The FairTax as a Symbol of Economic Populism

The FairTax, a proposal to scrap federal income and payroll taxes in favor of a 23% sales tax, has a strong Georgia pedigree. Originally proposed by Congressman John Linder and popularized in an eponymous book by Neal Boortz, the plan was re-introduced as H.R. 25 this year by Georgia’s Seventh District Congressman Rob Woodall.

Now comes freshman Georgia Senator David Perdue, who is pushing the measure in the upper chamber. According to Ryan Lovelace in National Review, he’s not expecting the measure to win approval. Instead, Perdue hopes to use it to brand the GOP as the party of economic populism in advance of the 2016 presidential election.

Perdue couches his description of the FairTax in rhetorical terms — “levels the playing field,” “pay your fair share,” “equitable” — that could’ve come straight out of Obama’s State of the Union address, and that’s no accident. … [I]t could allow the GOP to seize the mantle of economic populism from the Democrats, and, in so doing, to “win” tax reform in the eyes of voters. That’s important, because tax-reform legislation is one of the few big, ostensibly bipartisan efforts the new Congress is expected to undertake, and the scramble to take credit for it ahead of the 2016 presidential election will be fierce.

It’s an interesting concept. There’s no doubt that the FairTax has a populist appeal; one of its main selling points is that the taxpayer, not the government, gets to decide how much of his money goes into the government’s pockets. Another point in its favor is that the flat rate, after the prebate designed to counter the regressive nature of a consumption tax, is the same for all, rich or poor.

Contrast the messaging of the FairTax proponents with what we heard on Tuesday from President Obama: a tax increase on the wealthy that will pay for free community college for the rest of us. That’s also a populist appeal, but from a completely different angle than that of the FairTax.

At least one economist points out that the economic populism of the FairTax could attract the support of Democrats, in addition to its traditional Republican / libertarian leaning base:

Laurence Kotlikoff, an economics professor at Boston University, has studied the FairTax and thinks it is a more progressive proposal than people realize. Kotlikoff says lawmakers’ lack of experience in public finance has led to a misunderstanding of the FairTax. He adds that he thinks Democratic minority leader Nancy Pelosi might even come around to the idea, if she realized that it would help some of the people she purports to care about most: workers.

Despite the fact that individual taxes as a share of GDP have consistently remained between six and nine percent (and the lower end of that range is more the result of recession than it is an altering of the tax structure), the debate over the best way to spread the tax burden around is going to continue. The left’s proposal to tax the rich to pay for the needs of the middle class and the right’s proposal to make taxes optional by taxing consumption can appear as goalposts on opposite ends of the playing field. Yet, the difference between the two could simply be a matter of appearance rather than substance.

67 comments

  1. oscardagrch says:

    Something I have always wondered about the Fair Tax I hope someone can answer because I don’t know if I can think of an answer:

    What happens when there is a recession or depression and consumers start spending less? Logically, that would mean far less tax revenue (as we saw recently), but in the instance of a Fair Tax, with the elimination of income and payroll taxes, would that decrease in revenue be even more exaggerated? Would that decrease in tax revenue lead to a perpetual downward spiral?

    • TheEiger says:

      Well, in theory the simple act of implementing the Fair Tax in it’s pure form, not some hybrid, we keep recessions and depressions from being as pronounced as what we have seen recently. Not sure I believe that. But what did governments do recently during the recession? They cut back. That’s what will have to be done in future.

      I think recessions and slow downs in economy are the perfect time to determine what is a priority and what needs to be cut. At the state level we see pretty drastic changes during a recession so that we balance the budget. At the federal level we just run deficits until it blows over.

      • The federal government did not cut back. State and local governments did. Which probably contributed to the recession (certainly contributed to unemployment going up).

  2. saltycracker says:

    To sell me on a 30% sales tax (that’s what it is) I’d need a lot of education on the implementation and transition. Right now we go to Wal-mart and buy something for $943 + 6% or $$1000, next month it will be $773+30%. Will the price really be cut $170? Can we get it on line from somewhere else for $773 ?
    Can we slip it in from Canada ? Can we buy it on our next cruise and just not declare it ? Can we get a sales tax number and get it for $773?

    If the US has anything, it is an unwillingness or incapability or selective approach for tax enforcement and for 30%, beating it will be the cocktail subject surpassing all schedule A deductions.

    • saltycracker says:

      Never mind, in reconsidering, I love the idea like Rush loves his plane. To think I just wanted a revision of the sales tax laws to be lower and more inclusive, like internet stuff. I can figure the “fair” out…….

    • TheEiger says:

      I have no desire to debate this. The Fair Tax in my mind is a theory. It’s a theory because our dysfunctional government will never implement it properly.

      But, your number a re all wrong.

      “Right now we go to Wal-mart and buy something for $943 + 6% or $$1000, next month it will be $773+30%. Will the price really be cut $170?” – Yes it will if you believe in free markets.

      Take a bottle of water. It’s made from oil based plastic and well, just water.

      Crude oil = taxed
      Refined oil = taxed
      Unfinished plastic = taxed
      finished plastic (bottle) = taxed
      Water out of mountain spring = taxed
      water placed in plastic bottle and sold to distributor = taxed
      Water sold to store = taxed
      Water sold to end user = taxed

      The fair tax does away with every tax along the way. The tax that is built in already and is being passed on to the end user at every single step.

      You ask will the price really drop? Well, if you believe in markets it will. Why would I buy a Dasani that is 30 cents more expensive than a Smart water? The companies will price their products to sell and to compete with other similar products. So yes, the price would drop overnight. You can apply this to any product that you purchase. I don’t care what it is there will be multiple taxes built in to the price. Some will have more than others. The bottle of water example has 8 and I’m sure I forgot some.

      • David C says:

        How exactly would making the only taxes be taxes on purchasing things do away with taxes on every purchase made in the process of creating an object? If my kid’s making lemonade to sell on the street corner, does he have to charge 30% but we can tell Publix not to tax my lemons? If I’m a lawyer, and my firm goes to Staples to buy office supplies, do we not have to pay 30% because it’s going into our final output of legal services?

        I believe in markets plenty. Believing in mass deflation from the switch to a consumption tax (which in itself would be a horrible development) is believing in magic.

        • TheEiger says:

          “If my kid’s making lemonade to sell on the street corner, does he have to charge 30% but we can tell Publix not to tax my lemons?” No you don’t tell Publix not to tax lemons. Publix doesn’t have any taxes to build into the price of their lemons because publix doesn’t pay property tax, FICA tax, or any other tax. Again, if you believe in markets publix will reduce the price of their lemons because they can and will still make the same same profit. If they don’t shoppers will go to Kroger where they also don’t pay taxes and have already reduced the prices of their lemons.

          There are a couple of factors that you must believe in to believe the fair tax works.
          1) Simple economics
          2) Markets work

          If you don’t believe those two things there is nothing I can say or anyone else can say that will convince you and the conversation stops here.

        • TheEiger says:

          Why are you so angry? There are things to be mad about. This isn’t one of them . Relax or your blood pressure is going to go through the roof.

          • Al Gray says:

            Not angry, just amused that this thing is still around.

            Also, it is a professional thing because I did sales tax research and cost recoveries at the states level and remember being astounded when I read this bill.

            Now financial fraud and banking are another matter.

    • Stephen says:

      Saltycracker,

      They are now admitting that their original claim is a LIE – i.e., that prices wont come down as far as they originally claimed – and they are still way too low.

      Let’s use round numbers. Today you buy something for $100 and add 6% local sales tax, total $106. I say that the $100 will come down by maybe $2 to $98% (they claim it will come down$12.5, but their numbers are wrong). The add 6% local tax or $5.88 and 30% of at least $98, or $29.40 – total $133.28 (their incorrect numbers would yield about $114.

      Please see my website: http://sceldridge.wix.com/sceldridge

      • Max Power says:

        The Fair tax is a monumentally stupid idea put forth by those who won’t tell you their real agenda. Destroying the Federal government.

  3. Baker says:

    Due to the messiness of the prebate and the instability, I don’t think FairTax best way to go. A progressive flat tax could get some Dems on board and would drastically cut the power of DC and the IRS.

        • TheEiger says:

          Nope, that’s a non-starter. You may be able to get 25% passed, but 20% isn’t just a random number. 20%-25% is around the effective tax rate for most corporations and high end earners when you factor in tax deductions and loopholes and such. 30% with no tax deductions equates to a tax increase.

          • Baker says:

            To get any support from Dems on that level of fundamental reform, I don’t think it would be possible without some increase. Either that or maybe you do a 5, 10, 15, 20 because only having two brackets isnt very progressive. What income level would pay the 20 instead of the 10?

            • TheEiger says:

              “What income level would pay the 20 instead of the 10?” Everyone currently paying 25% or more.

              Three brackets may be easier. 10, 20, 25. But that is kind of where we started and in 20 years we will be in the same boat we are now.

              • I’d love to see payroll taxes replaced with a VAT. For low income workers, the payroll tax might as well be a consumption tax because they typically spend everything they make and have a very low savings rate, only they don’t have any actual say in the matter now. With a VAT in lieu of a payroll tax, you could encourage savings and investment because you would get a little bit of a break. Set the rate at something like 12%, lower than the combined payroll taxes we currently pay but have no phase out like we currently do.

                Then go to a flat/nearly flat tax of 15/25% with a generous deduction for whatever the government thinks is worthy – could have a personal exemption equal to whatever the average cost of basic sustenance (median rent, silver exchange plan, DOA food costs etc). Essentially the poverty line.

                Even though I think the Fair Tax is kind of sophomoric and has a massive agenda loophole (businesses pay nothing), the rhetoric is correct and Democrats fall into a trap of essentially defending the IRS/existing tax code when they’re just against it. Our party needs its own simple and fair tax reform, because right now the tax code is not fair to the average middle-upper middle class Turbo Tax filer who can’t afford an army of lobbyists to gut the tax code for him.

                • TheEiger says:

                  Replacing payroll taxes with a VAT tax is worth talking about. In my mind it has to be a true full replace. Not offset or split, but no payroll tax whatsoever. There is no need to add another layer of tax. With that said, I do like that idea.

                  You mention having rates at 15/25% and keeping personal exemptions. Why not lower the rates to 10 and 20 and have no exemptions and deductions. The people that you are talking about rarely have the ability or the knowledge to squeeze every dollar of potential exemptions out. Why not make it easy on them and say you pay 10% and you don’t have to pay someone to do your taxes?

                  • Yeah, I would say get rid of the payroll tax and replace it with a VAT. It would be good for self employment as well, and I’d rather incentivize saving on your tax bill by investment rather than the unfairly applied S-Corp and “reasonable” salaries that people do now.

                    As far as the rates go, I’d love to see what you would need the max rate to be to raise enough revenue without any exemptions and go from there. It’s possible that it would be as low as 20 with no exemptions, but I think with some simple exemptions you’d probably need a slightly higher rate. And I’m not talking about a maze of exemptions and deductions we have now, but more like a cost of living for the area you live in and how many people you’re filing for and then just saying income isn’t taxed at that amount.

                    For example, the poverty line is $11,670 for single and $23,850 for family of four. So maybe you have 10% for incomes up to $100k, 20% for $100k-$1m, 25% for $1m+. In that scenario, a family of 4 earning $50k would pay income taxes of $5k – (23,850 *.10) = $2,615. State income taxes of roughly $2,500 = $5,115 total. Their take home is now $44,885. If they save 10%, they spent $40,396.50 = with a 12% vat and 7% state sales tax they can buy $34k worth of goods (would guess everything is included in this, rent, home purchase etc though financed in that case) and they spent $6,450 in payroll VAT/state and local sales taxes.

                    In other words, their effective tax rate is about 23% all in. BTW the current effective federal tax rates for AGI’s < $50k is about 5% – which is roughly the same as in this scenario.

                    I think you apply the payroll VAT to everything, including business purchases. Maybe you could then exempt dividend payments from taxation to encourage companies not to retain earnings and give them to their investors. Tax dividends and short term capital gains rate at the same rate as income, tax long term at 5% lower to account for inflation.

                    My whole point in discussing this is that I think it becomes very difficult for the Democrats to escape the maker/taker dichotomy that currently exists in places like Georgia because regular old middle class citizens see the 10,000 page tax code, realize that only about 10 of the pages apply to them (and those 10 pages do a good job at collecting revenue) and figure that everyone else is either wealthy and not paying their fair share (and they are right, whether corporations or carried interest or whatever) or poor and benefiting from their hard work.

                    And even though the story is a lot more complex than that, it's hard to dissuade them. I am glad to see you're open to a VAT replacing payroll taxes, and you're right that it would need to be a replacement and not just a new tax.

    • gcp says:

      Sales tax is easiest tax to enforce. The mechanism is already in place in most states and everyone buys something retail such as gas, food, medicine.

      Income tax is easy to avoid; just become self-employed, be a “nonprofit”, engage in criminal activity.

      • Stephen says:

        Just wait until you see the new American Black Market that would arise with a combined 40-70% retail sales taxes – it would be the largest in the world.

          • benevolus says:

            What about TV’s, Xbox’s, shoes, jeans, watches, rugs, handbags, jewelry, tires, tools, car stereos, pots and pans, wine, socks, paper towels, scrapbooking supplies, greeting cards, duct tape, candles, pens, nail clippers, shawls, t shirts, pocket knives, cell phone chargers, batteries, hair extensions, LED lights, extension cords, spark plugs, leather belts, coffee filters, BBQ tools, hand soap, sunglasses, fanny packs, folding camp chairs, zip drives, scissors, playing cards….

            And by the way, there is a fair amount of food sold out of the back of a pickup on the side of the road even now.

            • greencracker says:

              The thing that makes East Atlanta the third hottest neighborhood in America: The guy who sells raw milk out of the back of his truck in the parking lot behind “Tapeworm Cell Phone Repair” — doesn’t charge sales tax.

            • gcp says:

              Tax internet puchases.

              Also do we have a lot of chick-fil-a, Capt Crunch, or Coke sold out of a pickup? The pickup crowd is very small and only buys a limited number of items. Can’t quite compete with Wal Mart.

              • benevolus says:

                There is a disconnect here. You are assuming current conditions would stay the same even with a drastic change in tax law. Make WalMart include 30% sales tax in their pricing and suddenly there is large incentive for people to find ways around buying stuff there. That is what I and others are suggesting would be difficult and expensive to police.

                • gcp says:

                  Yes there would be some fraud but it would be minor. Any large scale tax avoiders would be outed and subject to enforcement. You can’t keep that kind of large scale fraud secret.

                  Also you assume an immediate 30% increase. In reality no one can say for sure how much prices would increase. I believe it to be much less.

                  Also I have not heard anyone propose a plan for any large scale “black market”. “Black market” is a cliche which has never been fully explained by those that oppose a consumption tax. How would they “find ways around buying stuff”?

                  • benevolus says:

                    I’m sure there are a million ways. A couple are:
                    – A truck gets in a minor accident and an insurance adjuster writes off the whole load. This already happens.
                    – A container from China doesn’t contain exactly what it says it does. If anybody catches it the consignee blames it on the shipper. “I don’ know nothin'”.
                    – Smaller purchases (of which there are many) are handled via petty cash. This already happens pretty frequently with sales tax at only 6-8%. Say a small business does 25% of it’s business as cash with no paper trail and it’s easy to hide. say a printer who prints and binds and laminates flyers and stuff. They are buying paper and ink and plastic and turning it into a finished product. No real way to trace that raw material.
                    – There’s already a huge black market in drugs, so the infrastructure is already in place. Also, you think customs is going to check manifests and count to make sure there are exactly 900 boxes containing exactly 10,800 watches coming in from Mexico on a truck? Looks perfectly legit unless you do.

                    • gcp says:

                      Don’t see how your first two examples relate to failure to pay a sales tax.

                      On your third point I agree some small purchases could avoid sales tax.

                      Your reference to drugs, you are correct there is no sales on illegal drugs however there is a sales tax on lawful mj sales in Colorado. As far as illegal drug dealers they would be subject to a sales tax when they purchase lawful products such as food and gas like the rest of us. Others (some of the self-employed) that don’t report income would also be subject to a sales tax.

                      As far as those smuggled Mexican watches would you sell them untaxed at a flea market? Don’t quite understand that one.

                      Once again I understand the concept of black market but I don’t see how such a market could be established on a large scale to avoid a sales tax.

                    • benevolus says:

                      I’m not talking about sales tax on drugs. I am saying that people are finding ways to bring massive quantities of black market stuff into the country already.

      • Al Gray says:

        Whocouldaknowed your health insurance premiums would become “buying something retail?”

        Under the FairTax plan, purchases of health care services made directly by an individual are
        subject to sales tax just as they generally must be paid from after-tax dollars today. Health
        insurance premiums are subject to tax.

        Hint: You don’t get “100% of your paycheck.”

  4. Harry says:

    Give it up. No matter how wonderful you think it is the FairTax will not happen. My idealistic dream of reverting back to tribal societies stands a better chance of success. Why do you waste your time?

        • benevolus says:

          So almost by definition yours is an anti-social model, yet you advocate imposing such a model on the rest of us who (mostly) have chosen to live within a social community.

          It’s just weird. If you want to be anti-social, so be it. Plenty of people check out and stay pretty much off the grid to some extent. But to stay IN the community and try to break it apart.. I don’t get it.

  5. Raleigh says:

    Fairtax, now there is subject that is a favorite thing to be vilified by most on this board.

    First I’m not exactly sure where this 30% figure comes from other that It originated by people who hate the idea and can’t figure in other than round numbers. The tax is as stated 23% period not 30 by using unknown fuzzy mathematic rules only know by Al Gore and the global warming alarmist.

    Second. There is nothing let me repeat, Nothing, in the bill requiring companies reduce what they charge their customers by 23%. That’s right; they do NOT have to reduce anything. But, if you believe in a competitive free market (Many here don’t). Those prices will come down. Just as soon as company A thinks the can steal customers form company B by reducing their price it will happen. Some products it will happen slowly others overnight.

    Third, the hated prebate. Guess what it is being given NOW. It is being given in the form of Food stamps, heating assistance, Obama Phones, etc, etc, etc. Actually I don’t mind if people at the poverty level do not have to pay federal taxes. If they have more money in their pocket maybe we can eliminate some other assistance programs which are ripe with fraud.

    Fourth, it will NOT eliminate the IRS or K street. I know “Eliminate the IRS”, well it ain’t happening. The IRS will just move on to different things. Their focus will change but they will never “Disappear” or be “Eliminated”. The same goes for the folks on K street. Rather than lobby for tax breaks they will be lobbying for more government contracts and other protectionist policies.

    AND Fifth, It always amazes me how some cannot grasp the fact that Business don’t pay their taxes, their customers pay their taxes. The Customer, that’s who gives then the money to “pay their taxes.” The entity that ends up paying ALL the embedded taxes is the END customer OR the consumer of the product. According to then Gov Reagan it’s the guy the buys the loaf of bread and takes it home to eat. Taxes and licensing fees are a just business expenses and rolled into the cost of producing a product OR service with all other expenses. Services are of course just a different kind of product.

    LAST the Fairtax bill has NOTHING to do with the State and Local taxes. All of those will still be right where they are now on you income, property, and everything you buy.

    Flame ON! Let the fun begin!

    • Chuck Bailey says:

      ~ Raleigh: In order to ease comparison of the FairTax with the income tax, the definers of the bill (HR 25 in the House, S 155 in the Senate) established the rate as inclusive. For instance, your income tax is an inclusive percentage of your total wages, not a percentage of what you make that is added on. That is, the bill requires the FairTax to be 23 cents of each dollar spent, not an added sales tax on every dollar spent. If 23 cents out of each dollar spent is the tax, then the Cost of the product or service has to be 77 cents. To reach the final Price of $1.00, you must multiply 77 cents by 30% to determine the 23 cents. Stated differently, Cost x 30% = FairTax. 30% of the Cost, 23% of each dollar spent, either way you look at this feature, only 23 cents out of each dollar spent is the tax.

      As you can see, with this method you can more easily compare the FairTax with the income tax, both being inclusive taxes. When you go through the drudgery of filling out tax forms, you look in the income tax tables to find your AGI. You don’t do a calculation to determine the required tax, the table sets the amount of money taken out of your AGI to pay the tax, vis-a-vis, for each dollar spent on a new good or service under the FairTax collection system, you will know that 23 cents is the tax. Since all forms of income taxes are abolished by the bill, for the first time in our lives we’ll know exactly how much in federal taxes we are paying.

      ~ Raleigh: To clarify, the IRS is defunded within three years of enactment to allow it to reconcile the last year of income tax collection. There will be a much smaller Bureau of Taxes to administer tax collections from retailers at the state level. This bureau will not be writing in new taxes, only administering the state authorities. A State Taxing Authority will be responsible for FairTax collection and both the retailers and State will be reimbursed out of these collections to unburden both. Most states already have sales tax departments, so thats where many of the IRS folks could end up. Also, attrition, job changes, etc will absorb those employees.

      You are right about “K” Street lobbyists. They will just find different groups of people to rip off!

      • Raleigh says:

        Hey Chuck, Yes I’ve heard that definition comparing Fairtax to income tax. Fairfax is just not Income tax and any comparison is apples to oranges. Forget lowering the cost of a product even if it is used to explain what should happen to embedded taxes in a product. If you buy a product for 1 dollar before Fairtax and after Fairtax you find the same product now cost 1.23 all it means is the company did not reduce the price of the product and now is making a nice profit. That’s OK. Nothing in the law makes a company lower their cost. But I believe in the inherent, call it greed, and competition companies will have little choice but reduce those prices.

        Many years ago then Gov. Reagan was interviewed by Reason magazine and he stated there were 151 embedded taxes in a loaf of bread. That was around 1970 and I’m sure there are more today. Now Fairtax will not eliminate all of those taxes because many are state and local taxes which are unaffected but it will eliminate all Federal taxes. In fact some products may eventually be reduced more that 23%. You could see 30%, 40%, and in a few cases more reductions in product cost. It may take a little while for all of the market to settle out. It would be a pleasant surprise to find that 99 cent loaf of bread now cost 70 cents which includes the 23 cent federal tax. It could happen.

        I know what the bill said about the IRS but really there will be a shift in responsibilities. Someone will need to watch and audit the new system. It may be renamed to Office of Taxations and Audits but it will never disappear. They may “defund the “IRS” but the will start funding a new renamed IRS.

        K Street, that’s just where retired politicians go to continue to fine tune their craft! 🙂

  6. saltycracker says:

    Eiger

    You’ve heard me rant enough to know I’m for free markets – with reasonable regs – and the reality of a free market is retailers are tricky – and really tricky with a computer – I don’t believe for a second that prices will settle to comparable end user prices – they will be all over the place –

    I also think the Fair Tax will be very challenging, competitively, for the big compliant retailers, like Wal-Mart.
    But, no worries, that $773 that settled at a $1,000 deal at Wal-Mart?
    I made a deal with my buddy –
    Pho Salee Mercantile at $850, cash only.
    But my other friend, Second-hand Louie said he wanted more money for his stuff.

    Being cute, but it is common for store owners to knock off the sales tax for cash. Don’t have any idea how they reported it, but a 6-9% spread doesn’t get that many non-compliant, and super rare for big retailers pulling stunts, but 30% will give the little owner a big leg up !

    The most profitable small loan businesses today deal with small retailers that skim cash.

    Thus my position that flat tax from $1,000 income up of around 5% and a 5-8% sales tax position with rare exceptions might drive more revenue by simplification. If everyone is treated equally, it is not culturally acceptable to cheat/be granted special consideration. Today, it is a national pastime and number one on the agenda of your favorite politician.

    • TheEiger says:

      I’m not going to debate the pros and cons of the fair tax. It’s a theory that will never happen. I was just correcting some of the earlier posters misconceptions about what the fair tax does in theory.

      I would prefer debating things that have a better chance of happening. Such as a flat tax or two tier tax system.

    • gcp says:

      But how much stuff do we buy from little retailers? Most folks buy the staples such as food, gas, medicine from big retailers? And once word gets around, these small retailers would be subject to enforcement action. I never understood the “black market” argument.

      • Al Gray says:

        Enforcement action would extend to consumers, who are required to keep receipts, are subject to audit, and who have to file tax returns in certain instances per the terms of H. R. 25.

        What I think is very, very cool is that it puts broadcast and talk radio – the primary hawkers of it – out of business!

      • saltycracker says:

        Agree with Eiger and think this is just for entertainment. Agree with gcp a lot but currently we buy very little from the little retailer but toss a 30% tax (1000-23%=770 x130%=1001 or a 30% tax on the sale price) in there the black market will grow like cigarette sales on the streets of NY. If it doesn’t we’ll figure out a way for the family/salt life – gcp charity LLC to get a sales tax # !

        I can switch my food purchases to small cash markets and farmers in a heart beat but this law will morph until you will not identify it. Politicians will exempt food (look at the crazy % of folks on food stamps), keep fuel taxes low (they don’t have the nerve to increase gas taxes today) and insurance will cover your meds. Look around, who the heck is compliant or paying today, it’s about down to the folks between $100k and $250k household income (getting W-2’s and 1099’s), outside that is the sweet spot of taxation with the right legislator, lobbyist, lawyer and CPA.

        This is fun.

  7. Al Gray says:

    Populist appeal? A tax act that imposes a 30% tax on Grandma’s nursing home care and simultaneously forgives more than $1 trillion in back taxes for corporations? Fair? It is hard to not snort with derision at the thought!

    (The FT is a tax on services, a point FTers love to omit. Corporations pay taxes on an accrual accounting basis, meaning there are more than a $trillion payable under the income tax code that such taxpayers never have to pay out if the FT passes. About 5 years ago I found 10 companies with a total of $200 billion in deferred income taxes by reviewing SEC reports and, no I won’t be doing that again to make the point. )

    I campaigned hard for the good senator, but a great populist move this isn’t. In fact he has inadvertently shackled himself to the corporatist image Nunn hurt him with.

    • gcp says:

      Much nursing home care is already funded by taxpayers. As for deferred corporate taxes, those corporate employees would have to pay a consumption tax; can’t defer food and gas purchases.

      • Al Gray says:

        Thank you. Another crazy aspect of the FT is that governments are not exempt from the 30% tax either. Any local government providing services, like sewer and water, might be able to add the 30% tax onto the charges to pass on the tax (won’t that be lovely?) but what about the 30% tax on payroll used to provide other taxable services. Where are local governments getting that kind of money?

        H.R. 25 is not something to be embraced by a new US Senator, but rooky mistakes are expected. Perdue should have asked former Senator DeMint of S.C. about how badly one can be singed by this scheme.

  8. MattMD says:

    Haven’t we beaten this issue to death on multiple occasions?

    It is never, ever going to happen. Forever, ever!

    Also Jon, the squirrly “pre-bate” system doesn’t negate the regressive nature of this tax.

    As an aside, I don’t get the idiotic no-IRS stickers I occasionally see on cars since we would still need division of the government to issue the “pre-bates” and ensure compliance. It would probably be gargantuan in order to tackle the black market which would immediately sprout up when a 30% sales tax is implemented.

  9. benevolus says:

    The government currently gets X amount of dollars. Unless we are going to talk about where the cuts are going to occur, can I assume the government will continue to receive the same amount of revenue? So it’s just revenue-shifting? From whom to whom?

  10. saltycracker says:

    Fiscal conservatives have long stood for a smaller more efficient government by the laws. Tax reform has been high on our list as well as reducing fraud and waste of public funds.
    The Fair Tax fails the acid test of reducing fraud and waste for two reasons:

    1. 23% of transaction, 30% of sale price makes it a prime target to circumvent, legally or illegally.

    2. The government has an inherent inability and unwillingness to enforce collections except by happenchance or report variations/errors. IRS and other bureaucrats advise, in national media, that to broadly intensify enforcement is not in our best interests as it may harm an innocent party.

    Examples today are the cottage industries, openly advertised, to help you get what’s yours, particularly via false documentation or methods, subjective or false:
    SS Disability
    SS
    Medicare
    Medicaid
    Food stamps
    Child Tax credits
    Farm credits
    Tax refunds via multiple deductions, tax schemes, rebates…
    Not even going down the list for corporate taxation avoidance – Fed or GA

    Do the proponents of Fair Tax think the bundling of taxes into one 30% number think the government will/can enforce this one ?
    I suspect even many of those ambivalent about a 7% sales tax will have to give 30% a run for the money. And those freaking over a 1% increase will most certainly give it a shot, regardless of a lower base price.

    Fiscally conservative position for where we are today: Fix the tax code. Set a flat % for income and a broad based lower than now number for sales tax. Exclusions or penalties are part of the political negotiation but they must be very exceptional and apply to all.

    • Al Gray says:

      If they are serious, the flat tax is the way to go and it may be achievable, albeit with progressive tiers to get the Democrats aboard and to raise enough revenue.

      Jon got it correctly pegged that the FT is a symbolic gesture. The trouble is, getting behind symbolic, unworkable plans becomes an obstacle to true reform. If you have been tagged as a corporatist, endorsing a scam that hurts the middle class and enriches corporations with $trillions in deferred income tax liability forgiveness doesn’t seem bright and I am very committed supporter of Sen. Perdue saying that.

      • saltycracker says:

        Al,

        Tiers ? What’s wrong with a percentage across the board ? The more you make the more you pay.

        Guess I wouldn’t have a problem with a surcharge for registered Democrats as they are the most generous to redistribute earnings to individuals rather than for the general public.

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