Letters to the Web Editor

karen gray · Joined: 12 May 2008 08:57 am Posts: 19

Steve,

Haven't you even gone to your website to calculate your "prebate?" You need to provide consumer interest paid, mortgage interest, charitable donations, tuition costs...sound familiar? In other words, you need to do every month what we now do once a year.

As I suspected, you have no real answer to Bruce Bartlett's arguments, except to say he's wrong. For those just joining us, Bartlett eviscerated the national sales tax idea exposing the deceptive 23% "inclusive" rate, which is actually 30% or more. Bartlett was Bush 1's Under-Secretary of the Treasury.

You also have no answer for the CBO's estimates on an actual rate of sales tax needed that goes even higher. I'm being kind with 30%.

I went back to see what a married couple below the poverty line at, say, $18,000 a year get in your "prebate" check. It's about $391 a month. That is more than they pay in social security, which is about $135 or so. But, run through their budget for a month, rent, gas, water, power, food, phone, etc, and figure 30% more for all those things and see where they come out. the increase in prices far outstrips the check you're sending them, even after you subtract what SS and Medicare cost them.

As I said before, I have patiently laid out for everyone in other posts, the actual, effective tax rates for everyone right up to the top 1%. There is no quintile (sorry, Steve, tough word) wherein the average rate for both income and social taxes is over 21-22%.

Here comes the broken record...If you really want a break even tax system, you have to raise $3.1 trillion (Bush's latest budget request). Actually, to be fiscally responsible, you have to raise more to pay for this war and to provide Social Security for Boomers, and more importantly, Medicare. Medical inflation will eat your lunch. We'll save why for another discussion.

You also want to pay down some debt, since debt service is the 4th largest chunk of our national budget (roughly $226 billion). The debt, by the way, is $9.3 trillion right now, and closing in on parity with our GDP.

The old canard of simply cutting something like foreign aid or the Council for the Arts won't fly either to anyone who knows the budget. Cut away on these miniscule programs...fine with me. You're still in deep doo-doo. A suggestion...Google the US budget and look at the percentages. After what most of us would consider the essentials, you're left with about 35% of the budget to play with, and frankly, much of that is essential.

I'm trying to use facts and figures versus ad-hominem attacks, but this is growing fairly tiresome. Answer the bloody questions or stop posting. Tell me how you pay for all this? Don't continue this scam of a 23% tax without explaining how that's really calculated (as 23% of a price with the 23% already added to it).

Saying "your wrong, your wrong, your wrong" isn't an argument. This prebate was added to try to make this more palatable vis-a-vis the poor. So with income taxes as 43% of our national income, social insurance taxes nearly 35%, corporate taxes 14.7% and another 7% or so from other sources including excise, how are you going to get it done? And more importantly, how do you handle the inflation that's coming when the government has to start paying your tax as well? That $3.1 trillion will grow by the same percentage as your household bills, 30% or more.

It's a lovely, simplistic illusion. Fortunately, it doesn't have a snowball's chance...

Jeff Holberton · Joined: 19 May 2008 07:49 pm Posts: 19

Karen,

You stated:

"Haven't you even gone to your website to calculate your "prebate?" You need to provide consumer interest paid, mortgage interest, charitable donations, tuition costs...sound familiar? In other words, you need to do every month what we now do once a year."

The reason the fairtax calculator asks for those items is in order to simplifiy the math for you... THE PREBATE REMAINS THE SAME regardless of the information you provide. Try it... the prebate remains the same based on the number of household dependents... including yourself. That is why the fairtax is called the fairtax. A million dollar mortgage holder does not get a tax break on the interest of that mortgage. They pay the same amount of taxes based on their consumption... not earnings. I feel I haven't covered this enough but hope to have provided food for thought.

To keep the conversation going though consider this and answer this riddle for me:

I have a 11 year old son (which is true) and I would love to give him a gift of $20,000 (which is true but I can't... I made less than $30,000 in 2007 and don't have that money in savings). In order for me to donate that money too him I would have to earn $34,500 pretax. I am in a 15% tax bracket... I'm not going to go into deductions for this because every individuals situation is different. I got this tax bracket from wikipedia; feel free to google it. If I earn this $20,000, 58%, inclusive of my gross income of $34,500 or 67% exclusive. I then give my son $20,000 of my after tax earned income. The government then taxes this gift at 45% per the irs web site.
http://www.irs.gov/formspubs/article/0,,id=112782,00.html
My son's $20,000 gift is now $11,000 due to the 45% tax rate.
I started with $34,500... I was then taxed 15% of that. So now I have $30000 dollars. I give $20000 of that to my son. That is taxes at 45% so now he has $11000 and I have $10000. That is $21,000. I EARNED $34,500. $13,500 went to taxes. Inclusively that is 39% and exclusivly that is 64%. I'm in a 15% tax bracket?!?!?! In this example I did not include any deductions, I am not an expert in tax regulation or law. I don't claim to understand the tax code and I don't want too. I have historically paid accountants. I did not take into account the accountant costs associated with the taxes listed. Feel free to add them in and the tax rates, both inclusive and exclusive, will be higher. As a country we waste too much time of trying to figure out the tax code and that is one of the things the fairtax will rid us of.

David Nelson · Joined: 12 May 2008 12:27 pm Posts: 27

Karen, you wrote:

Haven't you even gone to your website to calculate your "prebate?" You need to provide consumer interest paid, mortgage interest, charitable donations, tuition costs...sound familiar? In other words, you need to do every month what we now do once a year.

You need none of those to calculate the prebate or the FairTax. To calculate the prebate you need three things.
1. How many people are in your household?
2. What are their social security numbers?
3. Are any of them in jail (won't be getting a prebate if incarcerated)?

The FairTax calculator you visited online is a tool used to compare your tax liability under the current system to the FairTax system.
If anyone reading would like to see what she is referencing, Google "Americans For Fair Taxation Calculator" to see it.
The calculator asks the questions you cited above so it can roughly figure your tax liability under the current system and thus give you an accurate assessment of what your liability would be under the FairTax.

DavidFL10

David Nelson · Joined: 12 May 2008 12:27 pm Posts: 27

Karen, you wrote:

As I suspected, you have no real answer to Bruce Bartlett's arguments, except to say he's wrong.

Which of Bartlett�s arguments have not been rebutted sufficiently. Some quick research will show that it has been widely disproved. You can begin by going to the Wikipedia entry for Bartlett under �Current Work�.
I will make a quick list of the first three and do as many as you want in future posts.

1. The FairTax was allegedly designed by Scientologists. This is utter nonsense. One of the original proponents of what would become the FairTax was Leo Linbeck. He recently wrote:
The FairTax was developed many years ago, totally independently of any other proposal, group or movement. It is a product of more than $20 million of advanced economic research, as well as detailed conversations with citizens as to their preferences defining the best possible national tax system. Many groups and individuals have agitated to replace the deeply flawed income tax system, including, apparently, the Church of Scientology. As a founder of Americans For Fair Taxation, I can state categorically, however, that Scientology played no role in the founding, research or crafting of the legislation giving expression to the FairTax.

2. Bartlett�s second point was one of the first instances where someone made the claim that FairTax.org was being deceitful by stating the inclusive 23% rate instead of the 30% rate. That took me and many other FairTaxers by surprise because most of us knew the difference and never imagined someone could think the way we used it deceptive. Throughout the FairTax documentation, you will see the 30% number used when discussing how much will be added to the pretax price of any individual item and the 23% number used when discussing the total liability of an individual. A one-dollar widget will ring up as $1.30 at the register, but the inclusive 23% is the only way that makes sense to talk about a person�s total tax liability. If you have $1000 to spend and spend it all on new goods and services, you will pay $230 (23%) in taxes as you buy $770 worth of goods. Since the Bartlett hit piece, I�ve seen countless people say that when you spend $1000, you�ll pay $300 in taxes. To do so would mean you would have had to start with $1300. This shows not deceit on the part of FairTax.org, but a misunderstanding of a relatively simple fact of mathematics.

3. His next point is that if the Feds buy a $1,000,000 tank, the manufacturer will add $300,000 FairTax to the cost of the tank. In part he is correct on this point. What he doesn�t tell you but knows full well is when we buy tanks under today�s system, there is enough built into the cost of the tank to pay every employee�s payroll and income taxes, and the corporation's corporate taxes, and the corporation�s costs of complying with the current system. In the first two instances, the Federal treasury is already doing exactly what Mr. Bartlett claims will be a new phenomenon under the FairTax. The money paid to the corporation and then collected back as payroll taxes and corporate taxes are already an accounting trick�a necessary one to accurately account for money spent and collected. Might federal spending go up some as a result of the migration to the FairTax? Very likely. But certainly not by the full 30% he disingenuously claims.

David Nelson · Joined: 12 May 2008 12:27 pm Posts: 27

Karen, You wrote�

You also have no answer for the CBO's estimates on an actual rate of sales tax needed that goes even higher. I'm being kind with 30%.

I�m not sure which CBO study you are citing, but I can tell you most estimates that conclude the rate to be higher are not talking about the FairTax as written or they over estimate the cost of the government taxing itself. They often include the belief that politicians will begin exempting various items and services from the FairTax before passing it. If we allow them to do that, our country is already lost. The only reason the FairTax works is because it eliminates the opportunity for the powerful to carve out their own exemptions and exceptions to taxation. Some studies also ignore the significant drop in compliance costs, and decisions made by corporate directors that are based on tax ramifications instead of what is best for the company or the US economy.

To see several interpretations of the most exhaustive study on the rate, Google �FairTax what rate works?�.

David Nelson · Joined: 12 May 2008 12:27 pm Posts: 27

Karen, you wrote:

I went back to see what a married couple below the poverty line at, say, $18,000 a year get in your "prebate" check. It's about $391 a month. That is more than they pay in social security, which is about $135 or so. But, run through their budget for a month, rent, gas, water, power, food, phone, etc, and figure 30% more for all those things and see where they come out. the increase in prices far outstrips the check you're sending them, even after you subtract what SS and Medicare cost them.

The family consumption allowance or prebate will be calculated by multiplying the rate times a figure that is basically two times the single poverty rate (technically higher than the poverty rate for a couple, but using double the single person rate eliminates any �marriage penalty� and treats all two-adult households the same regardless of marital status). Google �FairTax prebate chart� to see 2007 rates. You must use the same figure when calculating what they will pay in taxes that you use in calculating the prebate.
I will use the inclusive rate of 23% and assume first that this couple spends every dime on new goods and services. Their exact budget is irrelevant; the total is what matters.
--If a couple lives on $18,000/year, that means they spend $1500 per month of their own money.
--To that figure, the federal treasury will add $399 for a total of $1899 available to spend each month.
--As they spend $1899, they pay $437 in tax as they get $1462 worth of �stuff�.
--Since we gave them $399 to mitigate their burden, their total tax was $38 per month.
--Their effective tax rate will be 2.5%, far less than the $115 (7.6%) they pay in payroll taxes now.

What if they own their home and bought a home that was previously used? Their house payment will be almost completely without tax consequence (a couple bucks a month will be considered tax on the service the mortgage company is providing). If their house payment is $500, the numbers now change to:

--Our couple now spends $1000 per month of their own money on taxable goods.
--To that figure, the federal treasury will add $399 for a total of $1399 available to spend each month.
--As they spend $1399, they pay $322 in tax as they get $1077 worth of �stuff�.
--Since we gave them $399 to mitigate their burden, their total tax was $-77 per month.
--Their effective tax rate will be negative, even further less than the $115 (7.6%) they pay in payroll taxes now.

Do you see what happens if they buy used furniture, a used car and/or used clothing?

You have the misperception that this family will be struggling far worse off under the FairTax and that simply is not true. This scenario, by the way, doesn�t address any drop in prices due to embedded taxes and costs. Any drop at all (every economist who looks at it agrees there will be some drop) further increases this couple�s real purchasing power.

DavidFL10

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