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Wednesday, December 19, 2007
posted by Kyle Hampton | 11:46 PM | permalink
I had so many comments on my Fair Tax post that I wanted to respond to some of the points made:

First, several people made the point that Europe has a Value Added Tax (VAT) that is more than the 10% figure that I quoted. All of the research that I read made a distinction between the VAT and a national retail sales tax like the Fair Tax. This distinction is based on the mechanics of the tax. The value added tax looks at what a firm adds to the value of a product where a national sales tax is an excise tax levied at the point of sale. The end result looks similar because the VAT is passed on to the consumer. However, the VAT requires firms to report the value added at each stage of production. A national retail sales tax does not require any such reporting other than that the national rate has been applied. The figure I used looked just at those countries using a national retail sales tax and did not include those countries using a VAT.

Second, several readers expressed frustration at the current tax system and argued that we are essentially paying the same rate as what the Fair Tax would impose. That may be true, but I don’t understand how that merits scrapping the current system. If the Fair Tax does the exact same thing, why should switch? The tie goes toward stability, does it not? People have planned, not just in the short term, but in the long term for the tax benefits of the current system. Revolutionizing the way we tax would upset the expectations of a millions of Americans and businesses. Thus, doing something that drastic requires not just generalized frustration, but serious injustice. Generally, I think that frustration with the current tax system has made people over-eager to do something else. I don’t deny that the current system has its flaws. Indeed, it should be flatter and simpler. However, taking the extreme position of overhauling what we have and disturbing the expectations of those who are paying taxes seems unwise to me.

More rebuttals to come

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6 Comments:


For benefit of your readers, I posted a couple of explanatory comments at your last post. Here I'll layout the essentials. The FairTax is...

• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, FLAT, and FAMILY FRIENDLY, loophole-free, and everyone pays their share
• LOW TAX RATE is achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards - rather than penalizes - work and productivity


A detailed benefits analysis of the plan (from The FairTax Book) explains such strong support:

For INDIVIDUALS:
• No more tax on income - make as much as you wish
• FairTax is paid on retail goods and services when purchased new, not used

• You receive your full paycheck - no more deductions
• Every household receives a monthly amount, or "prebate"
• "Prebate" is "advance tax payback" for monthly consumption to poverty level
• FairTax ensures poverty protection, being less regressive than income tax
• Increased household income preserves real purchasing power against any higher prices

• Reduction of pre-FairTaxed retail prices (due to reduced costs; increased competition)
• 29.9% mark-up yields 23% FairTax portion of new price tags
• FairTax portion of new prices reveal true cost of gov't to consumers

• FairTax is captured on illicit forms of income, when spent
• Parasitic income tax filing industry eliminated
• No double taxation on goods and services
No more IRS or FILING OF INCOME TAX returns
• Savings is bolstered with reduction of interest rates


For BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Global "free (and equitable) trade" becomes possible for currently-disadvanted U.S. exports
• U.S. exports increase their share of foreign markets


For the COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie" increases
No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow


Mr. Romney's weak response to FairTax questioning on “This Week with Geo. Stephanopoulos” elevated his opponent who seems to understand the core problem. Understatedly, Mr. Huckabee quipped that what's wrong with the income tax can't be fixed with "a tap of the hammer, nor a twist of the screwdriver." But make no mistake, he's on to the bigger picture, and he pointedly understands the larger ramifications of how enacting the FairTax can course-correct global trade inequities.

While Mr. Romney clings to the destructive tax code, the IRS, preserving political power of granting tax favors at continued cost to - and misery of - American working families, his opponent speaks to Americans who have a terrible feeling that it is not only difficult to surmount increasing barriers to reach the next rung on the wealth ladder, but should they succeed, they'll need to spend an additional fortune to keep from having their hard-earned success confiscated by a government whose idea of "fairness" derives from Karl Marx's playbook (paraphrased), "From those according to their abundance, to those according to their need."



It seems like a flat tax produces much of the same pros that are mentioned by Ian, with less overhead.

Implementing and regulating the sales tax and it's refund system seems more complicated to me than something like a flat tax.

Now I don't think Romney is pushing for a tax overhaul, but a flat tax seems much more practical than a sales tax.

By the way. I grew up in Alberta Canada. When I was young, there was no sales tax. I liked that you could go up to the register and pay the amount that it was advertised for without having to add taxes in your head.

The conservative government then in 1991 reformed the tax system by replacing a 13.5% hidden Manufacturers' Sales Tax with a 7% visible Goods and Services Tax. Revenue neutral would have been a 9% sales tax.

So they lowered the tax but made it more visible (As a fair tax would do--I assume most people make more purchases than they get paychecks).

The next election they lost all but 2 of their 151 seats in parliament.

So even if Huckabee is able to get this implemented (There's no way in Hades it will be if Bush can't even get Social Security reform through), don't count on republican re-election the following election. In fact I think it is fair to say that if Huckabee were to pass this in his first term, he would not get the Republican nomination for re-election.



Ian, thank you for all that lovley propeganda. Quantity does not make up for lack of content. Just post a link the fairtax.org next time. I have seen your post on other sites. You guys sure do get out in force. This is not the only way to introduce a consumption tax, and Warren Buffetts political views arn't exacly conservative, and don't represent the views of most of the readers of MMM. I emplore you to read these.

http://thoughtfulideas.blogspot.com/2007/12/is-national-retail-sales-tax-good-idea.html

http://www.opinionjournal.com/best/?id=110011009



Stephen, I don't really expect much from bloggers - and comments like yours don't surprise me. It's far easier to engage in Psychologist David Burn's Cognitive Distortion No. 6 - Minimzation / Magnification - than to actually engage on the specifics of points that I've taken great pains to learn about, research, and present to you for thoughtful consideration.



Kyle,
It's truly not just a matter of replacing one system for another. There are almost too many negatives in the current tax code to count. Regardless of personal or even public feelings about the current tax system, even the United States Government itself has come out and said that the current tax system is broken and is costing both the American Worker and it's government, huge amounts of money, lost jobs, etc. The minor tweaks that Mitt and others are proposing, however helpful over the next 4 to 8 years, are not going to fix the tax code enough to avoid financial train wreck we face in the next 20 to 30 years. The Current tax code needs to be eliminated and replaced, and to date the best option presented has been the Fair Tax. PLEASE, use this link and read this Very Well written article:
( http://www.realclearmarkets.com
/articles/2007/12/the_fair_tax_is
_about_economic.html )

Stephen, any time you have some facts or figures you'd like to have an honest conversation or debate about, I'm sure that Ian or I would gladly participate. I'm not above being proven wrong, but with the amount of research done by top economic scholars on the Fair Tax and it's figures, those who have legitimate beefs are very few, and very far between.



Romney said "Government is Broken!". Yet ignoring a system that would make a huge economic progression is hipocritical. I want to "fix" the gov't but I don't care about ideas that could easily do so, come on. I agree with everything else Romney says, but ignoring FairTax is ignoring the current economic situation.
Where's Regan? GOD BLESS AMERICA!

By Anonymous Anonymous, at April 3, 2008 at 11:04 AM  



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