The Fair Tax Fraud?

One of our members has expressed her disappointment that the LPCO is not promoting the "Fair Tax" plan (replacing the IRS with a national sales tax). She argues that we are wasting our time fighting over pennies in a sales tax when we should be stopping the flow of dollars. She points out that the privacy intrusions and days of wasted time complying with the IRS regs are a burden that we could end. And a national sales tax wouldn't penalize saving and investment.

As Legislative Director, I have read "The Fair Tax Book" and the associated proposed legislation. I have also read critical analysis of the "Fair Tax" plan from authoritative sources such as the Mises Institute. I invite everyone the read about these flaws in the plan at:

The Fair Tax Fraud

http://www.mises.org/story/1814

There is No Such Thing as a Fair Tax

http://www.mises.org/story/1975

The FAIRTAX: A TROJAN HORSE FOR AMERICA?

http://www.jpfo.org/fairtax.htm

Fair Tax not what it appears

http://www.commonvoice.com/article.asp?colid=1662


The "Fair Tax" plan reminds me of a similar scheme by the British to tax the colonies.

On March 22, 1765 the British Parliament passed The Stamp Act requiring all American colonists to pay a DIRECT tax on every piece of printed paper they used. Ship's papers, legal documents, licenses, newspapers, other publications, and even playing cards were taxed. At the time of purchase, a stamp was bought to show that the tax had been paid. The tax was obvious to all and set off intense protests throughout the colonies. By the summer of 1765, the colonists began to boycott British goods and pledged not to use the stamps. This led to nine colonies forming the Stamp Act Congress which resulted in the "Declaration of Rights and Grievances". During March 1766, he Stamp Act was repealed.

It was clear that the British would have to HIDE the taxes. So in 1767 they introduced "The Townshend Acts". The Townshend Acts placed customs duties on imports of glass, lead, paints, paper, tea, and other everyday items. This means that the tax was paid by the merchants when the goods arrived in the colonies. The tax was then added to the total price by the merchants and passed on to the buyer. In other words, this was an INDIRECT tax. The colonists had been TRICKED into paying a greater overall tax than they had under the Stamp Act!

The Fair Tax replaces the DIRECT individual income tax with an INDIRECT national sales tax; turning EVERY merchant in the United States into a tax collector. And if we believe the many authoritative analysis of the Fair Tax, we could ultimately end up paying MORE than we currently pay!

Therefore, the LPCO has not promoted the "Fair Tax" plan. BUT the LPCO Board of Directors does NOT include any economists or tax experts. So we have not considered a resolution opposing the "Fair Tax" plan either.


--
Richard C. Randall
Legislative Director

Comments

[j hansen]

The imbeded tax you speak of sounds like what is goin gon now in our current tax plan. The income tax that every employee pays is embedded into the price of the goods we buy. Imagine if that income tax was eliminated? Would the cost of those goods go down? Probably not right away, but over time the competative nature of business would take over. Someone would see oan oportunity to charge less for their goods and the rest of the industry would follow suit. I think the Fair tax is a great idea.

By the way, do you know how much tax you will pay for 2005?

[Mark Twain(no I'm not Shania's brother)]

Opposition to the FairTax often is full of misinformation.
1)All deductions from your current income would be eliminated. You get 100%of what you earn. Isn't that what Libertarians want?

2)You spend on items you WANT, and hence it is the ONLY tax you spend. Uncle Sam doesn't REQUIRE you to pay.

3)The IRS is gone. Gee, I thought Libertarians wanted that? Apparently, they don't, given the writings of the author.

4)Instead of burying the young with the burden of paying for the Baby Boomers medical and retirement costs, the Boomers would essentially help fund their own Social Security and Medicare. That's a bad thing?
No matter how much the Libertarians crab about those programs, they are popular.

5)Businesses right now are burdened with collecting tax for the government. This system is essentially much easier.

6)It would instantly help turn the economy from consumerism to savings, as people would have money to save.

Opposition to the FairTax from Libertarians is one of the most blantly dumb things I've seen, since it accomplishes much of what they CLAIM they want: less government and no forced taxation. By not supporting FairTax, you are essentially supporting the perverted current system, which unless it's tossed, will kill the United States. But we do need a system of taxation to support those wonderful bombs and guns, so can you think of a clearer system? Didn't think so.

[Fair Tax is a Fraud]

Fair tax supporters are for the most part misinformed...

Yes, you get 100% of what you earned. Therefore prices will not decrease anywhere near the 30% (exclusive) cost increase of the national sales tax. The only cost reduction of employment will be the employer half of the FICA tax, or 7.65% of the employee's salary, upto 97,500 for 2007. So, when supporters of the "FairTax" indicate that after tax pricess will be vitually the same, that is 100% false.

So, either consumers are looking at a ~23% increase in prices (that is the inclusive rate), or a ~23% decrease in income. There is no magic free ride.

Yes, you only buy what you want, or NEED. That kidney transplant your kid needs, just got 30% more expensive. The health insurance you need to pay for that transplant, just got 60% more expensive, because the employer's plan is no longer "pre tax". New home construction will come to a screaching hault, as who in their right mind is going to pay $30,000 in tax for a $100,000 home? Bad news if you build new homes for a living.

No, the new federal sales tax will not be invisible, prices will go up, it will greatly influence consumer buying behavior, and it will drive many businesses out of business and generally be a drag on the economy.

Yes the IRS is gone, only to be replaced by a new equally large and complex govt bureaucracy. At best we are no better/worse off under this new bureaucracy, however, the potential for a govt agency that tracks every retail purchase you make 24 hours a day is not a huge stretch.

Yes, our childeren are already buried in govt debt, roughly $30,000 worth so far. Despite popular opionions, we have not received a real tax cut since before Ronald Reagan. Yes, when the govt borrows money to fund its operations, it is in effect taxing it's citizens. A deffered tax is still a TAX. So, rather then focus on the method of taxation, we should focus on GOVT SPENDING, which is why we are overtaxed to begin with. Changing the tax method without addressing govt spending is simply a shell game.

Yes, businesses collect taxes for the govt now. They have already made capital investments into employee training, software and systems. Radically changing the tax laws from income driven to sales driven will instantly make that previous investment obsolete and require an entirely NEW capital investment. As for the expected cost savings, it is far smaller then the fair taxers expect, as paychecks will still be needed, and federal taxes is only a small piece of calculating an employee's net check. Employees will continue to have deductions for benefits, local taxes, retirement, unemployment, workers comp ins, etc... Payroll is not a simple process, even without federal taxes.

Yes, people will spend less and save more to avoid the tax. This will shrink the tax base and require the Feds to increase the rate. How high the ultimate sales tax rate will be is anybody's guess, but it's safe to bet it will be higher than the 30% exclusive rate implied by the "fair tax".

As or the Prebate, it smells like the largest govt handout ever conceived, and will be manipulated by politicians to "buy" votes, just like every other govt handout in history.

Get govt spending under control, and the method of taxation becomes less important. The "fairtax" proposal is simply a shell game, trading bad for bad... or bad for possibly much worse.

fun search test!

[Mark C]

Fairtax Book isnt about taxes.

Its about snake oil, magic pills, and nonsense.

Once you realize that Fairtax is bogus math, then read the book again -- you will see the deception

Actually, Fairtax does have some great points — if it worked. How wonderful it would be to not have and IRS!

But what if Fairtax didn’t work? What if, for example, half of the money it says it can collect, is impossible to collect?

Would then the fairtax have to be 46%?

Fairtax might have to be HIGHER than 46%. In fact, one study by a tax group assigned by the presidential commossion on taxes, said a sales tax would have to be 57%.

And it might have to be HIGHER than that.

Here is why.

Do you know that fairtax taxes the federal government, to pay for the federal government?

This isn’t demogoging — Neal Boortz wrote “The federal government itself will become a major taxpayer” (Page 148 in his Fair Tax Book,)

The federal government will be a major tax payer – to itself?

Right then, people should have said “Say what?

This is one of the most astonishing fallacies, but its not even the biggest. But lets look at it, first.

Isn’t that a bit like me, pretending I can pay myself 10,000 to cut my own grass? I can write the check, I can even deposit the check. And I can do this every day.

But at the end of the month, I don’t have 300,000 dollars.

Fair tax advoates want to claim the government “will become a major taxpayer” because on PAPER – Fairtax has to claim revenue streams that will form a lake of 2.3 trillion.

Fairtax can’t make a lake that large – can’t collect that many taxes, even on paper. UNLESS _- it says it can tax itself.

So this error (deception?) alone, means the fairtax rate has to be more like 35% -- not 23% -- to collect 2.3 trillion dollars.

Are there any other fallacies?

Yes.

Fairtax has another major fallacy. It is correct – PEOPLE pay all taxes. And wow, will people have to pay this.

Fairtax only works IF it can collect 460 billion in taxes — from people who get health care. This isn’t demagoguery, Fairtax really puts a large sales tax – at least 35% -- on all medical cost. From everyone – on everything. From child birth, to cleaning your teeth, to routine check ups, to ER visit, to second opinons, lab work, EVERYTHING.

People who get heart bypass surgery, cancer surgery — people who are in nursing home. These are the people who suddenly will get BY FAR THE LARGEST TAXES IN AMERICA.

In effect, Fairtax shifts the tax burden to two main groups – the government (which we have shown is really impossible) and to people getting health care.

Famlies fighting leukemia and other expensive illnesses will get incredily hard by the “fairtax”. One family, who has a child with leukemia — could get a 40,000 SALES tax.

One nursing home patient, who gets by on her social securty — would get a sales tax of 25,000 a year — plus more tax for any other medical costs.

Is this demagoguery? Or will health care really be taxed?

Health care will be taxed.

One cancer patient, with surgery, chemo, and radiation, could have 50,000 in “sales taxes”.

So you will have the absurdity of a person who is actually taxed MORE sales tax than they have income. A cancer patient could have 300,000 in medical cost – and only make their pension. But in Fairtax there are no exemptions – none – so the cancer patient would get a bill for 90,000 in sales taxes, even if their income is 25,000.

This is math. Its not demagoguery. Its what would really happen if someone making 25K a year got cancer, and had 300,000 in medical cost.

What will happen when millions of people suddenly get huge taxes on their health care? On their cancer surgery? On their chemo? On their child’s leukemia?

They will scream like bloody murder – that’s what.

Therefore, one way or another — these patients will get exemptions, either defacto exemptions — by not paying it. Or dejure exemptions - by getting an official exemption.

EIther way, the Fairtax can’t possibly collect 460 billion-dollars from these folks.

Most likely, the outcry from even attempting to tax an 80 year old stroke victim in a nursing home, would result in Congress exempting all health care cost from the “fair” tax.
Any OTHER groups that fairtax plans to tax – but wont be able to?

Yes – renters.

Renters will get the fairtax.

Fair tax has to get 150 billion in taxes — from people as a tax on their rent.

That’s not demogogury — thats the fact. Fairtax taxes rent. All rent. People who rent will have to pay it.

Now supposedly Fairtax lowers cost so much, that most prices will drop so much, the added fairtax “will be a wash” as Neal Boortz claims.

According to the fuzzy math of Fairtax, your rent can go down 22%, because the landord saves so much.

Really?

By far the biggest expense on apartment complexes are the payments they make to banks. Less that 1% of an apartment complex expenses is FICA- for the employees. That’s the biggest “embedded tax” that can be passed on, if it were removed. And its less than 1%.

How can an apartment complex cut its price 22%, when the biggest savings they would get, is less than 1%?

Our family has a business and we looked over the numbers. We save less than 2%, if Fairtax were enacted. Our employees also save — they save more in fact, as a group.

But they save that, we don’t. They wouldn’t pay income tax or their FICA. Great! But we don’t save that. We can’t pass along what they save.

Thats not demagoguery . Thats simple facts.

To cut our prices even 6% — not 22 — our employees would have to give us ALL their income tax and FICA. To cut our prices 22%, our employees would have to work FOR FREE.

So Fairtax has a lot of problems. Not the least of which is math.

Sure, it sounds great, as long as you don’t look real close.

Imagine if you wake up one day, and the fairtax is passed. Suppose you rent a nice place near the ocean, for 2,000 a month, and you just had a knee replacement.

You open your mail, and get 400 dollars prebate. And you get your entire paycheck in the mail, since you are off for the surgery. So you are happy, you will be ahead 1500 a month!
Then you open your rent statement. Your 2000 a month rent went up to 2800. Wow, Thats 800 gone, of that 1500.

Then you open your utility bill. You were paying 300 month, but that went up to 500 — fairtax 200.

Then you open up your medical statement. Hope you are sitting down. Your 30,000 knee replacement is now 40,000 — 10K taxes.

And you get your insurance statement — you have to pay that to stay insured. It was 500 a month, but since insurance premiums would be taxed, its 700 a month now.

And you get your cable bill, your phone bill, your health club bill. More tax on each.

You haven’t even gone outside to buy gas, or food, or a restaurant. Yet you have 14,000 in taxes. For one MONTH.

So — some people will get CLOBBERED with this tax, absolutely clobbered. If you rent, if you have medical cost, if you pay insurance premiums (on car insurance too).

There is a notion that you can buy USED products, so dont worry. Just buy used cars, and used homes.

Fine - but you can’t get used rent. You can’t get used cancer chemo. You can’t get used nursing home care.

Thats not demogoguing. Thats simply fair tax, how it will work, if its passed.
If its passed– those people who are clobbered — nursing home patients, cancer patients, renters — will scream bloody murder, and get exemptions.

Im sorry, Fairtax can’t work.

[Jeremy]

Regardless of your stance on FairTax the original post is a *wrong* analogy.

So many people are wrong about the GOAL of the Fair Tax. It's not here to lower your taxes, it's REVENUE NEUTRAL. It will be more expensive to buy a car. But, it ELIMINATES LOOP HOLES, improves TRANSPARENCY in government taxation, and IMPROVES TAX EFFICIENCY BY REDUCING BUREAUCRACY.

Some goods will increase in cost, some will go down. The market WILL adjust. But the more efficient the system, the more time and money to solve things such as the National Debt.

How much closer will you be watching when the politicians raise taxes by 1%? When it gets reduced by 1%? And nobody will be able to lie about it. You will know what the tax rate is, and daily you will be reminded, so you will actually care. And you will know how to take action.

And it will be much more convenient for you to pay your taxes while also being harder for people to avoid paying.

It's so hard for people to see the BIG picture... Improvement doesn't happen overnight, and sometimes you have to work harder today to make tomorrow a better place, but what we get tomorrow is worth it.