The Fair Tax has its moment in the sun. Could there be more to come?

Those who say that the Fair Tax rate will have to be much higher than 30%/23% ... are all assuming that Congress will never levy the tax on things like medical services, food, houses, etc.

Are you sure about that? According to Bartlett, to get to the 30%/23% rate they count revenue from the government taxing itself on its own purchases, which is a rather transparent shell game. Also, as I understand it, the number makes no allowance for changes in behavior to say nothing of fraud. E.g. if new homes are taxed 30% and resold homes are not taxed then obviously there will be a lot less construction of new houses and more renovation of previously marginal old homes. If cars and other big ticket items are taxed at 30% why not take a trip to Canada and buy them there instead? And so on. On the fraud side, as I understand it, the way it is structured is a positive invitation to fraud compared to a value added taxes used elsewhere (e.g. Europe or Canada).

I would agree that there would be incentives to fraud and tax shifting. There already are in the current tax code, but they might be more dramatic under a national sales tax.

As for the government taxing itself, Larry Kotlikoff and a bunch of people from Suffolk University attempted to address this and other criticisms in a paper (pdf) in 2006. An excerpt (which I'll admit that, after several readings, I still don't fully understand):
The FairTax redistributes real purchasing power from state and local governments to their state and local income-tax taxpayers. It does so by reducing factor prices relative to consumer prices and, thereby, reducing the real value (measured at consumer prices) of state and local income tax payments, which are assessed on factor incomes (namely, factor supplies times factor prices). Gale (2005) and the Tax Panel (2005) recognized this loss in real state and local government revenues in claiming that these governments need to be compensated for having to pay the FairTax. But what they apparently missed is that this loss to these governments is exactly offset by a gain to their taxpayers. Were state and local governments to maintain their real income tax collections - the assumption made here - by increasing their tax rates appropriately, their taxpayers' real tax burdens would remain unchanged and there would be no need for the federal government to compensate state and local governments for having to pay the FairTax on their purchases. The second is that H.R. 25 does not preclude state and local governments from levying their sales taxes on the FairTax-inclusive price of consumer goods and services. This produces significantly more revenue compared to levying their sales taxes on producer prices.

I'd add that the progressive tax system used now also attempts to account for greater use of the commons by those who have greater resources.

A "Fair Tax" doesn't seem to do that.

Also, it would seem to me that a higher sales tax would tend to discourage purchases (even with a rebate for the poor-who'd still have to pay the tax). As our economy is driven by consumption, this could potentially crash it all. To me, this "Fair Tax" looks like a reframed supply-sider's wet dream.

Lindbeck also argues that with the payroll tax gone, low-income workers would stand a much better chance of saving up money and rising out of poverty.

Huh? According to Bartlett, the FairTax compared to the current income tax would increase the burden on the bottom four quintiles and decrease it on the top quintile (see Table 5). No surprise there. The game the FairTaxers play to pretend otherwise is to pretend that everyone spends 100% of their income. But that's hokum (see the BLS numbers in Table 3): people making $1 million a year spend a much smaller percentage than people making $10,000 a year.

As for the talk of G5's and Bentleys, that makes about as much sense as Huckabee's talk about a "magic wand" (shall we call it the FairyTax?). And I'm not sure in what alternative universe "consumption is wealth". Run up your credit card bills to make yourself richer? What's next, the Sun goes round the Earth?

Justin, thanks for the reply. I don't fully understand that quote either. Kotlikoff et al seem to be saying that prices will go down by the amount of the FairTax and so it will be a wash. I'd better watch out: apparently, my inflation-lined treasuries are going to have a roughly negative 30% return when Huckabee waves his magic wand.

As for my second comment (currently in moderation), looking at Bartlett's Table 5 again I'm confused. It appears not to take into account payroll taxes. On the other hand, it shows the FairTax raising exactly the same amount as the income tax whereas I thought it was supposed to replace both.

Federal employees pay the income tax today, is that a shell game?

The Fair Taxers mean to replace both income and payroll tax, so that Table 5 of Bartlett's, which compares the Fair Tax burden to the income tax burden, is a non sequitur. My impression is that the Fair Tax would reduce overall federal taxes on the bottom couple of quintiles and the top 5% or so, and increase them for everybody else (which doesn't strike me as the kind of thing that would be a winner at the ballot box, but what do I know). Bartlett does make the good point that a consumption tax would weigh heavily on the young, who are borrowing to buy houses, cars, etc. But he seems to mix some seemingly unfair criticisms in with his valid ones.

Sorry Crust. Our comments passed each other in the night. I'll see if I can get in touch with Bartlett and figure out that discrepancy.

F the fair tax and F Huckabee

I would agree that there would be incentives to fraud and tax shifting. There already are in the current tax code, but they might be more dramatic under a national sales tax.

Note that we are comparing current actual receipts with projected receipts under a changed tax regime. So while it's of course true that fraud and tax shifting already exist, that doesn't really address the issue that the FairTaxers are coming up with an artificially low rate by ignoring this. Also, these are I think likely to more dramatic under a FairTax as I argued above.

I think the fair tax has about as much chance of happening as stopping illegal immigration (pronounced "none").

As with the illegal invasion, the current tax system is supported fully by both parties and both the right and the left in the real Washington. It provides the perfect combination of obfuscation and trickery to provide the right with juicy esoteric corporate tax breaks and the left with a bottomless bureaucracy to rule.

And for both sides it creates a perfect power base from which they can control and manipulate American citizens instead of the other way around.

The lobbies of lawyers, accountants, businesses and government bureaucracies that reap huge gains from the current, intentionally indecipherable tax system are lined up on both sides of the Potomac to immediately discredit any possible alternative to the madness.

Yes, the current abominable system needs to be completely scrapped. No, it isn't going to happen until the public DEMANDS it. Change can only be driven from the grass roots. It won't come from any public servant.

Steve Forbes's flat tax is a much better idea by the way. But I doubt any of us will live to see that, or any other real tax changes happen. It is as elusive as Detroit's "green" concept cars...touted for decades, but never actually produced.

Turd:
Federal employees pay the income tax today, is that a shell game?

In a word, no.

If they eliminate the income tax on federal employees that will be genuinely lost revenue (unless e.g. they cut government salaries by an amount equal to the lost revenue). If they introduce a sales tax and the government charges itself then the sales tax paid by government increases both revenue and expenditure by an equal amount, hence the shell game (assuming prices are unchanged). Per Justin's reply to me above, apparently proponents try to address this by saying that prices will go down. But that would require 30% deflation, which is a virtual impossibility.

Justin, thanks for all the replies and thanks for covering this issue in the first place. (Not sure if this is in response to my request or not. But either way, thanks.)

Ah, I couldn't remember who had written that comment a couple of weeks ago asking me to look into it. That was indeed what got me to start paying more attention.

What would all the tax attorneys and accountants do for a living?

How many people is that?

How would that upheaval be managed?

Longer term it would be great to have (presumably) smart segment of the population producing something other than 1099s and court briefs, but the consequences of the transition bears thought.

-------
Do any states use such a system?
Are their rates of growth better? Unemployment?
If this is the wonder proclaimed, there should be empirical evidence.

The fair tax claims to "fairness" has many loopholes. For example claiming that the poor would have an opportunity to save more by voluntarily restricting their consumption : the reason the poor are called poor is precisely because they already restrict their consumption to the bare minimum. If they could make the same small income and live in Thailand, they'd be rich. If they could travel in time and take their little money to 1950s USA they'd be rich. They're poor not because they don't have a lot of dollars, but because their place in society puts the burden of the rat race for scarce but vital resources (housing, energy, food, health care) predominently on their shoulders. In other words, inflation (starting with the 30% increase in the price of everything, and compounded by the checks that the poor would get from the government under the fair tax system) would take care of any saving margin that the poor would have.

I like the principle of the current progressive income tax system because it allows to create specific incentives through tax deductions and tax breaks to steer the decisions of those that really have choices about what to do with their money. You can have individuals make a choice about whether they would prefer to contribute to the common good through giving their money to the government or directly through the effects of their own initiatives when these bring deductions and tax credits. You can shape society in the long term by enticing people to save for their own retirement, health expenses, or to become homeowners. You can offset the costs of having children and maintain healthy demographics. With tax breaks you can put real checks in peoples' hand, while it's very difficult to lower a sales tax and have observable effects on the cheap.

Oh and by the way what are the flat tax/sales tax countries ? Socialist countries. In France there is a 20% sales tax and a 12% flat payroll tax. On the other hand half of the households are exempt from income tax and the nominal income tax rates are effectively similar to the US ones. So if you think of flat taxing as a the American way of doing things, maybe you should think again.

I'm not sure I agree with the economic sense of the FairTax or not. However, of this I'm sure. The squeeling of 50,000 unemployed lobbyists would be heard round the world. Call me a cynic, but we've got a better chance of a really slick bob-sled run in hell.

I for one am willing to go to war to prevent a national VAT tax. It is the most regressive of all taxes. I believe that the French invented them, they at least make great use of them, but of course their economy is more fair and prosperous than ours. VAT taxes in my opinion are extremely immoral they hurt the weakest among us the most.

emanon, Joseph Bertozzi: Oh, don't worry. I suspect the lobbyists and tax attorneys (certainly the corporate ones) would continue to be very well employed under the FairyTax.

I'm not sure about states, but there are countries that are using a flat tax system with great success.

Can't name one off the top of my head, but I know at least one or two are in Eastern Europe.

emanon you are correct in that point. One of the many serious problems with the current system is the brain drain it causes. How many billions of man hours are spent by some brilliant attorneys and accountants figuring out ways to navigate and bypass the tax system that could be so much better spent on a useful endeavor that might actually add some *real* benefit to society?

Not to mention the billions of hours the public is forced to needlessly spend on their taxes each year.

The cost just in these terms is immense. It's shameful!

It is all unnecessary. The same amount of taxes could be raised with a system that requires practically no time for the average citizen at all.

Not that I am agreeing that the current level of tax collections is appropriate! It is far to high in my view. But that is a separate discussion.

The current tax system generates a load of income for entire segments. People are asking how this would affect tax preparers, accountants and lawyers? Don't forget all those 401k's 403b's IRA's and other programs we all participate in to avoid taxes presumably those would not be needed either. I simply can't see our government doing anything that would eliminate this sector of our economy. Governments build bureaucracy, not remove it, this is a simple fact of life that will not change. Removing all the confusing tax rules and setting a flat or otherwise “fair” tax also removes much of Washington’s ability to affect the economy. Fraud and tax evasion will become the new national pastime.

The so-called "Fair Tax" is just a back door for a flat tax. A flat tax, by nature, even a back-door flat tax like a national sales tax, will impose more or less the same tax rate regardless of income level. To keep current revenue levels, that means the rich will pay a lot less than they currently do, and the poor will pay a lot more. That is, of course, why the rich, and their corporate stooges at Time Magazine, love to talk it up, while uncritically calling it a "fair" tax. But it's a laughably unworkable idea.

I dont get the comment that the Fair Tax promotes tax evasion. Isn't that already a national passtime?

What percent of the population gets paid "under the table" and pays no tax (think illegals)? What percent of the population fudges their tax deductions? What percent of the population pays contracts cash to get some discount (I am sure they report it ;). What percent of cash businesses report their full income? on, and on, and on.

Yes some people will still do these things, but there is a HUGE amount of untaxed money under the current system that hides. Under the fair tax, a lot of that would go away.

Would the current tax cheats find ways to cheat under the fair tax? Sure. More, less, the same? I have no idea. But, under the current system you have to try to catch each and every person that is cheating. That is nearly impossible. The fair tax puts the burden on the business doing the sale. Now you just have to try to catch them when they cheat. Still hard, but more managable.

It's about time the Fair-Tax is getting time in the mainstream media!

The country would benefit GREATLY from it's implementation.

Checkout www.fairtax.org and look up Neal Boortz's book on the Fair tax. It's a great read and explains it completely.

Boortz has a new Fair Tax book coming out next month that responds to all criticisims of the plan.

I hope that eveyone who is bagging on this concept will take the time to get educated before tearing it apart! Be intellectually honest!!

A group of rich Houston businessmen got together to make the world a better place? Wanna bet? Yeah, for themselves and their spawn. Every idea new tax idea, flat tax, fair tax, is intended to end the progressive tax. They're not satisified with their capital gains tax rate or their exclusion from the regressive social security tax. They don't want to pay any tax and they work full time to buffalo the masses to have their way. Is all money transferred out of the country going to be considered spent, so when they buy a yacht in the Bahamas, they'll pay US tax on it? Will they be paying a 30% tax on every stock they purchase? Wow, maybe this will work.

I would support the fair tax completely only with two additions. One: keep the estate tax. No one deserves to inherit hundreds of millions of dollars. Two: Add an additional luxury tax to it for goods that are obviously outside of the realm of normal human purchases, for example, $200K sports cars, $20K watches, etc. Without those two additions there is no way you are going to raise enough money at 30% to fund the government without dramatic cuts in military, social security and Medicare.

in a hypothetical situation lets say you make $100,000 a year and since your rich you decide to save $40,000 of that and only spend $60,000. You would end up paying only $14,8000 in taxes. A mere 14.8 percent.

Now lets say you make $20,000 a year and since your poor you have to spend $20,000 of it to live, you end up paying $4,600.. what do you know its 23%.

This is suppose to help the poor? I dont think so. Fraud will be rampant.

This system benefits the rich and lets their millions in untaxed income pile up in a bank while they spend a fraction of it on bentlys and rolex watches.

>I'd add that the progressive tax system used now also attempts to account for greater use of the commons by those who have greater resources.

Do people use common resources in proportion to their income or in proportion to their consumption? My guess is it is closer to consumption, making the fair tax fairer than an income tax.

I like the idea in general. However, no one seems to discuss a glaring problem. Most every responsible adult in this country has managed to save some amount of money over their lifetimes, and they've already been burdened with the income tax when accruing those savings. Now if they go to start spending that money in the latter half of their lives, after the shift to the Fair Tax, they've just been hit with a dramatic double-whammy. Is anyone talking about a solution to this?

I would agree that a tax system like this would have to be paired with something to deal with the fact that some of us have no choice but to spend nearly all our money on necessities, while others do have a choice. Someone mentioned the estate tax, and I think I agree with that. It is funny how on-its-head this would be. I think it might be a nice compliment to reducing green house emissions...

It's interesting though - with a rebate, for the poor, they won't be paying a lower NET tax rate, but it sure will feel like it all year long - I guess you'd have to stipulate that the tax rebate would have to be paid out in, say, monthly installments.

>Do people use common resources in proportion to their income or in proportion to their consumption? My guess is it is closer to consumption, making the fair tax fairer than an income tax. ...David.

Starting with national defense, do foreign countries want to attack America to take my 200K house or Microsoft. I think the Army is protecting Bill Gates much more than me.

Do the courts mull over my arguments or Bill Gates decisions; I'd say his.

Does having an educated populace help Bill Gates more or me? I think him.

Is the state dept. working more to ensure the products I produce can be sold around the world, or Microsoft's.

Are the highways used more by people going to work to produce wealth for me, or for Bill Gates?

It's pretty obvious that the more you have, the larger you live and your benefits from the "commons" increases exponentially.

"I don’t know many poor people that buy a G5, and I don’t know that many that buy a Bentley. The best indicator of people’s well-being is what they spend and how they spend it"

This is an irresponsible statement, and a falacious simplification that diverts from the reality of the situation.

Statistically, richer Americans devote a high proportion of their income and assets in investments because they aren't living paycheck to paycheck like much of the middle and lower classes. This means that the fair tax gives richer Americans a MASSIVE tax cut, even if they might buy a Bentley with the income left after investments.

Looking at the fair tax proposals logically. If the richest quintile of the nation generates 80% of the personal income tax revenue and you slash their taxes considerably, then you end up completely eliminating corporate income tax which generate $100's of billions annually, then where does Uncle Sam make up the difference? Let's not kid ourselves, someone is going to make up the lost revenue. If we examine the fair tax closely, we can see that the "someone" is the middle-class American who will pay a substantially higher portion of their income to taxes than the super-rich or big business will.

The "fair tax" is simply a sleazy euphamism for shifting the bulk of the tax burden away from big business and the very rich and onto the middle class.

All I see a 'fair tax' doing is creating a huge black market for goods in this country. How about the rich buying things in other countries.
Will the internet be taxed. What is the incentive to
buy a house with a sales tax and no interest or property tax deduction. You think the current housing market is bad? Home prices would drop like a stone destroying millions of peoples largest investment

Folks, if I could recommend, don't expect to understand what they are trying to do with out reading the book. Fair Tax by Neal Boortz. A lot of your comments are answered in the book on how things are proposed to work. Here is the link.

http://www.amazon.com/Fair-Tax-Book-Saying-Goodbye/dp/B000UENRO2/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1199495501&sr=8-1

Why don't we just simplify the tax system we have now to eliminate unfairness and fraud? Make the forms simpler to common people can declare the things they should without paying consultants. Make the forms transparent so the IRS can catch fraud.

Better yet, the government already knows most things about you. Why not have computers store this data and send you a mostly complete form? You would be welcome to do your own with its aid or toss it in the trash or fill in the rest.

I do not see how the fair tax would do anything but damage to the economy. April is a headache for many, but it comes once a year. A 30% tax every time you shop will easily halt consumption.

How are sales taxes easily avoided is demonstrated in California. A Caifornian buys a yacht in California but takes delivery of it in Mexico or other foreign clime. He keeps it out of the U.S. period for a minimum time, which I think is 90 days. He then brings it home, -SAlES TAX FREE! Perfectly legal. No, lobbyists will not be out of work.

David wrote: "Do people use common resources in proportion to their income or in proportion to their consumption? My guess is it is closer to consumption, making the fair tax fairer than an income tax."

To respond to your last sentence: no.

Who uses the legal system more?
Who uses roads more?
Who uses the banking and financial systems more?

These are all commons owned collectively by society.

Maybe some of these folks need to read up more on this tax.Look at all the tax money the goverment is loosing now.All the illegals sending that money home not taxed at all.All the money from drugs dealer sales.With fair tax no matter who you are you will pay taxes.The imagrants that buy stuff to live while they are here will pay now.The drug dealer who goes out and buys bling and cars will pay now.Even the hookers on the street will pay taxes.The underground economy to Mexico is in the billions hell lets get something out of them.As far as the accountants and IRS workers retrain them like the textile and furniture workers are they any different the goverment is this nations largest employer.If nothing else let them serve in the military for a spell.

The "Fair Tax" is inherently unfair, and will raise taxes for everyone except the wealthiest people in America. Its supporters want us to think that it will match the revenue of current taxes yet cause virtually everyone to pay less, which is quite obviously impossible.

More extensive analysis from Bartlett.

That "more extensive" Bartlett analysis is already linked to, discussed, and to some extent picked apart in the comments above. And as best I can tell, this national retail sales tax (I'm gonna stop calling it the Fair Tax because the name is so loaded) would reduce taxes for the poor and the very rich and raise taxes for everyone in between.

Whaddaya mean the poor will carry an unfair burden?! The poor would get a leg up from the FairTax because they'll take home a bigger paycheck (no more federal withholding or payroll taxes taken out), plus they'll get monthly rebates to offset the cost of compliance with the FairTax.

The FairTax will also enjoy a much broader tax base than the current income tax would. Criminals, illegal immigrants, tourists and anyone else spending time and money in the U.S. would become taxpayers. Also, the FairTax is calculated as tax-inclusive, meaning it is already included in the sticker price. Prices will stay pretty much the same.

I've never been one to sympathize with the rich. But if I'm going to be part of the middle class, the demographic that carries the greatest tax burden, then I want a tax plan that will work for me. As for the poor, the FairTax is the first tax plan that totally de-taxes the poor. With an income tax, the rich get away with evasion in so many ways, while the poor and middle class make up the difference. The IRS and Social Security Administration are plagued with internal corruption and incompetence. You'd be surprised how many federal employees are selling our Social Security numbers out the back door to identity theft rings!

To those who are opposed to the FairTax plan: Read the FairTax bill and the FairTax Book so you will better understand what you're opposing. I'd also like to see you come up with a better idea to replace a tax system that is old, confusing, unfair to everyone and impossible to enforce.

Heather...it's clear you aren't reading comments or are a bot.

A Bortz bot. lol

Neither businesses nor government agencies would pay taxes on any goods or services they purchase.

No shell game there, just a misunderstanding.

Anyone interested in learning more, check out: www.fairtax.org

It spells out how the fair tax really works.

Wow. Joe's really dumb.

And a bunch of shills have arrived. I count at least three.

People are saying that there is problems in that the fair tax is a bad idea because it can be cheated and what not.

Get a clue people rich people already are cheating the tax system! So give this system at least a reasonable thinking over before you condemn it.

Chris Latimer, interested in facing reality?, read a Harvard Economics professor's evaulation of this national sales tax, which is Bartlett (cited many times above). I've read the "fair tax" website with fancy charts which would be laughable if so many people weren't swallowing that hooey. Amazing how the charts show people of every income level paying less but it's revenue neutral. If you can believe that, then tell us all what Santa brought you for Christmas this year.

@Jason

"I would support the fair tax completely only with two additions. One: keep the estate tax. No one deserves to inherit hundreds of millions of dollars."

And what makes you think the government has the "right" to take that money? And how would you feel if you worked all your life to raise enough money to be passed onto your children and the govt' then took 40% of it? It is scary how easy it is for you to make such an assertion.

Only idiots, accountants, and IRS employees (all of which I'm certain comprise the majority of the naysayers here) would be against a flat tax. To argue that it would "benefit the very wealthy" is quite simply ridiuclous. The closing of the loopholes in the current tax sytem would easily offset any "cheating" that would take place under the fair tax. What scares the politicians the most about this system is the fact that everyone will "take home" their full paychecks. The only way this bloated government has been able to tax it's citizens to the brink is through the "magic" of withholding taxes! That is your Fairy Tax! Once the average Joe sees how much Uncle Sam is really taking out of his pocket (if you don't believe this is true, ask someone what they REALLY make; I guarantee you over 2/3's of those people will only be able to accurately quote their "take-home pay) the proverbial "jig" is up! Watch how many tax increases get through then.

Rich people really do spend all of their money: Most rich people don't take their earnings and keep it in cash, they invest it. This in turn gets spent by their recipients on capital goods (which are subject to sales tax), services and employees who in turn will spend most of their money. Corporate tax isn't gone as long as corporations need to spend to function.

Deductions do not benefit the poor: The total federal tax rates for each quitile (2005) are: 4.3, 9.9, 14.1, 17.3, 25.2. The income tax portion of this is negative in the bottom 2 quintiles because of EITC, a negative tax structured similarly to the fair-tax prebate.

The government could continue to do social engineering through the tax code (like making fresh food or medical care tax free). This would be an improvement, as the rebate would occur at the point of purchase instead of the following May.

As a side note: I think this tax system would be improved by the addition of a capital tax (structured like a property tax). The government function of protecting property rights benefits people with the most property; so the burden should fall on them.

Expenditures on capital goods would not be subject to the national sales tax (at least not the one in the "Fair Tax" plan).

it makes ABSOLUTELY NO SENSE to exempt certain goods or services, since the current tax code mercilessly attacks ALL [on-the-books] income. our "income" tax should have always been a "wage" tax, so that a single father with 2 kids working 3 jobs and earning $80,000 a year (but with an avg hourly wage of only $15 an hour), pays significantly less in taxes than the owner of a company who hires a general manager to do all his work for him while he golfs all day, or someone who wins the lottery and logs NO work hours. With a consumption tax, it should be obvious that items like Bentlys and yachts (and cigarettes) should have a higher sales tax rate, while groceries and medical expenses and single family residences should have the lowest rates, so we're effectively keeping the tiered system, but on the goods, not the income

...

All things taxed is fine. Now I will not have to spend 3 weeks each year figuring out my taxes. I will take a vacation now.

All people taxed it fine. Rich and poor alike should pay taxes. This country benefits them both with police, nice roads, public schools, clean air and water. Take pride in paying taxes as they support OUR GOVERNMENT! If you want less taxes then make government smaller, not tax certain people because you have less. Their investments allow me to buy old houses and fix them. This profit pays for my family.

Those of you complaining that the rich won't have to pay as much.. get over it. They are now paying people to tell them how to avoid taxes as is. The poor can not afford this.

Let me spend my three weeks not worrying about taxes and instead with my wife.

From what I gather, many of the Fair Tax doubters here are under the false impression that the tax would be "added" onto the retail price of goods. The whole point of the Fair Tax is that it is an inclusive sales tax in that it replaces the embedded taxes that are already priced into the cost of the products that we purchase (payroll taxes, employee withholding, corporate taxes, etc). In other words the price we as consumers pay for a product is unchanged. There really would not be any economic incentive for someone to circumvent the tax by purchasing big ticket items abroad (or anything else for that matter).

Many of the commentors have already hit on most of the problems with the "fair tax." Here's one that is even bigger: it will be virtually impossible to enforce compliance. Eliminate the IRS? Try increasing its size tenfold and still not being able to control fraud. I am a criminal investigator for a state revenue agency and I can tell you first hand that only about 50 percent of the sales tax due the state is ever collected. Most small businesses, and especially those that deal in cash, such as restaurants, bars, convenience stores, etc., report far less sales tax than they actually collect and keep the difference for themselves. On a national level, our tax gap, the difference between the tax owed and the tax paid, will grow from about 15 percent to 50 percent or greater. People who say the IRS could be eliminated are either stupid or they are being dishonest. Either way, I would not place any faith in them.

Further, if you study comparative tax systems, you find that a distinguishing factor between third-world countries and the developed nations is the reliance on regressive taxes like sales taxes by third-world countries and a lack of diversification in their tax structures. This builds in structural deficits in the tax systems that prevent the country from ever creating a stable and adequate stream of revenue. We need to fix the tax system we have and maintain the diversification in our current system of taxation or risk creating these same structural problems that third-world countries cannot seem to escape. We could simply eliminate all deductions and lower the income tax rate to something really small, exempt the poor completely, and suddenly, the income tax would not be such a big issue anymore. Of course there are vested interests that prefer to retain the complexity, so this will be difficult to achieve, but no more so than scrapping the entire system and moving to a regressive tax like the "fair tax."

quote:
"in a hypothetical situation lets say you make $100,000 a year and since your rich you decide to save $40,000 of that and only spend $60,000. You would end up paying only $14,8000 in taxes. A mere 14.8 percent."

Are you suggesting that money will never, ever be spent? It will be taxed when the savings is withdrawn and spent. If you are saying the money will never be spent then you are saying that in this case putting money in the bank or stock market is equivalent to putting it in the trash can.

It's clear that there is a great deal of misunderstanding about The FairTax. Absent in large part is information about the "pre-bate" (not a rebate)and a full misunderstanding of how the embedded taxes of about 22% would go away. In that way it is a wash or almost because you would only pay $1 more on a $100 item at a sales tax rate of 23%. The notion that you would pay 30% tax on an item is simply not true. You can get definitive information at www.fairtax.org or by reading the book entitled "The FairTax". There are far more benefits than are mentioned here. And if you think about it, is there any reason at all for taxes to be tied to income? I think not. Everyone who visits or lives in this wonderful country should share the costs of goods and services for which taxes are collected.

It appears that most of you have not read The FairTax Book. Just a couple of comments from me though.

First, to Andrew, in your example you forgot to account for the tax prebate to the $20000 earner. He pays no tax whatsoever. The $40000 saved by the $100000 earner will be taxed if it is ever spent.

As for the government paying taxes. The government no longer has to pay the employer portion of SS (I believe there is SS on FERS employees, but I am not sure) or Medicare. Furthermore, it the government lets a contract, that contractor will no longer have to include the employer paid SS or Medicare for all its employees. Also, missing from the contract to the government is all the contractor's expenses in preparing and maintaining all the tax related documents. Why should the government get a free ride?

Has anyone considered how much the FairTax will impact the tourism industry? An extra 30% tax on U.S. hotels, restaurants, and shopping will encourage a lot of vacationers (both US and foreign tourists) to go elsewhere.

At the extreme end, if I'm a rich person looking to buy a vacation home, it suddenly becomes a lot more affordable to buy it in Europe or Dubai compared to the U.S. And that goes for both rich Americans and rich foreigners.

"Only the poor pay taxes" Leona Helmsly.

And the Fair Tax is the realization of Leona Helmsly tax theory.

Lets call it the "Leona Tax".

A note: My understanding is that corporations would still be taxed. They are not excluded from the sales tax and every manufacturer, restaurant and even offices have expenses (raw materials, supplies, even desk chairs and computers) that would be taxed.

The idea that the fair tax is (at least) near price neutral has not been explained well on here. Corporations currently pay tax on their profits, payroll/SS/Fica taxes, etc. This includes mfgs/wal-mart, etc. They obviously pass on these costs to consumers in terms of higher prices. These would all be gone. Now to argue that prices would increase by 23/30% is ludicrous. Arguing they will not change may be a bit hopeful, but a modest increase at most is all that could be expected.

Also, someone figured the rate for a person making $20K and spending 20K. They failed to deduct the pre-bate from that tax (approx $2,600). This would make their taxes only $2,000 a year or 10%, a bit lower than than the new rate for the $100K individual with the pre-bate (12.2%).

Finally, the increasing tax base (illegals immigrants negligible consumption, but more so cash business and the black market) would now pay more in taxes.

A note to Mike in CoMo:

Cash businesses would not pay more in taxes. They have the ability to hide their actual sales and tax collected. The end result is that they collect the tax but they do not remit it. We see it all the time in state government. Business collects $50,000 in revenue and $3,500 in sales tax. They send in a return reporting they made $10,000 in revenue and remit $700 in sales tax. They keep the other $2,800 in sales taxes as additional profit. Do not underestimate how much tax can be stolen in this manner. Businesses and their accountants quickly learn that as long as they file a return on time and pay "something," they stay below the radar and get away with it. Compliance enforcement efforts cannot keep up because the fraud is so rampant. And even when they are audited or investigated for criminal charges, the cash basis businesses rarely keep the records needed to prove how much they actually collected. I have seen relatively small businesses steal more than $3 million in sales tax in just a couple of years.

A national sales tax would be a nightmare and might just plunge the US into third-world status. The danger of this proposition cannot be underestimated.

There is a whole industry currently dedicated to hiding income and diverting it to things to minimize taxes (accountants and tax lawyers). I am sure there are plenty of business owners currently diverting loads of money to off shore accounts and investments to not pay taxes. Is there any credible academic article that compares the losses (or estimated losses) from the two systems?

So they talk about a rebate for everyone to account for necessities of life, based upon the HHS poverty guidelines. Has anyone looked at these guidelines? They clearly weren't created by a person living on that amount of money.

Yes Mike, there are many academic, peer-reviewed articles analyzing tax fraud and evasion for every type of tax in existence. Each type of taxation has specific enforcement problems, but income taxes are generally the most difficult to evade because of the tax reporting structures in place. With the income tax, the greatest opportunity to evade goes to the wealthy who can take advantage of loopholes and offshore structures. But the vast majority of the income tax is paid by those who earn a salary. Try not reporting the income your employer reports on your W-2 or 1099 and see how quickly you get a bill from the IRS. The key there is that the employer has nothing to gain by not reporting the income. They get a tax deduction for wages paid. With sales tax, they have a lot to gain by underreporting the tax collected, because they get to keep whatever they do not report. At the state level, businesses can add an additional 4 to 7 percent to the bottom line by not remitting all the sales tax they collect. Imagine the temptation when the amount added to the bottom line is not only 4 to 7 percent at the state level, but an additional 23 percent at the federal level.

In my state, we estimate that sales tax not remitted amounts to 60 percent of the tax collected by small businesses. Large corporations tend to remit the full amount and abide by the rules, but most of the revenue and sales tax collections are generated by small businesses. I am currently doing a detailed calculation of the sales tax stolen within a single industry in our state, and its amounting to hundreds of millions of dollars so far. This particular industry is one where the amount of tax collected can be determined by reference to filings with other state agencies. By comparing the reports we can finitely determine the amount of tax stolen. The amazing thing is that businesses in an industry where the amount of sales tax collected can be verified are still stealing taxes to that magnitude. In industries where the amount of sales tax collected cannot be verified, the amount of sales tax theft is off the charts. We have done detailed estimates of theft in those cases based on purchases. For example, convenience stores that purchase $50,000 worth of cigarettes and beer every month but never report more than $15,000 of gross sales. You would not believe how common that is.

If you have access to a college library, start searching through some of the peer-reviewed journals in the fields of public administration, political science, and economics and you will find plenty of empirical analysis related to these issues.

There is no question that our current tax system is in need of simplification and reform, but the "fair tax" is definitely not the answer.

I then seems that we would be better off by increasing each of the marginal rates by say 3% and getting rid of the other taxes and closing loopholes. One of the very attractive things about the fair tax is the incentive to save that is created in a country where some studies state we have a negative savings rate. As a student who recently graduated with a degree in economics, it is a common principle that savings and investment are the one big way to propel an economy forward at the macro level. If there is the least loss in an income tax system then it seems better to do as Romney suggests and getting rid of capital gains and savings taxes and then also generally simplifying the system. The problem with simplifaction is that it can be undone very easily by the next congress. Getting rid of a loophole is useless if it is quietly opened back up the next year.

Another big attraction of the fair tax (especially for those with a libertarian bent such as myself) seems to be the realization of people to how much they are paying in taxes. This underscores the previous posts on the only reason we have the current system is because it comes out before we get our paychecks. I do not believe that people would be very happy if they had to write a check to the federal gov't every month for what is taken out of their paycheck. Most people would not see the federal gov't as worth the cost.

Outside of Romney and Huckabee (Fair Tax), no one seems to have an actual plan to simplify the tax code. Everyone talks about it (at least republicans), but outside of closing loopholes there is little consensus of how to fix the whole system (and few will even say what loopholes to close). The true to God reason the fair tax is attractive is it makes the tax bill clear, it seems even on its face, and it is an alternative to a system that is currently failing us.

As a lower middle class person coming from parents who were very poor and myself teetering just barely above "the poor", I'm 100% for getting rid of the income tax, and having this sort of national sales tax instead. We could easily transition to such a tax by doing it over time ... phase out in the income tax over a 10 year period, while phasing in the sales tax at the same time. That would smooth the transition, and allow the government to adjust if needed to ensure that the shift is revenue neutral. It would also decrease the resistance from the accountants and tax lawyers who profit from the current system, as well as the rich who have used loopholes, tax shelters and offshore accounts to bring their tax way below what the rest of us pay, by giving them time to adjust from the change.

Also, to assuage concerns over disproportionately hurting the poor, the tax could easy exempt basic food, basic clothing, and medical expenses, just as our state sales tax currently does. The poor are not poor (as ElCabri foolishly suggest) because we restrict our spending, but rather because we make so little income. But getting rid of the income tax means that we poor and middle class folk get to keep more of our income, which we can then use to pay down Visa debt instead of buying the latest flat-panel TV.

Yes, a national sales tax is not perfect ... nothing ever is. But it's certainly better than the current nightmare of the income tax. Getting rid of the income tax will encourage saving and investment, discourage reckless consumption, and allow those of us who are poor to get out of a mountain of debt. Paying this national sales tax would be as easy and efficient as paying the states sales tax we currently do anytime we are at a store. It would also improve economic efficiency, as we would no longer need an IRS, plus the army of tax lawyers and accountants who help people hide their income, thus getting the government out of our pocketbooks and bank accounts. So everyone wins ... well, except accountants, tax lawyers and IRS employees.

Actually, the fair tax is not a simple system. By its nature, taxes will compound unless there are rules to exempt from taxation inputs into the manufacturing and other value-added processes. So businesses that add value to the products they buy before the sale must be exempt from the tax on their purchases that go into the production of other products. That is a very complex process, particularly when the chain of production runs through many levels before a final consumable product is created. Also, when Congress starts implementing this tax, there will be political pressure to exempt medical care, food, etc. Then when the poor and middle class realize they are paying tax on purchases they make with their credit cards, there will be an exemption for that. Pay tax on houses? Are you crazy? A poor family finally saves enough to be able to buy a $100,000 house and finds out they owe $30,000 in tax? The extra tax means they cannot qualify for the mortgage anymore. Another exemption. Before you know it, the "fair tax" is not so simple anymore. Face it: any tax can and will be made complex by the political process.

If you want to see how complex sales tax can become, take a look at the Value Added Tax in place in most of the rest of the world. Look at how South American countries struggle with the VAT because they rely on it as their primary source of revenue. Look at how all the other developed nations use the VAT as a supplement for the income tax rather than the primary source of revenue. Even so, the VAT is superior to the "fair tax" because it has built in rebate mechanisms that make cheating on the VAT not worth the effort. Cheating on the "fair tax" is definitely worth the effort. In fact, dollars to be earned by cheating on the "fair tax" will almost always exceed the company's normal profit margin. Massive fraud will mean the rate cannot be anywhere near 23 percent. If the tax gap increases to 50 percent, the rate would have to be hiked to 46 percent, and research will tell you that will lead to greater evasion and a need for even higher rates to raise minimum revenue. We will find ourselves in a spiral of the government not having even the minimum amount of revenue it needs while corruption grows to intolerable levels, fueled by the easy ability to steal dollars from the government.

If the political will exists, the income tax can be made to be far fairer than the "fair tax." Simply eliminate ALL deductions and lower the graduated rates to single digits. Exempt the poor, everybody else pays a low rate. Stop using the income tax as a tool to implement public policy. Treat it simply as a method to raise the revenue the government needs. The problem is that the income tax has been used to grant incentives, to pay political debts, to curry favor, to adjust economic realities, and for everything else under the sun but what it was meant to do. Don't think for a minute that the "fair tax" cannot be used and abused in the same fashion.

If you think the income tax is currently failing us, just hope you don't ever have to live with the "fair tax."

The Fair Tax presents such as an easy way to avoid all taxes alltogether. I build houses in the $200,000 range. If Fair Tax were to come about to the purchaser for some nominal sum instead of collecting the $60,000 for the Fair Tax. The federal government would collect virtuanlly nothing.

Comment to Chris:

You will not be able to get rid of the IRS. The sales tax is far easier to evade (see previous posts). The tax gap between the tax due and tax actually collected is between 40 and 60 percent with sales tax while it is only about 17 percent with income tax. It is also more difficult to audit and much more difficult to prove criminal tax evasion. Far from getting rid of the IRS, the size of the IRS would have to grow tenfold to properly enforce a national sales tax.

If you look at my post just before yours, ask yourself this: would you dislike the income tax if your tax liability were zero? If you are poor you should pay nothing. Again, just eliminate ALL deductions, lower the graduated rates to single digits, and exempt the poor. Very simple, very effective, and very fair.

The reason Justin is confused about the "23%/30% thing" is that he should go back and study his high school algebra. Let's assume a 50% sales tax. According to Justin's math, a $100 purchase would have $50 of tax on a $50 item. Of course it is immediately obvious that that is a 100% tax. A 50% tax would only be $25, not $50. Therefore his 30% tax assumption for a 23% tax rate is uneducated.

Hold on a second Math Student:

If you buy an object that costs $100 before tax and the rate is 50%, the tax is $50. The total is $150. If you buy something that costs $100 including the tax, and the tax rate is 50%, the item cost is $66.67 and the tax is $33.33. But this is all obfuscation. No one looks at tax rates that way. Items are not valued inclusive of tax. If you go into a store today in a state that has sales tax, say Florida, and you want to buy an item that costs $100, you know the $100 does not include tax. It never does. In fact, states make it illegal to include the tax in the price. It must be added on to the retail price. At a 6% state tax rate, the item is going to cost $106. Prices for products are not going to be magically recalculated to include the tax. The item is going to have a price and the tax is going to be added. Therefore, the rate is going to be 30 percent, not 23%. 30 percent is the amount of tax added to the retail price without tax. To say that this 30 percent is really just 23 percent of the total of the retail price plus the tax is just silly manipulation of numbers, to wit:

Retail price = $100
Tax at 30% = $30

Total retail price plus tax = $130
$30 tax divided by total retail plus tax of $130 = 23%

Let's also not forget the dictum of all business and pricing strategy...charge what the market will bear.

That means prices will not go down in the event of a national sales tax because people will already have demonstrated they will pay for a product at the current price. Moreover, pricing strategies DO NOT take income taxes into consideration. Anyone who says prices will come down as a result is a fool who's never been in business.

Additionally, a consumption tax will reduce consumption. This will depress our economy severely.

Reformer, By the same logic, my income tax on $100 of income is not 28%. The government gets $28, I get$72. So they get 39% income tax. Also Corey, companies ablsoulutely figure their tax burden into their pricing in every step of the way to the consumer, which is why prices WILL go down about as much as the tax. The competative marketplace will see to that. This is a no brainer. My loaf of bread or gallon of milk will cost the same to me, I'll just have my entire paycheck to use to pay for it, and the leftover $'s to save or invest.

@Justin Fox: sorry for the redundant link, but you don't need to get snippy about it. I only saw the WSJ piece linked in your post, and links in comments are difficult to pick up. Maybe you can change the code to make linked words easier to pick up in the comments.

Tim:

The tax on your income of $100 is $28. That's 28%, not 39%. You calculate it by multiplying the 28% rate by the gross income. Sales taxes work the same way. If the rate is 23%, the tax on $100 would be $23. But the tax is actually $30 since the "fair tax" people are saying the tax is computed based on $30 divided by $130. It's an obfuscation plain and simple. Yes, in your example the government gets $28 and you get $72. The government gets 28% ($28 divided by $100) and you get 72% (72 divided by $100). You don't subtract the tax from the gross then divide the tax by the net to get the rate.

If you think prices are going to go down, then I can understand why the math confuses you. There is nothing in the "fair tax" proposals that will make the cost of production go down. If the cost to produce does not go down, then the price cannot go down either. Corey is exactly right on this point. The amount of taxes included in corporate cost might even INCREASE under the "fair tax" if the implementation does not appropriatly take care of the issues of tiered taxes at multiple levels of production. "Fair tax" proponents are making this proposal sound far simpler than it actually is and are attempting to disingenuously sell it through oversimplification and playing with the calculation of the rate.

Reformer, you are really a status quoer.

1). Your complaint about the difficulty of enforcement.

Sure people can lie about what they take in, but with the state being paid a small fee to do the collections within their own provenance, and businesses required to register and keep sales records, it will hardly be the nightmare you'd like us to believe. Simply put, if you don't keep records, the government will simply impute the revenues using other similar businesses located near you.

2). Your complaint about the difficulty of deciding what purchases to exempt for suppliers and manufacturers.

If you buy something which you use to create or manufacture your product, you are exempt from paying the sales tax on it by the simple expediency of presenting your sales certificate. That is exactly how it works now, and has worked for decades. No smoke and mirrors, just a record with a signature which is kept with the rest of the sellers legitimate business records.

The other more pertinent place that hidden taxes get removed from the 'new' price of goods is that the employer will no longer have to pay the matching withholdings for his employees, since there will be no withholdings to match.

3). Just to be clear.

The above means that the price of a loaf of bread will drop by about 23%. Now along comes the Fairtax and gets added to the price and bam, the price is back to what it was. So it's a wash, right? Wrong for two reasons. The first is that the tax is now at the bottom of your receipt, not included in the price as you suggest(more on that in a minute), and two, you van now choose(except for necessities) whether you wish to buy the item at that price, ad whether it is the shopkeeper that has set the price too high, or the tax that pushes it past your purchasing limit.

The big bonus in seeing the tax at the bottom of the receipt and not buried by bits and pieces within the item's price is that you can see how much the government is taking away from you WITHOUT HAVING TO GUESS. This sticker shock among taxpayers/consumers is EXACTLY what guys like you are so deathly afraid of.

4). This inclusive/exclusive thing y'all love to confuse people with.

The item will have a price. The Fairtax will be calculated on it. You will pay the price plus the tax and they will be listed separately on your receipt.

The reason the fairtax is described as inclusive is because that's how it is compared to the existing income tax, not because that's how it will be in the store.

For example, if you make $40,000 and pay 25% in taxes that's $10,000 dollars right? Only if you use the INCLUSIVE model or rather by saying that 10,000 is 25% of 40,000. This is how the IRS quotes the rate now. However once this is pointed out, most people quickly figure out that 10,000 is not 25% of the 30,000 one takes home. The exclusive rate is, as you point out when bashing the Fairtax, something over 33%.

It is not the Fairtax proponents doing the smoke and mirror thing, it is the current tax establishment. The Fairtax is quoted INCLUSIVELY simply so as not to be accused of using a different methodology to compare the two; i.e. the current tax, and the Fairtax.

5). To all who think the flat tax model is a good one I want to point out that we currently have a tax system that started out as a flat tax, and has simply gone through some minor modifications to beneift special interests. Now having said that, I want to point out that the same thing can happen to any tax system, and we will have to be vigilant, BUT BUT BUT seeing the total tax at the bottom of your receipt for every purchase and knowing that there are no other taxes hidden in the price will be an exceptional tool for making sure the powers that be don't get crazed again. Furthermore, it will be a real impetus for the common man to get involved in voting for people who will reduce government spending. If 23% seems too high, well then vote for people who will reduce that number by reducing pork. Very straightforward indeed.

6). Somebody else made a very good point about savings being taxed under the current IRS and then being taxed as it is spent.

Money gets recycled and taxed at every exchange under the current system. Buy a car and you pay tax on it even though the previous three owners have already done the same. It gets complex quick, especially when you talk about the government being taxed, but it's all prestidigitation. If you buy a loaf of bread with that saved money today, you pay nearly 25% in hidden taxes already. Under the Fairtax, that number simply gets moved out of the price of the goods and onto the bottom of your receipt. Again, that's a complete wash, except that now you get to see how much the governments share of it is that you are paying without all the obfuscation.

7). All the talk of the rich, the poor, and the burdened is again obfuscation, and an especially entertaining variety when one talks about companies and corporations paying tax. A simple question shows the folly. Ready?

Who do you think pays the difference in price when a company's tax liability goes up? Give up?

You do. Every time you buy one of its products AFTER they've raised the price to make up for the revenue lost to the higher tax.

8). To whoever said the rich buy a boat in Cal. and accept delivery in Mexico.

Are you saying that Mexico doesn't tax them or (more likely) insist on bribes that amount to almost as much? Nonsense. There may be other reasons for the methodology, but saving money isn't one of them. Someone's getting their pound of flesh. And the idea that it's somehow legal and all above board is beneath discussion. It's not.

9). There won't be any more deductions for interest on your mortgage, but then again

a). New houses will cost less before the Fairtax is added at the bottom of the receipt, just like bread.

b). Used houses will not be taxed a second time as they are now, and the market will set their value so that the reseller of a home they purchased new, will recover the amount they paid in tax originally. Once again, almost no appreciable change in the cost to the consumer.

10). Someone said people will spend less and the economy will suffer, not to mention government revenues.

Well duh! It's called saving, and I defy anyone to say that it will devastate the economy short term or that it will not ENORMOUSLY benefit the economy in the long run. Savings is how people build their own businesses. You don't put money away so that you can throw it at an emergency someday. You save it so that when you are ready you can invest it in either your own business or in other's businesses which are good investments and whose model you have studied and understand. Savings, self-growth, and wise investment. Yup, sounds like a real loser to me.

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All in all, I hope I've convinced at least one person here to look up your own information and not trust the so-called and self-proclaimed "experts" here or anywhere else. Those who have an agenda are very persuasive. Their livelihoods depend on things staying as they are. Who you ask? People dependent on the IRS and the complex and contradictory current tax code. Agents, lobbyists, tax preparers, wealthy people who depend on loopholes their highly paid (did I mention) LAWYERS use to get them deductions small businesses and individuals can only dream of. They're slick. They're smart. They're informed. They're liars and they're out to confuse you as much as they can so you will not get involved.

You can make a change. You can understand all this if you try.

Don't take my word for it either. Go to Fairtax.org and after you understand what they're saying, find as many different opinions as you can both for and against.

The Fairtax book is an easy read and an exceptionally clear explanation to get started with. Then when the status quo guys start calling supporters "fanatics" you will be in a position to see through their misdirection for yourselves.

Thank you to our host for carrying this conversation and for being open and informed on the subject.

Let me explain it another way. I earn $100 and want to spend it all. Under the income tax formula I will be able to purchase $72 worth of goods. But if you add in the 13% taken out for SSI I will have $59 to spend on goods. Under the Fair Tax, if I spend the entire $100 (which I will get from my employer) I will be able to purchase $77 worth of goods. Obfuscation is certaily occuring, it's just the Fair Tax proponents doing it. Call it 30% if you like (23/77). 30% of the amount you spent for the goods. But be fair and call the income and SSI 69% (41/59) The dollar amount the goverment got in relation to the value of goods you were able to purchase.

@anon: Sorry for being a snip. You're right that links have gotten hard to see in comments lately. I'll talk to my teams of crack technologists on Monday. (It'd be nice if I could just fix it myself but they don't seem to want to give me that kind of power.)

As for everybody else, thanks for the very informative (and for the most part wonderfully civil) discussion.

THe Fair tax doesnt even slow down at stupid. It goes directly to insane. First, its not 23% -- that figure was very optimistic - even to replace income tax alone. But now, its morphed to replace ALL taxes, therefore it has to be much higher % to cover those too -- about double.

SO the Fair tax would be more like 50%. And remember -- its on sale of new houses -- and on government itself. How the hell can you spend an extra 50% on buying your next house. Its also on the medical cost, cars, everything. So your 50K knee operation will hae to pay 75000.

And if thats not insane enough -- Fair Tax applies sales tax on government spending - on everything. SO absurd as it sounds -- the military would pay that same 50% higher on all buys -- uniforms, jets, everything/

Actually Johns43, I'm not a status quoer at all. Quite the opposite. I hate the tax system as it currently exists and believe that it must be changed. But as I noted previously, I am a criminal tax fraud investigator with a state government that has no income tax (that narrows it down a bit). I know first hand that sales tax is unstable from a revenue standpoint and tremendously difficult to enforce. I can tell you the tax gap will increase from 17 percent to around 50 percent and there won't be much you can do about it except hire more enforcement personnel and keep raising the rate to try to get enough revenue from it. Kid yourself if you must. From my standpoint, I stand to gain from a national sales tax. I assure you there will be no end to the need for criminal tax fraud investigators with knowledge of sales tax issues.

As far as your statement that the government will simply impute revenues for those businesses that do not maintain records, you will have entire industries that do not maintain records. I could give you several examples from task force cases we are working right now. Furthermore, simply imputing revenue for a large number of businesses is not as simple as you make it sound. Who is going to be watching and determining which businesses you need to impute revenue for? Businesses who understate their revenues but file on time and report something that on its face looks reasonable will be difficult to nail. Who will decide that, sight unseen, business A should be reporting $25 million per year instead of $10 million? You need a lot of boots on the ground to make that determination. Who will make the determination that the amounts imputed are appropriate? What if the business decides to fight the imputation? Who will handle that fight for the government? Remember, the IRS is gone, so you guys say.

With respect to using the resale certificate: ever hear of fraudulent use of resale certificates? Happens all the time and will continue to happen on a grand scale with a national sales tax.

When you say prices will drop, you are assuming that the business making and selling that bread you speak of are paying 23% in taxes. They usually are paying far less than that, if anything at all. Business taxes in this country are really quite low, so prices are not going to drop 23 percent up front. You're living in a dream world.

The inclusive thing is a fixture of "fair tax" proponents, not those of us against it. If you guys want to stop confusing the issue, I'm all for that. If I buy something that has a retail price of $100, the "fair tax" is going to be $30. Don't try to make it seem like that is 23 percent. It's not. If you want to compare the "fair tax" to the income tax, there are ways to do it, but manipulating the rate is not the way. The average "man on the street" is going to be confused and misled by that. But then again, that is the whole point.

A couple of things. First, since corporations DO NOT & Never have paid Taxes, they simply pass them on to the customers & stock holders, the price of goods & services will come down aprox. 23%, because they will lose the burdon of the imbedded taxes . Does that sound like a number you have heard in this disscussion before? Most things will cost pretty much the same as they do now , after taxes.
Second thing, & the most important, since most of the folks never read the Bill or the Book, a new book : "FairTax, The Truth: Answering the Critics" The book debuts on Tuesday, February 12th. This should cear it up for all the Folks that never took the time to understand the Bill. This "FAIR TAX" will be the Biggest Boost to the US economy since Capitalism.

hmmmm, lessee, a 30%sales tax, nationally. that would mean that a squillionaire buying a $10 pack of toilet paper would pay 3 bucks (out of income they made in 0.003 seconds, and a person with a 14 thousand dollar yearly income pays the same 3 bucks for a necessity?
Yeah, WOW, fair or flat it's still the same F* the worker, feed the fat mentality.
Nope, it ain't flyin'

The foolishness of almost every poster on this site is unbelievable. The number of people filled with envy for those making more than them is sickening. You all are missing the whole point. Scrap the income tax and DON'T replace it. Cut the size of gov't so that it only does what is constitutionally mandated. A Fair Tax is a HUGE step in the right direction. Cutting the income tax (and the size of gov't) and NOT replacing that income is about 1,000 steps in the right direction. Let each person keep their money and decide for themselves how to best spend it.

The only "fair" way to tax is to take the cost of gov't in a year and divide that by the number of (adult?) residents and send them each a bill for the same amount. Each person pays the same amount regardless of income. Why not? Each adult has the same chance to use the roads, parks, libraries, etc. Only when it comes to gov't do the freeloaders want the "rich" to pay their "fair" share which is whatever the pols (and their idiot voters) deem is right. If a rich person and a poor person go to McDonalds and get a #3 they each pay $5. If they each get a gallon of gas they each pay $3. If they each go to Disneyworld they each pay $55. This makes sense because they are both getting the same good. Nobody aside from the gov't charges you on what you make. McDonalds doesn't care if that #3 cost you 1 hour of labor or 1 minute. They only want the $5. Disney doesn't care if it took you all day to get that $55 or 10 minutes. That is fair. You want it, you pay for it. Today our society is full of people who want others (the rich) to provide for them since they don't have the ambition to get for themselves. Hiring politicians to take from others and give to you is nothing more than theft.

Something is seriously wrong with a system where someone like Bill Gates or Warren Buffett could pay billions of $ in taxes in a given year and still be arrested for tax evasion while deadbeats who pay nothing in taxes yet suck of large quantities of taxpayer resources aren't liable for ANYTHING.

Wanting to keep your own money is greed, wanting others money is need, and compassion is when government arranges the transfer.

One last example, imagine you and 9 of your friends order a 10 piece pizza that costs $10. You all eat 1 piece. What is each person's share of the bill?

The correct answer is $1. It is not Joe pays $0.50 since he's a fast food worker, and John owes $0 since he's unemployed ... and so on and finally Tom owes $5 since he's a professional athlete. No, it's not that way ANYWHERE except in the area of taxation. It is all about envy.

This will be all caps...I apologize but it seems some people are blind.

TO ANYONE WHO SAYS PRICES OF GOODS AND SERVICE WILL FALL AFTER A NATIONAL SALES TAX IS IMPLEMENTED.

YOU ARE WRONG...WRONG...WRONG.

PRICES WILL NOT COME DOWN AS A RESULT OF ANY NATIONAL SALES TAX!

GO READ MY POST WHERE I ADDRESS THIS ISSUE.

ADDRESS MY POINTS OR BE CALLED OUT FOR WHAT YOU ARE.

@Justin...

Do you see any flaws in my argument?

Okay, one last time. I'm not arguing philosophy here. The "fair tax" simply WILL NOT WORK. Dream that it will all you want. It's not like there are no tax systems on earth that you can study to learn what happens with a sales tax. They're all over the place and they have been studied. They are fraught with fraud and the rate is going to have to be so high that it will be an economic disaster.

One last thing: it would be nice if the business world were this nice, neat little place where prices were determined by the adding up the cost of the product and adding a small margin. It doesn't work that way. Prices are set at what the market will bear. Do you think the price of the IPhone was set at $599 because it cost $560 to build? Get real. Prices are not going to go down.

What about transition? If you own a house and you are renting it out, are you going to reduce your rent by 30% or 23% when this law comes out? No, because your mortgage and real estate taxes will still be the same. But you will have to collect the tax, so the renter will be paying more. American car companies haven't paid a dime of federal tax in ages, so how are the prices of cars going to drop 30%? But the dealers will still have to collect the tax.

There are so many issues, problems, and opportunities for fraud that the whole idea makes no sense whatsoever unless your goal is to destroy the government. If that is the case, just come out and say so and stop trying to do it through the back door.

We need a constitutional amendment as to how much of a person’s income or worth the government can confiscate. That needs to be just ONE number for ALL Americans. If it’s 15% of income or 25% or whatever it’s for ALL Americans.

Corporations should pay no taxes - they can't vote. Taxation without representation... or did some of you forget about that?

Can’t pay your fair share? No problem, the government comes in and eBays items it believes you don’t need and garnishes your wages. Why should the Tax Man be behind the Child Support Man?

To have it any other way is to decide that some Americans don’t have to pay their fair share and others need to pick up their slack. Show me