Getting to know the FairTax

Today, John Linder and I held a meeting with about 60 Republican interns on Capitol Hill who were eager to learn about John and Neal Boortz’s FairTax plan.

I have to admit, I was somewhat skeptical when my interns told me that they could fill the room with other interns interested in tax simplification, but they weren’t kidding. The room was packed with young faces and eager questions.

Ashley and Allie, two bright interns in my office from Georgia, wrote a post on my blog about the event which I’d encourage you to read.

As the readers on this site know, America’s tax code is bogged down with too much red tape, too many loopholes, and way too much regulation which burdens America’s taxpayers and small businesses. America’s tax code should be simplified, and while I support John’s FairTax plan, I’m hopeful that Congress will take a hard look at all of the simplification plans on the table sooner rather than later.

After all, when I’m staring at a room full of 60 young taxpayers, I can feel their impatience with our current system building, and I don’t want to let them down.

So what do you think about tax simplification? Lets get the debate going right here and now. Heck, if you have a webcam, you can even send me your questions via video to my Constituent MailTube and I’ll send you an answer back.

-Jack

25 comments

  1. LINDA says:

    First of all let me preface my statements with the fact that I am a self-employed CPA. I know that their is no such thing as a “fair tax” and I do not like politicians and lobbyist that hype it for political gain. I prepare taxes for upper middle income couples, and the average effecctive tax rate for my clients is 17% for federal tax purposes. The tax proposals that I have heard for tax purposes is beyond this percentage, and I have heard as high as 23%.

    No one ever says anything about one of the biggest tax heists of the last decade, which was the Roth IRA proposal that allowed taxpayers in the tech boom to make IRA conversions and pay taxes over a four year period on these conversions. to be continued

  2. LINDA says:

    I have seen cases of where people have paid taxes on these conversions, and now their Roth accounts are still down 75% from when the conversions took place. This created a big windfall in the treasury, and I have not seen one congressional leader stand up and say this is not right, and the tax dollars should be rebated to these shareholders that paid taxes on inflated bubble economy stock investments. Mind you, this was when the Nasdaq was at 5,000 and now it is still only at around 2100. Since the bust in 2000, look how much tech stocks are still down!

    The nightmare of preparing tax retunrs for individuals once per year is a nightmare, and filing for tax rebates on a monthly basis would be burdensome and costly. I do not trust anyone to say that this will be the fair tax because look at the Georgia sales tax, for instance that started at 1%, and is now 4% with most counties having 3% more in taxes.

    The best way to have a “fair tax” is for you elected officials to actually cut out the pork barrel spending and get more fiscally conservative!

  3. LINDA says:

    With inflation built into all goods sold throughout the years, the Georgia sales tax should have never had to been raised. As prices go up, sales taxes increase in direct correlation. Everytime a sales tax increases for example from 5 to 6%, that is a 20% increase in sales taxes. That is exactly what Washington DC would do with a supposedly fair tax that started at say 18% within tne years, it would no doubt be raised to 27% because spending just keeps spiraling out of control.

    Fair taxes will not drive prices down in corporations, and if anyone believes that it would then you are living in a delusional world that I cannot relate to. The way to clamp down on taxes would be to look at the way people like Buffet and Gates can set up charitable foundations that keep their children set up for life, and allow too much capital appreciation to go untaxed. These charitable foundations wield way too much political influence, and lead to political corruption.

  4. LINDA says:

    And how would taxpayers with Roth IRAs be protected when purchasing large ticket items with money that has already been taxed? Again, with all due respect Neal Boortz does not know a thing about taxes and he is one of the spokespeople for this effort to mobilize voters for a flawed cause.

    I do not trust anyone in government to tell me that I will be able to pay less taxes with this newfangled tax structure. Give me a break!

  5. IndyInjun says:

    This writer has worked in sales tax in about 19 states, obtaining very large savings and refunds for mainly Fortune 500 clients. Ar first, I was intrigued by the “Fair Tax” as being an equitable means of tax reform. That was until I applied my 20 years of skills and researched H.R. 25, the so-called “FairTax” bill. And YES I READ “THE BOOK.”

    The Fair Tax is, simply put, a con job that actually accomplishes almost none of the promised benefits.

    And no, this writer does no federal tax work that would lead him to oppose the “FAIR” tax. To the contrary, my research means that I am prepared to benefit either way.

    A national sales tax might work if it works like our existing sales tax with low rates, a broad tax base, and ease of collection. The “FAIR” tax fails on all counts.

    During the Presidential commission on tax reform, one tax reform system proposed was an nearly universal transactions tax which closely approximates the state sales tax systems.

    The problem is that NO TAX SYSTEM KNOWN TO MAN can collect enough revenues to support the insane level of spending. The spending dictates confiscatory rates.

    For example, the 23% tax inclusive/ 30% tax exclusive rate would mean a 30 cent on the dollar tax on top of the retail price. Rep. Linder, when interviewed on CSpan in December 2005, said the rate was being ‘rescored’ with the revised tax inclusive rate being as high as 26%, which is equivalent to a 35% tax exclusive rate (the way GA sales tax is computed). On top of this we have an existing 7% state and local sales tax. The state income tax, with its marginal rate of 6%, would also convert to a “fair” tax, otherwise we still have a separate income tax system with return filing requirements. Lets say that the state sales and income tax can be replaced by a combined 12% tax exclusive rate. The total tax would be a staggering 47%!!

    The “FAIR” tax is a flight of fantasy that seeks to trap the public with the seduction of getting “100% of your paycheck.” It accomplishes nothing of the sort.

    Tax reform, yes. The “FAIR” tax, no.

    First and foremost, we must slash spending, which is up nearly 50% in the last 6 years under a GOP POTUS and Congress. Otherwise, no tax system on earth will work.

    Rep. Kingston deserves praise for considering other means of much-needed tax reform.

  6. IndyInjun says:

    Linda,

    You are simply one brilliant woman. Your attitude about we REAL CONSERVATIVES taking over the GOP instead of ditching it for a third party is astute and correct.

    Here, you rightly bring up INFLATION. Do we DARE reward a government that is printing money nearly to infinity, thereby stoking the inflationary fires, with a tax that increases revenues on the inflated costs? For government this would indeed be a perfect world in which they pay yesterday’s fixed obligations with tomorrow’s devalued money AND collect more tax revenues on the inflation unleashed. The “FAIR” tax applies to SERVICES. Take a look at what the “FAIR” tax take would be on employee health insurance premiums that are rising at 15% each year. Carry these calculations out 10 or 15 years. The taxes are simply shocking.

    It would be insanity to support taxation on goods and services when the cost of said goods and services might go up 10% per year, when one’s income only goes up 5%.

    Your judgement on the corporations ‘giving’ back the “embedded” taxes, thereby facilitating a decrease in prices that would offset the fair tax, is also accurate. For example, the oil industry has moved toward oligopolistic competition, so there would be no “competition’ to drive out the cost savings to the consumer.

    Also, Boortz and Linder have been forced to admit double-counting employee FICA as embedded taxes that would become “savings” and in the claim that you get “100% of your paycheck.”

    Linda, you are magnificent.

  7. LINDA says:

    You know it makes me sick enough to know that there are many businesses in retail that collect sales taxes and do not remit them! I had one guy that collected the sales taxes on his sales to pay his Georgia income taxes! When I told him that he would need to bring me his sales records for the last three years, and pay sales taxes with penalties and interest, I never saw him again. This was one of many people that come to may office for consultation and do not end up taking them as a client.

    Paying these thieves 7% sales taxes makes me want to cry because I know that so many sales go unreported. Can you imagine what it would be like with a fair tax?

  8. IndyInjun says:

    Linda,

    You are right again. My experience has been much the same. There is far more fraud in sales tax than is commonly understood. I had a similar client and a similar result, once. The big companies are decent about paying, because they are regularly audited.

    What hawkers of the fair tax do not understand is that the reason that there are few intrusive audits is because the low rates make it unattractive for the state revenuers. Since said revenuers would be collecting the federal fair tax of 30 to 35% tax exclusive, PLUS the state tax, they would be doing INTRUSIVE sales tax audits in short order.

    The hawkers omit that the “FAIR” tax specifically requires consumers to keep receipts and specifically makes them responsible for the tax. They also fail to mention that the state auditors ALREADY HAVE the power to audit CONSUMERS under use tax laws.

    Its a lot easier to go to rallies for an alluring deception than it is to actually research the “FAIR” tax and gain understanding of all of the hidden traps.

  9. LINDA says:

    Whistleblower Magazine has an excellent article about the thievery of the Federal Reserve System, and I ordered a one year subscription today just to get the article. Of course, I will also get Tom Tancredo’s book “In Immortal Danger” and another book. We have no stability on our currency because of going off the gold system. You are so right inflation is crippling our economy, and the globalization created with NAFTA and CAFTA has gave hard working Citizens in the United States the SHAFTA!

  10. LINDA says:

    Many of us what all of Congress to vote out their lucrative pensions and go on the Social Security System like the rest of us. And no more raises in congressional pay, until spending can be kept at or below the rate of inflation in Washington DC. You know it makes me sad when I had to buy my Marine son uniforms and boots and help buy air conditioners for sleep tents in Iraq, and then I see all of the corruption in contracts during this war. Shame on government oversight. Instead of worrying about changing the tax system in a war, get your butts busy auditing government contracts. If you see a buddy buying yachts and building mansions, start investigating to see where the money is coming from. We are tired of politics as usual!

  11. IndyInjun says:

    Linda,

    Also on the reading list should be “Empire of Debt” by Bonner and Wiggin.

    One of the few heros in the US House is Ron Paul. One of the few in the US Senate is Tom Coburn, and the GOP “leadership” did everything in their power to keep TC from returning to DC, much as they told Tancredo to never show his face at the White House.

    Do ANY of the GOP “leaders” recall the CONTRACT WITH AMERICA?

    We really need to come together to clean the moneychangers and deceivers out of Washington before it is too late.

    Georgia seems to be a hotbed of “FAIR” tax lunacy, but there is little danger of it passing once seniors understand that they will be paying SS tax twice and that they did not save enough to be paying a combined 45% tax on the cost of say, nursing home services?

    The Fair tax hawkers talk from both sides of their mouths on this one, for they tour that the tax would eliminate the death tax, then tout elsewhere on their web site that the “FAIR” tax would tax accumulated wealth. Give me the estate tax any day with its current exclusion of $2.4 million per couple rather than a 45% tax as I spend down retirement savings.

  12. LINDA says:

    Exactly, the estate tax is not an issue with the majority of Americans. And in all actuality, I feel that if the estate tax were eliminated then the stepped-up basis for property would be done away with. This would mean that middle income taxpayers that pass on appreciated propety that can still take advantage of stepped-up bassi, would leave a tax burden on their children to pay taxes when the propety or investments are sold. Anytime, the government tries to simplify something it is nothing more than a bait-n-switch that costs the majority more money.

  13. buzzbrockway says:

    I for one and glad Congressman Kingston posted this here at the Peach and it’s good to hear so many showed up to hear my Congressman speak about the Fair Tax.

    I won’t bore everyone with rebuttals to the comments above, but if you’re interested, I have a number of posts on my blog about the Fair Tax. Many objections people have are addressed and discussed in the weekly Fair Tax Blogburst I participate in. You can read them for yourself by clicking here.

  14. IndyInjun says:

    Sorry Buzz,

    “Discussing” the “FAIR” tax is like arguing to infinity with the Reed supporters here.

    It won’t work and it was quickly dismissed by a REPUBLICAN president who correctly surmised that the rate might have to be too high.

    Some in the GOP see this nutty bill as their salvation, but it would lead to extinction instead.

    I have looked at the Fair tax blog linked on the Boortz site and found some pretty good debate.

    I went on a local talk radio station that hawks the “FAIR” tax about 2 years ago. We had a lively discussion and their phones were lit up the next day. I might do this again.

    Tax reform yes. The “FAIR” tax con job…..hahahahahaha…

  15. LINDA says:

    Buzz,

    I assume you are rather young, and I admire your wanting to climb on the band wagon of changes that make a difference. But I have lived through the Vietnam War, the First Gulf War and now this Middle East War, and I see through the hype of this “fair tax,” that is nothing more than a ploy to keep those moderates wary of this war and wary of high gas prices in the Republican camp and keep seats secure as some sort of prize in DC. Our forefathers never intended for Washington DC to be a place where politicians become career politicians. You see Indy is very right that the “Contract with America” was the same type of hype. And the reason media personalities are hyping the “fair tax” is to keep viewers and listeners tuning into their programs.

    It is so crucial for you to understand that government does not cure anything, and only the people can do anything to change the status quo. I would like to see every seat in Congress challenged with bright people that want to solve problems and eliminate programs that states should be taking care of.

  16. LINDA says:

    Why do you think the government turns a blind eye to all of the immigrants coming across our border? By diluting our nation with people alien to us, the Congress is getting exactly want they want. They are getting a whole new geneartion of people that believe government is the gift that keeps on giving, and allows for politicians to fill the heads of “young interns” with visions of sugar candy and plum pudding in a new utopia that they are a part of creating.

    These interns have not begun to live yet and get a taste of paying taxes! Oh, enough I will get off my soap box. Thank you for the kind words IndyInjun.

  17. IndyInjun says:

    Linda,

    Funny you should mention soaring gas prices. One would think that this “FAIR” tax nuttiness would subside when people think about paying a 45% tax on gasoline that soon will be selling at $4 per gallon, medical insurance going up 15% per year, and Georgia Power rates that are up about 15%.

    BTW, about 50% of the price of gas is crude oil and imported crude oil has very little, if any, “embedded” taxes that would be available as “savings.”

    Buzz,

    Please direct old Indy to the detailed analyses of how the “expert” economists came up with the 22 to 25% embedded tax cost figure. I cannot derive the numbers using either IRS or public company data for about 6000 corporations. I figure this number to be 12 to 15% tops (a number that curiously is referred to deep in the bowels of the “FAIR” tax propaganda).

    These analyses DO exist, don’t they?

  18. LINDA says:

    Oh and for those of us with small businesses, Georgia Power bills are about 30% higher than residential power bills. The way I get some of my money back is by investing in Southern Company. I am going to try to buy enough stock to make enough dividends to pay my power bill. Ha! Oh btw, I am a Cagle supporter.

  19. JP says:

    Linda, but 17% on income is different than 23% on spending. I think this proposal is a crock, and peopel need to protest it being called the “FAIR” tax–same marketing maneuver used with the “PATRIOT” act. How can you vote against either one?

  20. IndyInjun says:

    Buzz,

    You flunked.

    I asked for a specific analysis, one that does not exist on the “FAIR” tax site.

    The argument that there is somehow 22 to 26% embedded tax cost buried in the cost of good and services and that said embedded cost would go away upon passage of the “FAIR” tax, thereby providing for a reduced price to offset the increased tax, is CENTRAL to the hawkers argument.

    The best this fellow can determine was that the fair tax organization was founded with contributions from Enron, Shell Oil, and others in the oil industry in the 90’s. With the $4 million in funding they PURCHASED the opinions of these so-called “expert economists”, upon which this entire charade is based.

    For such a supposedly sound and “well researched” concept, there sure is not much serious, detailed analysis available.

    This con job has continued to grow into, what, an $80 million campaign? That is a LOT of funding and who does it come from? Indy invites the FAIR taxers to completely disclose their funding.

    Funny, but my IN DEPTH analysis showed just 20 corporations who would receive an immediate tax foregiveness of nearly $200 billion if the fair tax passes. Wonder how much of the funding is from THEM?

    All I ever get is “read THE BOOK” and links to Fairtax.org.

    Been there, done that.

    Congressman Kingston…..

    Cut spending 30% ACROSS THE BOARD and balance the budget, then get back to us on reforming the tax code.

    In short meet your promises under the CONTRACT WITH AMERICA!

    Our contract was breached by you all and you cannot seriously expect us to accept another promissory note.

    Your priorities are out of whack.

  21. kspencer says:

    Every time FairTax comes up, I throw out the same numbers debunking it. I may have to make a macro. Still, let’s walk the tired dog one more time.

    FairTax alleges that EVERY business will have a reduction in costs of 23% and that they’ll pass along those savings right to the final retail point. The final retailer will sell the item for the same price as before, but due to his savings on expenses he can send 23% of the gross sales to the government and still keep his profits. Let’s set aside the amazing altruism of everybody passing along all their savings, and point out the big flaw.

    Payroll expenses won’t decline.

    This means that companies back up the line from retail CAN’T pass along the entire 23% savings AND keep their same profits. Since they can’t adjust the expenses they have two choices: cut profits or raise prices. Most will probably do a mix of both.

    Which means that while you get to take home more of your paycheck, everything costs more as well.

    Every small businessperson I’ve spoke with gets it when explained that way. Take your last year’s income statement. Split expenses into payroll and non-payroll. Reduce non-payroll expenses by 23%. Pay the government 23% of gross income. Subtract expenses (payroll and adjusted non-payroll) from after-sales tax income and compare to after-income tax income. Which gives a better profit? (Answer as I’ve said in all but one case was income tax.) And the followon question is: Since your suppliers are in the same boat, do you really think they’re going to give you a full 23% reduction on what they sell you? Since the answer is pretty consistently no, this means that the non-payroll expenses won’t drop by 23%. Which just makes the situation worse.

    There other cons and misdirections and outright lies in FairTax, but that’s the money.

    It doesn’t save money. It doesn’t reduce tax code complexity. It replaces the IRS with another tax collection agency – “getting rid” of the IRS is literally true and practically false. Oh, and the kicker. Who makes up the money businesses and the rich don’t pay any more?

    It sounds too good to be true because it is too good to be true.

    TANSTAAFL.

    Kirk

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