Thursday, December 21, 2006

CommuNity ColumNist - The "FairTax"

by Kyle Michaelis
Gary Brown of Nebraska Fair Tax has expressed a desire in starting a discussion with Democrats and progressives about the merits of doing away with the federal income tax and adopting a so-called “FairTax” (aka national sales tax) tied to personal consumption.

Brown and his organization achieved some minor celebrity in the 2006 Senate campaign as challenger Pete Ricketts and the Nebraska Republican Party attempted to use correspondence between Sen. Ben Nelson and Brown to portray Nelson as a hypocrite who’d newly adopted a hard-line stance against the national sales tax just to score political points.

Over the summer, Nelson’s campaign used selective but substantiated quotes to characterize Ricketts as supporting a national sales tax that would require a federal surcharge of 30% on every good bought and sold. Ricketts denied the charge, claiming such statements were taken out of context. Yet, he would not go on record in opposition to such proposals, refusing to take any options for tax reform “off the table.”

Nelson successfully parlayed this posturing into a wedge issue that contributed effectively to Ricketts' "Wall Street Pete" persona, particularly with Nelson's claim that a national sales tax would benefit the wealthiest 5% - people like Ricketts and Nelson - to the detriment of 95% of Nebraskans. Brown and other "FairTax" proponents dispute these figures.

In his letter to Brown from May of this year, Nelson expressed serious concerns about moving to a consumption-based tax but encouraged further debate in Congress on the issue. Three months later, in his first debate with Ricketts, Nelson explained that relative receptiveness as a polite gesture that seemed better than telling Brown “where to go.”

The New Nebraska Network hopes to show Mr. Brown a little more respect than that. And, hopefully, readers will provide him the fair critique and open debate he supposedly desires. So, we present:

Gary Brown on
Why the "FairTax" is the Fairest Tax


The election is over, so how about some honest debate over REPLACING the Income Tax system.

Here are the FACTS. To replace the current 60,000 page Code the FairTax proposes TWO simple rules.

Rule 1:23% of the cost of all new, retail products and services will go to the U.S. Treasury as a National Retail Sales Tax. What is NOT considered a retail purchase? Used items, businesses expenses, investment expenses, educational expenses and basically anything not CONSUMED by an individual consumer.

No more IRS confiscation of 20 – 30% of your income. Your GROSS pay EQUALS your NET pay.

Rule 2: Every American is forgiven the first 100% of all sales tax attributed to poverty-level spending. Simple math guarantees that effective tax rates that now range from 15% to 35% will FALL DRAMATICALLY into a 0% to 23% range. Every American is treated the same. No loopholes, no special tax breaks.

There are no other rules. If you doubt me read the plain-English version of the House Resolution (HR25) (also at www.nefairtax.com) or look up the full legal version if you are a lawyer.

Let’s look at the main problem areas with the current Code that the FairTax solves:

*1*The current system is terribly REGRESSIVE to lower-income Americans. The FICA component of withholding is a set rate for every working American up to $92,000. And the lower your income the higher percentage you pay in higher prices caused directly by corporate income taxes. I call the current system a SERFDOM TAX.
The FairTax is infinitely more PROGRESSIVE in that no American pays any tax till they spend above the poverty level, and then rises slowly the more affluent your lifestyle choices are.
*2*The current system allows over 1/3 of Americans to escape paying income taxes. Millionaires can escape income taxes because they don’t earn a paycheck and can pay lawyers to shelter their money. Criminals don’t pay income taxes because they don’t claim income. Some folks that work for cash don’t report all their income. And ALL of us lawfully taxpaying working saps pay a good 30% more just to make up for the free-loaders.
The FairTax collects all Federal taxes at the register when you make a retail purchase. Hard for anybody to escape that. And if a business (legal or otherwise) sells to you wholesale (no sales tax) then they had to ultimately buy their merchandise retail themselves so they likely paid sales tax.
*3*The current system incurs close to 20% in totally wasted overhead just to maintain the system. Taxpayers pay $2.5 TRILLION in Federal taxes and tax compliance (tax preparers, lawyers, time spent filing returns, etc). The U.S. Treasury collects $2.0 TRILLION in actual taxes. That’s $500 BILLION in payments for nothing other than paying tax preparers, lawyers and lobbyists.
The FairTax has NO overhead. The only taxation is via the Retail Sales Tax. No tax filing. No deductions. No loopholes.
*4*The current system inflates the prices of ALL goods and services sold in the U.S. and exported abroad by up to 20%. How do you think corporations pay for the production costs that are Federal Taxes, payroll taxes, tax accountants, lobbyists and tax lawyers? It’s built into the price of their product.
The FairTax charges sales tax on retail sales only. There is no corporate taxation so retail prices will be 15-20% lower. Even after the sales tax prices won’t be much higher than now. Imports cost more because the sales tax applies. Exports aren’t consumed in this country so there is no sales tax. Fantastic for our balance of trade.
*5*The current system hides government taxation rates. No American knows how much tax they pay the Federal government in Individual Taxes, FICA Taxes, Corporate Taxes, etc.
The FairTax makes all Federal taxation 100% visible every time you look at your sales receipt.
And the FairTax is the ONLY plan on the table which actually solves the biggest looming financial disaster that EVERY economist agrees on: the solvency of Social Security and Medicare.

So let’s debate the actual FairTax plan, not the imaginary plan politicians and tax lobbyists make up to scare you.

All true Fair Tax supporters ask for is a public debate. We feel confident that our proposal can withstand any TRUE scrutiny.

This is just a taste of the benefits of the FairTax. I urge everyone to investigate this plan. There is info all over the web – pro (mostly truthful) and con (mostly lies). The NE source for info is www.nefairtax.com and the official national site is www.fairtax.org.

Thanks for your time.

Gary W Brown

A longer, more complete version of this article written with the express purpose of encouraging debate with Democrats on the FairTax can be read here.

42 Comments:

Anonymous eric said...

The 23% tax is only the rate of the tax when considering the post-tax total of the retail sale. If you consider the pre-tax rate (that is, the rate that is added to the total cost before taxes - which is what most of us are used to with state sales tax, etc.), the tax rate is 30%. With state and local sales taxes, in some areas in Nebraska, the total sales tax you'll be paying will be 37%.

It is true that FICA is a regressive tax, but so is the FairTax. The rebate up to the poverty level will help offset the costs to the lowest income earners, but the biggest burden will be shifted to the middle class. The middle class won't be saving nearly as much as higher income earners, and so they'll spend a larger percentage of their income meaning they'll be taxed at a higher effective rate than their richer neighbors.

The progressive income tax is the most just tax because those who have money pay more taxes. If we're worried about the loopholes, lets create a simpler tax code without them. If we're worried about the regressive FICA tax, lets get rid of the lid or make the rate matched to income.

12/21/2006  
Blogger Kyle Michaelis said...

I appreciate Mr. Brown's contribution to this forum and was happy to publish it because he seemed genuine in wanting the opportunity to share a viewpoint that was much maligned but little discussed in the last election cycle. Nevertheless, readers should in no way take publication of this article as NNN's endorsement of Brown's proposal. Quite the opposite, in fact.

But, if Democratic and progressive voters want debate of issues that are important to us, we have to be willing to be challenged ourselves. By refuting the grounds on which we generally place our faith in the progressive income tax and by suggesting the so-called "FairTax" as a more progressive alternative, Brown provides just such a challenge....even if I do ultimately find his arguments unpersuasive and illogical.

Indeed, the Federal Income Tax code is certainly too full of loopholes and needless complications, but I fail to see why this suggests abandoning the entire system rather than simplifying and reforming it to cease its catering to corporations and special interests.

Nothing Brown writes in either his short or long article persuades me that there is anything unfair about progressive taxation based on income by which higher wage earners pay a higher rate. The thrust of Brown's argument seems dependent on some resentment of the federal government's taxing income, as if the mere idea were some grave injustice.

There may be something sacred about income - the fruit of ones labors - but, in a democratic society where the individual does have responsibilities to his or her community, income might just as well be held the most natural measure for taxation as the least. The people can decide that for themselves….doing so through their elected representatives, not to mention the enactment of the 16th Amendment.

Ones economic situation is best reflected by how much they earn, not how much they spend. And, we all face fixed costs in our day-to-day lives that are by no means a matter of choice. Brown supposes that paying ones utility bills and purchasing groceries are matters of choice that should be freely taxable, yet - somehow - how often you work and how much you earn is not. Philosophically, the distinction does not hold water.

Would Brown really propose a system under which buying a loaf of bread is the same as buying a yacht?

Moreover, the idea that Brown's proposal represents any sort of simplification of the system that exists at present is also tenuous - if not flat out ridiculous on its face. Brown acts as if all reporting requirements and transaction costs would be eliminated by a national sales tax, but it's just plain foolish not to recognize the ungodly oversight that would be required to make such a system work.

Brown completely fails to acknowledge the string of exceptions to the tax, promising NO EXCEPTIONS at the same time as he promises used items, businesses expenses, investment expenses, and educational expenses will not be taxed. Those exceptions would require justification and verification - oversight that only the government can provide unless Brown's trusting its sole source of revenue to the honor system. Goodbye IRS - Hello IRS. Meet the new boss, same as the old boss.

Brown also proposes a system of expanded government pay-outs ("reimbursements") that would go to every American, regardless of need, to compensate for the federal sales tax up to the poverty line. I don't know whether to attack that as the national welfare program it’s disguised as or the exercise in right-wing hypocrisy that it is.

Amazingly, Brown uses the cap on FICA to damn the entire Income Tax as "regressive." That's just selective nonsense. If Brown were troubled by this fact and genuine in this argument in the slightest, he would support removing the cap on FICA - perhaps even making payroll taxes progressive for high wage earners - not scrapping everything for a pie-in-the-sky scheme that doesn't even sound reasonable on paper.

Brown's claim that the "FairTax" is "fully progressive" is just plain dishonest - the fact that it makes an allowance for poverty-level spending for all Americans regardless of their economic situation makes it anything but progressive. In fact, it's the spending equivalent of the earnings-based FICA tax that Brown’s already attacked as "regressive" by the exact same logic.

What utter absurdity. And, the more I think about it, the more insulting it is.

Even allowing Brown to use the term "FairTax" is rather unsettling because it is such empty and manipulative rhetoric. Like calling the estate tax the "death tax," it is a loaded term - here, reinforcing the notion that the federal income tax is somehow unjust or NOT FAIR. Holding Brown's arguments up to scrutiny, that's all he's got, and it's a notion I reject entirely.

This could go on forever. There are so many further arguments to be made against Brown's proposal that I don't have the time or the inclination to monopolize them all. But, I certainly invite readers to take a crack at it - or even to improve and expand on the hurried arguments I've already put forward. If there are things you like about Brown's proposal, hell, share those as well.

How about that destruction of the entire Social Security and Medicare systems – you like that?

What I haven't touched on at all are the numbers Brown uses - his magical 23% that even daring to question marks you as a liar. But, Brown should consider that maybe the reason his "FairTax" has failed to get any steam is because THE NUMBERS DON'T ADD UP.

Brown can't say with a straight face that his proposal is revenue-neutral (would bring in the same money to the government as currently). He has no frickin' clue, and neither do I. But, estimates are out there that, to be truly revenue-neutral, a national sales tax might have to be 2 or even 3 times greater than 23%, leaving Sen. Ben Nelson in pretty good stead just sticking with 30% to portray this unpopular and unfeasible plan for the fraud that it is.

12/21/2006  
Anonymous eric said...

As I said before, the 23% number is a tax-inclusive figure. That means that if you bought something that costs $1.00 (with taxes included in the total), 23 cents go to the government. However, this 23 cents constitutes a 30% tax-exclusive surcharge on the cost of the product which is only 77 cents. That's what Nelson was talking about. Since most sales tax is shown as a tax-exclusive figure, the FairTax people should be quoting the 30% figure not the 23% tax-inclusive figure. It is quite misleading. If you claim that it will take more than 23% to remain revenue-neutral, then it is going to be way above the 30% surcharge number.

By the way, I noticed that former Senator and Democratic Presidential Candidate Mike Gravel is pushing the FairTax as part of his platform. He previously argued for a guaranteed "citizens wage" but I don't think this is the way to achieve it.

12/21/2006  
Blogger Gary Brown said...

Wow, Kyle. Thanks for the opportunity but I hope you aren't as angry as you sound.

The FairTax is 23% inclusive rate, as Eric pointed out. This equals approx 30% exclusive rate, as he also points out. Noboby on our side has EVER denied that. What we can't fathom is how a plan to REPLACE the Income Tax code is asked to express its rate in EXCLUSIVE terms while every income-based tax (personal, FICA, corporate, etc) is expressed by its INCLUSIVE rate. We want to compare apples to apples while apparently opponents want to compare apples to oranges or something.

To your specific attacks.

The Constitution expressly forbade any direct taxation of citizens, such as a direct tax on their income. Does that mean you think Jefferson and Franklin were right-wing fanatics?

Please tell me how taxing REPORTED income rather than accumulated wealth is a better deal to anyone except the rich or criminal.

One's economic situation is best measured by their overall wealth, certainly not by their current income. I find it hard to believe anyone could think otherwise.

And yes, I do think buying ANYTHING is a choice, be it a loaf of bread or a yacht. I guess that opting for a lower-paying job to cut taxes is a choice but its one noone should ever make.

Tell me how the numbers are wrong. At $20K FICA alone eats up approx 15% INCLUSIVE (20% EXCLUSIVE) of a poor family's paycheck. Half in direct withholding and the other half in lower wages because his employer has to pay it as payroll tax. Under the FairTax that same worker has $0 withheld and assuming he spends all $20K for retail purchases he'd pay $4,600 in sales tax. But for that year (assume family of 4) they get $4,400 of the dreaded prebates. The reason of the prebate is pure progressivity. That family's effective tax rate was around 18% INCLUSIVE (23% EXCLUSIVE) and is now 1% INCLUSIVE (1.5% EXCLUSIVE). How does that not help the poor up the economic ladder?

A final question. If Teresa Kerry has $500 million but no current income how come she gets to pay 0% taxes on their yachts but that family at poverty level has to pay 18% on their subsistence-level lifestyle?

12/21/2006  
Blogger Gary Brown said...

The more I think about it, Kyle, I am the one who finds your math strange. I challenge you to mathematically dispute that the FairTax is FAR more progressive than the current Code.

Individual Income Tax (about 45% of the total 'take') does have progressive rates. Everyone pays the same rate for the rest (ie FICA and inflated costs due to Corporate Income Taxes). Thus, the lower the income the greater percentage of that income is spent on the tax components.

Under the FairTax, every American pays the same rate for the national sales tax BUT then is reimbursed a FIXED amount based on family size. Thus, the lower the income the GREATER is the percentage of that tax bill that's offset.

The definition I find in the dictionary for Progressive Tax is: A tax that tends to take a smaller percentage of the incomes of lower income citizens compared to the percentage it takes of the incomes of wealthier citizens.

Is your definition different?

12/21/2006  
Blogger Kyle Michaelis said...

Gary-

Thank you for joining us and for continuing this debate. Your point about wealth/assets being a more accurate reflection of economic status than income itself is well-taken. I couldn’t agree more. That’s why the estate tax – another truly PROGRESSIVE tax you fail to mention – is and remains so indispensable. Yet, those who would label it a “death tax” – including our own Sen. Ben Nelson – have targeted it for destruction to serve the interests of only the wealthiest 2% of Americans.

So, by all means, I’m glad you brought up the taxation of wealth. My worry, however, is that it’s just a cynical ploy to attract support to your “FairTax” rather than an expression of heartfelt concern. Otherwise, I think your time would be better spent and your principles better served by defending the estate tax as an essential component to a true fair tax system. Taxing the cross-generational transfer of wealth is certainly a better way to ensure that Theresa Heinz Kerry pays her fair share than simply putting a federal surcharge on the next loaf of bread she buys.

The diverse system of taxation we have now is by no means perfect, but it does have mechanisms to capture revenue from all Americans. Of course, there will always be cheaters – meaning there will always be need for verification and enforcement. Claims that a national sales tax would eliminate or even reduce such costs are simply unfounded.

It’s amusing how you’ve turned a blind eye completely to the existence of the child tax credit, not to mention the Earned Income Tax Credit, both of which work to the benefit of low-income families far better than your extremely regressive “FairTax” proposal.

As for FICA (payroll taxes/Social Security & Medicare), if you’re genuine in your concerns about it being regressive, I fully encourage you to fight for reform of the current system (especially raising the $92 K cap). That’s a battle in which I’d gladly fight alongside you. But, that’s unlikely, isn’t it?

If you don’t mind my asking a question that isn’t rhetorical, would you care to explain how funding of Social Security and Medicare would possibly be less regressive under the national sales tax when the entire burden of these programs would then be placed on the beneficiaries? Right now, employers and corporations pay half of the contributions to keep these programs running. The “FairTax” let’s them off the hook entirely, passing the buck entirely onto consumers (and their loaves of bread).

Be honest, how much of your support for the “FairTax” is because you know it would be the death of the federal government as we know it? How much of your support is because it would destroy Social Security, Medicare, and everything they stand for?

12/22/2006  
Anonymous eric said...

I have a few questions for Gary. Will the FairTax lower the amount of taxes paid by the wealthiest 10% of Americans? What about the top 10% of income earners? If the answer is yes to either of these questions and we run with the premise that the FairTax is revenue neutral, to where does the burden get shifted?

Furthermore, how much are you willing to compromise to make the FairTax more progressive? What would you think about issuing the prebates at twice or three times the poverty level? Is there any room for negotiation, or is it all or nothing? What are your personal opinions, and what would guess are the general feeling of FairTax supporters? Thanks.

12/22/2006  
Blogger Gary Brown said...

I am not demeaning the sincerity of any of you so would ask that my sincerity not be attacked.

I do not think that Estate Taxes are in any way fair. I have Conservative friends who strongly feel the same as you do on this, Eric. However, to me it boils down to why do you get the right to take money from me (if that money has been legally made and taxed) solely because you think that I have 'too much'. That is Socialism, my friend. If I want to leave a billion legally-earned dollar estate to my kids then who are you to say I can't.

We'll just have to agree to disagree on that. I am a Libertarian and a Capitalist and will not waver on those ideals.

Under the current system approx 30% of Americans pay nothing or near nothing in Federal taxes. Noone has either disputed these IRS figures or explained why you think it acceptable for us law-abiding taxpayers to subsidize these criminals.

And you are correct that I ignored the EIC but that's because I don't really understand how its calculated. Please give me some examples (in actual numbers) of how the EIC is more progressive than the 0% effective rate for poverty-level spending. I would like to check them out and start working EIC figures into my examples.

The 23% rate was determied this way. The inclusive rate was determined by various economists to be between 17 and 18% (inclusive) of the consumption base (approx $10 Trillion). We fully agree that a straight consumption tax is highly regressive so to ensure that noone pays any Federal taxes on purchases up to the Federal poverty level the rate had to be raised to 23% to allow for the family-consumption allowance (prebates).

The reason the prebate covers all taxes up to poverty-level and not higher is because to negate taxes at a higher level would mean the rate would have to start getting astronomical for everyone else. I consider purchases to support a family at poverty-level to be neccessary for life and thus a tax on families at poverty-level (which we have under current system) is a tax on the right to live. That is wrong! Americans should pay taxation on what they CHOOSE to purchase above-and-beyond neccesities. The more 'above-and-beyond' you can spend the more you are enjoying this society and thus the higher tax rate you should pay.

Eric, you asked about SS and Medicare (maybe other questions I missed, sorry). There is no doubt that SS cannot be sustained past 2040 without significant FICA rate hikes and benefit cuts. Same for Medicare but worse; it'll reach critical proably around 2020. The reason is simple math again. FICA is paid ONLY by wage earners who actually pay their taxes. That group is shrinking relative to SS/Medicare beneficiaries and will continue to do so unless we have a massive dying of Seniors. I'm 49 so I don't like that option. By going to a consumption base ($10 trillion vs about $5 trillion) that includes as a subset those very FICA beneficiaries there is no more funding crisis for these programs. HR25 earmarks as part of the legislation 30% of collected revenues to fund what is now FICA. And don't even start on how Seniors shouldn't be part of the same base they are pulling off of. If they are really poor then the prebate will offset most everything they pay in taxes anyway.

That fact alone (solving the SS/Medicate trainwreck) is enough reason to switch to the FairTax or something along same lines.

Raising the FICA cap accomplishes next to nothing because that does NOTHING to address the actual problem (population demographics). All you'll do is kick the can down the street for another half-dozen years or so.

I am making some assumptions in all this that are common sense but maybe someone reading this needs clarification. FICA and straight consumption taxes ar REGRESSIVE. FICA because of the $92K cap. Sales tax because people that spend a higher percentage of their wealth (vs saving/investing) end up paying a higher percentage of that wealth as tax. ANY taxes (or compliance costs) paid out by businesses are passed 100% to consumers. I don't care if its FICA or what. Businesses only collect taxes in the form of higher prices. If anyone thinks otherwise then you will likely not see the wisdom of any of this. But the same people are not thinking clearly anyway.

And Eric, I would think the top 10% wealthiest would pay more (if they buy stuff). Top 10% of income earners is irrelevant since this is meant to take WEALTH and not INCOME. I still say that you buy stuff with wealth and that income only adds to that wealth.

And the burden gets shifted by the fact that you double the taxable base, stop wasting $500 billion a year in tax compliance, and start making taxpayers out of the 30% of socity that currently cheats.

This is really great and I am enjoying it immensely. Hope more than just the 3 of us are reading it though.

I'll close this posting with words from Plato. 'When there is an income tax, the just man will pay more and the unjust less on the same amount of income.'

12/22/2006  
Anonymous taxed fairly enough said...

The Bush Tax Commission outright dismissed the "FairTax" as regressive and damaging to the economy. They studied it. That's what they decided.

I find it funny that Mr. Brown is now admitting that the FairTax is a 30% tax. I am pretty sure he attacked Ben Nelson for using that number in his ads.

So I guess Ben was right?

12/22/2006  
Blogger Gary Brown said...

You think wrong. I never said Sen. Nelson was wrong about 30%, but did point out that 23% inclusive and 30% exclusive are the exact same amount of money. Where he was outright dishonest was in using that quoute about 95% of Nebraskans paying more stuff. The ITEP report states clearly that the figures they ran on all 50 states were using the undisclosed computations of a national sales tax plan that ITEP MADE-UP to try and accomplish the same stated goals as the FairTax. You also never heard Sen. Nelson say that the 95% figure he threw around was the result of the FairTax but an unspecified term 'National Sales Tax'.

Sen. Nelson's implication was dishonest in my opinion, but he carefully worded all his attacks. I advised Ricketts' handlers to force the issue by having Pete explicitly say he was interested in 'The FairTax' so the Senator would have to explicitly address that. Instead, the Pete Ricketts campaign ran from the issue and appeared like they had something to hide.

I was not happy with the Ricketts campaign. The last time I communicated with them they started running Turkey-shooting cartoon ads rather than even trying to address issues.

So don't try and tar-n-feather me by the Ricketts association.

Seems to me that I am laying out specific facts (that we certainly can argue about) but am mostly getting very vague unsupported 'cliches' in opposition. As: 'You just wanna kill SS and Medicare', 'It really isn't progressive even though I can't really say why' and 'You should have to quote exclusive rates but we only have to quote inclusive rates because we just want it that way'.

Somebody give me scenarios using actual figures. But please use the TWO written FairTax rules and don't pull some made-up rules out of thin air like the ITEP geniuses did.

Example of the the ITEP fantasy land: for NE they showed the bottom 20% income class having to pay over 50% tax rate. HR25 CLEARLY says the prebate for every citizen will cover all poverty-level sales tax. So that is 0% tax rate. This is the crap the Nelson campaign spouted hoping (and realizing I guess) that noone would actually read the report or the text of HR25.

As to the President's Tax Weasels, the report (which I read at Sen. Nelson's urgings and I thanked him for that) never says anything about it being regressive. They questioned the fact that it would actually tax Government consumption in the same manner as private industry. They also thought Federal black markets would grow based on statistics from past State sales tax increases. And finally, they were guilty of a systemic Federal shortcoming in that they graded all the considered tax systems using STATIC (vs DYNAMIC) scoring.

The Weasel Commission report is just plain bad analysis and we can debate that too but only if you've actually read it. Just by the fact that the Treasury does not use DYNAMIC scoring of their economic models skews most any tax info you get out of Washington. Basically, this means that aspects which have a positive impact on economic activity (greater disposable income, more investment dollars, lower interest rates, etc) are not taken into account.

12/23/2006  
Anonymous Anonymous said...

I'm absolutely shocked that no one has pointed out to Mr. Brown that his proposal is totally unworkable. Assuming a 30%, or even 23% or, hell, even 20% sales tax, there would be massive efforts to avoid the tax - black markets, off-book sales. That would of course lead to higher tax rates just to maintain revenue neutrality (btw when the Bush tax commission looked at this, they found it to require a tax rate more like 50-80%.

Not to mention that it would create the largest entitlement program in the history of this country - an annual check to every man, woman and child in America (who would track homeless citizens? a huge new bureaucracy.) This is a strange notion for so-called conservatives.

So aside from the fact that sales taxes are inherently unprogressive, that it would disincentive aspirational goals such as charitable giving and mortgage deductions, and that it would have to be much larger than Brown insists to even make ends meet, this idea would never, ever, ever work.

12/23/2006  
Blogger Eric said...

Gary said,

"why do you get the right to take money from me (if that money has been legally made and taxed) solely because you think that I have 'too much'. That is Socialism, my friend. If I want to leave a billion legally-earned dollar estate to my kids then who are you to say I can't."

I'm also a capitalist. Nobody thinks you make "too much" money and is trying to penalize you for it. The beauty of our system is that no one says you can't make as much money as you want. The progressive stance is simply to ask those who have benefited most from the system to shoulder more of the cost of financing the government. It is gross hyperbole to suggest that this stance is socialist.

$1000 in taxes to someone who makes $10000 a year is an astronomically higher burden than $10000 is to someone who makes $100000.

Also, in my question about the top 10% earlier, I wanted to know if they'll pay less taxes than they pay now. If so, and the tax remains revenue neutral, you're asking some group to pay more than they pay now. I'm just wondering who it is that will pay more than they pay now.

And do you really think 30% of people cheat the system out of paying all taxes? What is this based on?

12/23/2006  
Blogger Gary Brown said...

As I already said, I have Republican friends who think like you guys do on Estate taxes, but I never will. Let's just accept that as a philosophical difference.

Treasury Dept estimates of uncollected yearly tax revenue. $400 BILLION from off-the-books (ie shadow) economy. Legal activities where INCOME is not reported. Examples - hot dog vender, stadium beer seller, lawn care, other cash businesses). $300 BILLION from criminal activities. Examples - drugs, prostitution, porn.

Tax receipts for 2005 were slightly over $2 TRILLION. So $700 BILLION / $2 TRILLION = approx 30%.

I didn't manufacture any of these numbers for some nefarious purpose.

The question (or accusation) is that I didn't point out that black market sales would skyrocket, thus negating the sales tax component. This is pointed out by critics who always hush up when they in turn are asked how this is to occur. For a black market to occur the 'sellers' have to obtain the product. Short of theft or smuggling (which is a current law enforcement concern and will still be around) the product will have to be purchased RETAIL by the 'seller'. At that time of purchase sales tax is collected. The ONLY 'sellers' which can escape sales tax are those who buy at WHOLESALE and their inventories then come under regulatory radar.

The Tax Commision cited (I'll drop the rodent descriptor) said that based on past experiences of increase in State sales tax rates black markets increased in that products were purchased at wholesale in the high-tax State and then sold in the lower-tax State. In a National level, this is nowhere near the problem except at the Mexican and Canadian borders. It still boild down to an enforcement issue.

The Feds will solve enforcement issues if their tax dollars are at stake. Maybe a byproduct will actually be enforcement of our borders.

12/23/2006  
Blogger Gary Brown said...

Eric #1 (is there an Eric #2) - It sounds like Sen Nelson's question to me when you (and he asked) who ends up paying more if the poor actually pay less.

The answer is that current non-payers pay more (a lot more). I have no sympathy at all for such people because my tax bill is currently inflated substantially in order to make up for their 'skating'. Those will be the 'losers'. ALL of us current taxpayers are the 'winners'.

Sen. Nelson never acknowledged me when I answered his question to that subject. Interestingly, the first time the infamous 95% ITEP fairy tale was trotted out by the Nelson campaign was by a female staffer in early August (I believe) on the Tom Becka show. She also explicitly was asked by Tom if she thought there was anything wrong with actually collecting tax from prostitutes and drug dealers. She answered 'YES'. Stunned silence followed, then when Tom recovered and asked her if she really meant that she changed the subject.

Ask him, he'll corraborate that. I asked him for the transcript but he declined. As you know Tom was a Nelson supporter himself. I look on him as a fellow Libertarian, by the way.

Now I in no way think the Senator supports granting tax-free status to criminals but when you think of it that is EXACTLY what an income tax does. When only legally-reported income is taxed the mirror is that all non-reported income is not taxed. That's crazy! We are thus rewarding the very activities we decry as criminal.

Still waiting for ONE example of a situation under which total Federal tax rate would be higher under the FairTax than current total rate. I claim that ANY such examples involve criminals or current tax cheats.

12/23/2006  
Blogger Kicker said...

There are a number of other benefits offered by the Fair Tax that are being overlooked in this discussion.

First, the Fair Tax offers a serious opportunity for those on a limited income to save enough to escape the credit purchase cycle. By delivering to them their whole paycheck, it allows them to save enough to purchase that “new” house, car, or appliance without going into debt, and paying ruinous interest rates. This means that not only do they get the money that would have gone to the federal government, they also get to keep the money that would be spent on interest payments. Effectively increasing their income by several percent a month.

Second, since goods are only taxed once, the purchase of used goods becomes an excellent way for those on a limited income to save even further. Since most in this group already purchase used cars and homes, as well as other major purchases, in effect, they are able to escape paying additional taxes without impacting their current lifestyle.

And just as a side note, one of the greatest benefits of the Fair Tax is the reduction in class warfare that is promoted and exacerbated by the current income tax system. With the income tax system, the rich are able to pay for lawyers and tax accountants that allow them to escape with minimal tax payments. The rest of us have to bear the full brunt of the tax system, plus “make up” the portion avoided by those having slick accountants.

And, as a further issue, Kyle and Eric seem obsessed with the idea of being able to decide just who will fund the federal government. For them, allow me to propose a more equitable solution. We shall adjust the rate of taxation so that all in favor of higher taxes pay the highest tax rate applicable to anyone. So, in this case, we start by raising tax rate for Kyle and Eric, and anyone else who feels justified in demanding that others pay more then they themselves pay, to, say, 70%. Once we have taken all the wealth possessed by those in favor of a socialistic society, we can adjust the tax rates of everyone else. After all, it’s only fair that those who are promoting an idea most strongly have the opportunity to contribute the most to support it.

12/24/2006  
Blogger Gary Brown said...

Kicker, while I appreciate the support let's please don't start dragging this discussion down. My intent in this is NOT to make this a partisan dispute. In fact, I am extremely interested in why this is viewed as a partisan issue at all.

I have tried my darndest to not present anything that I can't back up with facts. I am frustrated by the rhetoric being expressed that constantly states this is a regressive plan even though elementary-school mathematics prove conclusively that the 2 rules stated in HR25 will reduct effective tax rates for ANY income-level family by a minimum of 25%. Unless, as I've repeatedly stated, that family currently CHEATS on their taxes.

I understand why Democratic and Republican politicians mostly hate this plan; it removes a LOT of their power.

I repeat that there are 2 rules to The FairTax. The first is the sales tax. I have repeated over and over that a sales tax BY ITSELF is regressive. The second rule is the family consumption allowance to makr the EFFECTIVE tax rate PROGRESSIVE. This progressivity cannot be disputed because its a mathematic fact. Every opponent insists on focusing on the 1st by iteself as regressive and the 2nd by itself as some sort of unmanageable entitlement. Logically, thats like trying to say all 2-letter words have no meaning because the component 1-leter words have different meanings.

Cut the partisanship, please. Lets focus on facts. The rules aren't debateable. The math isn't debateable. The side-effects are debateable, plus the political realities.

12/24/2006  
Blogger Eric said...

Thanks Gary. I agree. This discussion is not about which government programs to fund. It is about how the government is funded.

And whether or not you see it, the wealthy also benefit from government. You may not like all programs, but for every one of you, there is someone else who doesn't want to fund the programs you like. It's part of living in a democracy.

12/24/2006  
Blogger Gary Brown said...

Eric, the reason I believe any tax system has to have progressive rates may suprise readers who seem convinced I am some right-wing kook. The wealthier you are, the MORE you benefit from the U.S. Government as a whole. All of it's programs.

To be wealthy usually means you are benifiting the most from the society that is America. If you benefit the most you should contribute more to that society's upkeep.

I am sincere. If I was not convinced that The FairTax was AT LEAST AS PROGRESSIVE as the current system then I would not support it. Luckily, it is FAR MORE PROGRESSIVE.

12/24/2006  
Blogger D'Anne said...

Gary/Eric (and Kyle):

While claiming you want readership and participation in juxtaposition with your refutation of basic principles of taxation, I hestitate to enter the debate. Thus I urge your concession that any power to tax IS about partisanship. And IT IS about selective democracy. Indeed, the power to tax IS MOSTLY about LOSS OF LIBERTY when "democracy" denotes majority rule and/or elective rule.

Kicker makes a very good argument via his suggestion that those most strongly in support of higher taxes be granted first opportunity to pay taxes!

The relative merits of progressive taxation should be regarded "fair" in relation to benefit derived, whether in a form of tangible goods and services or those intangible benefits seldom defined but greatly desired (e.g. security, patriotism, etc.).

Thus it is not true when claiming, Eric, that $1K per $10K income is a greater tax burden than $10K per $100K income UNLESS one factors out welfare, Medicaid, public institutions of higher education, etc.

And it is not true when claiming, Gary, that progressivity derives of taxing 'above the poverty level,' UNLESS one factors in intangible 'public assistance' such as security from invasion. After all, the poor man with nothing to steal needs no protection from theft, whereas the rich man...

I have more to say and regret the artificial limitation you impose on this topic. Suffice it to say that the "fair tax" is not fair because, like the income tax, notions of subsistance/maintenance (your ideas about "poverty") are nothing more than constructs denying my liberty!

12/25/2006  
Blogger Eric said...

On the other hand, taxation can actually PROVIDE LIBERTY. You pay taxes to support the military which in turn protects your freedom. I'm guessing a private defense department run on donations wouldn't be very effective.

12/25/2006  
Anonymous Anonymous said...

One aspect of the FairTax which noone has addressed is its major benefit in the area of levelling the international marketing playing field. Because of the incorporation of our tax system into the cost of our production through the current system, we place our producers (primarily in the ag and manufacturing sectors) at a decided disadvantage in the increasingly global marketplace. Many of our trading partners have VAT components to their tax systems. A major characeristic of most VATs is that it is border adjustable; the tax component can be removed from exports. Our system has no border adjustment feature and indeed the WTO has ruled against border adjusting income based taxes.

US producers therefore compete at a decided disadvantage in the increasingly global economy. That situation contributes significantly to a trade deficiet which came in at an all-time record in 05 - $725 billion. Does anyone want to bet that the 06 numbers won't represent another all-time record? No country on earth has ever racked up the size trade deficits we are experiencing - either on a relative or absolute basis. I am not aware of a single serious economist who suggests that this trend is sustainable.

The FairTax would eliminate this bias which our tax system conveys to foreign producers over and above our own by taxing all items purchased for consumption in the US the exact same way and by eliminating the tax component from the pricing of exports. Unlike import tariffs, which would be attacked by our trading partners and the WTO as discriminatory, the FairTax is a perfectly defensible way to address the current imbalance. The FairTax does not introduce a bias in favor of US produced goods into our tax system - it eliminates a bias in favor of foreign produced goods which is part and parcel of the current system.

12/25/2006  
Anonymous Anonymous said...

"How much of your support is because it would destroy Social Security, Medicare, and everything they stand for?"

I can't let that one go by, even though Gary posted an excellent response.

The current system is unsustainable. Every spring the trustees of SS and Medicare issue their annual report and every year they inform the public that the day when those two social safety net programs won't have the revenues to meet their obligations if getting closer and closer. Every year the media pays attention for a week or so and then the story dies down.

The essence of the problem, as Gary points out, is relatively simple. The ratio of workers paying into the system via payroll taxes relative to the retirees drawing out of the system is shifting adversely - fewer workers are having to shoulder the financial burden for retirees who are living longer and becoming a proportionately larger element of our society.

The demographic problem described above would not be an issue had those programs have been set up on an actuarially sound basis to begin with. That was not done, so we now have a major financial and social crisis.

The FairTax addresses this by eliminating the payroll tax base which is at the heart of the problem. As Gary points out, it isn't the income cap which is the primary problem; it is the revenue base combined with the demographics and the lack of fiscally sound planning from inception.

The FairTax broadens the base substantially. If we double the size of the US economy over the first 15 years after passage of the FairTax, as some have suggested as a goal, then we double the base from which to draw the revenues for these social safety net programs. If we stick with a payroll base, there is no possible way for that to happen.

Therefore, the FairTax, far from "destroying SS and Medicare and everything they stand for" is an essential element in ensuring that those programs will be economically viable, not only for those soon to be retired, but younger Americans who are being asked to shoulder the financial burden for the older generation now. Not only is the FairTax the most practical way to address the primary problem, I have yet to hear anyone suggest any other practical approach.

Isn't it ironic that the FairTax and its supporters are being attacked as a danger to these programs?

12/25/2006  
Blogger Gary Brown said...

D'Anne,
What you pointed out may well be logically sound from a pure Libertarian viewpoint but it points out my problem with TRUE Libertarians.
Don't you agree that any Government has to do things that are sometimes against a literal definition of true liberty? In some areas the 'greater good' has to outway individual freedoms.
You may truly believe that the better off in this country intrinisically deserve better protection (given same rate of taxes) because they have more to steal. I do not. The wealthier you are the more overall protection this country provides you (precisely because you have more to lose) and thus the greater tax burden you should bear.
You are correct that this forum is not the one to discuss this ideal I sense in you of pure Liberty, which I see as Anarchy. If you do find a better forum to pursue that discussion please let me know (gbrownct@cox.net) and I'll join in.
Your objections to the FairTax have been expressed to me in the past by (and I hate labels) the Far Right. Heck, I have close friends who think the Government shouldn't impose taxes at all.
Me, I figure I'd last about 2 days in an Anarchy. The Constitution provided for Federal taxation, and The FairTax is INFINITELY closer to what it allowed for than ANY Income Tax sytem. The only direct taxation called for was on tariffs, which was an import duty on goods from overseas. The ONLY reason to buy goods from overseas back then was as OPTIONAL luxury goods, which infers clearly to me that items to maintain a poverty-level existence were never considered optional and thus not to be taxed.
Maybe that's a stretch in intepretation on my part. Then so is this: 'pursuit of happiness' is incompatible with taking any tax from a family who is (hopefully) trying to rise themselves out of poverty.
If '"democracy" denotes majority rule and/or elective rule' then how can taxation equate to a loss of liberty unless the majority wants NO taxation? I don't follow ... unless you somehow think the majority in this country really want NO Federal taxation.
I see no evidence that this is the case.

12/25/2006  
Blogger D'Anne said...

Gary: You assume too much about my message. I intended only to issue a complaint about the artificial restraint you impose on this present topic of "fair" taxation. Thus your unfortunate misunderstanding of what I wrote has rendered the grossly inaccurate tenet that I believe the better-off deserve better government! I absolutely believe we all deserve the same government, paid for by the same tax levy. Period. My belief in equity is so certain that I stipulate: 'If we can't provide for everyone, then we can't provide for anyone!' No 'greater good' hypotheses works for me...

As you know this is not the government we have. We have arbitrary rules about who gets what and who must pay. And since I haven't been on the receiving end, only the paying end, for so many decades, I confess desire for NO federal taxes. Whereas your host correspondent, Kyle, rather arbitrarily believes those who have more should pay more, and get less from government!

Federal taxation is here to stay. 'Anonymous' has pointed out that the Fair Tax should not be regarded a ruse to dismantle the Social Security and Medicare programs. I had not thought it was; I have simply lost interest in the Fair Tax because it has gained no traction in Congress. Ben Nelson, the Republicans of Nebraska, so-called Progressives, label-'em as you like, there isn't going to be any tax shifting because the power structure hasn't (and won't) change. Doubt it? Just watch what the Democrats do now that they control Congress. I've been there, done that...

12/26/2006  
Blogger Gary Brown said...

D'Anne

Sorry about any wrong assuming. As with others in this post, we'll just have to agree to disagree about any perceived benefits about 'progressive' tax rates.

I have a different take on the prospect of HR25 with the Democrats in control. As I think this 'debate' has shown, ALL negative 'arguments' about the FACTS of the bill (about higher rates, SS-killer, etc) have absolutely NO basis in reality. They are just mantras thrown out by people who have not read the bill or choose to introduce made-up rules because they can't believe it should be able to be so simple. And that we've been fleeced (by both Parties) for so long.

The Democratic Party could not before the elections afford to give an inch in showing support for anything considered to be Republican-like. But they've won both Houses now. They do have folks (staffers maybe) who can actually do math. If they just tell their poor constituency (who generally buy anything they say anyway) that they've 'discovered' a tax plan that will completely de-tax the poor the support would be there in a flash. And so would the Presidency in 2008.

You might not like to get it through that way. Heck, you may not even want to see it through at all anymore. Me, I just want the Union saved. Don't care a bit who gets the credit.

12/26/2006  
Blogger Bill Hermann said...

Let's not waste time with the unFair Tax. It is DOA as pointed out by the President's Panel. Despite spending several millions in developing the "message" and a rather vocal following, it is inherently flawed by the 23 to 30% "leap of faith" price reduction needed for the economy to handle such a blow to retail sales; the black market that would develop around the definition of "used goods", while the wily attorney's make an industry of gaining exceptions for smart, wealthy folk in the form of "business expenses" (corporations forming will sound like a national bag of microwave popcorn - which could be good for Nebraska); and, then there is the full bore double taxation that would occur on every after-tax dollar saved in financial acccounts and home equity for the prior 50 years as retirees or their heirs spend the funds. So as I said the unFair Tax is NOT a national alternative.

Yet for those who would like to gain ALL the purported benefits of the unFair Tax, including truly removing the IRS from enforcement action in individual and corporate lives, while garnering a substantial tax reduction, I suggest you review the Automated Payment Transaction Tax as detailed at www.apttax.com. This system would totally replace ALL federal taxes including estate, gasoline and SS/Medicare. The "magic" of this relative recently devised system is the massively broaden tax base to capture every transaction in the economy and taxing it in an automated fashion at an extremely low rate as the funds pass through the banking system. Bringing quantitation to this concept before the qualitative reaction forms will show the reality of the tax reductions. For example, a family earning $100K, spending or saving the same amount, and turning over their invested assets in the same amount would give the family $300K in transactions for a year. At the revenue neutral rate of 0.27%, the family would pay $810 in total federal taxes. By the way, that including halfing the theoretical transaction tax base to accomodate anticipated changes in behavior and arguments at the periphery of the concept.

I have been debating the APT Tax for two years and honestly have yet to hear a valid argument against it other than those that are obviously self-serving. The only groups that clearly would not like this are day traders, tax attorneys, and H&R Block - can't help that, sorry. Also, there are those concerned that the gov't would grow and function uncontrolled since there would be such little "tax pain" felt by the electorate.

Lastly, I will anticipate the mantra from the Fair Tax group, when Gary calls Houston to find out how to counter the APT Tax. It is a bogus argument that is repeated over and over - you know the drill. The concern that at tiny tax on every transaction will have a multiplier or cascade effect through the supply chain for retail products. It is bogus because the tiny 0.27% is a ONE TIME addition to prices compared to inflation/producer price index that adds ten times that amount EVERY YEAR. Anyway, if "intermedaite goods" were exempted (loophole alert!), it would represent only 6% of the tax base and as I said we already cut the calculated base in half to accomodate such points, so it is unlikely the rate would change.

There are many more details that I cannot go into here, such as the treatment of cash, so I urge those interested to visit www.apttax.com.

12/26/2006  
Anonymous Anonymous said...

A correction for Gary: The ITEP study specifically addressed H.R. 25. From the 2nd paragraph:

"Specifically, we
looked at H.R. 25, the leading sales tax proposal introduced in Congress." (www.itepnet.org)

Additionally, the study did compensate for the "prebate." There's a note marked with two asterisks at the end of each of the state-by-state numbers.

Speaking of the prebate, the President's tax panel claimed that running this program would be hugely more expensive than the IRS. And how would this benefit those people who can't be tracked by the government? How many homeless people would never see their prebate? And the evacuees from Louisiana? What happens to them when that money gets sent to a house under 3 feet of sludge?

Putting the entire country on the dole isn't the answer.

12/27/2006  
Blogger Gary Brown said...

Bill, I will definitely look into the plan you mention. Sorry you feel you have to belittle me with your comments about 'running off to Houston'. That casts doubts on your remarks as far as I'm concerned but I am definitely open to ANY alternative to the Income Tax fiasco.

Hopefully the plan you mention pulls all FICA funding under that broad base, or its useless because SS and Medicare swamp this Republic in next couple decades. Sounds like a VAT to me but I haven't gone to the site yet.

Anon, glad to see you actually read the ITEP report. Unfortunately, you need to read past the first 2 pages. I acknowledged fully that this 'think tank' opposes HR25. The logical landmine comes when they leap to the 50-state 'distributional analysis' spreadsheet that is the main subject of the report. The link on their site appears to be broken at this time (at least I all I get is a blank page). However, as I recall after wrapping up their arguments about why they don't like HR25 they say something to the effect 'we'll now analyze the results of A plan that WE'VE designed to do all The FairTax purports to do while still staying revenue nuetral'.

How can you not see the logical fallacy in that? Let's see: We don't like apples, we told you we don't like apples, we paint an orange red and show you conclusively that as an apple the orange stinks. Maybe somebody will just assume we're really proving bad stuff about apples.

Its called a STRAW MAN fallacy in logic. And to top it off NOWHERE in the report does the ITEP genius author even list the rules that he MADE-UP.

12/27/2006  
Blogger Gary Brown said...

Bill, did prelimenary checking and saw your name as a national contact person. My compliments on being so involved.

I will look into it more and will probably be addressing some questions to you. Saw many of the same arguments AGAINST the crap we got now but looks like main difference is I support doubling the base (consumption vs income) while you really broaden it by taxing monetary velocity (transactions).

In the list of taxes to be replaced I don't see FICA though. I hope you understand that the immediate killer for this economy are Social Security and Medicare. Like HR25, your plan could solve this by demographics (funding FICA from general fund rather than a shrinking income base).

If you guys include FICA replacement then I wish you luck. If not, then you HAVE to point that out and get it changed. Otherwise it's only a bandaid.

Despite your rather antagonist opening remarks toward me, I see us as fighting for the same goal (some sort of sanity) but in different armies. WIsh you would agree with me on that.

Thanks for the info. I promise you that I WILL study it.

12/27/2006  
Blogger Bill Hermann said...

Gary, a thousand apologies, you seem quite reasonable. As I said, I have been debating Fair Tax people for two years and have had the unfortunate experience that they put up bogus arguments and when pointed out as such they just turn up the volume and the repeater function.

Yes, SS and Medicare are covered - in fact the troublesome issue of funding both for the increasing elderly can be rather easily addressed with APT since every 0.1% in the rate bring in about $100 billion -- so can the national debt for that matter.

Let me further tell everyone of my experience. As a busy physician I really didn't want to take up a cuase like this but I found this idea very compelling and I have an understanding of macroeconomics. I researched both the idea and the author, Dr. Edgar Feige, Prof Emeritus, Univ Wisconsin-Madison in Econ and a Rockefekller Scholar. I am keenly aware that for a relative non-promoter as I am an idea needed to be rock solid, free of contention, partisanship and effect ALL Americans in a positive way to be worthy of my time. Likewise the author needed the gravitas to stand up to criticism and be of such stature as to purpose such a lofty concept. I found both to be there.

Some keys to APT are, and this is the ONLY way the concept is acceptable to me: ALL Federal taxes fees etc must be replaced (Transaction taxes have existed and do exist - primarily in Latin America as add on the top taxes and in that from have had on balance a negative reputation; the applicatin to states is possible, and I would say, probable AFTER the Federal system is changed and the people experience the benefits, but would obviously require a high degree of faith and co-operation for revenue distribution from the national tax base and collection system.

Lastly, despite the credentials of the author etc. there is a disbelief that it is possible to have such a low rate and be revenue neutral. The value of transactions in the US economy is nearing a quadrillion dollars - a number like "light year" that humans cannot quite comprehend. APT taxes everything a tiny bit to accumulate the end result. As illustrated on the website under the left red tab "The Secret", much of the tax base is in areas unfamiliar to the average citizen like foreign exchange and transfers in general. These are enormous and would not be adversely effected at the rates we a talking about. In fact the policy makers would be fully aware that raising the tiny tax rate much above 0.4% per side would be detrimental to the markets. However, at 0.27% it would be stimulatory (and thereby drive the rate down with ... more transactions). Think of the extra capital investment available and the attraction of our consumer markets for foreign goods. The dollar would soar as foreigners tried to participate in our economy as interest rates would fall given the amount of distributed capital available and the lowering of national debt/absence of budget deficits. The high dollar does have a negative impact on exporters, like Nebraskan corn and wheat, but those things can handled if necessary.

Gary, thanks for your interest. Again I apologize for the "attitude". It would be great if the Fair Tax folks could see their concept is just too mvccontentious and problematic and with an open mind embrace APT as an alternative that came along after theirs - "new and improved".

12/28/2006  
Anonymous Anonymous said...

Mr. Brown, you have a valid point that the ITEP study does not specifically analyze HR25. However, they claim that, based on consumption, a 30% exclusive rate would reduce revenue by 41%. Therefore, they used some X% rate to maintain all of the federal government's commitments. They are rejecting the premise that a 30% tax-exclusive rate would be sufficient to maintain revenue neutrality.

If I had to guess, it would be because the FairTax folks predict a large increase in consumption, whereas ITEP predicts either stagnant or decreasing consumption (and an increase in black-market transactions).

So maybe it's considering Gala apples with Granny Smiths. :)

I disagree with your statement above that raising the ceiling on FICA tax-able income would only be a short-term fix. Leaving the cap at $92,000 is ridiculous, considering everyone, regardless of income, is eligible for SS benefits. I can't point to a study at the moment, but I've heard that by raising the cap to $200,000 (or maybe even $150,000), social security would be solvent through the standard 75-year window used by the OMB for budget analysis.

Additionally, I have major concerns that by eliminating FICA taxation and taking SS and Medicare directly out of the general budget pool, we would be encouraging the government to either cut benefits or run even larger deficits, rather than actually dealing with the fiscal (ir)responsibility issue.

Finally, I highly doubt the FairTax premise that the cost of taxable goods would decrease, especially on mandatory items like groceries, medicine, utility bills, and rent payments. Although there are multiple suppliers for these goods, these suppliers can derive a mutual benefit by not lowering prices, simply increasing their own profits. There is not a doubt in my mind that drug companies in particular would decrease their own profits--there is generally a static demand for medication and health care.

I am absolutely enjoying this debate, and appreciate reading civil discourse on a topic I think we all agree needs to be addressed by our public servants--many of whom forget the second half of that title: servant.

12/28/2006  
Blogger Gary Brown said...

Dr. Hermann and I are enjoying direct coorespondence on FairTax / APT differences. While I'm still not convinced of his anti-FairTax arguments (what a suprise) I would look forward to a seperate debate regarding this 'cyber-tax' proposal. Hint, hint Kyle.

Mr. Anon (no disrespect, I just feel need to address you by some label) how could an across the board pay increase of at least 20% (for every American) NOT drastically increase consumption. NO Federal withholding from paychecks, remember. Folks can spend that money, invest it or eat it. Spending it = increased consumption. Investing it means increased economic activity. Eating it is .. we won't go there.

This is an example of the ridiculus logic that says to base fiscal policy on static models.

Another example is to deny a major concept this country was based on; Capitalism. To even question that prices will fall dramatically with the cessation of Corporate Income Taxes is to deny that we enjoy free markets in this country.

In any business segment with anything approaching an elastic supply-demand curve (and competition) a reduction in cost of production WILL ALWAYS be reflected in reduction of sales cost for those item(s). The why is basic economics; your competitors will be able to (and will) undercut your price to gain greater market share. You can (and will) do the same thing. This 'battle' will halt when all the market competitors don't feel it feasible to reduce prices further without making less profit than they were originally.

I acknowledge some previously mentioned implementation problems such as the homeless and black markets (in close proximity to Mexico and Canaa only).

As for taxing spending of wealth that has already been taxed, there is simply no way around that. Is life always fair; NO. Why is it fair that under current system I get to deduct interest expenses for basically anything I want to buy by rolling it under a house re-mortgage? My friends without a house can't do that.

And finally, even full elimination of the FICA cap would only be a short-term bandaid. The problem is DEMOGRAHICS. The ratio of folks paying in (legal income-earning taxpayers) is steadily SHRINKING in relation to the older folks living off the FICA pie. That is not going to change one iota because a FICA income cap is raised.

12/28/2006  
Blogger Gary Brown said...

Offer to anyone. Send me figure for income level and family size. I'll assume worst-case scenario for the FairTax (ie that all income is spent on retail goods). Will supply you with effective tax rates under current Income Tax system and FairTax.

I will show that tax savings will be a minimum of 25% for any situation.

This progressivity argument for keeping the Income Tax is totally bogus. 95% of you have not the slightest clue how much Federal taxes you really pay. You are listening to politicians and lobbyists who owe their livlihood to the Income Tax and they will lie all day to keep it.

Let's have a math class, come on. Maybe one of you can prove me wrong (fat chance).

12/30/2006  
Blogger Bill Hermann said...

.....and I will calculate your APT Tax.

12/30/2006  
Blogger Gary Brown said...

Bill, I would be interested in that also. As I understand it APT hides most taxation as business transaction costs. If you agree that all taxes are ultimately paid by consumers then I'd be interested in how anyone could ever know how much Federal taxes they themselves effectively pay.

I say this not to be faciscious. I've shared my ideal that all taxes be 100% visible, but I realize not everyone shares that ideal. If there is some algorithm whereby individuals can determine how much they effectively 'paid' (directly plus indirectly) then I would be interested in the math.

Tell you what, I'll start by publishing my calculations (and explanantions) for a family of 4 earning (and spending) $20K per year, $50K and $100K. Will put that out and you work up your calculations.

My Assumptions
1. Current System includes Federal Income Tax, Social Security Tax, Medicare Tax & Corporate Taxes.
2. Family size is 4. Standard deduction of $16,400 taken.
3. 2004 tax rates (Earned Income Tax Credit not figured in)
4. Retail spending is 100% of all income not saved. Worst-case scenario for FairTax.
5. Embedded taxes in current prices will be assumed at only 10%. Best-case scenario for current tax system.
6. NOT taking into account tax shelters that the wealthy use to escape a lot of their taxes under the current system.
7. NOT taking into account capital gains tax.
8. FairTax rules are the 2 rules stated in HR25.

Income Current FairTax Savings
$20K 19% 01% >90%
$50K 25% 14% >40%
$100K 32% 19% >30%

If somebody wants to tell me how to figure EIC for the $20K I'd be interested. But it won't bring effective rate below 1%.

12/31/2006  
Blogger Kyle Michaelis said...

I want to thank everyone who's participated in the above conversation. I'm sorry that because of my holiday travels and family obligations, I was not able to provide more in the way of balance to the discussion. Still, catching up with what's been written as best I can, I can't help but appreciate the passion and the thought so many of the above participants have put into the idea of reforming the federal government's tax policies.

Of course, I'm a little turned off by the sanctimonious and ultimately deceptive tone Mr. Brown so often adopts in furtherance of the "FairTax" proposal. While his dedication and engagement on this issue meet a standard to which we should all strive in a government of, for, and by the people, there's a bit too much P.T. Barnum in the presentation for myself or most of NNN's readers to take him seriously.

Let's face it: with this whole "FairTax" proposal, we're being sold a bill of goods for which the numbers simply don't add up. Those numbers don't add up becuase they're based in so many hypotheticals and assumptions that they're all but worthless to an independent observer armed with a calculator and without an agenda.

Simply put, Brown has not made his appeal to Democrats and progressives in good faith. Throughout the entire discussion above, he adheres to a notion of "progressive taxation" that is nothing like that recognized, supported, and embraced by the American people for most of the last century.

Brown fudges the concept of "progressive taxation" to serve his argument, disrespecting this audience and doing great disservice to the ideas to which he supposedly adheres. I can respect and debate ideas different than my own, but an intelligent discussion can not be had when parties are more interested in using language as a weapon for their respective cause than as a tool for actual enlightenment.

I don't mean to question the motives of "FairTax" proponents, but the methods evidenced above make such questioning inescapable. The zealotry and airs of superiority do little but alienate and pretend a false perfection the "FairTax" does not even come close to achieving.

No one's going to tell you that the current system of taxation is perfect, but that hardly justifies this sort of selective and ultimately hypocritical playing with the facts. Until Brown and others are prepared to be honest about their plan's false assurances of revenue-neutrality and its shifting of the entire tax burden onto the American consumer, they are hardly worth engaging in any real capacity (especially in regards to payroll taxes/social security, about which I read little but exploitative BS and rampant fear-mongering).

Reform is needed in the means by which we fund state and federal government. But, unfortunately, those who are most dedicated to this worthy cause seem more concerned with furthering an ideology than with building a better system.

There is something terribly unreasonable and impractical about the notion that finding fault with the current system somehow justifies scrapping it entirely in favor of an untested scheme more dogmatic than it is supported by fact. There is nothing so off-putting and disingenous as a man claiming the moral and intellectual high ground with bullying, false expertise, and half-hearted challenges.

Although we should not fear change, the burden of a total overhaul of the current system of taxation rightfully rests with those making such demands. As of yet, that burden has not even come close to being met, no matter "FairTax" proponents' silly and insulting claims of its being the lone rational and principled choice for U.S. tax policy.

I want a full and fair discussion of ideas, but that does not include making promises of a proposal that it can not possibly meet, supported by reasoning that an advocate does not even personally share. Sadly, most of what Mr. Brown has written above - except in response to those of a similar ideological stripe - is more an excercise in manipulation, rhetoric, and propaganda than faithful and fruitful debate.

I don't respect that. And, I don't appreciate seeing this site used for such purposes.

By the way Gary, for tax year 2006, the Earned Income Tax Credit (EITC) has a maximum credit of $4,536 for your family of four, which blows away any true standard of honest PROGRESSIVE TAXATION your "FairTax" plan could possibly provide low income wage earners and their families. And this doesn't even take into account the Child Tax Credit, which further obliterates most of your arguments along these lines.

12/31/2006  
Blogger Gary Brown said...

Kyle,
Contrary to our earlier conversations about this blog, you have done absolutely nothing but be rude and demeaning. Point to one time where I have done that. I have presented numbers and arguments that I give reasoning behind, whether you agree with that reasoning or not. You give party-line unsubstantiated one-liners and rather than give reasons why you disagree you proclaim I am dishonest.


Thanks for the EIC figures, which I ASKED for but you try and twist to make it seem I was trying to hide something.

Obviously you can print what you want in your little fiefdom but since you don't appreciate what I thought was actual debate then let's stop this charade.

I really thought this was worth a try, to attempt and find if there was really thought behind Democratic opposition or whether it was really blind partsanship.

With you at least that has been answered.

Hope you enjoy your booze (or whatever) tonite, it'll go with that kool-aid you apparently drink the rest of the year.

12/31/2006  
Blogger Kyle Michaelis said...

Gary-

I'm sorry if you believe I've been rude or unfair in my few comments. Such has not been my intention. But, so far as I can tell, you've manipulated facts (starting with your 23% figure), used a false and misleading notion of progressive taxation, and advanced disingenuous arguments exaggerating the Social Security shortfall and neglecting the full range of diversity in the current tax system (i.e. Estate Tax) in service to your "FairTax" zealotry.

You might be able to make an argument for a national sales tax, but it won't be by playing on people's fears, speaking of every low wage earner as if they are drug dealers, prostitutes, and felons. Nor will your arguments have any merit so long as you persist in telling people what you think they want to hear - promising the moon rather than acknowledging the strengths and weaknesses of your proposal.

You have attacked the ITEP report. You have attacked President Bush's policy advisers. You spent much of last summer attacking Sen. Ben Nelson. But it takes more than your obvious committment and a combatative tone to make a convincing argument.

I agree with you that there are weaknesses in the current system, but those weaknesses do not support your call for a massive, unproven, and entirely theoretical overhaul - no matter your pretensions of perfection and ideological superiority.

Unfortunately, a forum such as this does not lend itself to competing mathematical formulations, yet you've demanded just such hard & fast evidence that your plan isn't the absolute best of all possible worlds. Your own numbers, however - not to mention your glorious two rules - are where the burden of proof lies....but you have made up your mind and seem to think that should be enough for all of us to make the same leaps of faith. (Note: my likening your cause to religious one is not accidental and should not surprise anyone who's followed your "FairTax" crusade).

If I've been disrespectful, though, I do apologize. While I was away for the holidays, it's nice to see what discussion emerged, and it was certainly kind of you to devote so much of your time to this issue and this site.

But, please don't pretend that I've been the only one who's been insulting. Believe it or not, there are people who are going to disagree with you who are not ignorant, liars, and blindly partisan....though where I personally fall under all three classifications is certainly debatable and likely somewhat in the eye of the beholder.

Happy New Year and may we both find wisdom and truth by sipping something other than our respective flavors of Kool-Aid in 2007 and beyond.

12/31/2006  
Blogger D'Anne said...

Methinks you were a tad rude, Kyle. But rude is okay, as is stupidity, and sarcasm. Gary has limited the conversation to an idea of shifting the tax base while maintaining current tax expenditures. No wonder ideas about the "FairTax" are DOA, as Bill asserts. (Hint to Bill: So is the APT tax! Consumption tax, transaction tax...there cannot be change without first changing the power to tax. You know that!)

But let's consider Kyle's belief that "progressive taxation" is desirable. Here's a little "honesty" for you Kyle: For quite some time my family has been paying the AMT. You know what that tax is? To put it succinctly, it's a tax I pay because the govt. thinks I have too much money. It is a redistribution of private wealth in the purest sense. An idea "progressives" love, I know. But one totally out of sync with constitutionality...

You state: "Reform is needed in the means by which we fund state and federal government. But unfortunately, those who are most dedicated to this worthy cause seem more concerned with furthering an ideology than with building a better system."

Excuse ME! Just what is it that you are doing, Kyle? Isn't your ideology preventing your concession that BOTH the Dems & Repubs -or- Libs & Cons -or- progressives, the label you like best, ALL, beholden to big business and big lobby bucks?

It is your ideology, Kyle, which has you so blind and so deaf that you cannot distinguish fact from fiction in matters of tax policy. I attribute your condition to your youth, and I certainly don't fault you for being young. But over time I predict that you too will become weary of the income tax...and the fascism it supports...

1/01/2007  
Blogger Kyle Michaelis said...

D'Anne-

The Alternative Minimum Tax has clearly gotten out of control, having become a "Kick Me" sign on the backs of America's dwindling middle class. In fact, I think you'll find the new Democratic Congress much more concerned, responsive, and ready for action eliminating - or at least alleviating - the AMT's burden because it affects actual people and families rather than the corporations that were too often the Republicans' sole concern over the last 12 years.

On another note, I'm not at all afraid of the "liberal" label. The only reason I don't use it to describe myself or this site's purposes is because it would be selfish to claim such an honorable and quintessentially American tradition as our own. Ours is the most liberal nation in the world - at least, in the principles we espouse. Because I am a believer in freedom, I am a liberal, but that isn't all that very instructive for purposes of the modern political divide. If we must play the "name game" and the reactionaries choose to sully "conservatism" as their own, then I am "progressive" by default.

To bring up my quickly fading youth in this discussion is to hold it against me, but I'll choose not to take offense at such condescension (hell, I probably deserve it). Of course, if the supposed "fascism" you claim our taxation supports were our needless wars and the perpetuation of the economic elite as an American aristocracy, I think we'd definitely find some common ground. But, to me, such perversion of democracy is here a question of ends more than means. I do not believe that taxation is inherently evil and, looking at the Constitution and American history, I find nothing violating our nation's character but taxation without representation.

That the federal government has expanded the scope of its taxation (within the framework of the Constitution) is only because it has expanded the scope of the services it provides, protecting the continued evolution of a national identity fitting the needs of the modern world and the wants of the American people that a confederacy of 50 states could never allow.

D'Anne, you certainly seem to believe you're taxed without representation....and you look to blame the politicians, the parties, and the money that drives their campaigns. But, at the end of the day, we live in a democracy where the blame rests with you and I and all our fellow Americans who choose ignorance and exploitation over involvement and empowerment.

As for my own ideology, buying into the current system - with all its diversity - does indeed reflect on who I am and what I believe. But, my emphasis on reform over an outright tax policy rev/devolution is more a statement of my pragmatism than my politics.

People don't like paying taxes. But, most are able to look beyond the supposed yoke they impose, to recognize their necessity and reward. This is not an act of blindness or deafness, nor an act of cowardice or partisanship. If anything, I'd suggest it's a sign of maturity. Still, any responsible taxpayer wants to see wasteful spending eliminated and a system that is more "fair" (an all too ambiguous term, as this discussion demonstrates). But, finding fault and calling for reform does not invite or demand a reinvention of the wheel. In general, the American people (and I) accept our democracy and the tax policy that has resulted therefrom.

1/01/2007  
Blogger D'Anne said...

You're good. You are r-e-a-l-l-y good at rhetoric and debate! Will you e-mail with a # and perfect time for my call? d-a-welch@satx.rr.com...

1/01/2007  
Anonymous Anonymous said...

Mr.Brown I am from california and I commend you on your for the information you have provided. Kyle the paragraph after paragraph of boring party line talk really has no place here as you have yet to debate the math which was asked of you, this is what you call troll/flaming.

I suggest adding something informative instead of responding like a politician, nobody has any ammunition anymore to debate fairtax it's just a matter of time before it's passed. I take solice in the fact i signed the online petition and donate to the grassroots. unfortunatly I live in california and boxer,feinstein,pelosi and all the other liberals heavily oppose the fairtax.

1/19/2007  

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