The main thrust of that portion of my argument is that there will suddenly be a lot of “businesses”, and that a lot of people who are honest when taxed at 10% on an item will suddenly decide it’s a risk worth taking when it’s 33% or more.
I think it was Jesse at Pandagon who pointed it out: the easiest shell company would be to start a blog. With ad sales, it is at least a potential money-making endeavor. Say you want a CD tax-free; just write about it in your blog. Vacation? Blog it. There’s nothing that says your business needs to be particuarly profitable (as very few blogs are).
Sure, you can carefully define what constitutes a “business”, but as soon as you start taking care to define what is and isn’t taxable, you’re on the road back to that 25,000 page tax code that this is supposed to fix.
I have the book. I’ve read it. It’s #1 on the New York Times best seller list.
It’s NOT a VAT. It is a one time only tax at the retail level. So while GM has to buy the steel to make the cars, they won’t pay taxes on that steel. Or the plastics or the electronics. The dealers don’t pay tax when they buy the car to sell on their lot. You, the car buyer, will pay the tax when you buy it new. There is no tax on used items. But with the embedded taxes gone, the price will remain about the same.
Economists spent millions of dollars researching this and building it from scratch, unlike our current tax code, which has been cobbled together over decades.
Everything is taxed, food, services, etc. There will be a monthly pre-bate sent to every head of household, that will cover the taxes spent on the basic necessities of life, that’s tied to the poverty level as determined by HHS. For a family of four, it works out to about $500. This means the poor will pay no taxes. In fact, they will see a raise because all payroll taxes will be gone.
For those of you worried that prices will not drop, the marketplace will take care of that. In fact, it already did once. On Dec 31, 1995, a budget disagreement in Congress led to an expiration of an airline ticket tax. At first, the airlines kept their prices the same, to enjoy the extra money, but then one small airline started a price war and the other airlines had no choice but to follow suit.
There will be tax evaders, but now, it only takes one person, the taxpayer, to cheat the system. Under the FairTax system, it will take two people, the seller and the purchaser. Do you think Sears and Wal-Mart is going to put their ass on the line for the cheater?
This book does an excellent job of outlining the FairTax. Before everyone starts jumping up and down on it, read the book. There’s a question and answer section at the back. No, it’s not perfect. But it’s a hell of a lot better than what we have now.
Those go too. Excise taxes will remain.
Please look at my post, number 10. You say that the book claims that the income of the poor will “see a raise” and that the price of goods will also drop. I have a question about the book’s claims.
Can you explain to me how the price of goods will decrease because of decreased labor costs (ie, elimination of payroll and income taxes), but that wages will not be decreased? How can payroll be cut without cutting wages?
Or does the book acknowledge that the instituation of this new tax system will cause a dramatic decrease in wages paid by employers?
Just a few points…
The embedded employment taxes aren’t simply those withheld by the employer from the employees salary, but the matching portion of social security that the employer must contribute (which is how payroll taxes can be cut without affecting wages, but I may not have the whole story here).
Another important point is to be sure to compare this to our current system, or versus some other alternative.
Someone mentioned the risk of a black market developing. Compare that to our current system, where billions of “income” go untaxed (think illegal immigrants, or drug dealers). Under the fair tax system, every time they buy something retail, they pay. I’d be willing to take this trade-off.
I’m not prepared to say I support it, but I think it is a fascinating approach. I find it much better than our current system, but I acknowledge that that in and of itself isn’t much of an endorsement.
If I understand your question, I think what you’re asking is what happens to the employer contribution. Mr. Boortz does not claim that businesses pay income taxes. In fact, he’s made the point many times on his radio show that individuals, not businesses, pay income taxes. Corporations may write a check to the IRS, but that money has come from reduced dividends to shareholders and fewer expansions to the business. Unfortunately, Ivylad has the book in his car, so I can’t refer to it right this second. I’ll need to get back with you upon further research, but this cite may give you some insight.
So under this, while the businesses may have to pay a larger portion directly to the employee instead of sending it to Uncle Sam, they’re going to save so much elsewhere I don’t think it will have much of an impact. Is employer contribution that big of a percentage of a company’s operating budget? Does anyone know? Looking at my paycheck, I’ll be getting an extra $200 every two weeks. I don’t know about you, but I could sure use that money. 
I disagree with the way it treats corporations, as long as the board of directors and CEO’s still have a stranglehold over ordinary shareholders’ rights. Purely from an economic standpoint it could lead to stagnation.
It would happen through these steps:
– Corporations have no tax at all.
– Extra incentive to corporations to keep a large cash reserve.
– Extra cash reserve is stolen by corporate insiders or spent on frivolous kingdom-building exercises.
– This results in not only non-optimal economic decisions taken by corporate managers in order to heighten their company’s power but also a worse distrust of corporate governance resulting in less willingness to invest.
Think about this as well. If a company keeps money for itself and uses it to make more money rather than paying it to its workers or shareholders, it can grow that money MUCH MUCH more quickly than investors can because none of its income or expenses are taxed. Pretty soon, from the sheer power of compounded interest you could have trillionaire corporate bank accounts floating around, serving the interest of a small number of people.
Oh, for those of you who are promoting this, please do your fellow board members a favor and share with them how much the tax would be on 1.00 at the starting federal Fair Tax rate of 23% (hint: it's not .23).
If I pay 7% in sales tax currently, then on a $1 purchase, my total is $1.07. That’s how we calculate sales tax in America right now. Every single one of us, including the government.
Even without the other crap wrong with this proposal, when people play games with numbers for the sole purpse of confusion, I’m going to automatically be skeptical. They do. I am.
I’m not seeing the point here.
Unless someone knows something special, I’d appreciate it if we could keep this discussion dispassionate. We may feel someone advocating an alternative taxation system is wrong, but it’s rather excessive to start impugning motives. It’s also unpersuasive.
Not quite. We know that companies have to pay wages to workers. The cost of those wages is reflected in the wholesale price of the items they make.
I keep seeing that Boortz and others claim that if this tax system were enacted, the price of goods would fall by roughly 20 percent, because companies no longer have to pay the “embedded tax” of whatever taxes now exist that companies have to pay, either directly (corporate taxes and the employer share of payroll taxes) or indirectly (in terms of the amount that wages are inflated to allow for workers to pay their own income tax).
Does Boortz acknowledge that in order to achieve a 20 percent reduction in the cost of goods, businesses will have to cut worker pay, most likely by the amount that the worker now pays in income tax?
There’s the rub. I can’t figure out how a tax system could make it so that:
- Workers get paid more (like you and your newfound $200)
- Workers pay less taxes overall (if I understand his claim correctly)
- Businesses pay no taxes
- Everyone gets a new entitlement program of monthly stipends, intended to offset the cost of the new tax scheme for the poor
- The cost of goods remains essentially the same (or perhaps a small increase)
AND…
- The amount of revenue into the treasury is equal to the current tax scheme
How on earth does this possibly add up? How can everyone pay less taxes, but the same tax money be submitted to the government? How can Peter and Paul both pay less in taxes, but Uncle Sam still get the same amount of money? Actually, doesn’t Uncle Sam need greater revenue in order to pay everyone $4,000 a year, or whatever? Where is all this additional money coming from?
If I told you that under their 23% tax rate, you’d actually be taxed about 30 cents for every dollar you spent, would you question their motives? If you answered yes, then would you find it persuasive if you learned that that’s how it would work? They calculate tax on the gross amount, not the net amount. If you walk into the store and buy something for $100, you will be asked to give them $130, not $123. If the rate goes up, this method can get ugly fast. If the “Fair Tax” is raised to 33%, for instance, your actual rate will be 50%, so purchasing an item priced at $100 will actually cost you $150.
Sit back and wait for the Fair Tax advocates to deny this, and you’ll find yourself in for a long wait. They’ll come “explain” it, but they won’t deny it.
The board should be representing the shareholder’s interests, and are normally comprised of the largest shareholders - so that makes sense. The board hires and fires the management, including the CEO.
Corporations pay little income taxes today. Whatever they do pay is at the expense of either their customers, their employees, or their shareholders. The other taxes “they pay” are actually taxes on your wages, and often taxes on goods they purchase.
There would be no significant change on the motives to keep a cash reserve. Cash isn’t taxed today - income (and wages, and goods) is. There is no tax difference to holding cash today, and there wouldn’t be under the Fair Tax. Holding cash would only be advantageous if the time value of money is negative. Otherwise, they would invest it or return it to shareholders.
If the management squanders wealth, and the board doesn’t do something, the investors will flee, the company will fail. Free market forces can handle this (not without investor pain - trust remains important - caveat emptor).
I struggle to follow the logic of your final scenario, but regardless lets remember that the “small number of people” are the shareholders, which can be anyone who wishes to invest in the stock. I’m not sure what the problem is.
DMC, it might be helpful if you refer to answers #5 and #47in the FAQ linked in the OP and point out what part of the answer doesn’t make sense to you.
Ravenman, perhaps the difference you are looking for is the collection of taxes based on retail consumption, which collects revenue from even black market money - which is not part of the rate base today. This can range from proceeds of drug deals, off-book pay to migrant workers, or simply spending of money earned outside the realm of US tax policy (tourist or foreign-earned wealth). Additional savings comes from the reduced administrative cost and the dissolution of the IRS.
To your point #2, workers may not pay more taxes, but certainly some spenders do.
To your final point though, it wouldn’t “create” value that doesn’t exist. It would simply be a fairer way to raise the necessary federal revenue.
The value of H&R Block would be a victim, however.
That’s not quite right, either, as I understand it. If you buy something for $100, the store will have to pay $23 in tax on it. So it isn’t that you’ll have to pay $30 on top of the $100 item; it’s just that the item that used to be priced at $100 is now priced at $130. This is an “inclusive” sales tax, as opposed to an “exclusive” tax.
They present it like this because 23% sounds better than 30%; it is somewhat disingenuous, just like the above loose definition of “progressive”.
So you think you’d end up paying less in taxes than you do now. As I said above, the guy making $10 million a year who spends half of it on taxable goods is probably going to pay way less in taxes. This is probably true of just about everybody who makes enough money to live comfortably without spending it all. Business-to-business transations will now go entirely untaxed.
So a lot of people would be paying a lot less tax, which has to mean that a lot of people will also be paying more tax. Who is it?
Your math is right, but the assertion is that the item that costs $100 today will cost $100 after the FairTax, and the seller will only keep $77 of it.
While the choice to present it as an inclusive tax is a bit of marketing, I don’t think it is disingenuous, it simply expresses it in a form that is consistent with how we discuss income tax rates today. We do describe (state) sales taxes differently, but the rates are being compared to income tax rates. Pardon the pun, but that seems fair to me.
I have answered your final question twice - so I won’t repeat myself. But your first point isn’t necessarily true. The guy who inherited $10 million last year and spends $1M this year might not pay any income tax this year under the current system, but would pay nearly a quarter of million under this plan.
I’m fully aware of their argument for the usage. My argument is that they are using the lower number to make it more palatable, not to equate it to income tax. If income tax was tax exclusive, I’d be willing to be that Fair Tax would still use a tax-inclusive calculation. We can disagree on their reasoning for using that method(if you can do so with a straight face), but they’re very free about tossing around that 23% number, and not so forthcoming with the way it is calculated nor the 30% number, which would actually make sense to most people, even if they’d find it less palatable.
“It’s just a sales tax, except we don’t calculate it like one, as that would make the percentage higher and you might not like it as much.”
I’ll work with you on this one, and we’ll even keep it simple and not deduct fun stuff like child care, etc. In order to pay $500 in taxes, they would need to spend $1666.66 per month on necessities. Let’s assume that this family pulls in exactly enough to get by, without any extra. That comes out to an annual salary of $20,000. Of that, they can claim a deduction of $9,700 right off the bat, leaving $10,300 in taxable income. The tax for this for a married couple filing jointly is $1028. Since they have 2 children and based on their income, they get an EIC deduction of $3250. So, they owe the government $1028 and the government owes them $3250. If my choices are to have the government owe me, or have me break even, I think I’ll choose the former. Okay, so we’ve seen that this screws over the poor folks. What income level would you like to try next?
Since the 30% rate that they are currently going to go after is based on the existing economic model, won’t a reduction in prices throw everything off, thus requiring a drastic increase in the tax rate to compensate, if prices drop like you state?
I was unable to find anything in the proposed legislation that puts the onus on the seller to perform that level of verification. So, cite?
I am a huge fan of reforming our tax code, and to be quite honest, the Fair Tax is perfect for me, as I spend a lot less than I make, and also invest quite a bit. The thing is, I realized a long time ago that just because something benefits me doesn’t make it “fair” nor “better”. I’m all for looking at solutions, but I want one that isn’t tailor made for me and people above me in income levels.
Some responses first.
OK, let me spell this one out. B-u-s-i-n-e-s-s-t-o-b-u-s-i-n-e-s-s p-u-r-c-h-a-s-e-s f-o-r t-h-e p-r-o-d-u-c-t-i-o-n o-f g-o-o-d-s a-n-d s-e-r-v-i-c-e-s a-r-e n-o-t t-a-x-e-d.
Please reread my post. Prices are more expensive in Japan, not taxes. This is a free market thing, so the Japanese government wouldn’t have anything to do with that.
First, please show the calculation for the 10% you quoted here. The site gives a sales tax of 30%.
I guess this is where I feel the FairTax argument is disingenuous, at least as given in the site. This is to be revenue neutral. How is everyone’s net income going to go up? Can’t happen. Obviously if someone’s tax is going down, someone else’s tax would go up. If you want a real debate, create a table showing the winners and the losers.
I’d be a loser under the new system; my US taxes would increase because I would have to pay an additional 30% sales tax. How much would tourist drop because of the 30% increase in prices? How much would that hurt the economy?
Another question: Social Security
Isn’t this flawed? Shouldn’t social security be tied to the amount one spends and not how much one earns, since the amount one earns is not longer relevant? How do you manage that mess?
Anyway, can’t spend any more time on this now, but one final question for the defenders of the faith.
Do we have any volunteers among us?
You can’t possibly be serious. Are you telling me that eliminating the IRS, with its budget of about $10 billion each year, is going to save more money than creating a new entitlement program by which every American household gets a monthly stipend from the government for necessities? By my rough calculation, that entitlement would cost at LEAST half a trillion dollars per year. (Not to mention the absurdity of eliminating the only government agency capable of establishing compliance by every single business in the nation with the new Federal tax system, should it ever be established.)
I am really questioning whether the advocates of this tax have any sense of how much the government actually spends and where it gets its money. It’s starting to remind me of those polls in which many Americans think that we spend more than a hundred billion dollars a year on aid to poor countries, only I think the misperception in this case may be that some think that the IRS soaks up a similar inflated amount of taxpayer money.