Quick Fair Tax Rant…
Posted on September 15th, 2008 by Dennis
Can someone explain to me how anyone could oppose the Fair Tax? I can almost understand how an elected official - especially in Washington DC - could oppose the bill - I get that. But for someone who isn’t connected with the Washington DC establishment politics to oppose the Fair Tax - well - I can’t even grasp that. Either they have absolutely no understanding as to how our tax system works or they simply don’t earn enough money to pay income tax. That would be the only two plausible explanations.
If someone would like to post a blog explaining how they could oppose the Fair Tax I would be more than happy to post it.
My rant for today.
Filed under: Politics
Dennis — I love northeast Georgia but am no fan of the FairTax.
For a thorough discussion of the reasons some people might not like the FairTax, check out http://www.fairtaxblog.com, which is the only site I know of that permits discussion of the pros and the cons of the proposal.
In a nutshell, here is why people oppose it..
1. The numbers don’t add up. Every independent analysis of the FairTax (that is, every analysis that has not been paid for by the people pushing the FairTax) has concluded that the actual FairTax rate would need to be between 40% and 70%, depending on the estimated avoidance rate and the deficit.
That is, if you assume the federal deficit don’t matter and that there will be zero tax avoidance under the FairTax, you might be able to get a rate as low as 40%. If you assume that the tax system will (eventually) need to raise enough revenue to pay for government spending and there will be at least a modest amount of tax avoidance, then the rate shoots up to around 60% or higher.
You might check out the analyses done by (a) Congress’s Joint Committee on Taxation; (b) the President’s tax reform panel; (c) William Gale of the Brookings Institution; and (d) a recent study by the James Baker Institute of Rice University.
2. The FairTax will be impossible to enforce because the government cannot force people to buy what would be taxable goods and services. For example, who would buy a brand new home from a builder and pay hundreds of thousands of dollars in taxes when he could buy an existing home right next door and pay zero taxes? Siminarly, folks would buy used cars instead of new cars, take their ski vacations in Colorado, and retire in Central America. Not everyone, of course, but enough to drive up the tax rate on everyone else.
3. Even if you could fix the rate and eliminate tax avoidance, the way the FairTax is designed it would shift the tax burden onto the back of the middle class and retirees. The FairTax (supposedly) eliminates taxes on the poor due to the prebate, and substantially reduced taxes on the wealthy (who tend to spend a much smaller percentage of their incomes on goods and services than do the middle class). Thus, the only group left to pick up the tab is the middle class, in particular middle class retirees.
A couple of other notes. You might have heard that prices will not rise under the FairTax. Every economist who’s looked at the FairTax (including those hired by the FairTax proponents) have concluded that is just not the case. Prices will in fact rise by the “tax-exclusive” rate.” The only people who claim prices won’t rise are Boortz and Linder. You might have also heard that the tax will be shifted to illegal aliens and the underground economy. That too is incorrect, as those same economists all agree. There might be some additional tax revenue from illegal aliens and the underground economy if the rate is high enough, but it won’t be enough to make a difference. The numbers just aren’t there.
So, to summarize: The reasons people oppose the FairTax include: (1) the tax rate would need to be too high; (2) it would be impossible to enforce; and (3) it would increase the tax burden on the middle class. There are other reasons, as well, but no point in going into them for now.
Hope this helps answer your question.
Dennis,
GeorgiaTex has got it about right. In addition, here are some more reasons that the Fairtax just won’t float.
(1) HR25 proposes to have the federal government lay a sales tax on State and Local government operations. This is patently unconstitutional, imho. We live in a republic, consisting of two sovereign powers, federal and state, each acting on the same citizens but with different responsibilities. As Justice Marshall noted, “the power to tax is the power to destroy”. This aspect of the Fairtax would be thrown out, and the sales tax rate would have to rise. In addition, you might note that the National Governors Association 2008 policy paper on taxes opposes any national sales tax. Just google NGA and check it out.
(2) By including the payroll tax as one of the taxes to be replaced, and offering a monthly “prebate”, the Fairtax creates an annual group of an estimated 30 million non contributers (net) to the federal coffers. That is, 30 million workers will pay no net federal tax, yet all will qualify for full Social Security pension and health care benefits. Compare that to the less than 1 million workers under current tax law that can reduce their federal income tax to near zero using exemptions and deductions, and then totally offset their payroll tax amount by using the refundable EITC and Child Care credits.
Meanwhile, those retirees who paid into the trust funds for around 45 years would be forced to resume paying for their benefits with their sales tax dollars. A major break in faith with the nations seniors, and most unfair!
(3) As a retiree, I also object to what would be double taxation of my hard earned after tax savings. Fair, the Fairtax is not!!!
As a former Fairtax supporter, having done my own “homework as Boortz recommended, I certainly can’t support HR25 as written. There is no doubt that a consumption tax would be better for the country than an income tax. As Rudy G once noted, if we had it to do over, we would probably have a national sales tax, but you can’t get there with the Fairtax plan. HR25 tries to do too much, too quickly, and won’t ever be supported by the Congress.