Reasoning Out the FairTax

Reason Magazine did far more emoting than reasoning in their recent (May, 2011)  article on the FairTax, Fair Tax Fouls.  Instead of using logic and analysis of the benefits or drawbacks of the FairTax compared to our current, antiquated system of income taxation, or contrasting the FairTax with other tax reform proposals, Tim Cavanaugh chose to focus on phantasms and boogey men in constructing his rationale for dismissing the FairTax.

Even after he admitted the claimed benefits of the FairTax, such as job creation and increased personal savings, he poohooed  the FairTax as “too complex”, using “complicated language”, “new words” and, most of all, requiring repeal of the Sixteenth Amendment.

Now, it is true repeal of an Amendment isn’t going to be simple, but if the American people spend a year or so without an income tax, and then are faced with either voting to repeal the Sixteenth Amendment or losing 30% of their paycheck through withholding once again, I seriously doubt you’ll be able to find anyone defending an income tax.  So Cavanaugh’s argument is simply a non sequitur.  If the FairTax is passed, and repeal of the Sixteenth Amendment fails, then the FairTax is repealed.  If the FairTax is passed, and repeal of the Sixteenth Amendment is ratified by the States, then the FairTax stays, and the income tax is forever removed as a threat to the American worker.

Cavanaugh’s assertion that we should repeal the income tax, and not replace it with anything, is equally facetious.  Like it or not, we need revenue to fund the legitimate functions of government.  The FairTax is about HOW we collect those monies.  The argument of HOW MUCH, is one to be fought later, after we have dispatched our monstrous income tax system and it’s parasitic industries.

Mr. Cavanaugh could also use some remedial math education as well as some help with his reading skills.  Looking at the Reason Opinion Survey, which he used as the source of his assertion that two-thirds of the Nation opposes the FairTax, we find that those who somewhat or strongly oppose a national sales tax adds up to just slightly above 40%.  And their poll question doesn’t differentiate between the FairTax, a national retail sales tax, and a VAT, a type of national sales tax applied to each stage of production.  Actually, it’s more likely FairTax supporters recognized the linguistic cul-de-sac the pollster was trying to maneuver them into, and refused to lend their support to a European-style VAT.  Either way, 40% isn’t 66%, even at Reason Magazine.

If Reason Magazine wants to do an in-depth exploration of various tax reform proposals, comparing and contrasting, I’d fully support them.  But if foolish canards and misrepresentations is the extent of their analysis, then perhaps a name change would be more appropriate…   Dunce Digest perhaps?

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Posted in FairTaxFraud, Tax Reform
45 comments on “Reasoning Out the FairTax
  1. May I suggest that you post a link to the article you refer to, so all can have a look and make their own judgement.

  2. Nicole says:

    Just google it. It comes right up.

  3. Jeff Gardner says:

    I love the post, and love the FairTax, but don’t use Papyrus for your logo type. It makes you look like an idiot.

  4. MerlinYoda says:

    Through the magic of a Google search for “Fair Tax Fouls” and “reason.com” here’s a link to the article this is in response to: http://reason.com/archives/2011/05/16/fair-tax-fouls

    The funniest part towards the end is how he says “But laws and novels get worse as they get wordier” … so apparently 131 pages is “too long” despite the fact that our *current* tax code numbers in the tens of thousand of pages.

    Also, the asinine way that mentions how “prebate” is not in his dictionary is laughable as well. Not every word used in by the English-speaking world resides in the dictionary. It’s simply a term that was coined so that supporters didn’t keep having to say “PREemptive reBATE” (capitalization added for etymological emphasis) every time they were explaining that particular detail of the FairTax to someone. Everyone understands what a tax rebate is (you know, that thing you get in the first part of the year after filing a federal income tax should the federal government have withheld too much from your paycheck over the previous year). Everyone knows what the prefix “pre-” means. It doesn’t take much intellectual effort to figure out what a “prebate” is.

  5. This is definitely an article that needs to be refuted. It’s wild comments like those of Tim Cavanaugh and his followers that erroneously ruin the reputation of the FairTax. Thanks for posting this, kicker51!

  6. […] Reasoning Out the FairTax Posted on June 29, 2011 by Admin| Leave a comment Reason Magazine did far more emoting than reasoning in their recent (May, 2011)  article on the FairTax, Fair Tax Fouls.  Instead of using logic and analysis of the benefits or drawbacks of the FairTax compared to our current, antiquated system of income taxation, or contrasting the FairTax with other tax reform proposals, Tim Cavanaugh chose to focus on phantasms and boogey men in constructing his rationale for dismissing the FairTax. Even after … Read More […]

  7. mike stephenson says:

    The guy from reason magazine is clearly unable to think for himself. He complains about prebate not being in the dictionary and is suspicious of new language. If you can’t figure out what prebate means from the the prefix “pre” and the word rebate, you shouldn’t be given a computer to pontificate.

    He thinks it requires a complex bureaucracy to administer. What does he think we have currently with the IRS?

  8. Anyone who prefers no taxes may be summarily dismissed as a dunce. This is an extremist view followed by Rand and Paul cultists, who populate some kind of alternate universe. Naturally they would line up to scorn the FairTax.

  9. fairtaxer says:

    Well Mark, I’m surprised it took you this long to find us. For those not familiar with Mark, please see: http://www.wiserepublic.com/4793/when-myrmidons-attack/

    Enjoy!

    • Bill E. Payne says:

      Ah yes – everybody’s best friend. Well, if you’ll excuse me, there’s a pooperscooper in the corner calling my name. While I’m up, can I scoop anything for anyone? Oh yeah, Mark – the IRS called. They want their percentages back.

  10. kicker51 says:

    Oh Goody. Mark is here. Now we have someone that will help others feel good about themselves. After all, we could always be Mark.

    But, more seriously Mark, you seem impervious to reason or logic. In spite of being soundly refuted on each and every point, you persist in your claims. And yes, we all understand the Leninist “Tell a lie long enough and it becomes the truth” approach. Your problem is we all know it’s a lie, and aren’t buying it.

    But please persist, because as we use you to demonstrate the many advantages of the FairTax, it just makes it easier for those who are watching, but not commenting.

    (BTW. Are we going to be treated to more of your profanity-laced arguments? They just make everyone more thankful they aren’t you!!)

  11. Scrap Iron says:

    For Mark and Hank.
    First, where do you get the idea that states and cities will have to pay any tax in advance? Please provide a link to your source.

    And for Hank, everytime you, I, or any seasoned citizen buys ANYTHING, you are paying the embedded taxes, which average 22%. Take those out, and REPLACE them with a 23% inclusive rate and you get just about the same price. Since domestic goods have a larger share of embedded taxes, it is quite possible that they will cost LESS, even with the Fair tax.
    For information on embedded taxes, I refer you to the following link.
    http://www.federalbudget.com/corpwelfare.html

  12. Bill E. Payne says:

    I’ll do the best I can, Hank.
    1. Seniors (I am one) are already paying those taxes that are embedded in the prices of goods they buy. The FT is a wash there. If we continue like we are, we will just keep paying into a corrupt system. From fairtax.org: “some erroneously believe that people who have invested in Roth IRAs will never pay taxes on this money again. They may not know it, but they are paying corporate income taxes, employer payroll taxes, plus the associated compliance costs that are hidden in the price of every retail purchase they make. Under the FairTax, these hidden taxes are driven out of retail prices. And note, they can determine the amount of tax they pay through their own lifestyle choices.

    Furthermore, used goods are not taxed because they have already been taxed once — when they were new. Therefore senior citizens, like all Americans, do not lose purchasing power, but gain it instead. Moreover, the FairTax preserves the purchasing power of Social Security benefits, and seniors receive a monthly prebate so they don’t pay taxes on the purchase of necessities. Tax-deferred investments get a one-time windfall. Savings invested in any long-term, income-generating asset such as a stock, real estate, or a long-term bond that can’t be called, increase substantially in value. Finally, complex estate planning is an artifact of an earlier age.”

    2. See #1. They are already being double-taxed and don’t know it because it is not transparent, as the FT will be.

    3. You pointed out the corrupt nature of the present system here (“Under current tax law, an estimated 1 million workers pay no income tax and qualify for refundable tax credits, such as EITC, in an amount that totally offsets their 7.65% FICA contribution”), except that over 42 million tax filers already pay no tax – not 1 million. Other sources show up to 47% of taxpayers already pay no income tax. That’s way more than a million! Those 41 million workers you refer to will eventually realize a better personal economy due to market forces improving. It will be a very dynamic – as opposed to static – situation. Nothing will remain the same for long, and many of those people will be more productive then, whereas at the present rate, we will just be adding more to the problem.

    4. The housing market is depressed currently, and it is likely to keep going down before it goes back up. The FT will give people more of what they earn to spend on housing, which should help the market a lot. Additionally, as the embedded taxes on everything that goes into a house disappear, a person’s income will buy more house. Then the law of supply and demand reaches an equalized state, home values will begin to go up again.

    5. The last time I checked, the 50 governors work for US. There are already several of them promoting changes to drop state income taxes in favor of a sales tax. Conversion to FT by states would be nearly seamless. The states are also compensated for their collection efforts under the FT. But it’s a separate issue, anyway. Just suppose this: the FT is passed; the economy blooms; many jobs are created; the US becomes the world’s tax haven; trillions of dollars are repatriated from their hiding places overseas; Social Security and medicare are funded way beyond their current expected life span; people begin to enjoy what they always thought the “American Dream” would be like. Do you really think the nation would ignore repeal of the 16th? Not a chance. The fact that the NGA would resist change would never overcome the will of the people.

    Thanks for the chance to address your concerns, Hank. I hope I answered some of them adequately. There is plenty of information that deals with most common concerns with the FairTax here: http://www.fairtax.org/site/PageServer?pagename=about_faq and at fairtaxnation.com. You can also read the bill itself, if you haven’t already, here: http://thomas.loc.gov/cgi-bin/query/z?c112:H.R.25:

    Be aware that there are many many people who have studied the FT for years (I’m one of those, too) and still support it. I believe the only thing that will keep it from passing will be ignorance and apathy (the scourge of the masses), because it’s been too easy for far too long. That is coming to an end though – and soon – if we don’t take action now.

    Thanks again for allowing me to further the purpose of this blog. I hope you’ll look at the FT with an open mind and help us make it a reality.

  13. Scrap Iron says:

    Hank- you wrote. ” …and buyers would need to come up with not only 20% down but the 30% sales tax.”
    The 30% sales tax (its really 23% inclusive) is already there, Its called the embedded tax. You pay it now.
    Its not an additional tax, but a REPLACEMENT tax. The price of the house would remain the same.
    Bill E. Payne gives you some good informatin and good links.
    Please take the time to check them out.

  14. After reading what Bill wrote, I’m not sure I can improve upon his response. First, Hank, thanks for giving us a shot at answering your questions.

    I think the first thing everyone should always remember about the FairTax is that it is a -replacement- tax. And that (as Scrap Iron pointed out) there are embedded taxes that the FairTax is replacing. If you remember that, you will understand that there is no “double taxation”, in fact it is removing existing double, triple, and cascading taxation from the current system. The FairTax is the only tax plan that has ever been able to do that – and effectively I might add.

    The second thing I believe everyone should remember about the FairTax is that although it is a stated 23% tax, it is not an exclusive tax – meaning you will NOT see an added 23% tacked on to your receipts like you currently see for S&L taxes. The FairTax is paid to the States by the businesses out of the original cost of the goods/services. As Bill put it, “it’s a wash”.

    If you can remember the two items above and insert those into any situation, then I believe you will better understand how the FairTax will improve upon the quality of life we (as well as our children and grandchildren) face.

    Hank, in regards to your ‘prebate’ question: First, there are an estimated 20 Million undocumented workers in the United States right now. That is 20 Million people who are currently avoiding income taxes and causing a multi-billion dollar drag on our economy. Under the FairTax, they will not only be paying the FairTax at the register like everyone else, they will not receive the prebate like legal US citizens. AND, because Social Security and Medicare would be funded through the FairTax, they would be helping to improve the quality of those programs without being able to benefit from them.

    I understand you’re a “long time critic” of the FairTax, Hank, but I hope you are also open-minded enough to listen to what we have to say and understand that we strongly believe the FairTax is exactly what the United States has needed for decades. What will it take to get you to fight FOR the FairTax instead of against it?

  15. kicker51 says:

    The Prebate Issue: Some folks, including Hank, seem to see the Prebate as some form of entitlement or welfare program. Nothing could be further from the truth. The Prebate is a return, a refund, a correction, of over paid taxes.

    Under the FairTax, we do not believe anyone, rich or poor, should pay any tax at all on the necessities of life. And while we may argue what constitutes “necessities”, for the sake of brevity and because it is understood through common usage, the Poverty Level is taken as the threshold defining “necessities”. So, under the FairTax, no one will be charged on purchases up to the Poverty Level.

    The logistical problem, in developing the FairTax, was how to charge taxes on “luxuries” (ie those purchases above the poverty level), and not charge taxes on “necessities”. To place such a burden on retail businesses across the Nation is unrealistic, and, as we have seen under the present system, almost guaranteed to lead to widespread fraud and tax evasion. Similarly with trying to exempt “necessities” from taxation. While some foods, for instance, are clearly a necessity, others, or excessive quantities, are clearly luxuries and should be taxed. And, as we have seen, giving Congress the power to exempt means nothing but corruption, lobbying, and crony capitalism.

    The simple answer, and remember, one of the foundational principles of the FairTax is simplicity, was to tax everything, and simply return, to everyone, what was overpaid. After all, it’s OUR money. It is simply being returned to us. The federal government, or government at any level, has no right to it, no claim upon it, and does not deserve to keep it.

    A simple analogy is the tax refund that many folks get each year. Many, if not most, overpay their income tax out of fear. And we get our overpayment back after we file our tax returns. No one sees that refund, of their money, as a form of “welfare”, nor should they. It is their money. It is the same with the Prebate.

    So, rather than being a form of welfare, and creating a dependence upon government largess, the Prebate is an affirmation that it is We, the People, for whom government works, not the other way around. It is We, the People, who pay for government services, AFTER we have taken care of our selves and our families, with a portion of our excess, or luxury, monies. And it is We, the People, who will decide how much we actually pay in taxes, by how and when we make our purchases, instead of the government who takes what they want, and leave us what they decide we deserve.

    • Scrap Iron says:

      Kicker51- A better analogy for the prebate is, it acts like the standard deduction in the world of income taxes.
      You don’t pay taxes on your first $X of earning.
      The prebate keeps you from paying the FairTax on your first $X of purchases.

      I like the fact that the prebate removes the tax from my “basic needs” and that I, as an individual (and not some faceless bureaucrat) gets to decide exactly what those basic needs are. They might change from month to month.

  16. Scrap Iron says:

    Hank- Maybe I can help you with some of your concerns.
    The prebate acts like the current standard deduction.
    You shouldn’t be paying taxes on your basic needs (and YOU decide what your needs are) so the government sends you the amount you would pay in Fair Tax (up to the poverty level) in advance.

    And the subject of embedded taxes seems to confound you (I may be wrong). When the taxes a company pays (income and payroll) are added into the price of product, there are hidden; embedded, and are added to each stage of production
    Check out the link http://www.federalbudget.com/corpwelfare.html

    When embedded taxes are removed, they will lower the price of everything, even the utilities a retailer pays, thus lowering his costs even more.

    I’m not the best using a forum such as this, others are better, but I hope you take the time to consider what we FairTax supporters have written.
    And thank you for having an open mind and communicating without insults.

  17. kicker51 says:

    Hank, you’re using the same old arguments, which have been refuted several times on other blogs. I know you just don’t want to believe the data, and simply have to rehash the standard opposition talking points. But since some of the readers may not have heard the answers, even though I know you have, I’ll put them up again. My apologies in advance for those of you who are seeing it all again.

    (1) Embedded business taxes impact only retail prices, not individual tax burdens. Look my friends, businesses pay utility bills and include them in their retail prices. But my utility bills aren’t impacted by one dime. Businesses pay rent and offset that cost in their retail prices. But my rent is unaffected. And, yes, businesses pay taxes and include them in their retail prices. Why do Fairtaxers seem to believe that their individual tax burden is somehow affected? It isn’t!!! Again, embedded costs of all types impact only retail prices. As Larry Kotlikoff told me, the whole subject of embedded taxes is being used and abused in an attempt to offset serious criticisms. I submit that your rebuttal to double taxation, government spending, etc. is misinformed. Think about it!

    You are correct that embedded taxes only DIRECTLY impact retail prices. You are, still, incorrect that they do not have an impact on how much I personally pay in taxes. Under the FairTax, embedded taxes are removed, and the federal government will receive taxes only from the purchases I make. If I spend little, regardless of how much I make, then the government will get little from me. On the other hand, if I already have wealth, or derive my income from sources other than wages, which are taxed at a lower rate, and I live a lavish lifestyle, then the federal government will get quite a lot, and a lot more, in taxes from me. So, embedded taxes, and their removal, would have an impact on how much I pay in taxes in total, and my effective tax rate. As Musashi would say, Think deeply upon it.

    (2) In the same vein, several of you still believe the Fairtax “free lunch” myth. 22% costs removed and 23% tax added and prices remain about the same. Nonsense!!! Unless you believe we all will accept a gross pay cut in the amount of our withholding, then the most businesses can reduce their costs by eliminating taxes is around 9-10%. Add the 30% sales tax at the cash register and retail prices will rise by 18% on average. Using 2007 actual data found in the 2006 BHI/Kotlikoff “What Rate Works” study, with retail sales of durables, non durables, and services of $9.5 trillion, businesses paid $291 billion in income taxes or 3% of sales. Businesses paid $435 billion in payroll taxes or 4.5% of sales. And, businesses paid $147 billion in compliance costs or 1.5% of sales. Add them up and you will see where I get my 9% average business tax costs. And, it is simply incorrect to add 23% to costs. In order to arrive at an inclusive price, the retail merchants have to add 30% at the cash register. Just check out the AFFT FAQ section and scroll to the 4th from the bottom. There just isn’t any free lunch, folks. We will get 100% of our pay/pensions and retail prices will rise by an average of 18% across all businesses.

    Not sure how you got actual data for 2007, when the report was written in 2006, but even with that proviso, the numbers you are using are not what was included in the Kotlikoff report. “Taxing Sales under the FairTax: What Rate Works?” Using real numbers from the IRS website for 2006, we have $381 billion for corporate income taxes (4.0% of sales) and $814 for payroll taxes. Adjusting the payroll taxes for employer/employee, and remembering the self-employed pay both, we have about $545 billion for payroll taxes (5.7% of sales).

    Now the compliance costs are much trickier since studies (Source: Arthur P. Hall, The High Cost of Tax Compliance for U.S. Business, Special Report No. 25, Tax Foundation, November 1993.) show that tax compliance costs as a percentage of sales range from about 5% for large corporations, to as much as 50% for smaller companies. Since larger companies, by definition, account for a majority of the sales, using just corporations with more than $1 million in sales (1993), we have a 7% of sales cost of compliance. So, when you add up the actual numbers, and include a percentage based on an actual study (since the compliance, and compliance costs seems to be missing from the Kotlikoff report you cited as a source) we have about 16.7% of sales.

    Now, I hear you already… 17% isn’t 22%, and that is true, but it isn’t 9% either. So let’s look at what is really important, purchasing power. I’ve included a little table for your illumination.

    Income Tax FairTax
    Gross Pay $50,000 $50,000
    > Income Tax (17% minus $5,150 deduction) $-3,550 – 0 –
    > Payroll (7.5%) $-3,750 – 0 –
    Take Home Pay $42,700 $50,000
    > Prebate (Single) – 0 – 2,400
    Effective Income/Purchasing Power $42,700 $52,400
    22.7%

     

    Income Tax FairTax
    Net Income $42,700 $52,400
    Price of “Stuff” 100 107
    Amount of Stuff You Can Buy 427 490
    Added Purchasing Power Under FairTax 14.8%

    As you can see, even with an increase in the “cost” of products, the average American is better off under the FairTax than under the current system. Of course, the effect of the prebate wanes as income increases, and by the time an individual is making $1 million or more, it pretty well disappears, so the rich really do have a little less purchasing power under the FairTax.

    (3) Some of you misunderstood my discussion about “free loaders”. I’m quite aware that half of all Americans pay no income tax. But almost all workers pay FICA, so they are contributing to their retirement benefits. Only those workers that both pay no income tax and qualify for refundable tax credits in an amount that totally offsets their payroll contributions fall in the “free loader” class, of which I estimate there are less than 1 million… And, those refundable credits are time limited, so eventually even the 1 million will contribute something to the cost of the federal government. Not true for the Fairtax. If you don’t believe my 41 million, do your own research. The question is “how many workers are paid at or below the poverty level. I found a recent publication that set that number at 37 million. I then adjusted that number upward due to the often overlooked fact that AFFT adjusted the HHS poverty level numbers upward to eliminate a perceived marriage penalty. For instance, a family of four poverty level spending is $22,000 according to HHS, but the AFFT prebate is $28,000. Just an estimate, but that is why I believe the number of workers who pay no net federal tax is 41 million. Check it out, but 41 million versus 1 million doesn’t look like an improvement? Do you really support such a “nanny state”??

    The important question isn’t how many, but rather whose money is it in the first place. Implicit in your argument is the assumption that monies associated with the prebate “belong” to the government, and the government is “giving” those monies to individuals. Quite the opposite. The money included in the prebates belongs to, and has always belonged to, those to whom it is being returned. Since, by definition, everyone is making purchases of at least the poverty level (the argument about where the money comes from with which they make their purchases, ie other government programs, is a good one to have, but it isn’t part of the FairTax issue). So whether the number is 1 million, or 100 million, it really doesn’t matter because the prebate isn’t a handout. It is return of monies inappropriately collected, and being returned to the rightful owner.

    (4) The benefits of buying used goods is badly overblown. Services make up 50% of the typical family budget and there are no used services. There are no used groceries, no used restaurant meals, no used heating oil or gas for your car, nothing used at Wal-Mart, etc. The opportunity to buy used is limited to occasional purchases of houses and cars unless you choose to lower your lifestyle and buy your underwear at Goodwill? I checked last years budget and could not find one singe purchase of a used good. How about you?
    I might add that after the laws of supply and demand operate during transition, prices will return to the current new/used relationship. In other words, you won’t save any extra money by buying used stuff. If you want to lower your standard of living just to avoid sending tax revenue off to DC, be my guest, but it makes little sense to me!

    So your argument is that because you don’t want to do something, no one else should be allowed to. And the very possibility should be precluded.

    (5) Some of you, (probably not retirees) seem to think retiree purchasing power will actually improve. Not true for all retirees. You forget that many retirees pay no income tax and, of course, make no payroll contributions. Their only added income is the prebate. For instance, a retired couple living comfortably on two SS checks for $30,000 plus $18,000 from other income sources currently pay no income tax and no payroll taxes. Under the Fairtax, the prebate will increase their income to $53,000 and if spent on taxable goods and services, they will pay $12,000 in sales tax offset by their $5,000 prebate for a net increase in taxes of $7,000 and no improvement in purchasing power. Check it out! Retirees vote in large numbers!!

    You also seem to have forgotten that the SS is adjusted to reflect the effect, if any, of the FairTax on the costs of goods and services. In other words, if the prices go up because of the FairTax, so do SS payments. So, tell me again how the FairTax hurts retirees?? Increased SS payments, plus the prebate. Seems pretty good to me.

    (6) Finally, some of you believe the Fairtax myth that the prebate is just a tax refund. It isn’t by any stretch. The prebate is a $600 billion cash grant entitlement that can be spent (and taxed), or saved as circumstances allow. The prebate is an income supplement, not a tax rebate as AFFT wants you to believe. Just look in your checkbook for confirmation. And we certainly can’t afford another humongous entitlement!

    You are right in that the prebate isn’t just a tax refund, it’s also a fiscal device to ensure no one, rich or poor, pays taxes on the necessities. And it is a restatement of the relationship between citizens and the government, specifically, the government has no claim on the fruits of our labors until such time as we have taken care of ourselves and our families. In other words, we place people before government!!

    As far as looking in my futuristic checkbook, this is what I’ll see. Purchases made, taxes paid (and under the FairTax I’ll actually see what my taxes are), and monies refunded due to purchases of necessities, ie the prebate.

  18. @ Hank you said “And don’t overlook the probability that federal taxation of S/L government consumption may be found unconstitutional under the long held Supreme Court doctrine of “intergovernmental tax immunity”! Check it out! ” So I did and this is what I found. In South Carolina v. Baker (1988), the Supreme Court upheld federal taxation of interest on unregistered state bonds in an opinion that rejected constitutional immunity for state bondholders. Justice William J. Brennan in Baker summarized what was left of the doctrine of intergovernmental immunities: “the States can never tax the United States directly but can tax any private parties with whom it does business … as long as the tax does not discriminate against the United States or those with whom it deals” (p. 523). The opinion indicated that “some nondiscriminatory federal taxes can be collected directly from the States, even though a parallel state tax could not be collected directly from the Federal Government”
    Seems to me that a federal sales tax is about as nondiscriminatory as you can get

  19. Hank, I’m guessing you don’t have a clear concept of the Cascade Effect. The Cascade Effect is an unforeseen chain of events due to an act affecting a system. In layman’s terms, Hank, “Shit rolls downhill!”

    // businesses pay utility bills and include them in their retail prices. But my utility bills aren’t impacted by one dime.//

    But when that business is your utility company, your utility bills most certainly ARE impacted. Why? Because they will not pay the taxes, they will pass their tax burden on to you – the consumer.

    // Businesses pay rent and offset that cost in their retail prices. But my rent is unaffected.//

    But when that business is your landlord, property owner, and/or ANY of the dozens of other companies that either a) had a hand in building your residence, or b) have a hand in maintaining your residence, your rent most certainly IS affected. The more they had to pay in taxes (for materials or other services) the greater the costs to you.

    // And, yes, businesses pay taxes and include them in their retail prices. Why do Fairtaxers seem to believe that their individual tax burden is somehow affected? //

    Why?? Because of the two previous examples. Although the burden may be on the business to collect those taxes, it is most certainly put on the consumer to pay them.

    What the FairTax is proposing is honesty in the tax system. The problem is there are too many disingenuous people willing to cheat the current system and they know (whether they will admit it or not) that they stand to lose their footing once the FairTax is enacted.

    • fairtaxer says:

      Regardless of whether we pay those taxes directly or indirectly is moot; the fact is that we do pay them. Research has proven that fact and court decisions have been made which “discount” the cost of businesses being sold based on their “embedded taxes”. Ignoring the fact that there are embedded taxes, does not make them disappear. Scholarly research has also shown that the FairTax will neither increase nor decrease the price of new goods or services. That is the reason it is called “revenue neutral”.

    • fairtaxer says:

      Hank, I’m getting the feeling you’re being disingenuous here. There IS research and you know exactly where to find it. Regardless, for the sake of everyone else here, in the “Research Papers” section of FairTax.org, under “The FairTax & the Economy“, there is a PDF titled “The impact of the FairTax on American manufacturing, agriculture, trade, and international competitiveness” (LINK). In that PDF it clearly states “American goods become 12 to 25 percent more competitive.“. Furthermore, Boortz and Linder, in their 1st book, show the estimated change in prices once the embedded taxes are removed from the products.

      Prices Decline without Embedded Costs of the Tax Code

      In the above figure, the rates vary a little (15% – 26%), but we’ll just use the numbers we started with. Now, in order for an equation to work we need the use entire equation. What you’re doing, Hank, by posting only 1/2 of the required information is misleading people. So let’s set the straight here:

      The range again is 12-25%, correct? (Not just a flat 12% as you wanted everyone to believe). And the FairTax is 23% NOT 30% (another distraction technique opponents of the FairTax use). So, with that we have:
      (A) @12% = ($1.00 – 0.12 x 1.23) = $1.0824
      (B) @25% = ($1.00 – 0.25 x 1.23) = $0.9225

      Now, what we’re going to do is get the AVERAGE – which is what the FairTax has reported all along. To do that, we:

      Add (A) and (B) = $2.0049, then we divide by 2 = $1.00245

      Rounded, that is $1.00 = $1.00

      Isn’t it amazing how math works properly when you have the full equation?

    • kicker51 says:

      You may as well give up on Hank. He simply refuses to accept any position other than his own, regardless of data or explanation provided. For instance, I’ve explained, several times, that we all understand the Jorgenson issue, and Walby addressed it several years ago. At that time, she came up with a minimum business cost of about 12%. But that did not include the compliance costs which, as I have also shown him, have been shown (Arthur D Little study referenced earlier) to be a minimum of 5%. So, we have, a minimum of 17% as the costs to be recovered under the FairTax. But note that’s the MINIMUM. And even at the MINIMUM, purchasing power under the FairTax is greater.

      Hank is also one of those who finds demons in the fact that AFFT chose to express the FairTax on the same basis as used for the income tax, instead of using a basis used by some, but not all, for sales taxes. In other words, we didn’t do it his way, so we are wrong. (In fact, Hank is so ideologically ossified we haven’t even been able to get him to admit it’s the same amount of money, just expressed using a different basis.) And, as further evidence of ideological, rather than intellectual, agenda, he demands we not show the effect of removing embedded taxes when the FairTax is applied. (In other words, we have to add 30% to today’s prices because Hank refuses to recognize any of the dynamic effects associated with embedded cost removal.)

      Hank simply doesn’t care how much good the FairTax will accomplish. He doesn’t care about jobs, exports, new business, stripping power from Congress and the IRS, helping the poor, stimulating the economy or much of anything else expected under the FairTax. Hank doesn’t like it and, as a result, will misrepresent it in any way he can in an attempt to undermine it’s passage, or those who support it.

      Personally, I think we have wasted enough time on Hank. If he doesn’t like the FairTax, he needs to show what he thinks is better, and engage in a free and open debate on the merits of his proposal versus the FairTax. Any simpleton can cast stone of his own making at another suggestion. Let’s see if Hank has the acumen to propose and defend what, in his mind, is a better way. If he refuses, it will be clear his goal is simply to undermine the FairTax, not make any improvements.

  20. MerlinYoda says:

    So, if collecting *any* taxes from a State (or local) government is unconstitutional in your opinion (seeing as you side with the dissenting opinion) then how do you address the *huge* loophole/incentive you create to funnel all otherwise taxable activities through a State (or local) government. By that logic state/local governments agencies also shouldn’t have to pay their share of payroll taxes and government employees/representatives (when acting as an agent of those state or local governments) shouldn’t have to pay taxes either for the same reason. Furthermore, how much would you have to raise taxes on all the private entities (individuals and corporations) to make up for the lost revenue that would otherwise have been collected if the taxable act or the party had not been one that was acting on behalf of the state (or local) government.

    The only specific limitation that I can find of a Federal tax not being applicable to a state in the Constitution that “No Tax or Duty shall be laid on Articles exported from any State.” … which is to keep the Federal government from “playing favorites” with goods from one state over another by laying an export tax on the less favored one … That is, unless you’re confusing the FairTax with a direct tax such that the clause “No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken” comes into effect. However, the FairTax is an *indirect* tax and therefore only need to be uniform (and it is, as has been pointed out in this thread already). Of course the 16th amendment allowed for taxes on income to no longer need be apportioned as such which is at least part of the reason out income-based taxation system has become the monumental clusterfluff it is today.

    (clusterfluff: self-censoring replacement term borrowed from a Ben and Jerry’s ice cream flavor 🙂 )

  21. fairtaxer says:

    // (5) I’m aware that the prebate is inflation protected per HR25, but you again missed the point. Using my example of a retired couple, they will pay $7,000 more in federal taxes than under current law. In other words, the Fairtax is a massive shift in the federal tax burden to the lower income retired sector. Not a fair proposition, imho. //

    Remember, the FairTax is based on what people spend, not what they earn, so without the numbers of what that retired couple will (or can) spend in a year, there is no definitive way for us to say that they would actually “pay $7,000 more in federal income taxes”. But, even if they did technically pay more, it would be because they purchased more, not because the Government wanted to take it from them (like it is now). PLUS: They would still not pay any more for any goods or services than anyone else would; they would not be taxed on any capital gains or gift taxes; their CHILDREN would not be taxed on their estate taxes once their parents pass; and they would receive an additional check from the government which would untax their necessities.

    • fairtaxer says:

      Here is what I think is unfair, Hank: People living in the U.S., using the same resources I do, and NOT paying taxes on those resources. As you CLEARLY put it, Hank, retirees “currently pay no income tax or payroll tax”. My whole (working) life I have paid into a system that will be completely bankrupt by the time I’m ready to collect my pensions. I’m not going to see a single dime, Hank. Why? Because people like you feel that you’re “done with the system”, so you shouldn’t have to pay any more taxes. Then, when people from MY generation figure out a way that not only helps support and keep our Social Security benefits alive – you want to tell us to screw off. Ya know what, Hank, in 5, 10, 15 years, you’re probably going to be laying face up in a grave and I’m still going to be paying into a broke-dick, defunct system because people like you fail to understand that what we are trying to accomplish isn’t JUST for us, it is for our kids and our grandkids. And yes, the FairTax “shifts some tax burden”, but not just to retirees, to illegal immigrants, to drug dealers, to children who spend their allowance on candy and games, and everyone in the underground economy. Why does it shift that burden, Hank? Because that is what happens when you change from an unfair antiquated tax system to a tax system that will turn every person in the United States a tax payer.

  22. MerlinYoda says:

    @Hank Van Gieson

    I couldn’t reply to your reply to my reply, so I’m posting my reply to you here in the main thread. Based on my research (admittedly brief, ~ 1.5 hours), those state (and local) governments and their employees are exempted *only* if they have set up their own qualifying pension plans. Otherwise, they have to pay FICA like everyone else. It’s not like they are exempted simply by the very nature that they are a government entity they are exempted because the are a government entity which has a pension plan for their employees. Even with this exemption from regressive FICA taxes, government employees are still on the hook to pay income taxes.

    The reasoning for the FICA exemption is a straightforward one in that it wouldn’t be “fair” to have them provide funding through taxes towards what is basically a federal pension plan (SS and Medicare) when they already pay towards one on the state level and would have no real need for the federal one. Although, it would be much more equitable if this provision was extended to *private* entities as well (e.g. a manufacturer would be exempt from FICA taxes should they demonstrate that they have a qualifying pension plan set up for their employees) … this exemption may very well exist, but I found no substantive evidence of it in my research. The closest I came was a few sparse second-hand accounts of some group of people opting out of SS and apparently weren’t on the hook for paying that part of FICA but still had to pay the portion of it that went to fund Medicare or something along those lines.

    Despite all this,FICA is a direct tax upon income. The FairTax is constitutional because it is 1) an indirect tax on consumption that is 2) uniform in it’s implementation. A state agency in California pays the same tax on a service or new good as the state of Kansas does or John Q. Public down the street does. As such it is well within Congressional power to lay the FairTax tax as it certainly fits within the confines of the famous “Tax and Spend” clause and violates no other clause that I have come across.

    *If* the FairTax was amended such that it exempted all government consumption and thus was apparently then constitutional in your opinion (the exemption would have to be applied with uniformity as well), you would create at least two significant problems by doing so. For one, since it would be replacing the federal tax code, the rate would then have to be adjusted higher to account for the revenue lost due to this exemption (this already happens in spades with our income-based taxes where the burden gets heavier and heavier for those who either don’t qualify or are unaware of the countless exemptions in our tax code … this sort of thing is what the FairTax was designed to avoid while still being revenue-neutral). Also, you would create a *huge* (and I do mean huge) loophole in the tax code that would show undue favoritism towards government consumption at the cost of private consumption. Unless you *really* want your state government to have a distinct advantage over the private sector in providing any given service, I would propose that this is *not* an option you want to explore. That road can very well easily lead a shrinking of the private sector and increased (state) government control in not only the economy at large but perhaps in your everyday life (more economically speaking than socially, but the former doesn’t preclude the latter).

    • MerlinYoda says:

      You’ll get no argument from me on those state programs being run better than the federal ones (generally speaking, especially since, among other things, many states cannot run continual deficits and accumulate debt according to their constitutions unlike how the federal government can)

      You are correct about Section 704 requiring a Government Enterprise to remit the 23% inclusive tax from the consumer of a taxable good or service so as to not to put a government provider of services or new goods at odds with a private one (although I think the main reason for this section was the concern around taxable services more so than it was for taxable goods). However a “Government Enterprise” also becomes not subject to the tax on “intermediary sales” the same way that a retail store is not subject to taxation on the goods it buys from a wholesaler. In short, the supposedly “non-profit” government run agency is treated like a for-profit business when it reaches that $2,500+/quarter revenue threshold.

      However, were state governments not taxed for their consumption like you’d suggest, my concern would rest primarily with an unhealthy increase of government services and government distribution of goods that are provided “without charge” (that is, they are funded via state tax revenues at large and made available to the general public, either with uniformity or in a more targeted manner). If there is no direct exchange of monies (or some monetary substitute like in barter transactions) between the final consumer of a taxable service or good and the provider thereof, I could foresee it being difficult to have that action labeled in legal terms as a “sale” … even if the fair-market value of those otherwise taxable goods/services being distributed exceeded a fair market value of $2,500+/quarter.

      For example, let’s say a state government saw fit to distribute a large quantities of radishes to its citizenry on a monthly basis because several studies had found that eating radishes on a regular basis had a profoundly positive effect on overall health. All those radishes that the state purchased, under your proposal, would not be subject to taxation upon the government’s purchase of them. Furthermore, and more importantly, they would not be liable to remit a tax upon those radishes from the citizenry of that state to which they were delivered as there was no exchange of monies (at least certainly not one that is directly traceable to each recipient).

      This is the revenue loophole to which I refer. It is this sort of potential abuse where sizable quantities of what otherwise could have been taxable goods are sucked into a revenue black hole of state government consumption that I would fear more than the sort you mention where a government agency is making a direct sale of a service or new good to private individuals such that those sales would eventually taxable once the revenue threshold is reached under Section 704.

    • kicker51 says:

      MerlinYoda explains why the States need to be included in the FairTax structure, but only touches upon why. The fact is, if States were not taxed, we would soon end up with essentially no private retail economy. After all, what fool would buy from a private retailer, and pay the FairTax, when he can buy the same goods from a government agency without including the FairTax.

      And short-sighted citizens, such as those who voted for Hope and Change, would clamor for the government to ever expand the list of goods and services they provided. Healthcare, daycare, financial services; you name it, State and Federal government would soon be in the business of providing it “tax free”.

      Soon thereafter, the system would collapse, taxes would be raised, and new ones created, and we’d be locked into hard socialism and the American Experiment will be dead.

      However, if governments have to include the FairTax in their “services”, then private enterprise is playing on a level field. And if there is anything we should have learned watching the federal government over the last few decades, it is that government NEVER does anything less expensively than the private sector.

      So, opponents of the FairTax can wail and whine all they like. Taxation of State and Federal goods and services is in the legislation and should not be taken out… for very, very good reasons.

  23. MerlinYoda says:

    The only effective difference between the prebate and an income tax rebate is that one comes before an over-payment of taxes and one comes after. That’s it. You’re not “entitled” to a income tax refund check regardless of whether you overpaid or not so you should really cease referring to the prebate as an entitlement unless you consider an income tax refund an “entitlement” as well. Should the IRS do an audit and find it erred and refunded you too much in the prior tax year, you’d be liable to pay back that overcompensation.

    Along those same lines of reasoning, since it is assumed by government that the poverty level is the level at which everyone must (and thus *will*) consume in order to have a basic level of subsistence, then there is no effective difference the total amount of collected when that tax refund is given and how often. The reason to provide it at the first of every month is so as not to place any undue financial burden that would be incurred by holding on to those taxes which were overpaid until the end of the month (or worse, until the end of the year). Think of the prebate as the FairTax’s version of the standard deduction except that it’s based on consumption rather than income.

    Also a few “quick” responses to your other points that do not involve the prebate:

    “1) … But embedded taxes are not and never have been a part of your individual tax burden, and your rebuttals about double taxation and government spending have no validity.”

    End consumers bear nearly all (if not all) the burden of embedded taxation. Just because I don’t submit a check directly to the IRS for a manufacturer’s share of FICA taxes doesn’t mean I don’t pay for it in a hidden and indirect manner in one way or another. We pay though either increased costs on goods purchased or in reduced wages (the latter being due to my own employer’s share of FICA and other taxes).

    “4)No, my argument/criticism is that the notion of buying used to save money is overblown. And, in the final analysis, only those that are willing to reduce their current lifestyle in order to avoid government taxes will benefit. And that makes little sense to me. Is paying taxes that onerous that you start buying used underwear at Goodwill?? If so, go right ahead, but the vast majority will not choose that course of action, imho!”

    People will modify their behavior all the time based on shifts in taxation (especially legal avoidance thereof). If this weren’t true then there wouldn’t be near the offering of and participation in 401(k) programs that you see today. Paying less in taxes means more money for that individual to keep and it’s certainly a natural drive to want to keep as much of what you’ve earned as you can and to do the most with it that you can … that would include paying less overall (including in taxes) by buying used goods that would not be subject to taxation under the FairTax. Furthermore, pre-owned cars would be “used” too and, as such, would not be taxed under the FairTax. Only mentioning purchases of secondhand clothes (specifically underwear) at a Goodwill as an example of used goods paints your reply as being a tinge on the intellectually dishonest side and I would assume (and hope) you would not want your reply to be perceived in such a manner. Additionally, the prebate would cover taxes on essentials and one could certainly consider clothing an “essential” for their own purposes so the example of buying secondhand underwear just to avoid taxes on something you aren’t effectively paying taxes on becomes a moot point when looking at it after having factored in the prebate.

  24. MerlinYoda says:

    If government consumption were exempt then (presumably) the agency purchasing the radishes on the government’s behalf would also be exempt such that the farmer would not remit the 23% inclusive tax any more than if he were selling them to a grocer (of course the grocer would remit a 23% tax from the purchase of the radishes from it’s customers). Now, if the agency classifies as a “Government Enterprise” (assuming that section remains in this hypothetically altered version of the FairTax where government consumption is exempt) then that agency will be remitting a 23% tax from it’s “customers” the same as any grocer would, but, again, that would depend upon them meeting those revenue qualifications mentioned in Section 704 (which would be easy to avoid if that agency is not technically getting any revenue from providing those goods or for services rendered).

    Granted, radishes were an off-the-cuff example, and I’m sure there would be some dissent (especially from those who hate radishes … and even from those that are indifferent to radishes but feel that there would be more productive uses for those funds). However, if you replaced radishes with some other consumer good that had more widespread appeal and utility (maybe a free e-reader to promote literacy???) you [wouldn’t] meet with near the same backlash as you would with distributing a good where people’s personal likes and dislikes heavily come into play. The question ultimately becomes whether there are enough people who view the purchase of these goods (like radishes) as a big enough waste that they will vote in representatives that won’t just hand out such populist favors (especially for political gain)… something that would become increasingly harder to do once a majority of the electorate becomes so accustomed to those government handouts that they feel reluctant to vote out those in government that have (quite literally) provided for them regardless of the overall cost incurred. It would be even worse on a state level because it’s a little easier, assuming you have the means, to change counties to “escape” a corrupted county government than to move out of a state entirely for the same reasons.

  25. kicker51 says:

    Cognitive Dissonance Alert.
    You want to reduce the cost of government (earlier posts) by exempting them from paying the FairTax. Now, you are suggesting they should have to pay the farmer 23% on their purchases.

    Hank, you need to develop an integrated visualization of the FairTax, or whatever system you’d like to see in place. It is exactly this type of fragmented, “this sounds good” thinking that has given us our current, 70,000 page, monstrosity.

    And just a little point, but do you really think giving Congress a new means of increasing the power of the central government, increasing their personal power and influence, and impoverishing their most likely opponents wouldn’t result in said actions. I would suggest that, if the FairTax fails to tax government purchases and activities, within six months, you’ll have major expansions of government programs, give-aways, and calls for higher taxes so they can “do more for the poor”.

  26. fairtaxer says:

    We understand, Hank. It’s already pretty obvious to us that you Copy & Paste your responses, then when those are refuted, you simply change your answers for the next time they are needed. Isn’t it obvious to you that no matter how many times you change your answers, they continue to get refuted? From my angle, Hank, you haven’t learned anything of value, all you’ve learned is how to change your answers. You’re like that bad school teacher who doesn’t teach his students the value of the topic, but merely teaches them how to pass the test.

    Thanks for the Debate, Hank. Regardless of what you may think of us, I’m sure we have learned and will continue to learn. Although we do not agree with you, understand that we do value your opinion.

  27. MerlinYoda says:

    I have to (unfortunately) agree with fairtaxer’s points on this. Your reply to me and kicker51 demonstrates some key misunderstandings (which lead to conclusions that are misrepresentations) of the FairTax. The FairTax is a one-time consumption tax on new goods and services. As such, there would be no payroll tax for private or public employees (this would include the military) under this tax structure to speak of as it replaces all those those direct federal taxes based upon income (this includes capitol gains and estate taxes among others). Your arguments seem to keep floating back towards models that are based on direct taxation (specifically our current system of income-based taxation). Indirect taxation is constitutional so long as it is applied uniformly (so no solid basis for a constitutional challenge there) … and it doesn’t get much more uniform than if a purchaser for a government agency has to put forth the same tax as a private citizen would from a retail purchase (unless that agency qualifies as a Government Enterprise, in which case they remit the tax from their “customers” instead).

    Just as you have noted a need to adjust some of your criticisms for the FairTax based upon our discussions here, I’m sure this discussion has greatly helped to inform, instruct, and enlighten many as to the specific purpose and rationale behind those details of which you have been critical (especially as to why the FairTax does not exempt state and local governments from tax upon their consumption short of the aforementioned exception of an agency qualifying as a “Government Enterprise”).

    Hopefully, in time, you will be able to see more clearly the underlying flaws upon which your arguments are based … especially those that rely on rhetorical tactics such as class warfare and using terms such as “entitlement” in ways that are contrary to their generally accepted usage (although they have thankfully been absent your non copy+paste responses). While even that may not completely bring you around to being a FairTax supporter, I think you’ll at least find that you will be able to make very few (if any) objective arguments against the FairTax that aren’t either tinged with some highly subjective premises or which overlook (or omit) key details that undermine the conclusions of those premises completely.

  28. kicker51 says:

    No problem agreeing that you can calculate the as 30% of the wholesale price. Now, will you agree that it is 23% of the total price.

    And, of course, there is no “free lunch”. However, with the FairTax, we are paying roughly the same amount in taxes, but have much more control over when and how those taxes are paid. And we provide the economy with a tremendous stimulus, create millions of new jobs, and reduce the pernicious effects of lobbyists and special interests on our government. Oh, and we also reduce the cost of taxation by roughly $300 billion dollars a year.

    There is no free lunch, but with the FairTax, we have a chance at being able to afford a good meal!!

  29. MerlinYoda says:

    Um… your very first post here was a copy and paste reply from (interestingly enough) the article titled “When Myrmidons Attack” on Wise Republic to which fairtaxer provided a link to earlier. The time stamps for both sites are based in the same time zone (specifically Central Daylight Time) which I tested by writing a brief comment on the Wise Repiblic article shortly *after* my most recent reply here within the same hour and both posts had a time-stamp in the same hour as well. Your comment on the Wise Republic article was time-stamped *before* your comment here and as such was a blatant copy/paste job (even if if was a copy and paste of something you typed earlier, it still qualifies as a copy and paste reply).

  30. MerlinYoda says:

    Police protection and enlistment of soldiers do *not* fall under the category of “services” as it applies in HR 25. These are legitimate and necessary (arguably mandatory?) functions of the executive branch of government (either on the federal, state, county, or municipal level depending upon which specific group of soldiers of police officers to which you refer). They may be commonly be referred to as “public services” in the same way that other similar governmental functions are referred to which happen to serve the general interests of their citizenry (e.g. convicting criminals, easing access to legislators and civil judicial processes, etc.)

    “Service” (as in a taxable service) is defined in Section 2(a)(14)(B)(ii) under under Section 201 of Title II as *not* including any services performed by and employee for which the employee is paid wages or a salary where it is either in the regular course of the employee’s trade or business, by and employer that is a not-for-profit organization, by an employer that is a government enterprise, or by taxable employers to employees directly providing education and training.

    This definition thus strips the possibility as the pay of any employee as being the basis of taxation for all case except in extenuating circumstances where an employee’s wages are the *direct* effect of services rendered … say, an HVAC technician which charges by the hour for his services such that some portion (or all) of his wages were a *direct* result of rendering a service to a retail customer such that that particular portion (or all of it) would have a tax levied upon it to be paid by the consumer and to be remitted by the either the technician or whatever organization the technician worked under.

  31. MerlinYoda says:

    Ya, if you selectively pick and choose lines from the definitions section and completely overlook those sections (like the one I cited) which would exempt those wages from being considered part of a “service” (and thus not have taxation levied upon whoever you would label as the “consumer”), then, yes, you can get it to look like government employees’ wages would be levied a tax upon them to be paid by the party to which that “service” is provided. However, specifically exempted are wages which are “paid in the regular course of the employee’s trade or business”.

    The law is concerned with substance, not form. Just because the police provide something that could commonly be labeled as a “service” to their jurisdiction and are paid wages doesn’t mean it has a substantive basis under the law of actually qualifying as part of a *taxable service* under the FairTax.

    Patrolling the streets, arriving at the scene of a report crime or disturbance, and arresting criminals (among other things) is done in the regular course of a police department’s duties. If someone calls the police to report a break-in and robbery committed at their home, the police will arrive at the scene, take down the details of the complaint into a report, and examine the evidence at the scene. They *do not* then turn around and bill the victim for their time after (or even before) fulfilling their civil duties. Instead, their salaries are paid using tax dollars from the jurisdictions they police and do these things upon request (being called in to the scene) or upon witnessing a crime in progress.

    Even if I go out of state and have property stolen from me, the police aren’t going to process my reporting of this crime substantively different because I am from out of town (and county and state) than if I was a local citizen. It’s not like they’re going to bill me for their time and resources even though none of the tax dollars that finance their salaries (either local, county or state) would have been even indirectly traceable to me. This is the case for every core function of government (local, county, state, or even federal). About the only exception of the above that I can think of that is generally a function of government are the handling of licenses (e.g. driving, hunting, etc.), but these could, in most every case, *easily* meet the $2,500/quarter threshold (especially licensing of drivers and vehicle done through the various Bureaus/Departments of Motor Vehicles) to qualify for “government enterprise” exemptions (which blows a gaping hole into your addendum argument above).

  32. Dale Donaho says:

    Maybe government employees should be taxed to oblivion. Gov’t and its employees seem to have no problem taxing everyone else now! Would certainly keep gov’t from getting too big for its britches. But I know that isn’t what the Fair Tax stands for. One thing is certain. If we continue our present course there will be no government at all,”At least not an American one”, much less government employees.

  33. MerlinYoda says:

    From the 4th page of the article/report you cited (personal notes made in braces [like this], ***emphasis*** added):

    “Government consumption expenditures [under the current Federal tax code] include payroll taxes paid by governments and income taxes and payroll taxes paid by their
    employees on government wages. They also reflect payroll and income taxes paid in the course of producing
    consumption goods bought by government from privatesector firms. ***The intent of the FairTax is to substitute a
    sales tax for all of those taxes. Failing to tax government
    consumption, while taxing only private consumption,
    would make government consumption expenditures artificially cheap in comparison with private consumption
    expenditures and could cause the provision of some
    goods and services to migrate from the private sector to
    the government sector.*** Activities such as trash collection
    and transportation services are taxed under the FairTax,
    whether provided by government or the private sector.”

    … and, again, the legislation clearly states that any wages paid to employees in the regular course of their trade or business are *not* taxed. The legislation is drafted so as to not have to specifically define the .1% of cases where the FairTax should be applied to wages (and thus have to hope no one finds a way around that definition when they should in all fairness be remitting the tax). Instead, the exceptions are caught by saying that wages will be taxed except in the 99.9% of cases where wages are payed in the regular course of their trade or business (and thus not as the direct result of the sales of a service to a customer).

    On a final point, without clarification here, it sounds like the “base” he’s referring to in his reply to you is our *current* Federal tax base and not the base targeted by the FairTax. One would certainly have to figure what our current tax base and revenue stream was in order to calculate what the rate under an entirely separate system would have to be in order to achieve revenue neutrality.

    • MerlinYoda says:

      I would submit that it’s government’s “business” (if not outright duty) to perform tasks like considering passage of proposed legislation, holding public hearings, enforcing the law, prosecuting criminals, as well as any other legislative, executive, or judicial task not addressed in those prior examples (as long as there is the legal authority to do so under based upon the current legal code, the state’s constitution, and the federal constitution of course). A government employee’s wages are payed towards the fulfillment one of those aforementioned ends. Therefore, their wages are paid in exchange for the labor they provide “in the regular course of” the government’s “business”.

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