Tag Archives: fair tax

A Fair Look at the “Fair” Tax

 


There are few things in the political discourse of today that infuriates me more than the sanctimonious, self-serving and misleading propaganda of the proponents of the “fair” tax. Consider, for example, the two following statements.

Statement No. 1: “Everybody should pay their fair share.”
Statement No. 2: “Everybody should pay their fair share.”

The first statement is made by a socialist advocating for more taxes. The second is made by a conservative advocating for the “fair” tax.  Can you tell which was made by the socialist and which by the conservative?  It really doesn’t matter because both are motivated by the same feelings of envy and jealousy. With one the jealousy is directed toward the more productive people who use their time and intellect to raise their income level and increase their wealth. The other directs his jealousy toward those who do not earn enough income to make it more advantageous for politicians to take part of it than to let them keep it, hopefully, in exchange for his or her vote.

Anyway, just what is our fair share? Don’t worry about that. That will be decided by those more knowledgeable about such things. You know, socialists like Nancy Pelosi and Harry Reid or conservatives like Neil Bortz. Whoever decides, it seems to amount to a large chunk of the money you earn above what is needed for the “necessities” of life. For the socialists, necessity is figured on a sliding scale. Those on the bottom of the income ladder pay no taxes, while those above pay at an increasing percentage rate depending on how far up the ladder they have progressed.

Those touting the “fair” tax are more “fair” in their assessment. Fat Cats like Warren Buffet would pay the same as the single mom with two small children, whose husband abandoned her for a less demanding life with his new “honey”. Oh, but not to worry, the mom is going to get a “pre-bate” check on the first of every month to pay the taxes on her “necessities”. In fact, the “fair” tax is so fair that they are going to send Mr. Buffet the same amount in his pre-bate check. The pre-bate is based on the poverty level. Each family would receive a pre-bate check adequate to pay the taxes on an amount of purchases equal to the government determined poverty level.

Mr. Buffet can entertain a friend at a five-star restaurant with his pre-bate check, meanwhile, the single mom has to figure out how to stretch hers to cover her loss of buying power since suddenly, the cost of her “necessities” has increased 30%. The one bedroom apartment she has been paying $800 for, now costs $1,040 per month. The baby sitter she has been paying $600 per month, now costs $780, the $3 gallon of milk now costs $3.93 and the gallon of gas for her car to get back and forth to work, now costs $5.20 instead of the $4 she has been paying. I forgot to mention, the mom works as a cashier at the local convenience store at minimum wage. And then there is the homeless man who lost his job and his home and who can’t get a re-bate check because he has no address to send it to.  Before he could always panhandle $1 for the $.99 special at McDonalds or Burger King; now he has to beg for an extra 30 cents to pay the tax.

I suppose we should be grateful for all the advantages of the fair tax. For instance, the IRS will no longer be bugging ordinary hard working citizens, instead they will be policing the local doctor’s offices and landlords to make sure they are passing through all the “fair” taxes they collected to the federal government. Best of all, we will finally be taxing all those deadbeats who work in the “underground economy” and have been getting away without paying “their fair share” in income tax for years. There are a few people, no doubt, who make a good buck off the underground economy. However, the overwhelming majority of people working in it are the working poor, struggling to keep a roof over their heads and food on the table, who work “off the books” for pay that is far below the prevailing wage at a job that would not exist if his employer was forced to pay the prevailing wage in his area.

Best of all, the “fair” tax will not take away any money from the cash strapped government and it will do away with that pesky tax Mr. Buffet and others in his income range have to pay on the interest earned from their saving or dividends on their investments. The “fair” tax is “revenue neutral”, meaning the federal government will still get its same amount of income, it will just be collected in a different way from different sources. For example, all government agencies, religious institutions, and charitable organization will have to pay taxes on every purchase they make. Imagine that; government paying taxes to itself. And, where will it get the money to pay its taxes? Why, from the taxpaying citizens, of course.

Please Mr. Bortz, we don’t want a revenue neutral “fair tax“, we want NO tax. Of course, we know that a certain amount of taxation is necessary to support the essential functions of government. But, how much is a fair amount to pay? Under Old Testament law in the nation of Israel, God required ten percent. That seems fair. In fact, if the federal government followed the Constitution and only levied taxes necessary to carry out the functions delegated to it by the states in 1787, it could probably get by quite well on a lot less than ten percent.

A tax on income is probably the most equitable tax possible, and a tax of five to ten percent on every dollar earned, from the poorest to the richest, would not be a burden on anyone. That amount would also provide enough money to the federal government for it to perform all the legitimate duties assigned to it by the Constitution and everyone would have “skin in the game”, therefore the average citizen would be much more sensitive to proposed tax increases. Now that I think about it, I guess I am in favor of a “real” fair tax after all.

For a more objective treatment of the fair tax see my article of a couple of years ago, “Beware of the Fair Tax”. Be sure to read the comments, they offer even more insights into the issue. If you have read this far you have surely concluded that I could be nothing but objective concerning the “fair” tax.

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Beware The Fair Tax

minute-man-2-lithoI have been considering the “Fair Tax” since it became the centerpiece of Mike Huckabee’s campaign for the Presidency in the 2008 elections.  A number of “tea party” protests on April 15 were given over, all or in part, to rallies for the Fair Tax. It is also getting accolades from a number of conservative commentators whose opinions carry a lot of weight with conservatives. For that reason I thought in might be wise to reconsider my original  position of opposition.

After reviewing my original research, extensive scrutiny of the FairTax.Org and FactCheck.Org websites, I find I am still opposed to the tax for a number of reasons.  The primary one is that it is unconstitutional.

FairTax.Org describes the Fair Tax as a progressive national retail sales tax.  Any type of regressive or progressive tax, whether under our present tax system or under a Fair Tax is, in my opinion, unconstitutional.  One of the underlying principles in all of our founding documents is that of equality or uniformity in the application of all laws, including tax law.  It is the principle of equality/uniformity that underlies the words “created equal” in the Declaration of independence and Articles 1.2.3, 1.8.2, 1.8.5, 1.9.4, 1.9.6, 1.9.8, 4.1.1, 4.2.1, and 5.0.3 in the Constitution, as well as Amendments 13.1, 14.1.3, 14.2.1, 14.2.2., 15.1.1, 19.1.1, 24.1, and 26.1.

The Sixteenth Amendment grants the power to Congress to, “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”  It does not grant the power to make those taxes progressive.  There is nothing in the Constitution that would justify a progressive tax of any kind, whether on income, sales, or consumption.  The concept of a progressive tax comes from Karl Marx not James Madison.

Article 1, Section 8, Clause 2 requires that all “Duties, Imposts and Excises shall be uniform throughout the United States.”  At the time, the idea of an income tax was not contemplated, therefore it is not included, however it does establish the principle of uniformity in levying taxes.

Ordinarily an argument of unconstitutionality would suffice, but in this case not everyone will agree with my contention that equality/uniformity is a basic principle underlying the founding documents.  Furthermore, a large percentage of citizens including many of my fellow conservatives, are more than willing to accept unconstitutional proposals if they appear practical and offer them a personal benefit.

A significant consequence of our current tax system is the redistribution of wealth with a sizable number of lower income citizens paying no tax at all.  In fact, many not only pay little or no taxes, they also receive a portion of the taxes paid by higher income citizens in refundable tax credits. This creates a mindset that causes many in the lower income brackets to be unconcerned about exorbitant taxes levied on fellow citizens with more income.

In fact, they are more likely to vote for spendthrift representatives rather than those who are more fiscally responsible, on the supposition that the spendthrift will provide more personal benefits.  This is one of the fundamental causes behind the current state of our government. The Fair Tax does not eliminate this obnoxious characteristic of our current tax code.

Many of the claims made by advocates of the Fair Tax are misleading, either unintentionally or by design.

1. Tax rate: The advertised tax rate is 23%.  This is misleading in spite of the fact that advocates of the Fair Tax readily admit it is an “inclusive rate”.  The real tax rate is 30%.  To illustrate this I will use an example given on the Fair Tax website.

“A lawyer bills a client $500. Taxes due on this sale are $150 for a total of $650. If his/her client only pays $350, then the lawyer would only remit 23 percent of the gross payment as tax ($80.50) with the monthly sales tax report. The next month, his client pays the balance of $300. The lawyer would remit 0.23 times $300 or $69.50 on that month’s sales tax report. The total tax remitted is the same.”

The average citizen, accustomed to paying sales tax, would assume the tax on $500 to be $115 at 23% ($500 x .23 = $115).  However, in this example the tax is not $115, but $150.  The reason is that the price is tax inclusive, that is, it is included in the price of the service.

The lawyer wishes to get $500 for his services.  If he adds 23% to the $500 fee as he would with a regular sales tax, the total fee for his services, including tax would be $615. Under the Fair Tax however, he would pay 23% of his gross revenue ($615 x .23 = $141.45). His net income from his service would be $473.55 ($615 – $141.45 = $473.55) In order to realize his full fee of $500, he would have to add 30% into the fee for a total of $650 ($650 x .23 = $149.50).  His after tax fee would then be $500.50, close enough for government work.

The real tax rate then is 30% not 23%.

2.  Market dislocations:  The imposition of the Fair Tax would cause major dislocations in the retail market since the tax is only payable on new items, not used, regardless of price.  This fact would induce consumers of expensive durable goods such as houses, autos, appliances, etc. to purchase used items rather than new.  For example a refrigerator selling for $1000 if purchased new would be $1,300 including tax.  The same refrigerator, used, would not be subject to the Fair Tax.  Allowing for depreciation a refrigerator used for a year would probably sell for a few hundred dollars less than a new one plus there is no tax.  Which one would the smart consumer buy?

A new car valued at $20,000 would cost the buyer $26,000 including tax.  The same make and model, used, with a few thousand miles on it, would probably sell for around $15,000 to $17,000, with no tax, a savings of about $10,000. Which would you buy?

It is easy to predict that the Fair Tax would depress the sale of new homes, autos, major appliances and other big ticket items.  It is unlikely the seller would be able to pass the tax along by inflating the price of used items.  The more sophisticated the buyer is; the less likely he or she will be willing to pay a premium price for a used product.

3.  Less buying power:  Most of those who advocate the Fair Tax point to the fact that it eliminates the IRS, stops deductions from our paychecks for Social Security and Medicare and gives us more buying power.  After going through the 36 page summary of the legislation, I believe it is safe to say that any additional buying power you have will be short lived.

Let’s say you are a renter paying $1,000 month rent.  Rent is taxable under the FT.  Your $1,000 rent payment suddenly becomes $1,300.  Maybe, you don’t rent, but own your own home.  Look at your last mortgage payment.  How much did you pay in interest?  How much do you pay for insurance?  Did you have someone cut your lawn or shovel your snow? All these things are taxable.  Pay your own health insurance? That is taxable.  So is your auto insurance. Visit a doctor or get a haircut. Taxable.

Furthermore, advocates of the FT claim it is revenue neutral.  There are plenty of experts who dispute this claim.  However, experts of any kind are wrong almost as often as they are right.  So, let’s just apply some common sense.  Proponents tell us that the Fair Tax is revenue neutral, meaning the federal government will get the same amount of taxes with FT as with the present system.

The corporate income tax, capital gains taxes, inheritance taxes, and a couple of others would all be eliminated.  That means that the ordinary tax payer would have to pay enough additional taxes through the FT to replace the revenue from all the taxes eliminated.  There is no possible way the FT can be revenue neutral and at the same time lower the tax burden for the average citizen.

If I have aroused your interest, there are three documents you should read.
The Fair Tax: Fundamentals and Facts
The Fair Tax Act of 2007, Plain English Summary
Unspinning the Fair Tax by Fact Check dot Org.

The tax system we have now is terrible.  To dump it and go the Fair Tax, however, in my opinion, would be a disaster, .

Tea Parties: What’s Next?

One thing was evident from the “Tea Parties” that took place all across the country on April 15.  The American people are waking up, and they do not like what has happened while they were dozing instead of maintaining the vigilance the Founders told us was indispensable to preserving our liberties.  Any patriots who watched the tea parties taking place on Fox News (there was no other place to watch) could not help but be encouraged and inspired by the hundreds of thousands of “ordinary citizens” who turned out.

Now that we are awake we need to stay awake, but we also need to be cautious as we move forward.  When a parade starts there are always those who are eager to step in front and lead, and if we do not know where we are going it is tempting to follow the most articulate and charismatic leader. There are a number of smaller movements starting to percolate within the larger conservative movement.  Some of these appear to be good; others raise red flags and need to be more carefully considered.

Some of these smaller movements include the state sovereignty movement, the third party movement, the fair tax movement, and even a call for a Constitution Convention.  We should be very cautious in considering a third party, or in a hasty support for the “Fair” tax.  It is always wise to take a closer look at anything with the word “Fair” in its title.  The natural question should be: For whom?

The movement to reinstate state sovereignty, on the other hand, is long overdue.  There are currently over twenty states whose legislatures have passed, or are in the process of considering resolutions to reaffirm the constitutional relationship between the federal and state governments.

Republican Governor Rick Perry of Texas crated a stir among the press when he made a statement at a tea party being held at the Austin City Hall on Wednesday.  In the statement he seemed to suggest Texas might consider seceding from the union if Washington continues on its present path.

“Texas is a unique place. When we came into the union in 1845, one of the issues was that we would be able to leave if we decided to do that,” Perry said. “My hope is that America and Washington in particular pays attention. We’ve got a great union. There’s absolutely no reason to dissolve it. But if Washington continues to thumb their nose at the American people, who knows what may come of that.”

Is it likely Texas would try and secede from the Union?  Of course not.

Does it have a right to?  Definitely.

To deny the right of states to secede is to deny the assertion in the Declaration of Independence that…

“…whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

There may come a day when such drastic action is necessary but that time is nowhere in the foreseeable future.  We do, however need to support the state sovereignty movement.  No other part of the Constitution is more critical to our liberty than the Tenth Amendment which locks in the doctrine of enumerated powers.

The Texas Legislature is considering a House Concurrent Resolution, HCR50, in support of State Sovereignty under the Tenth Amendment.  Governor Perry, at a press conference explains his support for the bill.

“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Gov. Perry said. “That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the states’ rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our state from undue regulations, and ultimately strengthen our Union.”

You can listen to his entire statement in the video below.

Read text of Resolution here.

After Tea Parties: What’s Next?

liberty-bellOne thing was evident from the “Tea Parties” that took place all across the country on April 15.  The American people are waking up, and they do not like what has happened while they were dozing instead of maintaining the vigilance the Founders told us was indispensable to preserving our liberties.  Any patriots who watched the tea parties taking place on Fox News (there was no other place to watch) could not help but be encouraged and inspired by the hundreds of thousands of “ordinary citizens” who turned out.

Now that we are awake we need to stay awake, but we also need to be cautious as we move forward.  When a parade starts there are always those who are eager to step in front and lead, and if we do not know where we are going it is tempting to follow the most articulate and charismatic leader. There are a number of smaller movements starting to percolate within the larger conservative movement.  Some of these appear to be good; others raise red flags and need to be more carefully considered.

Some of these smaller movements include the state sovereignty movement, the third party movement, the fair tax movement, and even a call for a Constitution Convention.  We should be very cautious in considering a third party, or in a hasty support for the “Fair” tax.  It is always wise to take a closer look at anything with the word “Fair” in its title.  The natural question should be: For whom?

The movement to reinstate state sovereignty, on the other hand, is long overdue.  There are currently over twenty states whose legislatures have passed, or are in the process of considering resolutions to reaffirm the constitutional relationship between the federal and state governments.

Republican Governor Rick Perry of Texas crated a stir among the press when he made a statement at a tea party being held at the Austin City Hall on Wednesday.  In the statement he seemed to suggest Texas might consider seceding from the union if Washington continues on its present path.

“Texas is a unique place. When we came into the union in 1845, one of the issues was that we would be able to leave if we decided to do that,” Perry said. “My hope is that America and Washington in particular pays attention. We’ve got a great union. There’s absolutely no reason to dissolve it. But if Washington continues to thumb their nose at the American people, who knows what may come of that.”

Is it likely Texas would try and secede from the Union?  Of course not.

Does it have a right to?  Definitely.

To deny the right of states to secede is to deny the assertion in the Declaration of Independence that…

“…whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

There may come a day when such drastic action is necessary but that time is nowhere in the foreseeable future.  We do, however need to support the state sovereignty movement.  No other part of the Constitution is more critical to our liberty than the Tenth Amendment which locks in the doctrine of enumerated powers.

The Texas Legislature is considering a House Concurrent Resolution, HCR50, in support of State Sovereignty under the Tenth Amendment.  Governor Perry, at a press conference explains his support for the bill.

“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Gov. Perry said. “That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the states’ rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our state from undue regulations, and ultimately strengthen our Union.”

You can listen to his entire statement in the video below.

Read text of Resolution here.