirectly, their tenants, pay property taxes. Foreign visitors who use our infrastructure pay no taxes (income taxes face the same issue). Three, property taxes increase with the value of your property, which is determined by government assessors. If you don't agree with the assessment, then you have a time-consuming appeal process. Not exactly convenient or efficient as I can personally attest. Four, real estate markets are cyclical. If you have problems paying your taxes and have to sell in a down market, you get screwed. Five, define property. Is it just real estate? Is it personal effects? Is it financial assets? What's included and excluded? Do certain property owners, for example certain industries, certain income classes, get breaks on millage rates or other exceptions? Oh, the government would have a heyday with that in their quest for votes and more revenue. Six, if you think about how much property taxes would have to go up to replace the income tax, such a system just may significantly crimp demand for real estate, drive foreclosures through the roof, and send the market into an even further tail-spin. Should I keep going?

The FairTax is voluntary. You only pay taxes when you decide to make purchases, and you owe nothing further in the future on that purchase (as you do with property taxes). It gives you complete fiscal control and no ongoing liability. There is one rate for all retail purchases. Yes, there will be leakage on private transactions, but income from those transactions is not reported or taxed in our current system, plus a whole lot more.

I think one thing we can agree on is no system of taxation is perfect. But after seeing them all, studying the FairTax, and considering the positive experiences in Texas and Florida, I think the FairTax comes closest. And that's all we can hope for.



Buz said...


Your position is well thought out, from a text-book standpoint. Yes, the tax is voluntary (if you consider buying the necessities of life, like a roof over your head and the energy to heat it voluntary). However, I go back to the rich miser vs. the struggling family.

Here are the immediate problems I see (granted they are all political, but this is the insurmountable obstacle):

(a) In our current system, "soak the rich" is a very popular phrase among a certain group of politicians, and the idea of class warfare is practically what keeps them in power ... tell me that they will not scream to the high heavens (and the NY Times) that this tax, inspite of its name, is the ultimate "unfair" tax.

(b) The IRS, has a life of its own to the extent that every President/congressman/dog-catcher since the 1970s (Ford was the first one I remember talking about such things) who has even hinted at reforming the IRS has been threatened with past audits and only God knows what else until they let the idea die get burried in an unmarked grave. Regan talked about it, and he did get some changes made ... but not the sweeping reforms he talked about in his campaign.

(c) To quote a certain, popular radio personality, the purpose of the tax code is not to get money for the government, it is to control our lives. If you look at some of the proposals made by other politicians, there are many that would be far easier and collect more money (Forbes' flat tax proposal would have required less than a page of paperwork and was projected to increase Federal income by something like 15%) ... but THEY DON'T CARE. The Federal tax code gives them (a) control over our lives and (b) the appearance of caring about people so that they will vote for those who support their particular tax loophole. It is a lucrative racket which keeps them in power.

And THAT is the key. Many of those in power use the current tax scheme to buy votes and stay in power. They are buying David's and my vote with your money ... and we out vote you 2-to-1 ... so we will keep voting for the guy who takes $100 from you and gives each of us $20 (and pockets $60 for himself).

Not that the "Fair Tax" is a bad idea, it just ain't going to happen unless someone drops a nuke on Washington DC and we start over with all new representatives, AND WE LET THEM KNOW THAT IF THEY TAX US TO DEATH, WE WILL RETURN THE FAVOR ... swiftly and without warning. (That last sentence will probably show up on someone's monitor somewhere, and I will have a black helicopter tailing me for the next five years ... but that's OK, Eric, because they will use your money to finance it ...)


David M. Smith said...

Hi Eric,

Some of what you see as an improvement in the tax system, I see as a hindrance.

I don’t want taxpayers deciding when they are going to pay their taxes any more than I want my boss deciding when it is time to pay me. Government needs a consistent and predictable stream of revenue to pay its bills just like I need a predictable and consistent stream of revenue in order to pay my bills.

I am not against a small sales tax accompanied by a reduction in the employment tax, but I am against the enormous enforcement mechanism that would be required in order for it to be a fair tax.

Eric said...

Hi, David -

Understand your concern. One key fact is, from a predictability standpoint, a consumption-based tax is much better than an income-based tax. Consumption is roughly 60% than earned income in the U.S., and if you look at both over time, consumption is also much less volatile from year to year. Even in the 2000-2002 downturn, consumption remained fairly steady, whereas earned income dropped like a stone.

The other key fact is that the Fairtax will replace the embedded corporate income and payroll taxes you already pay in every purchase. Competition will squeeze those embedded taxes out over time, so the net effect is the total price including the Fairtax will wind up not being much different than what you pay today. Even in the cases where prices don't drop the full amount, for example in slower moving, less competitive goods/service industries, you will have more money in your pocket since you are not paying income or payroll taxes anymore. And we do love our lifestyles...


Eric said...

Buz -

I share your cynical view of our "benevolent" politicians and our tax system. It was designed by politicians for politicians, and is used to grant favors, promote class warfare, and hide how much government is really costing us.

However, the FairTax is a progressive system for two reasons. First, the prebate, which effectively untaxes the poor. Second, it eliminates payroll taxes, which are actually regressive for the middle class. Did you know that payroll taxes raise almost as much revenue for the federal government as income taxes? And did you know that the middle class pays 75% of all payroll taxes, and even the poor pick up their share? The FairTax is very good for the lower and middle class. In fact, detailed analysis shows both classes will pay less in direct taxes under the FairTax than the current system.

It is a matter of education and pressure, which we can't provide by sitting on our hands. Today, there are over 60 representatives in the House who support the FairTax, and the number is growing. If we the voters make this a visible issue in every campaign and in between, they will get the message. The public forced Congress to repeal the income tax once in 1873. It's time to do it again, once and for all. The public also forced Congress to repeal withholding on dividends and interest income in the mid-80's (one of the bright ideas in Reagan's tax reform) - one month after the law took effect. We have the power if we let our voices be heard.

If they don't enact the FairTax, we can always hold a Washington Politician Party in the spirit of the Boston Tea Party. I recommend we wait until winter so the water of the Potomac is really cold. You clock them on the head and I'll toss them in.

By the way, if you hear a helicopter approaching, turn off all your lights and hide in the basement.


Eric said...

David - Failed to proof my last comment to you. Meant to say consumption is roughly 60% LARGER than earned income in our economy.



Buz said...

Eric, I ALREADY hide in the cellar with the lights out ... what should I do if the black helicopters come?


Eric said...


Well, if they're the big black helicopters, nothing like having a solid perimeter defense of SAM batteries. I painted mine green, so they are color coordinated with my Centricom system. You would be surprised how many complimentary comments I have received from my neighbors.

If they're the small ones, pull out your trusty black helicopter swatter. One slap is usually enough. You can buy one here: http://zapatopi.net/blackhelicopters/


Buz said...

I didn't know they came in sizes!?