Kirk,

You are more trusting of government than I am. I realize that HR 25 does require elimination of funding for and the elimination of the IRS. And, of course, I know that a bill cannot repeal an amendment to the constitution. However, it does not matter how quick a popular amendment can be passed, it cannot be sent to the states until two-thirds of each house proposes it (or until two-thirds of the state legislatures call for a convention to propose it). A majority may vote for HR 25 but that does not assure that the necessary two-thirds will propose the repeal of the 16th. As long as the 16th still exists, there is nothing to stop congress from reversing the elimination of the IRS and it’s funding in the next oversized budget bill. My suggestion is a clause in HR 25 require that if HR 25 becomes law, it will go into effect on the same day that the repeal of the 16th amendment becomes effective and if that does not occur within 5 years of the passage of HR 25, then HR 25 is automatically repealed.

Also, note that having the FairTax, with the name of sales tax, in most states, has not kept most of these states from having an income tax.

You taught me something on the VAT tax. I did not realize it was rebated as you described. I still don’t trust our government to not change the formula so they get more income from it (if they were to switch it to a VAT). Also, government seldom will choose the efficient way to do a thing if they can find a less efficient way.

I agree that the FairTax, as proposed in the current bills, would be a better way to collect the taxes. I just don’t trust our congress persons to stay the course.

“This is the American way. Find a better way to do something, and reap the rewards. ” It may be the American way, but it is never government’s way.

There is a saying that the more storage space you have (be it hard drive space or closet space) the more you will find to put in it. Then you will always find you need even more space. The same goes for government spending. The more of our money they have to spend, the more they will spend. Then they will find they need even more money. Allowing them to have much more money, as you state they will have with the FairTax, will only allow government to grow. We need to reduce the size and budget of government so they will be less intrusive in our lives.

Competition will require any company with the reduction in their overhead (less spent on taxes and processing tax returns) to reduce the sales price of their products and services somewhat. However, most companies will not reduce them as much as the savings unless forced to do so (by competition). This is especially true if the company (and perhaps the industry) is having a tough time making profits before the change takes place.

As far as it being political suicide to raise the rate, don’t believe it. If a $1000.00 item has $310 added for sales tax (if the rate is 23% and the state has an 8% sales tax) the price to the consumer will be $1310.00. If the FairTax goes up 2% the $1310.00 becomes $1330.00. That won’t be enough to keep most consumers who would have purchased the product to change their minds. Incremental increases could be added regularly without it hurting the political life of the congress people.

People won’t fight against special rates, they don’t now with the income tax. And they will want the special rate if it is something they purchase.

So, I repeat, you are more trusting of government than I am.

Of course, the real answer is reduce the size of government. Get it back to the limits of the constitution. Then cut government cost and let the taxpayer keep most of what now goes to the government.

David

“I agree that the rebate idea is absurd. If they wanted to make a simpler, smaller-government progressive consumption tax, they’d simply make some “essential” items exempt from tax, as most state sales taxes currently do. Trying to force people to record all of their purchases and calculate their rebate on a monthly basis is just plain stupid.”

You obviously don’t understand the “rebate idea”. No one has to provide any records to justify the amount of the rebate. The rebate is based on family size and the poverty level which is set annually by the Department of Health and Human Services. The only records required are those to prove that you and your family members are legal residents or citizens of the U.S.

Starting down the slippery slope of exemptions should be avoided at all costs. If “essentials” are exempted instead of using the “rebate idea”, the wealthy will benefit more than the poor. The wealthy tend to spend much more money on “essentials” than the poor. Take for example, a wealthy person who organizes a party with $5,000 worth of food. If food is exempted as an “essential”, the wealthy person would be able to avoid taxes on the total purchase of $5,000. Under the “rebate idea”, they would only be reimbursed on expenditures UP TO the poverty level. Everyone would be reimbursed the same amount for the same sized family.

“[A]ctually, since American producers all pay and embed their paiyroll taxes and income taxes into their prices, there is already 20 – 30% hidden taxes in American-made goods.”

For your assertion to have merit, (that income or payroll taxes are shifted forward on to the consumer) you would have to show how an income tax causes the price of a good to rise. Remember, cost does not determine price. Price is determined by supply and demand. The income tax would have to somehow either cause a reduction in the supply of the good produced or cause an increase in the demand for the good in order for its price to rise.

Actually, businesses do not pay income taxes. They collect it from 3 sources and pass it along to the fed. The income tax burden on businesses is recouped by raising prices, lowering wages, or reducing dividends to stockholders. Or a combination of the three. Your assertion that the income tax liability of a business can not increase consumer prices is patently false. It allows for the increase in consumer prices because all businesses have to pay the tax and all businesses will increase prices to recoup it. This has no effect on supply and demand which still functions but with the embedded tax included in the price.

Not true at all and rather poor economic thinking. This is a question of tax incidence (who pays a tax) and tax shifting. The above suggests that the employer’s share of the payroll tax is shifted forward on to the consumer in the form of higher prices. In actuality, the employer’s share of the payroll tax is paid by the employee.

So the employee is NOT a consumer? Then why is he earning money? To save it indefinitely? The only true consumer is the end consumer who has no mechanisms for recouping part of his cost. Anything that lowers the ability of an individual to spend is a burden to the consumer. Higher prices, lower wages, and reduced dividends all qualify as “shifting” to the consumer.

Theirn’s quote “Once the Fairtax is passed and becomes law, its success will insure the repeal of the 16th Amendment as it will be politically impossible to not repeal it; such will be the overwhelming will of the people” strikes me as wildly improbable. I would argue that those in favour of less taxation are wise not to advocate additional forms of taxation in the hopes the latter will achieve the former. Am i being too radical?

The FairTax Act could alleviate your fears by simply adding the following statement at the end of the bill: “the FairTax becomes null and void as soon as any new income tax is enacted.” This would remove the necessity of repealing the 16th amendment in order to avoid two tax systems; however, the repeal would ultimately be desired to avoid any new income taxes. Consumption taxes have historically been less of a drag on an economy than income taxes.

Without a reduction in supply the price does not rise and the tax would have to be shifted backward on to the firm.

Absolutely false, if every producer in a particular market has to pay the same income tax on its profits, every producer can raise prices to recoup most or all of that cost. There will be a median price that all producers will be able to add to their price without affecting their market share. If there is an overall reduction in market demand, then each producer would have to reduce the price to compensate for the reduced demand. If the require reduction, in this case, prevents the producer from recouping all of the income tax burden, then the producer will attempt to lower wages. If the market doesn’t support a lower wage, then the producer will reduce dividends to stockholders. If the market will not support the reduced dividends, then the stockholders who are unable to sell their stock will have to eat the cost of the income tax if they can still remain in business or go out of business. Bottom line. Individuals pay taxes, not businesses.

A friend of mine asked my opinion of the “Fair Tax” recently. Part of my response:

Also, according to the way it’s set up (according to their FAQ), it’s not actually true that people below the poverty line pay no net tax. See, for example, on their chart, one person making $9310 or less is below the poverty line. They get a rebate totaling $2141 per year. The problem is, because this is a sales tax, that person pays tax when they spend that $2141, too. At 23% sales tax, this person pays net $492 per year in tax, which is just over 5%. That’s preferable to 23%, but you’re still talking about a system in which the people living below the poverty line, the poorest people in the country, lose 5% of their meager income to federal taxes. Frankly, I find it a bit disturbing that the people proposing this system haven’t recognized this. It doesn’t say much for their understanding of economics.

Excuse me? With a consumption tax, increasing someone’s income has no effect on tax paid. Only an increase in consumption would do that. In your example, the person making $9310 and spending $9310 will pay $2141.30 in taxes IF all expenditures are for new goods and services. If the government gives this individual 12 prebate checks totaling $2141.30 thereby increasing his income to $11,451.30 and the individual’s expenditures remain the same, he is still going to pay $2141.30 in taxes. $9310 minus $9310 result in no remaining income. However, with the prebate $11451.30 minus $9310 leaves $2141.30. So the prebate check does indeed cover 100% of the tax burden. Granted, when the $2141.30 is spent it only has a real value of $1648.80, but rememeber this would be spending ABOVE the poverty level and would not be reimbursed. It could be argued that the $2141.30 from one month would not be spent in subsequent months because the individual would continue to spend $9310 and get 100% reimbursement of the taxes paid. So this person could begin to accumulate a savings that would be increased by $2141.30 plus interest every month as long as spending held at current levels! What a boon for the poor! This might actually allow some of the poor to pull themselves up by the bootstraps and become middle class.

The problems i have with the “FairTax” are more political than economic (but since politics and economics are married I will give it a shot here).
I will ask questions and you FairTaxers try to answer honestly.
1. Who will be the first politician to suggest the prebate ought to be measured on the standard of living costs in particular areas? This will make politicians from big cities very popular. This will also increase gov’t bureaucracy and spending.
2. Who will be the first politician to suggest that some items are dangerous and should be taxed at a higher rate than other items (for example guns, ammo, SUV’s, private jets, anything Al Gore or other global warming alarmists say pollutes the earth)? Social engineers will love this tax system and the power to influence people’s lives on the most basic level.
3. Who will be the first politician to suggest that the 23%INCLUSIVE rate (30% Exclusive rate)is not enough to cover their new spending plan? Maybe Hillary will raise the rates to pay for national health care.
4. Who will be the first politician to suggest that the poor should have more prebate money and it is not fair that the rich get as much prebate as the poor? I have several in mind.
5. Who is the first person to open a black market/organized crime syndicate? Okay i have seen your defense on this issue and it stinks. Black marketers (and other criminal types) will by from other black marketers, thereby avoiding this tax, NOT PAY IT. Your assumption that a person’s crime habits stop with only one criminal action is very naive. Drug dealers, illegal immigrants, pirates and other criminal minds will find ways to avoid this tax too. Where there is a will there is a way. Stopping these ways creates bigger government and more intrusive agencies.
6. Who will be the first judge to rule that police and other law enforcement agencies have a perpetual warrant to search your home because there is perpetual probable cause you might have illegal items (untaxed items) in your home? To prove you paid the taxes on each item you must have your receipts for that item on hand, forever (right down to the smallest item). There are ways to stop this endless shoe-box of small papers: every item could have a stamp on it (and an entire bureaucracy to design and make unforgeable tax stamps). Or the government could just institute a cashless society to control your every purchase. If you think this is a fairy tale scare tactic teh fairtax.org website says outright that more audits will be held to keep people honest. That just proves my point in this question.
7. Who will be the first politician to suggest that used items ought to be taxed along with the new items?
8. Who will be the first politician to suggest, in a time of national emergency, that an income tax is necessary along with the sales tax? If you think the 16th Amendment will ever be repealed you dont understand the nature of government. Besides the 16th did not create an income tax or make one legal. All it did was remove a ban on the method of collecting the revenue of an income tax (subject to a census …to… no census needed) and to remove the necessity that the proceeds be apportioned among the states. We will have both taxes, guaranteed. I have an issue of the constitutionality of a national sales tax but i will let the court decide that matter.
9. After the IRS is gone which Alphabet Agency is gonna replace it? As much as the IRS is hated there has to be an agency of accountants to track the money and enforce the laws of the tax code. You would be getting rid of a purple monster and replacing it with an equally vicious green monster.
10. Who is the first politician to suggest that politicians get a free ride on the tax thing?
11. Are foreign airlines taxed too? If not, say bye bye to domestic airliners. And all the supporting industries like Boeing and Pratt & Whitney. Buy stock in Airbus and British Air. If foreign carriers are to be taxed that will be a policy nightmare.
12. On that line of thought what about foreign based services and markets.
13. Are stock purchases taxed? Think of the implications if politicians get to meddle with stock prices.
14. What about churches and religious orgs. or non-profit orgs? Current law says they are not taxed (nor should they be as separation of church and state dictates). Do they get special cards for no taxation (and how do you stop people from organizing under these umbrellas to avoid taxes). And if they get special cards will their purchases be tracked and logged?
15. Who is the politician that will suggest tracking purchases made by every consumer and making the database? This is inevitable to enforce the tax laws and curb black markets. If your family stops buying toilet paper for months the government has cause to search your home for toilet paper (the database gives probable cause), if you have TP but the database says you havent bought it in months you are guilty of tax evasion. Since there is no expectation of privacy in this area of life the government can track everything about you. If they implement the cashless society then gov’t power is total. If you say that the TP is not enough to send one to jail then you admit the FairTax is unconstitutional because you cannot enforce it, it you say throw the bum in jail you are making a criminal out of the ridiculous.
16. Here is the million dollar question: Under the FairTax how are we going to stop gov’t from the unmitigated growth it seeks to curtail? If you stop buying new items, they will tax used items to compensate, if you buy black market you go to jail, if you go overseas there is a 23% income tax on your paycheck (SEC. 905. (a) IN GENERAL- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.) AN INCOME TAX BUILT RIGHT INTO THE FAIRTAX LEGISLATION!!! Yeah, they’re gonna repeal the 16th hahahahahahahaha. Do you really think politicians read your angry e-mails? Do you think they care about what you think? Try emailing your congressman about something. All i get are form letters (and i’m lucky if they are even close to the subject i write about).
17. Who will be the first politician to suggest taxing business to business transactions? That will open up new and wondrous ways to tax businesses just as much as they are taxed today (maybe more). If they do get taxed will it be 23% or 34% or 50%?
18. Please explain one more time why they want to tax essential items like groceries? Dont give me the line about lobbyists, they are already there in DC and we see no evidence of these lobbyists in state houses trying to get products tax free. Besides once the ice is broken from amending the tax all hell will break loose (and i dont think the amendment has to pass either for the lobbyists to gather). Why not NOT TAX FOOD. Well that would eliminate the need to track you and your family via the prebate registration process.
19. Speaking of religion and prebates, what about those American citizens that believe the SSN or other ID number is against their religion? Do they just eat the tax? That sounds like religious discrimination to me. How is discrimination fair?
20. “But Apok, the FairTax is only 57 pages long while the current tax code is over 3000 pages long.” Well given that the current income tax started just as simple and ended with 3000 pages 80 years later doesnt foretell a good future for the fairtax in 80 years of accumulated amending (and it will be amended, repeatedly).

How do you stop it, really? The only true way to stop the gov’t is to vote, run for office yourself, or both. Changing the tax system is not the answer.
Every clear thinking American should never trust government. Always look at every proposal under its worse possible scenario (because it is likely to end up that way). Ask yourself: “What will Hillary Clinton do with this tax system?” “How would Al Gore manipulate this system?” Because in the end, Nothing is written in stone and everything can be changed.

Oh, Dale Smith check your last post about the 2141.30 being monthly. You start out saying the guy makes 9310 per year from income and 2141 per year in prebate then end with both amounts being monthly numbers. If a guy makes 9310 per year that prebate check is not gonna be put in a savings account that i can guarantee. And if he makes 9310 per month he is hardly strapped for cash. In this case the rich get richer (as they can afford to invest that 2141 per month instead of buying needed supplies) and the poor barely get by (only breaking even in the tax prebate). I just thought i would call your attention to your mistake.