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    Fair-Tax Deceptions

    The Wall Street Journal featured an editorial by Bruce Bartlett that claims that the Fair-Tax is a flawed taxation system and voters should not take seriously any candidate who supports it. A summary of the Fair-Tax deceptions follow:
    1) The tax inclusive rate is used to promote the plan rather than the tax-inclusive rate.
    2) The federal government pays the taxes to itself on all of its purchases of goods and services. The proposal only works if federal purchases are cut by 30%.
    3) State and local governments would have to pay the FairTax on their purchases increasing the cost of running state and local governments.
    4) The FairTax does not factor in the cost of a tax rebate to the poor
    5) The FairTax would create de facto national welfare program – requiring every American’s income to be tracked.
    6) There would be problems connected with collecting the tax.
    7) The Fair-Tax Rate would need to be much higher than what is being promoted if it were to be revenue neutral.
    Link: FairTax, Flawed Tax - WSJ.com



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by alaskaguy View Post
    5) The FairTax would create de facto national welfare program – requiring every American’s income to be tracked.
    6) There would be problems connected with collecting the tax.
    #5......ummm, I think they are doing that already, are they not? I don't know about you, but the government seems to know what I'm making every year. And how would it create a national welfare system?
    #6......The taxes would be collected just like state taxes are now, using the system already in place. So what problems? Pretty vague.

    It's pretty significant that it took this long for someone to come up with some ideas to shoot holes in the Fairtax. That is good news in my mind, because it means that the Fairtax is starting to gain traction, and those who stand to pay more taxes under this system are starting to sweat a little. Not to mention lobbyists whose livelihood is based on bribing tax favors from our politicians. It's way easier to raise taxes without people knowing it, or cut taxes for a special interest, if it's a horribly complex mess of tax code.

    I've spent a whole lot of time asking people what they think about the Fairtax, and informing them about it. I think it is significant that the people I've talked to that don't like it have large incomes. The reasons given are pretty simple....they aren't paying much tax now, because they buy whatever deductible assets they need to, to avoid paying tax. Extra $150,000 in income laying around at the end of the year? Buy a house, or farm land, or whatever. The average guy doesn't exactly have that option.

    This website has a lot of information and answers regarding the Fair tax, and I would expect a line item rebuttal soon enough.

    Americans For Fair Taxation: FairTax.org



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    Re: Fair-Tax Deceptions

    The fact that it is written by Bruce Bartlett makes me look at this article seriously.

    As far as Bartlett is concerned, the "Dude's Got Game" when it comes to conservative economics.

    Having said that, if a flat tax (combined with a 19% VAT tax) works for socialist Germany, why can't it work for a more conservative US?

    I think Bartlett's problem might be the "congress spending like a drunken sailor on whichever special interest group might vote for them next time" more than how taxes are collected.



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by herbiedoobie View Post
    The fact that it is written by Bruce Bartlett makes me look at this article seriously.

    As far as Bartlett is concerned, the "Dude's Got Game" when it comes to conservative economics.

    Having said that, if a flat tax (combined with a 19% VAT tax) works for socialist Germany, why can't it work for a more conservative US?

    I think Bartlett's problem might be the "congress spending like a drunken sailor on whichever special interest group might vote for them next time" more than how taxes are collected.
    True. Our spending is a far greater problem than our taxation. I would have no problem paying what I pay, or even a little more, if it was done efficiently and honestly. Government needs to get back to doing what it is legally allowed to do, instead of whatever it wants. I have no doubt that there are holes in the Fair tax system that would need to be resolved, but I guarantee it's far, far better than what we have now.



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by alaskaguy View Post
    1) The tax inclusive rate is used to promote the plan rather than the tax-inclusive rate.
    One is definitely true. The "23%" is of the total purchase price after taxes are included. If it is calculated as we usually think of sales taxes being done, tax exclusively, the rate is actually 30%.



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    Re: Fair-Tax Deceptions

    Under the Linder-Chambliss legislation a system would have to be established where citizen’s spending and income is tracked monthly and checks are sent to the lower income citizens. The author refers to this tax rebate as a de facto welfare system. Because income would have to be reported on a monthly basis, the burden of compliance is increased. Furthermore, unless you live in a state like I do that has no state income tax, you would still be required to keep records to pay your state income tax.

    Several potential tax collection problems were noted. Per the Linder-Chambliss legislation the states would bear the brunt of collecting the tax. But I live in a state without a state sales tax, so a new tax collection administration would need to be established in states like mine that do not collect sales tax. The author also questioned what incentive the states would have to be vigorous in their tax collections for the federal government.

    The Fair-Tax would dramatically change the economics of home ownership. The author provided, “Imagine paying 30% to the federal government on top of the purchase price of your next house.” Such a large upfront tax on housing would wipe-out the potential for short term capital gains in housing. But even worse it would probably result in people facing devastating losses if they decide to sell a dwelling they recently purchased. People who recently purchased homes would therefore be tied to owning the same house for a longer holding period. Relocations would be out of the question for many people that had recently purchased a home because the cost of doing so would sky rocket.

    Finally, the author contends that there are a lot of “tricks” the opponents have used to calculate the Fair-Tax rate and if it were calculated honestly it would have to be “much, much, higher than 23%” to be revenue neutral.



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    Re: Fair-Tax Deceptions

    Burden of compliance? So sorry to make it such hard work to get a government handout. One of the key factors is that the actual costs of products would go down, as the federal taxes that are now built in would be gone, which also allows for US companies to be more competitive domestically, and internationally. Anyone who buys anything right now pays for the corporate taxes when they buy that product. Corporations don't pay them, it's a cost of business, and they pass on the costs to you.



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    Re: Fair-Tax Deceptions

    Would there be a sales tax for goods sold out of country?


    I don't know the key to success, but the key to failure is trying to please everyone.

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    Re: Fair-Tax Deceptions

    To follow-up on my housing example, how do you think the Fair-Tax would impact the equity markets? If you had to pay a 30% tax to purchase 100 shares of XYZ corporation would that have any impact on your purchase decision? For all this talk about how stimulative the Fair-Tax would be on the economy, I see it having the opposite impact.



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by chadm View Post
    Would there be a sales tax for goods sold out of country?
    Exported goods would not be subject to the FairTax, since they would not be consumed in the U.S.; but imported goods sold in the U.S. would be subject to the FairTax because these products would be consumed domestically



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by alaskaguy View Post
    To follow-up on my housing example, how do you think the Fair-Tax would impact the equity markets? If you had to pay a 30% tax to purchase 100 shares of XYZ corporation would that have any impact on your purchase decision? For all this talk about how stimulative the Fair-Tax would be on the economy, I see it having the opposite impact.
    It shouldn't. Because I will see a 30% increase in my take-home pay because I will not pay income taxes. Things will be more "expensive" with the tax but people will be making a lot more money.



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by cycloneworld View Post
    It shouldn't. Because I will see a 30% increase in my take-home pay because I will not pay income taxes. Things will be more "expensive" with the tax but people will be making a lot more money.
    The trade-off is obviously that there is less deducted from your earnings but you pay the tax on your purchases so you don't have any more net disposable income.

    Nevertheless, if you must pay a 30% tax to purchase 100 shares of XYZ corp., the price of XYZ corp would have to appreciate by 30% to break even on the transaction.

    Such a sizeable tax would certainly impact investment decisions. Furthermore, many capital investment decisions would likely be eliminated from consideration, because they would no longer be viable under the Fair-Tax.



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    Re: Fair-Tax Deceptions

    More Fair-Tax Deceptions

    1) It is a voluntary tax system
    [FONT='Verdana','sans-serif']The FairTax is not a voluntary tax at all. The whole idea is a contradiction in terms. There is no way to avoid buying new items. One can buy a used car, a used house, and used clothes, but one cannot purchase used food. One could argue that our present tax system is also voluntary: Don't earn any income and you won't have to pay any income taxes.[/FONT]

    2) It would abolish the IRS
    [FONT='Verdana','sans-serif']Calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the FairTax.[/FONT]

    Other problems:

    1) It expands welfare
    [FONT='Verdana','sans-serif']Millions of people who never took a dime from other taxpayers in the form of food stamps, SSI, AFDC, Medicaid, WIC, or housing assistance will now be on the federal dole via the prebate. The FairTax is welfare for the masses. [/FONT]

    2) Enforcement problems
    [FONT='Verdana','sans-serif']The FairTax has the potential to turn thousands of law-abiding Americans into criminals. Since the FairTax contains no exemption for even the smallest business, anyone who does not collect the FairTax on any good he produces or services he provides is breaking the law. Mow a yard—collect the tax. Babysit—collect the tax. Repair a car—collect the tax. If you don't collect the FairTax then you are a criminal. [/FONT]

    3) The potential for fraud is great
    [FONT='Verdana','sans-serif']Since every head of household would be issued a prebate card, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers. And since the FairTax only applies to new items, there will also be a tremendous incentive for new items to be reclassified as used or previously owned. Businesses could offer a slight increase in the price of a reclassified item in exchange for not having to charge customers the 23 percent national sales tax that would be due if the item was considered new. Enforcement of the "proper" classification of items would require an army of federal bureaucrats that could rival the IRS.[/FONT]

    4) The claim is made that there are no exemptions
    [FONT='Verdana','sans-serif']The FairTax makes certain exceptions while supposedly having none. After saying that there are "no exclusions or exemptions" under the FairTax, the legislation specifically mentions exemptions for Internet access services and tuition. Therefore, the position that "exempting certain items—such as food and prescription drugs—would again open the door to an entire battalion of lobbyists to argue that the portion of the industry that they represent is clearly an essential product" is unjustified for that door has already been opened. [/FONT]

    5) The FairTax would make it easier for the government to increase taxes
    [FONT='Verdana','sans-serif']All Congress would have to do is slightly increase the initial rate. A penny here, a penny there; a quarter of a cent now, a half of a cent later. Just a little at a time, of course. It might be to compensate for inflation, to give seniors a cost of living raise, or to pay for a crisis. Since the federal budget goes up every year, and the FairTax is supposed to be "revenue neutral," the FairTax rate will have to go up right along with the federal budget. You could count on an increase every year, for if government budgets are not under control now, why should we expect Congress to magically become fiscally responsible just because the FairTax is adopted?[/FONT]

    6) There are no exceptions or exemptions
    [FONT='Verdana','sans-serif']Churches and other non-profits will be forced to pay a national sales tax on every purchase. The FairTax will basically do away with not-for-profit entities. The FairTax would also count as taxable the purchases made by federal, state, and local governments. This means the government will be using taxpayer money to pay taxes to itself.[/FONT]




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    Re: Fair-Tax Deceptions

    Quote Originally Posted by alaskaguy View Post
    More Fair-Tax Deceptions

    1) It is a voluntary tax system
    [FONT='Verdana','sans-serif']The FairTax is not a voluntary tax at all. The whole idea is a contradiction in terms. There is no way to avoid buying new items. One can buy a used car, a used house, and used clothes, but one cannot purchase used food. One could argue that our present tax system is also voluntary: Don't earn any income and you won't have to pay any income taxes.[/font]

    2) It would abolish the IRS
    [FONT='Verdana','sans-serif']Calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the FairTax.[/font]

    Other problems:

    1) It expands welfare
    [FONT='Verdana','sans-serif']Millions of people who never took a dime from other taxpayers in the form of food stamps, SSI, AFDC, Medicaid, WIC, or housing assistance will now be on the federal dole via the prebate. The FairTax is welfare for the masses. [/font]

    2) Enforcement problems
    [FONT='Verdana','sans-serif']The FairTax has the potential to turn thousands of law-abiding Americans into criminals. Since the FairTax contains no exemption for even the smallest business, anyone who does not collect the FairTax on any good he produces or services he provides is breaking the law. Mow a yard—collect the tax. Babysit—collect the tax. Repair a car—collect the tax. If you don't collect the FairTax then you are a criminal. [/font]

    3) The potential for fraud is great
    [FONT='Verdana','sans-serif']Since every head of household would be issued a prebate card, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers. And since the FairTax only applies to new items, there will also be a tremendous incentive for new items to be reclassified as used or previously owned. Businesses could offer a slight increase in the price of a reclassified item in exchange for not having to charge customers the 23 percent national sales tax that would be due if the item was considered new. Enforcement of the "proper" classification of items would require an army of federal bureaucrats that could rival the IRS.[/font]

    4) The claim is made that there are no exemptions
    [FONT='Verdana','sans-serif']The FairTax makes certain exceptions while supposedly having none. After saying that there are "no exclusions or exemptions" under the FairTax, the legislation specifically mentions exemptions for Internet access services and tuition. Therefore, the position that "exempting certain items—such as food and prescription drugs—would again open the door to an entire battalion of lobbyists to argue that the portion of the industry that they represent is clearly an essential product" is unjustified for that door has already been opened. [/font]

    5) The FairTax would make it easier for the government to increase taxes
    [FONT='Verdana','sans-serif']All Congress would have to do is slightly increase the initial rate. A penny here, a penny there; a quarter of a cent now, a half of a cent later. Just a little at a time, of course. It might be to compensate for inflation, to give seniors a cost of living raise, or to pay for a crisis. Since the federal budget goes up every year, and the FairTax is supposed to be "revenue neutral," the FairTax rate will have to go up right along with the federal budget. You could count on an increase every year, for if government budgets are not under control now, why should we expect Congress to magically become fiscally responsible just because the FairTax is adopted?[/font]

    6) There are no exceptions or exemptions
    [FONT='Verdana','sans-serif']Churches and other non-profits will be forced to pay a national sales tax on every purchase. The FairTax will basically do away with not-for-profit entities. The FairTax would also count as taxable the purchases made by federal, state, and local governments. This means the government will be using taxpayer money to pay taxes to itself.[/font]
    #1. Of course no tax is voluntary, but this one is as voluntary as it gets. What is he advocating? Keeping the same old IRS? Would he rather have the tax taken from our checks before we can even see it? At least this way, if you don't want to spend your whole paycheck, you can save it, invest it, whatever. You don't have to spend your excess cash.

    #2. I kinda doubt that the Fair tax applies to the average kid mowing lawns. Not real worried about law abiding Americans. There are those who will be honest, and those who won't, in any system.

    #3. The potential for fraud is great in our current system too. However, businesses tend to obey the law, or they end up no longer in business. If they're cheating on this, they're cheating on other things too, and they will end up gone anyway.

    #5. This one I really don't buy. Every election we hear the candidates bashing each other for voting to raise taxes. If you go bill by bill, it's almost impossible to tell what exactly got raised, and how, and who it really affected. It's also usually lumped in with a whole lot of other items, that muddy the water. Does anyone really know, year to year, if their taxes got raised a little, with the hundreds of ways we are taxed? I guarantee that politicians would think twice about voting to raise the percentage on a national sales tax. Polk, Dallas and Warren counties found all about what happens voters are paying attention. It would be impossible to sneak an increase in such a visible tax past us, and it would have to be the centerpiece of the bill, not some obscure addendum.

    #6. I don't think it would be too hard to work tax exempt status into this bill. Relatively easy in my estimation. Currently, to exempt a church or non-profit, all you need is to have their ID number. Pretty simple.



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    Re: Fair-Tax Deceptions

    Quote Originally Posted by alaskaguy View Post
    3) The potential for fraud is great
    [FONT='Verdana','sans-serif']Since every head of household would be issued a prebate card, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers. And since the FairTax only applies to new items, there will also be a tremendous incentive for new items to be reclassified as used or previously owned. Businesses could offer a slight increase in the price of a reclassified item in exchange for not having to charge customers the 23 percent national sales tax that would be due if the item was considered new. Enforcement of the "proper" classification of items would require an army of federal bureaucrats that could rival the IRS.[/font]
    Hahahahahaha. Hahahahahaha. Wait. Hahahahahaha. The potential for fraud is great? Pot meet kettle. Anything...and I mean ANYTHING...would be an improvement over the current system. Currently, there isn't just potential for fraud...but it is rampent.

    Please don't read one person's opinion/study/report and claim it as fact (like the illegal immigrant report).



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