"Fair" Tax Scam
Sep. 11th, 2007 10:51 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
forsythThe following is the text of an email I sent to NPR's Marketplace show today, after they had a hack from the WSJ editorial page spouting nonsense straight out of the "Fairtax" book. Here's the article in question.
And my letter:
This morning, on the Marketplace Morning Report, you had Stephen Moore on, praising the benefits of a national sales tax. His ideas and numbers come entirely from the book "FairTax" by Neal Boortz and John Linder. And unfortunately, most of what he quoted is inaccurate or false. A 23% sales tax would not replace all of the government income, the percentage was picked as near the maximum amount people would tolerate as a sales tax. A national sales tax, despite his claim, would be extremely regressive and complex. Most families who are out of the top 1% spend most of their income each year, which would make their net tax rate at LEAST 23%, plus the increases in cost that would come from this kind of tax. Whereas the richest few don't spend all their money, which would make their net tax rate far below the 23% the rest of us would pay. That hardly qualifies as "fair" by any stretch of the imagination. And his idea of a $20,000 rebate for the sales tax spent? That would be at least as complicated as the current income tax. The rest of the work of tax collection would then be pushed on to the companies who sell products. It would require just as much work, and we would still require the IRS to investigate cheats and other things.
His entire presentation was misleading at best, and outright false at worst. The entire idea of a "fair" national sales tax is snake oil, designed to cover up for a gigantic tax cut for the rich and a tax hike for the rest of us, not any kind of serious policy suggestion.
And my letter:
This morning, on the Marketplace Morning Report, you had Stephen Moore on, praising the benefits of a national sales tax. His ideas and numbers come entirely from the book "FairTax" by Neal Boortz and John Linder. And unfortunately, most of what he quoted is inaccurate or false. A 23% sales tax would not replace all of the government income, the percentage was picked as near the maximum amount people would tolerate as a sales tax. A national sales tax, despite his claim, would be extremely regressive and complex. Most families who are out of the top 1% spend most of their income each year, which would make their net tax rate at LEAST 23%, plus the increases in cost that would come from this kind of tax. Whereas the richest few don't spend all their money, which would make their net tax rate far below the 23% the rest of us would pay. That hardly qualifies as "fair" by any stretch of the imagination. And his idea of a $20,000 rebate for the sales tax spent? That would be at least as complicated as the current income tax. The rest of the work of tax collection would then be pushed on to the companies who sell products. It would require just as much work, and we would still require the IRS to investigate cheats and other things.
His entire presentation was misleading at best, and outright false at worst. The entire idea of a "fair" national sales tax is snake oil, designed to cover up for a gigantic tax cut for the rich and a tax hike for the rest of us, not any kind of serious policy suggestion.
Tags:
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
Actually
Date: 2007-09-11 03:14 pm (UTC)The 23% was not picked out of thin air as the research showed that the revenue neutral rate would in fact be an inclusive sales tax of 23%.
You are right that many people spend nearly all their income some because they don't make much and some because they spend above their means as reflected in our countries negative savings rate.
What is so complicated about every legal household be refunded the tax paid up to the poverty level of spending? Most states have a sales tax so retailers are already used to collecting that and under the FairTax companies would be paid a very tiny percentage to cover the cost to the retailers of collecting the tax. The FairTax book is a good introduction to the FairTax but if you want to real numbers you need to go to FairTax.org and see what the research says.
Re: Actually
Date: 2007-09-11 03:45 pm (UTC)Also, the "23%" rate is a bit of a myth, because the actual increase in prices wouldn't be 23%, it would be more like 30%. Because the tax rate is computed from the total price, not the old price. For instance, a 23% tax on a $1 item would make the item end up costing $1.30. See more on that here.
And that still doesn't address the massive regressive effect of the tax, because as I said, only the top few percent of people make more than they spend, therefore their effective tax rate would be much lower than everyone else's. It's a huge tax cut for the rich, which makes the "fair" tax name a lie. And it doesn't address the reasons we have a progressive tax rate, which has to do with the marginal utility of money. If you have a single dollar, another dollar doubles your money. If you have a hundred dollars, another dollar only gives you one percent more money. Which is one of the reasons our tax code is set up the way it is. See more on the distribution on wikipedia here
"Economist William Gale analyzed a National Sales Tax (though different from the FairTax in several aspects[30]) and reported that the overall tax burden on middle-income Americans would increase while the tax burden on the very rich would drop."
More about the regressiveness of the "FairTax" here: http://www.tpmcafe.com/story/2005/9/15/135951/261
As for the exact rate? Shockingly enough, from this quote in Bruce Bartlett's editorial, "public opinion polls have long shown that support for flat-rate tax reforms is extremely sensitive to the proposed rate, with support dropping off sharply at a rate higher than 23%". And the "FairTax" rate is... 23%! Joy and happiness! What a lucky coincidence!
The "FairTax" platform is nothing but a scam designed to promote a giant tax break for the rich. The 23% rate is really 30%, and wouldn't be revenue neutral anyway. There's no there there.
Re: Actually
Date: 2007-09-11 04:26 pm (UTC)http://www.fairtax.org/site/PageServer?pagename=about_faq
The "prebate" is a flat refund given to every family according to family size and has no connection with actual expenditures other than this is what health and human services said is what the poverty level is. The government will not have to track anything you buy since it is not based on spending or income but rather flat according to family size. So in essence if you lived on farm and was totally self sufficient you could actually have a negative tax rate because you would still be getting the same check as someone who spends millions. All you need is a valid social security card to register. It really isn't that complicated of a process as the social security administration keeps track and sends out checks to millions every month already and are pretty good at it.
The 23% is an inclusive rate as i said much like the income tax so that we compare apples to apples. But you say that prices will increase 30% which is false because of the 22% embedded cost of compliance, corporate taxes, tax evasion, etc which is in all the products made in America. Prices will drop under the fairtax so the price will not rise as much as you say and you will be keeping your entire paycheck to purchase with. Also used goods are not taxed since they have already been taxed so if your that worried about the tax you should buy a used car.
Re: Actually
Date: 2007-09-11 06:20 pm (UTC)First you said "refunded the tax up to the poverty level", now you're talking about a prebate, which is it? And how would the poverty level be calculated? And would either of these include the tax that would be paid on the money they're theoretically being given? Because then you could get into an infinite loop.
Yes, it's an inclusive rate. Which is why prices would go up 30%. Because the 23% includes the tax, so 23% of $1.30 is 30%. So even if I were to generously allow that 22% of all current prices is due to "compliance, corporate taxes, tax evasion, etc", the net effect is still that prices would go up. Which is going to screw over everybody whose actual tax rate on income doesn't make up for the increased prices. Which is a pretty big chunk of everybody, I suspect. And how exactly would the "FairTax" address tax evasion? It would just change it from people evading income tax to people evading a sales tax. Black market goods, and various kinds of tricks like "renting" things, or making temporary loans, or so on, could defeat the sales tax just as easily. Which would mean your claimed 22% would be even less of a "drop".
But the biggest single thing about the "FairTax", that makes it a complete scam, is how completely regressive it is. It shifts much of the tax burden off of the rich, who don't spend all their money, and on to the people who have to spend all they have just to get by. This is one of the key points, and one that you haven't addressed at all, nor has anything on your website with anything other than laughable claims that it's "progressive". Especially since I haven't seen anything addressing purchases such as stock, which would provide yet another way for the richest 1% to avoid paying any taxes.
Re: Actually
Date: 2007-09-11 03:49 pm (UTC)Re: Actually
Date: 2007-09-11 04:28 pm (UTC)Re: Actually
Date: 2007-09-11 05:01 pm (UTC)Put down the Milton Friedman and step away from bong... Is it any surprise that Stephen Moore is also president of the Club for Growth? That tells me almost all I need to know, right there...
Sorry if that seems a bit simplistic, but the Club for Growth is fairly straightforward in their wish for imperial plutocracy, so you'll excuse me if I view the whole "FairTax" paradigm with a healthy dose of skepticism...
mojo sends
Re: Actually
Date: 2008-01-07 05:20 am (UTC)You are right that many states have a sales tax already, which is a problem that needs to be solves. The sales tax should be abolished nationwide.
Is there anything worse than the present system?
Date: 2007-09-11 10:16 pm (UTC)Even with the foregoing notwithstanding, do you really believe ...
• Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?
• That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.
• It's better to have theIRS fishing through citizens' income transactions (complete with audits, interest, penalties, and threats against individuals, families, businesses as well as confiscation of their homes, property, and bank accounts) rather than - Gawd forbid - issuing a gov't check to an individual (while pretending that Social Security payments disbursement logistics really can't work for "prebates")?
• That an monthly advance tax rebate is the same thing as "being on the dole" ? (Only lobbyists, special interests, and business deserve "handouts" ? - the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all.)
• "Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)
• It's far better to have a gargantuan tax collection "service" in Washington, than to have 50 decentralized, smaller, leaner state collection agencies collecting taxes from fewer sources?
• That the work by notable economists (paid tens of millions of $'s by Americans for Fair Taxation) doesn't carry weight because it was paid for by private funds instead of some gov't / quasi-gov't enterprise?
• That FairTax's backing by many economists (http://snipurl.com/econsopenletter) doesn't carry any weight because (the Brookings') Wm Gale's testimony before the President's Commission on Tax Reform is - somehow - above all that?!
(NOTE: The Commission/Gale made up their own "consumption tax" requirements, as if that constituted a legitimate rebuke (http://snipurl.com/taxpanelrebutted) of the FairTax plan. Dr. Kotlikoff has requested - but never received - Gale's technical "modus operandi" which would definitively explain just how Gale's conclusions can be reconciled with Kotlikoff's well-documented technical work (http://www.fairtax.org/PDF/TaxingSalesUnderFairTax.pdf).
Reply, Part 1
Date: 2007-09-12 04:40 am (UTC)"FFerret, is the current income tax system something you really want to work hard to defend?"
I don't recall saying anything defending the current tax system. I've been attacking the "FairTax" plan as a scam, regressive, and not likely to work the way it's claimed to. As I understand it, that's normally the kind of thing done by conservatives, questioning if a certain change is good or worth it. Not that I'm much of a conservative, but I have little choice until we get the country back from some of the insanity it's been dragged into.
here's a lot of things in our current tax system that I'd be glad to see changed. The "Fair Tax" doesn't address any of the problems, though.
"Renown economist Larry Kotlikoff believes that the current tax system IS bringing the country to nothing less than an "economic meltdown" by virtue of the invisibility to the taxpayer of actual taxes paid." If Americans do not understand the true cost of their government, they're unlikely to hold Congress accountable - thus the enabling mechanism to continued profligate spending.
I can't speak for how renowned he is, economists generally aren't rock stars, and his wikipedia article is only a stub. :) But as for the invisibility of taxes, how is a sales tax, which would be printed on receipts, be more visible than tax deductions printed on every paycheck, and tax returns done once a year? And as for the "economic meltdown"? I'm sorry, but that "Social Security is falling apart!" dog won't hunt. Social Security is in a surplus, still. There's a huge store of treasury bonds waiting for when it goes into deficit, which still won't be for a number of years. Medicare's increases in costs are a symptom of the runaway cost of health care in America, dealing with that would slow its rate of growth, which still isn't that insane. Especially when compared to the growth of costs in regular health care plans. Let's look at some budget numbers here.
Military: $699 Billion (Not including "emergency" expenditures which have regularly been used to fund the war in Iraq, and been easily over $100 billion)
Interest on Debt: $243.7 Billion (And climbing!)
Social Security: $586.1 Billion
Medicare: $395.4 Billion
Unemployment and Welfare: $367.0 Billion
Now income.
Social Security and other Payroll Taxes: $884.1 billion
Sure looks like Social Security is fine to me. Medicare isn't funded solely through payroll taxes. Yes, we're spending considerably more than the government collects in taxes, but that's due mostly to the Bush tax cuts for the rich, and the war in Iraq and its numerous "emergency" supplementals. The war in Iraq is costing at least $200 million a day. If you want to find a culprit for our current levels of debt, that and the budgets passed by President Bush and the Republican Congress over the past six years would be the first place to look. Without the war in Iraq, and without Bush's repeated tax giveaways, the government's finances would be in much better shape. Pointing at Social Security, Medicare, and Medicaid as the looming cause of a "crisis" is more than a bit dishonest.
And that doesn't even address the fact that part of how the Social Security payroll tax change under Regan was designed to create a surplus by taxing regular working people more than necessary, and then using that surplus to pay for tax cuts for the rich, but that's a little late to get into, it happened years ago.
So I don't think it's the "invisibility" of income tax that's enabled Congress's profligate spending, I think it's the Republicans in Congress's constant recitations of tax cuts as a balm for everything, and the supply-side kookery claiming that tax cuts increase revenue. Republicans have been pretending they can have everything, tax cuts and increased spending, for years. None of the Republicans in power, in Congress or the Administration, have shown any signs of giving a tinker's damn about holding down spending. That has more to do with our current budget woes.
So no matter how renowned he may be, I'm not going to take anything Professor Larry Kotlikoff says at face value, since he's promoted the myth of the "Social Security Crisis".
Continued in the next reply.
Reply, Part 2
Date: 2007-09-12 05:10 am (UTC)"do you really believe ..."
I don't know. Let's go through them and find out what I didn't even know I believed until you told me so! This kind of debating technique's not really too great, making up claims you can easily defeat and attributing them to your opponents. It's the Strawman fallacy, where you attribute an argument to your opponent, and then demolish that, and treat that as demolishing your opponent's argument.
• Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?
Not particularly. For one, the withholding's not done hourly, it's done when you get paid and calculated then, just like when you get paid. And automatic withholding is a damn sight easier to deal with then not having it withheld, and then having to pay all of it when tax day comes around. I know a number of self-employed people who can testify to that. I must admit to being just a little skeptical of the "50 hours/year" for preparing an annual tax return. Even leaving aside the computer tax programs that take maybe a couple hours, at most, the basic tax forms really aren't that complex. The complex tax forms come in on things like itemized deductions, businesses, and other things usually used by people who can afford accountants. Filling out the basic 1040 is hardly "involuntary servitude".
Let me turn that back around at you. Do you really believe that workers would love paying an extra 30% more for everything they buy, and having some arbitrary portion of that refunded to them by the government? I doubt there's very few people who can honestly claim to "love" anything about taxes, however they're done.
So no, I don't believe that. I believe the tax process can and should be simpler, but I don't believe the "FairTax" would make the process meaningfully simpler for most people, or that its many drawbacks would outweigh whatever level of simplicity it might bring.
"• That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS."
I don't recall claiming that, either. I said it would be more intrusive and complex to have the government actually refund the real level of taxes paid, when they're paid on every sales transaction, but you said that's not how it would be done. However, I don't see filling out a tax return as much of an abrogation of our freedom. And whatever method of tax collection you want to use, it's going to have to have enforcement powers, which means even under the "FairTax", there's going to be "threats and intimidation" from whatever agency is responsible for it. Both to individuals who'd lie about their family size, and to businesses and individuals involved in evading the tax.
So I don't see any particular difference between the situation now and the situation under the "FairTax".
Continued in Part 3.
Reply, Part 3
Date: 2007-09-12 05:29 am (UTC)I don't think either is better, really. They come across as pretty much identical. The government is perfectly capable of mailing out checks with an acceptably low error rate, just ask people in Social Security, or the Post Office. It's a solved problem the government can easily handle.
However, as mentioned above, any kind of tax scheme is going to require enforcement. So you'd end up with whatever agency fishing through people's sales transactions, complete with audits, interest, penalties, and threats, because that's what investigating and reporting involves. I imagine there would be penalties involved for breaking the tax law, which could very well include "confiscation of homes, property, and bank accounts." You seem to be completely discounting the possibility that people would seek to evade the "FairTax" just like people try and avoid paying income tax. Which means there'd need to be enforcement, which would look a lot like the IRS.
"• That an monthly advance tax rebate is the same thing as "being on the dole" ? (Only lobbyists, special interests, and business deserve "handouts" ? - the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all.)"
Heh! Well, for starters, I never said anything like that. Secondly, no, it wouldn't be like "being on the dole." Thirdly, I've suggested a "taxpayer's dividend" several times, after seeing the ideal elsewhere. The idea being that since we're stockholders in the government, we should get a dividend just like stockholders in companies do, which basically amounts to the government giving everybody a check every so often. And fourthly, I don't see "being on the dole" as a necessarilly bad thing. There's a lot of times and reasons when somebody could be getting assitance from the government or society, and I don't think that's a bad thing. I'm a liberal. In general, I support expanding things like health care, unemployment insurance, etc, especially in the crappy and unstable economy we have now. So I'm afraid this was a completely fruitless line of argument.
"• "Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)"
I'm skeptical of how much in the way of "hidden taxes" there really are in most prices, and how much of those hidden prices are related to tax code compliance. Is the amount spent on "staff, consultants, submittals, etc." really signifigant? How does it compare to, say, CEO compensation? Political lobbying? Accountants and consultants to help evade taxes? Stockholder dividends? Profits? Etc. And the idea that getting rid of corporate taxes would result in lower prices I find unlikely. Plus, given corporation's (stupid) legal status as individuals, why shouldn't they pay income tax like everybody else?
More in the next reply. Sheesh, this is long.
Re: Is there anything worse than the present system?
Date: 2007-09-12 06:27 am (UTC)In many ways, yes, it is. Because of economies of scale. There's many situations where a larger organization can have a lower long term cost to producing things or doing things. There's times when centralization can actually be a benefit. In this case, if there were 50 state agencies, they would all have to duplicate a lot of the same functionality across each other. Multiple databases, multiple regulations, multiple locations, and more people on the staff. Yes, all of the states already have tax agencies, but something the size of your proposed federal state tax would require them all to grow many times over, to handle the increased workload. New larger computer databases would be required, new networks to connect them together, and then entirely new channels would have to be set up to send it to the federal government. And there would still have to be an IRS of some kind, to collect the money coming in from the state agencies, check it for accuracy, and get it all where it belonged.
I suspect it'd take a larger overall bureaucracy to run 50 such state agencies, plus the central federal agency to coordinate and receive the money from them. Also, I don't have any particular onus against "gargantuan" government agencies. It should be as big as it needs to be to get the job done. I'm not going to hate on the IRS just because of its size.
"• That the work by notable economists (paid tens of millions of $'s by Americans for Fair Taxation) doesn't carry weight because it was paid for by private funds instead of some gov't / quasi-gov't enterprise?"
In a word, yes. In more words, it depends. But the short answer is, yes. If people are paid "tens of millions of $'s" by someone to perform research for them, then it's not really unseemly to expect their research might be biased towards what they think the people who paid them want to hear. And then there's plenty of examples of "researchers" who were paid to create "reports" in favor of the side that paid them. Even if there was little basis for the reports. For example, the tobacco industry paid a number of doctors and scientists to muddy the issue of the addictive and cancer-causing properties of cigarettes. Despite volumes of research proving the connections. Or, still ongoing, the fake "foundations" and "think tanks" funded to muddy the water on global warming and pretend we need "more study", despite the overwhelming scientific consensus. Or the "Intelligent design" groups fronted through think-tanks and foundations and "studies".
So yes. Just citing reports from research paid for by your group isn't going to be convincing. Just one source is never enough to confirm something, that's a fundamental basis of science. Reviews from independent groups, and groups with no direct interest in either side of the debate, are usually more credible. If your claims are backed up by studies by independent groups, or even better, liberal or other groups that wouldn't be inclined to support the idea, those would be more convincing. Economists you've paid "tens of millions of $'s" aren't, because they're likely to tell you what you want to hear, or at least leave out the negatives, because that way you'll keep paying them.
Wrap up in the next reply.
Reply, Part 5
Date: 2007-09-12 06:41 am (UTC)I didn't mention Gale's testimony. I counted around 77 signatures on the letter you linked to, which is hardly nothing. But neither is it an overwhelming number of economists. I know of several economists who disagree, for examples, Brad Delong and Paul Krugman. Or, heck, journalists, like this review of the FairTax book (which mentions many of the same problems I have). Even libretarians who call any taxes "theft" are against the "FairTax", because it'd be a cure worse than the disease. Or even FreeRepublic posters. (Which also addresses the "22% price decrease" claim, among many others I've mentioned as well)
Yes, having experts back up your claims can help your case. But it's not going to carry your case on its own, not when other experts disagree, or when there's flaws in your idea that don't get addressed at all. It doesn't matter who agrees with you if your idea's a bad one, it still won't work.
---
There, I think that addresses all of the things you asked if I believe, which I never mentioned. Yet, none of them addressed my main points.
First, the "FairTax" would be extremely regressive, regardless of any "prebates". That's one of the biggest ones for me, because it would shift most of the tax burden off of those who make and control most of the money in the country, and drop it solidly on the backs of those who have to work and spend to just keep even. Which, these days, is the middle class.
Second, would it even work as claimed? I doubt it. I'm skeptical of the "revenue neutral" part of it, I don't think the claimed 23% rate would be enough to break even. Add in to this the price increases, the fact the tax rate would really be 30%. And the IRS might be gone, but there'd be new and expanded agencies to administrate the tax. And would people really get to keep 100% of their paycheck? Not without prices going up, which would be inflation, which would mean their real actual pay would go down.
Third, the dishonesty in the presentation. Claiming the "FairTax" is progressive, when it's a regressive sales tax with a "prebate" tacked on. Claiming the rate is 23%, when it'd really be 30%.
Those are the major reasons I dismiss the "FairTax" as a scam. I haven't really seen anything to convince me otherwise.
no subject
Date: 2007-09-12 03:03 pm (UTC)Whatever you do, don't look in a mirror and say "National Sales Tax" five times in a row, or Neal Boortz will appear and bore you to death.
no subject
Date: 2007-09-12 03:05 pm (UTC)no subject
Date: 2007-09-12 03:37 pm (UTC)