Tuesday, August 02, 2005

Fair Tax Book Out -- Buy It For Yourself And A Leftist

Neal Boortz and Georgia Congressman John Linder have published a book, now in stores, on the Fair Tax.

The Fair Tax seeks to repeal the 16th Amendment and transfer all income taxes, payroll taxes and corporate taxes with a national retail sales tax. The prebate ensures that no person pays any tax on the necessities of life. Details and FAQ may be found at Citizens For An Alternative Tax System.

This system will cause a huge drop in prices as it removes the built in cost of taxation from the price of goods. It will increase your wages as the cost of payroll taxes are no longer bore by your employer. It will eliminate the filing of income tax forms, freeing up your CPA to make more money in financial planning.

But KJ, won't the tax make up the difference in the decreased price of goods? As Brad states in his comment to this post: While the cost of goods will drop due to the embedded taxes being removed from the production price, this will be offset by the tax itself. The end result is that the real cost of goods to the consumer will remain pretty well constant. Although, since you're actually taking home your whole paycheck, that cost as a share of your income will decrease.

Boortz claims the following endorsements, some of which I have seen: That list includes names such as Laurence Kotlikoff, Chair of the economics department of Boston University; Columnist George Will; former MLB Commissioner Peter Ueberroth; economist Raymond Keating; Jack Valenti, former president of the Motion Picture Association; Stephen Slivinski, Director of Budget Studies for the Cato Institute; Dr. John Berthoud, President of the National Taxpayers Union; Dr. Daniel Mitchell, McKenna Senior Fellow in Political Economy at the Heritage Foundation; James Martin, Vice President of the Ironworker International Union; Lee Brown, Clinton's drug czar and former mayor of Houston, Texas; Milton Friedman, economist; Wayne Angell, former member of the Federal Reserve Board of Governors and the chief economist and senior managing director at Bear Stearns & Co.; and Federal Reserve Chairman Alan Greenspan.

Although I was not sure of this idea originally, I firmly believe that this system is the best alternative out there -- much better than the flat tax, which keeps the power to use political favor in the tax system. We were given essentially a flat tax in 1986 under Reagan. The tax rates were greatly reduced, and most deductions were eliminated or capped at very small amounts. Since then the code has been altered thousands of times to the point that it is just as messed up as it was before Reagan's reforms. The only way to end this dysfunctional system is to remove the income tax system for an easier, more fair and economically stimulating retail sales tax.

The Fair Tax has been proposed to Congress (HR 25 and S 25). It is now before the President's Tax Reform Commission. If you don't speak up ... you'll never be heard. So speak up.

5 Comments:

At 12:03 AM, Blogger Brad Warbiany said...

KJ,
One thing. While the cost of goods will drop due to the embedded taxes being removed from the production price, this will be offset by the tax itself. In the end result, the estimate is that the real cost of goods to the consumer will remain pretty well constant. Although, since you're actually taking home your whole paycheck, that cost as a share of your income will decrease.

 
At 9:39 AM, Blogger Masked MenaceĀ© said...

I'm not sure the average tax burden would change at all.

All taxes are bourne by the consumer anyway, if the total tax revenue is constant (the number of consumers is obviously constant) the revenue/consumer (Average tax burden) is also constant.

That said, it lowers the cost (opportunity as well as financial) of compliance to the business, individual, and gov't expenses to police it. So while it doesn't reduce the tax burden, it reduces my out of pocket expenses just to pay them.

 
At 10:09 AM, Blogger KJ said...

MM,

Consider though the incentive to save. Saving is good for the economy. You only spend taxes on your retail purchases. All money invested is pre-tax (whereas now it is only IRAs if you qualify and 401K, etc), and money earned on dividends or other ROR is not taxed until spent. Retirement saving just got a whole helk of a lot cheaper.

 
At 10:51 AM, Blogger Masked MenaceĀ© said...

Oh, I'm not saying the fair tax isn't a simpler, better, and more fair plan. Or that it isn't better for the economy in the long run making us all richer.

I'm not saying that at all.

I'm just saying that the per person tax burden didn't really change. It may change the distribution of payers as the Hollywood types who buy $750k cars every other week pay through the nose, but the multi-millionaire who creates jobs is largely left alone (and that's yet another very good thing). However, the only thing that can change the per person tax burden is to lower revenue (at least as a proportion).

 
At 10:30 PM, Anonymous Tax Sanity said...

The embedded taxes will be eliminated? PRices will drop?

Not so fast, kimosabe. My family owns a small business. We wouldnt save NEARLY enough on our "embedded" taxes to lower our prices 22%.

We would save about 2% -- on not having to pay the FICA of our employees. Great, we love that.

But thats IT. Our company does not save anything else. So we can't lower our cost 22%. We probably wouldnt lower them even 2%, cause we need upgrades on our equipment.

Fairtax advocates have told us we would also save our employees income tax, and the FICA they pay, and the income tax we owners pay.

Nonsense. Our employees will keep their whole paycheck -- remember? For us to cut prices more that 2%, our employees would have to donate back their savings from no income tax, and no fica. Do you think our secretary is going to say "OH, here boss, I dont have to pay income tax now -- you keep it.

Thats preposterous. Fairtax is under this delusion that prices will drop so much - they WONT. You have vastly overestimated -- by a factor of 10 -- what most businesses could pass on.

A business can only possibly pass on those savings it receives. Since the employees recieved less taxes -- thats THEIR savings. ANd they NEED that anyway to pay the extra taxes.

You folks have deluded yourself into very basic math myths. Im sorry to tell you,. And there are other fatal flaws to this flat tax.

 

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