Wednesday, July 13, 2011

More FairTax Rebuttal

I recently recieved this response from Robert Williams at FairTaxer to my Six Reasons The FairTax Is A Really Bad Idea post, following my response to Sen. Dick Lugar (R-IN) on Twitter on the subject. He was thoughtful enough to write a very long and detailed response, so I would like to do the same here.

Please read his post above before continuing.

1: We can't disagree that "sales taxes are often the most regressive form of taxation", because they are. The lower your income, the greater the share of your income subject to sales taxation, which is a regressive tax. Yes, FICA are other payroll taxes are regressive, but then, I never expressed any approval of them. I think that's a common problem with FairTaxers: You seem to believe that if FairTax isn't instituted, the tax code will never be changed.

I'll address the prebate separately, because it's a separate issue.

2: It's not just a viable argument, it's an historical fact. It's happened in every state which has a sales tax.

3. That presumes Congress won't make changes to the tax system, which they make every year.

4. It's an excise tax on every type of product purchased. Excise taxes are meant to apply to a particular type of good- the federal excise tax on firearms, for example (and that tax has other constitutional problems). That's clearly outside the intent of the Constitution.

5. a) Every state's sales tax code contains deductions and exemptions. Foods, for example, are taxed at a lower rate, or certain foodstuffs are exempted from taxation. b) It's sure as heck would apply to business expenses. If a business buys, for example, a vehicle for deliveries, they'd have to pay the tax, because they are the "end user". What you're describing is the purchase of components (like a pizzeria buying pizza sauce). Let's also add another undisclosed facet: State and local governments would also have to pay the tax- and become tax farms of the federal government. That's CLEARLY outside the intent of the Constitution.

6. Again, you assume that no changes would ever be made to the FairTax concept. Changes are inevitable. The "prebate" may initially be given to everyone- until a Democrat majority decides that it's a "tax break for the rich" (or some other nonsense talking point), and puts an income cap on it, or a GOP majority needs to cut spending in that area, and puts an income cap on it (like the current movement to "means test" Social Security). When the prebate becomes a grant to persons with lower incomes (because of an inevitable income cap), it becomes an entitlement program, just like EITC is.

The above also addresses your first three "other points"- i.e., the assumption that Congress would make no changes to the FairTax proposal. We know, with a high degree of historical and political certainty, that changes would be made, including changes in definitions of how prebate is calculated.

Also, EITC is paid once a year, to a small percentage of households. FairTax proposes to calculate and pay 12 times per year, to every household. That's a big difference in bureaucracy, especially in enforcement costs.

Now, for your "good points:

A. "The tax is paid at the register"- yes, and collected by the states and their political subdivisions, making them tax fiefs of the federal government (in addition to having to pay the tax themselves). This also adds costs to the states' tax departments- how would those costs be reimbursed (if at all)?

C. What you failed to mention, is that it would be extremely regressive on the middle class. Yes, it would exempt those below the poverty line, and benefit those at the top (which is a good thing, they pay too much as it is). However, this system would "pinch" those who earn between $30,000 and $200,000 with a greater total tax burden than they currently pay. That's not "We The People", it's reducing the middle class to lower-class status. Far from eliminating class warfare, it would increase class warfare- because class warfare is inevitably produced when there is no distinct middle class (i.e. it's "the rich" vs. "the poor"). It amazes me that the only FairTax response to the problem is "denial and restatement"- i.e. "No, it won't hurt the middle class. To restate, everyone would recieve a prebate...".

Unfortunately, FairTax is not as "flawless" as advertised by it's proponents. It's full of logical holes, and irrational presumptions (such as the presumption that its provisions would never be changed).
I welcome further response (in fact, I've recieved more response to my single FairTax post than all other posts I've made combined!).


  1. Lugar and the Fair Tax... What are, things he only champions when in a heated Primary battle, Alex.
    I'm for the Flat myself. My Senior Senator hasn't mentioned the words "Fair Tax" since that week in 1995 he was running for the Republican Presidential nomination. But, as he's now running the race of his life, here come his painstakingly obvious attempts at some form of conservatism.

  2. Well, that didn't take long, did it, Alex? Anyways, thanks for the response.

    You and your flat tax supporters will eventually realize that your flat tax is what you're truly afraid of becoming that unconstitutional convoluted mess.

    When you get the time, I suggest doing some more serious research on the FairTax.

    //(in fact, I've recieved more response to my single FairTax post than all other posts I've made combined!).//

    That's not saying much, Alex, since the only response I see on the board is from me, but ok, you go with that. ;)

  3. Fairtax sounds great but is goofy nonsense.

    I was a supporter early on. Sounded great right?

    But I learned.

    Turns out, there is NO research. I don't mean it's flawed, I mean there is none.

    Second, real research was done -- by JCT -- and the numbers are pretty clear. Yes, you could have a retail sales tax of 23% to replace income tax only.

    It's theoretically possible -- but Fairtax says that same 23% will replace ALL taxes. FICA, corporate, death taxes, cap gains, everything.

    To replace all that, the tax rate would have to be 59%, and a 59% sales tax would cause a lot of avoidance. So the JCT guessed that avoidance would be about half -- so the rate you would really need would be 89% -- which is about half again of 59.

    I have offered 50,000 dollars cash if they just SHOW the research, just SHOW IT. I am not kidding, and I have 50K cash I will pay if they have ANY research that proves a 23% personal retail tax will even come close to being revenue neutral.

    I am not worried cause I read the "research" First, its not research at all. Second, it's not about person retail taxes. Its about taxes on all military spending too, its a tax on military pay, pensions, even death benefits.

    That's not a retail tax folks. Fairtax is a HUGE goofy tax, and only 20% of it has anything to do with normal retail personal sales.

    Fairtax sounds great, t hough, of course, nothing sounded better.

    Feel free to email me or call me on the phone. I will explain this hustle, this con, to anyone.

    I put 50,000 up to prove it. It's a giant ball of fraud, and they know it. Their own calculator is a fraud. Call me, 217 653 6145. I will be glad to speak with you.

  4. Seeker- Thanks for commenting!

    One point which touches on what you said- the proposed 23% rate is really 30%. Fairtax is an "inclusive" tax, which means a percentage of the sale price is paid. So, a $1.00 item would have to sell for $1.30- 30 cents is 23% of the sale price. How would the 59% tax be pushed through? Simple: By calling it a 37% "inclusive" tax. 59 cents is 37% of $1.59. Selling the public on a 37% sales tax would be easy enough- once they were used to paying federal sales tax, explaining that it's a "replacement" for all other taxes.