Letters to the Web Editor

Steve Keller · Joined: 13 May 2008 10:22 am Posts: 17

I get so tired of hearing the FairTax proposal is really a 30% tax not 23%. I don�t understand what is so difficult to understand. If you cut an apple into 100 pieces, and you give Bill 77 pieces and Joe 23 pieces, Bill got 77% of the apple and Joe got 23%. If something costs $1.00 the seller will receive 77-cents and Uncle Sam will receive 23-cents. Currently if the total amount of taxes withheld from your paycheck is 23%, your dollar just become a 77-cent dollar. If you buy something that cost $1.00 it will take one of your 77-cent dollars and 30% of another. If you say the FairTax is 30% then you must also say a 23% income tax is really 30%. If you say 23% is a deception of the FairTax, you must say a 23% tax under our current system is deceiving. When you add in all the imbedded taxes it really becomes deceiving. The bottom line is this; if we must pay taxes a consumption tax is the fairest way. It includes everyone and there is no double or triple taxation as there is under our current system. Yes, revenue will be lost because of cheats, but will the amount be greater than under our current system? I don�t think so. The only ones who can cheat are the ones selling the goods or services. The penalties will be stiff if they don�t send 23% of their gross sales it Uncle Sam. All you opponents of the FairTax remind me of everyone who said the automobile would never replace the horse and buggy.

karen gray · Joined: 12 May 2008 08:57 am Posts: 18

Steve,

Here's why I'm saying the national sales tax must be at least 30%. I hate repeating myself, but it apparently isn't sinking in. We have a $12-13 trillion economy. That is our GDP...that is everything economically we do...that is the most you can tax...get it? I won't go into the fact that this was originally proposed by the so-called Church of Scientology in the early nineties as a way to get rid of the IRS, according to Bruce Bartlett in the WSJ, let's deal with numbers.

Our national budget will be $3 trillion this year. To pay that and not run the kinds of deficits we are running, you need to raise that much. And I'm being kind in not including the unconscionable practice of paying for the war off-budget, or paying down the debt, or solving our social insurance problems.

Let's begin with the deceptiveness of the "tax inclusive" idea." I'll just quote Bartlett here...

"In reality, the FairTax rate is not 23%. They get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other (This is called the tax-exclusive rate.)

The distinction is confusing, but think of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%.

This is only the beginning of the deceptions in the FairTax. Under the Linder-Chambliss bill, the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax and send it to the Treasury Department. The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher."

This legerdemain is done solely to make revenues under the FairTax seem larger than they really are, so that its supporters can claim that it is revenue-neutral. But for the government to afford to purchase the same goods and services, it would have to raise spending by the amount of the tax it pays to itself. The FairTax rate, however, is not high enough to finance the higher spending it imposes. Therefore the proposal only works if federal purchases are cut by 30%, close to $300 billion--the increased cost imposed by the FairTax.

Similarly, state and local governments would have to pay the FairTax on most of their purchases. This means that it is partly financed by higher state and local taxes. It's also worth remembering that state sales taxes now average 6%, which means that the total tax rate will be 36% on retail sales.

The sales tax folks say they will send a monthly rebate check to the poor based on income. Who keeps track of that, and how much will it total?

A 2000 estimate by Congress's Joint Committee on Taxation found the tax-inclusive rate would have to be 36% and the tax-exclusive rate would be 57%.

In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion).

Given the actual taxes paid by real people in the real world that I have presented a couple of times before, this is a huge tax increase on everyone, even the wealthy. Steve, your comment that we all have 23% taken out of our checks is just silly and has no bearing on reality. One simple Google search will help you see what we actually pay.

And by the way, Bruce Bartlett was Under-Secretary of the Treasury under Reagan and Bush Sr.

Simplicity is very seductive. But this one is just a bad idea.

Karen

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Letters to the Web Editor