On my desk: The Fair Tax Fantasy
posted at 2:12 pm on April 23, 2009 by Ed Morrissey
The Fair Tax Fantasy is not quite on my desk, but it’s on the way there. My friend Hugh Hewitt has cowritten an extensive critique of the Fair Tax proposal with Hank Adler, and I suspect it will be as provocative and intriguing as his other books; the title is certainly inflammatory enough! Hugh argued against the plan that Mike Huckabee wound up adopting as a major campaign plank. That led to a surprisingly emotional debate on the merits of the Fair Tax versus a Flat Tax, which Steve Forbes has pushed for decades.
Hugh, being the prolific writer that he is, has another book out as well. He looks at the prospects for a party in the wilderness in GOP 5.0: Republican Renewal Under President Obama. Even though he’s a Cleveland Browns fan, Hugh’s an adept political analyst, and this should be required reading for the RNC and state organizations in the next two years. I’ll get Hugh on my show, in a bit of a role reversal, to talk about both books soon.
Blowback
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Intentionally spending more than what one earns is creating a massive Ponzi scheme of profit that only gets worse over time. Either we reign in overspending on a governmental and consumer level or we’ll have another depression when the piper finally has to be paid. It may already be too late.
Dark-Star on April 23, 2009 at 4:33 PM
Depressions are not caused by market collapses, recessions are. Depressions are caused by government intervention attempting to prevent the corrective processes of a recession.
Count to 10 on April 23, 2009 at 4:37 PM
Yes, lets start personally attacking others for raising legitimate concerns as ignorant. That will get you real far. Especially considering I have not “ranted” about how “bad” it is, just that it’s not the rosey alternative proponents paint it as. There are many unintended consequences and hurdles one must deal with. In fact I am not against the Fair Tax in principle, just prefer the Flat Tax for the time being.
But if you wish to emotionally attach yourself to the issue and post irrational attacks, by all means go ahead. I’ll just skip over your posts.
Daemonocracy on April 23, 2009 at 4:38 PM
Shameless reply for the sole purpose of getting the link posted again : )
Durham68 on April 23, 2009 at 4:39 PM
All taxes punish the consumer because they take away from that which is needed to consume.
jimmy2shoes on April 23, 2009 at 4:41 PM
Do you really think that a 20% tax will create a massive underground economy?
Heck, taxes on cigarrettes are over 100% and it hasn’t happened. (When you add up the cost of all the sin taxes vs. the cost of the underlying tobacco.)
MarkTheGreat on April 23, 2009 at 4:44 PM
It’s not speculation, and if you would get the book instead of just speculating, you would know that. The author’s of the book paid a group of economists to calculate the size of the tax needed to replace all existing taxes. 23% was the amount they came up with.
MarkTheGreat on April 23, 2009 at 4:46 PM
A 23% tax is going to create a flourishing black market?
You’re delusional.
MarkTheGreat on April 23, 2009 at 4:47 PM
I’m not talking just sales tax requirements, I’m talking tax requirements in total. All(or a large majority of it) of which would be scraped and replaced with a simple collection on the FairTax.
Also, our government is already working to get Amazon and other internet retail companies to collect sales tax. So this point is kinda moot now.
Trov on April 23, 2009 at 4:47 PM
Dark-Star on April 23, 2009 at 4:17 PM
The problem with the federal government is not a tax problem, its a spending problem. And in order for that to get control, you need to choke the beast. A sales tax doesn’t choke the beast…in gives it more power. Because it doesn’t remove the social engineering…they will still have the IRS, they will still tax based on behavior and what not. You will still see a 60 thousand page tax code for the sales tax as you do with the current tax system…you are only changing who collects…your boss in the form of withholdings, or the salesman. Only it will be worse, because government will want to know what people are buying in detail, because they want their money and power. You will see class envy like you never seen it. Any SUV buyer will be taxed at 40%, but buy an electric golf cart, 10%…Taxes will also go up with the sales tax, on the middle class. The wealthy are wealthy because they have assets. They don’t have to buy more. Hence they could very well get by paying 1% of their total income…so government will raise the sales taxes to meet their budgets ( see how busing works in the inner cities ) The wealthy not spreading the wealth will slow down the economy…and trickle economics will trickle recession after recession.
Again, God charges a flat 10% tax…if that is God’s tax code, then maybe there is something to it?
Conservative Voice on April 23, 2009 at 4:50 PM
Do you think businesses have nobody on staff to handle the current income tax with it’s hundreds of thousands of deductions, exemptions, and loop holes?
You do not need any extra personnel to handle a sales tax. It’s collected at the register. Add it up, send it in.
MarkTheGreat on April 23, 2009 at 4:50 PM
As a programmer who has written such programs, I can tell you sir, that once again, you have no idea what you are talking about.
This is already being handled in a data base. Each item has a field with it that indicates it’s tax level.
Since everything is being taxed, the calculation for the flat tax is even easier. Wait till the final tally is reached, multiply by 1.23, your done.
Very, very simple.
MarkTheGreat on April 23, 2009 at 4:55 PM
So we shouldn’t push any idea that the Democrats will lie about?
MarkTheGreat on April 23, 2009 at 4:56 PM
Step 1) Reduce federal spending to the original intentions
Step 2) Ban increased federal spending and mandate 10-25% reduced spending per year, along with lowering of tax rates.
Step 3) Mandate budget surplus to:
Step 4) Eliminate the debt.
Federal program that should be state programs would be taken over between steps 1-4
Step 5) Repeal the 16th amendment, and create a new one banning any new income tax with specific wording on some method to pay for wars and possible horrible disasters (tax money can only be applied to the debt incurred by direct costs of the war)
Step 6) IRS withers away, you don’t pay ANY federal tax (besides tariffs and the other taxes congress was originally supposed to use), everyone is on their own, any social programs become property of the states and charities.
Sure its a total pie in the sky list, but its the real answer =\
kerncon on April 23, 2009 at 4:56 PM
Lowering it to zero will be even better. Which is what the Fair Tax does.
MarkTheGreat on April 23, 2009 at 4:57 PM
MarkTheGreat on April 23, 2009 at 4:46 PM
23% is a sham. Its really 30%. To quote from http://www.jpfo.org/filegen-a-m/fairtax.htm
a $1.00 candy bar being charged $1.30 by the fair tax calculators, its 23%. Because 100% – 1.00 / 1.30 = 23%. But in reality its 30%.
Where is the guarantee that it will be no more than 23%, that all goods will be charged the same, and that we won’t have an income tax? You can’t promise that. It won’t get rid of the IRS, it won’t cut spending ( the real problem ) and it will increase the power of the government because they will be very interested in what you buy and for how much.
Conservative Voice on April 23, 2009 at 4:58 PM
That would presuppose that you have raised a legitimate concern.
MarkTheGreat on April 23, 2009 at 4:58 PM
Where is the guarentee that the income tax won’t be raised to 100%?
MarkTheGreat on April 23, 2009 at 5:00 PM
MarkTheGreat on April 23, 2009 at 4:50 PM
You make a terrible assumption that the fair tax will remain static, it won’t. Social engineering will still be alive and well.
Conservative Voice on April 23, 2009 at 5:00 PM
How about a “Make Every Income Level Pay F’ng Taxes” Plan.
marklmail on April 23, 2009 at 5:01 PM
It’s not a sham, both 23 and 30 are the same. They are just calculated differently. One is inclusive, the other is exclusive.
There is no guarantee that it will be no more than 23%. But lets face it, it’s the same way with a flat tax and any other tax system, politicians will have the power to change it and we must stop them from doing so. A retail tax that affects everyone is better since it isn’t easy to hide away as only for the rich and so forth.
Trov on April 23, 2009 at 5:02 PM
Why is he delusional? If a 23% inclusive tax (which actually translates to 30%) comes into play, people will try hard to avoid it. I don’t care how much additional disposable income people have, it will not make peoples aversion to taxation disappear. A 30% discount will be an enormous incentive to buy most retail items from neighbor x who happens to be selling diapers/clothes/TVs out of his garage.
The IRS will have to grow if only to crack down on the black markets that will result from the Fair Tax. It won’t happen with cars and other items that need to be registered but black markets most certainly will pop up for most consumer goods and will ultimately factor into lower overall tax receipts under the Fair Tax.
Durham68 on April 23, 2009 at 5:09 PM
MarkTheGreat on April 23, 2009 at 5:00 PM
Even with a sales tax mark, government can come in and shoot the land owner and confiscate the land. A 100% income tax isn’t far fetched, all one has to do is look at AIG, where they were willing to charge 90%…and before Reagan the upper class has a rather high income tax. But you are fooling yourself that a sales tax will be any different. All it changes is the who collects.
Let me be clear. Lets look at the simple gas tax. A form of sales tax. For every buck paid, we pay is roughly about 23 cents ( interesting that its about that…) and we have some states saying no wait we need to charge by the mile…and so force car owners to report miles driven…and may even have to back it up with a gps report. So government will bleed it out of us no matter what. Again looking at the gas tax…who does it effect the most? The wealthy? No, even with a SUV or caddy, its pretty close to what a person who makes 50K a year pays in gas taxes. Its the trucker. And as gas prices rise, the trucking industry suffers…which causes everything to be more expensive. And since the government isn’t collecting as much as it use to ( because the wealthy are paying less than 1% of their income instead of the current rate of 30+% and remember the wealthy pay for the lion share of all taxes ) the sales tax is raised one way or another.
Conservative Voice on April 23, 2009 at 5:13 PM
Trov on April 23, 2009 at 5:02 PM
The flat tax makes it harder to change. But there is still potential, which is why I think taxes should be due in October instead of April…then the memories will be fresh on people’s mind.
Conservative Voice on April 23, 2009 at 5:15 PM
Trov on April 23, 2009 at 5:02 PM
and it is a sham, because the average person understands a sales tax rate is to be paid as 23 cents, not 30 cents.
Conservative Voice on April 23, 2009 at 5:16 PM
Did anyone really think this Congress and this President were going to embrace the Fair Tax as a revenue substitute? Doesn’t this book just fuel the MSM spinmeisters into saying, why not add a National Sales Tax to help out the ongoing needs of Porkulus. And Hugh’s book just continues the circular firing squad strategy of conservatives.
A tax on sales is what should have been done in the Woodrow Wilson years (instead of the 16th amendment income tax disaster). There would have been a natural limit to what would be tolerated for taxes. Now we are branching into confiscatory income taxes for the achievers (the minority) and subsidies for everybody else (the majority). Is there an over/under on how long before the achievers either quit achieving or just leave the country? Has the majority done enough critical thinking to figure out who will have to pay for Porkulus government then, or who will be left to give them a job then?
Mark30339 on April 23, 2009 at 5:22 PM
marklmail on April 23, 2009 at 5:01 PM
+1 I think every income level should pay as well…but then again I am a heartless conservative. With a flat tax, where everyone pays, it keeps the progressives from raising the taxes too high, because its harder on the poor…but having the poor pay keeps them from wanting too many welfare programs.
But even the great Steve Forbes capped the flat tax to where the poor don’t pay.
Conservative Voice on April 23, 2009 at 5:27 PM
Mark30339 on April 23, 2009 at 5:22 PM
When social security was proposed, how big of an entitlement was it? A national sales tax does not change spending…it doesn’t change how much government collects…it only changes who the collector is…and creating an incentive for government to meddle in what we buy and what not.
Conservative Voice on April 23, 2009 at 5:32 PM
Yes but when you are trying to compare a sales tax with the income tax, both must be calculated the same. The 23% inclusive rate is used to compare the income tax rate thats also calculated inclusively. If you use the 30% exclusive rate, you must compare it to the income tax rate thats calculated exclusively.
In other words, Both must be Inclusive or both must be exclusive. if you are going to use it. Comparing the inclusive rate of one with the exclusive rate of the other would be misleading.
As for the flat tax being harder to change. I’d say no. But I could be wrong, I base my opinion on the knowledge of what Reagan did during his time. Did he not simplify the tax code as a flat tax? What did that get us?
If I’m wrong, and I could be, I’d still argue that the fairtax would be harder since it’s easier to see it being changed(on a receipt) than a flat tax. But I will definately not argue that both would be harder to change than our current system.
Trov on April 23, 2009 at 5:33 PM
+1
Also, note that a consumption tax is the best way to get
illegal aliensundocumented workers to at least pay part of what they cost this country.corona on April 23, 2009 at 5:41 PM
Trov on April 23, 2009 at 5:33 PM
Reagan had a liberal congress to deal with, so his hands were rather tied to what he could do.
The problem though, isn’t a collection problem, its a spending problem. When taxes are cut, the treasury collects more dollars. Proved by both President Reagan and President Bush Jr. So for me it goes to what is the correct, moral level of tax. I use to be ok with a national sales tax, and preferred a flat tax. After reading that link http://www.jpfo.org/filegen-a-m/fairtax.htm I am convinced more than ever that the sales tax is a bad idea.
For me, the righteous tax is no more than 10% across the board paid by all citizens…no loop holes, no capital gains, no death tax. Where it gets fuzzy for me is corporate tax, because it is considered by law to be a “person”…and setting corporate tax to zero creates a giant loop hole of having no income yourself and letting the corporation buy everything for you…so set the corporate tax to 10%. God only charges 10%, across the board…seems if that is God’s tax plan, it works for me. Everybody should pay in, or forfeit your vote.
Conservative Voice on April 23, 2009 at 5:46 PM
corona on April 23, 2009 at 5:41 PM
That is a poor reason to be for the so called fair tax. That is no different than the class envy arguments.
Conservative Voice on April 23, 2009 at 5:49 PM
All of this makes the Malkinite’s head spin.
I’ve read Neil’s book, but can someone with actual knowledge of government answer me this?
1. How do we scrap, legally, the existing state and local tax schemes in an era of record debt, and prevent them from enacting new taxes by different names?
2. How do we fairly enforce equal taxation on Internet transactions?
It seems to me if we could accomplish that, we could say,
everytime you buy something sold somewhere within the 50 states, you pay 25 cents on the dollar, period. So it doesn’t matter what state the business builds or leases a warehouse in, because the differences in margins would now be determined by the producers and not the states.
From the quarter, I would have 10 cents go to the locality (or it might have to be split 5 and 5 in some states with weird ‘townships’ and the like); 10 cents goes to the state government; and 5 cents goes to the feds, period. Wouldn’t this eliminate the constant d*cking around over ‘how much of our money we send to the state capitol comes back to us’ crap?
I’d make it a felony for any legislator at any level to ever raise any taxes or propose new ones again, and eliminate all FICA, income, corporate, estate, property, and any other nonconsumption taxes.
Tell me what I am missing.
BemusedMalkinite on April 23, 2009 at 5:52 PM
I would love to ask Harry Reid and for that matter Mitt Romney what their take on wicked King Noah in the Book of Mormon charging 20% tax? ( Book of Mosiah 11:3,6 in the Book of Mormon )
Conservative Voice on April 23, 2009 at 6:02 PM
Conservative Voice on April 23, 2009 at 6:02 PM
Forgot to add the Utah congressmen as well
Conservative Voice on April 23, 2009 at 6:03 PM
With a sales tax we could simply get rid of the IRS. The states administer the collection, and send a check to the feds.
darktood on April 23, 2009 at 6:30 PM
On the first part, it wouldn’t be replaced…merely transferred at best. I’m addressing the argument that existing businesses must comply with an existing sales tax now, so implementing a federal sales tax would be of minimal impact. That just isn’t true, for many companies…especially those who are providing services which are also subject to the FairTax.
Incidentally, assuming that POS tax collection will be of less burden than the simple withholding and quarterly submission of employee tax isn’t really a realistic assumption, imo.
On the second point, it isn’t moot since the proposal isn’t in place yet, nor was it being contemplated when Boortz wrote his books. When the Obama Forced Collection of Use Tax Act becomes law, then dismissing the additional burden forced on internet sales may have credence…until then, it remains a valid point against the FairTax.
JohnTant on April 23, 2009 at 6:40 PM
First, in my experience and for most businesses, corporate income tax isn’t the onerous maze I think you’re portraying it as. On the employee side withholdings and submissions are just as simple as FairTax defenders want to sell their scheme as being.
Second, simply “collecting it at the register” is fine when you’re talking retail sales of goods, even though I disagree with the blase nature of portraying compliance. But there are many many companies out there who do NOT collect consumption taxes at the point of sale, services being a major portion. Home sales is another…FairTax would levy the tax on new home sales but leave existing homes alone…more hassle at closing, not to mention the added price on such homes depressing sales and, at the margin, resulting in fewer new homes being built and construction companies laying people off.
In short, it’s stealing a number of bases to just ignore added compliance costs.
JohnTant on April 23, 2009 at 6:45 PM
Well, sir, what about businesses, as I took the time to mention in my post, who do NOT collect consumption taxes? Added compliance costs, added hassles for them.
Frankly, I think you’re making a number of assumptions as to the general way all US businesses handle sales tax compliance. You actually, in fact, have no idea how all companies do it. You also (conveniently) skip over the imposition of a new tax on business segments who currently are not taxed on that basis.
Why not try selling your points on the merits instead of accusing critics as “ignorant.” It seems to me if the FairTax is such a clear slam dunk it should be able to persuasively answer critics without the personal attacks.
JohnTant on April 23, 2009 at 6:48 PM
You missed the point.
First, as pointed out earlier, the IRS will not just “go away.” There has to be a collection and administration mechanism for the new tax.
Secondly, the point of my post was decrying those who paint FairTax critics as somehow being in favor of tyranny.
Third, if you don’t think the IRS won’t vigorously go after a business who makes a mistake in their FairTax compliance efforts, well, you have more faith in the government than I.
JohnTant on April 23, 2009 at 6:52 PM
No, fool who will remain unnamed, morality is not equivalent to class envy.
corona on April 23, 2009 at 7:40 PM
Also, note that a consumption tax is the best way to get illegal aliens undocumented workers to at least pay part of what they cost this country.
corona on April 23, 2009 at 5:41 PM
corona on April 23, 2009 at 5:41 PM
That is a poor reason to be for the so called fair tax. That is no different than the class envy arguments.
Conservative Voice on April 23, 2009 at 5:49 PM
corona on April 23, 2009 at 7:40 PM
lol, I shall name myself since you would rather just call me a fool. I have no idea what you mean by “morality is not equivalent to class envy” since envy is one of the seven deadly sins…you know “You shall not covet your neighbour’s house; you shall not covet your neighbour’s wife, or male or female slave, or ox, or donkey, or anything that belongs to your neighbour.” from the ten commandments.
Conservative Voice on April 23, 2009 at 7:49 PM
Took a look at the jfpo article and agree that they have some compelling arguments against the fair tax. But what is their alternative? Just abolish the income tax with no replacement:
And they call the fair taxers naive. As much as they would think the government will take their firearms only out of their cold, dead hands, so Congress will let us take the IRS only out of their cold, dead hands. It is the way they control us all. They aren’t giving up that power unless we are able to completely clean house and insert term limits. Until that happens, the IRS is alive and well.
Christian Conservative on April 23, 2009 at 7:53 PM
The only good thing this guy has going for him is the fact that he’s a Browns fan.
GO BROWNS!
PASS THE FAIRTAX!
RightXBrigade on April 23, 2009 at 8:03 PM
Christian Conservative on April 23, 2009 at 7:53 PM
Its a spending problem, not a tax problem. While I agree with the flat tax, more important is we need to follow a strict budget…and like you said, the best way to do that is with term limits.
Conservative Voice on April 23, 2009 at 8:06 PM
23% is too much. Flat tax fine, but there are still refinements that will be added and subtracted to that which will end up making it look like a cross between fair and flat. It’s inevitable I think.
After the gov’t spending is trimmed to what it SHOULD be, the flat tax would probably look more like 15-16% assuming we don’t have that freakin 12.5 trillion deficit sock puppet is going to rape our grandchildren with.
How any democrat can go along with what he’s proposing is just amazing and sickening. I question the patriotism of every liberal jackass that is/has/will support this piece of crap we have as president, as well as his lackeys in the houses.
Spiritk9 on April 23, 2009 at 8:30 PM
I read that JFPO critique, and would love to hear Hugh’s critique. Sounds like the Fair Tax (TM) is pretty stupid, but its problems have nothing to do with it being a national sales tax. Sales taxes work very well, and we have experience implementing them in dozens of states.
I’d suggest a Constitutional amendment:
1. Implement a national sales tax of no more than 10%, except in wartime.
2. Allow them to exempt some items, like food, as most states do.
3. Allow them to set one higher tax rate for some items, like cigarettes, maximum 10%.
4. Ban income taxes, investment taxes, and business income taxes.
The real dangers with the sales tax are that:
(a) The tax rate might rise to enormous levels.
(b) Congress would propose a hundred different tax rates for different items, overwhelming businesses and cash registers, and introducing all the old problems of paperwork, compliance costs, audits, etc.
(c) We might end up with a sales tax AND an income tax.
By letting Congress set a low rate for normal items and a higher rate (but not more than 10%) for some items, it satisfies their tendency to play at social engineering but prevents them from taxing guns at 500% or something, and cash registers should be able to handle it.
Is 10% enough? I say yes. We will pay the debt by cutting spending to the bone, starving the beast, and printing money if need be. Yes, it’ll hurt to do that. But we owe it to future generations to take the hit now, rather than forcing them to pay for our sins.
joe_doufu on April 23, 2009 at 9:58 PM
BemusedMalkinite: Here’s what you may be missing: States are SOVEREIGN. If you legislate their ability to raise their own funds, you are centralizing their rights as governments under the federal banner. Socialism? We’re a republic where each state has sovereign rights to govern themselves–including raising taxes to pay for projects for which the rest of the nation shouldn’t have to pay.
Fair tax, flat tax. 23%, 30%, 10% (I personally like that number) Whatever! States can still charge their own taxes.
I think I’d have to throw in with the flat tax–and no exceptions based on amount earned!!! You earn, you pay!
sorry…I can be heartless sometimes
Driefromseattle on April 23, 2009 at 11:01 PM
That isn’t heartless…that’s a valid and defensible public policy.
Mark Levin sets out a number of tax concepts in his book, and among those is the concept of everyone paying tax…not just 48% or whatever of the population. He also suggests ending withholding and (IIRC) moving tax day from April to October or so. The theory is when everyone is paying tax, everyone has a stake in making sure the tax dollars aren’t wasted on things. Right now half of the population couldn’t care less about federal spending because that half pays little to no tax to begin with.
When people have to sit down and actually write a check each year to the Federal Government, and that check is in the thousands of dollars, then I think you’ll start to see effective reform in the place where it counts…government spending. New tax schemes like FairTax don’t do a lot to address the basic concept that spending is the problem, not revenue.
I’ve spent the thread criticizing FairTax but it does get a couple of things right…namely the idea of a visible tax percentage (although the 23% (or 30% which is more accurate) rate is rife with problems due to Jorgensen including government spending in his calculations, which artificially increases the projected tax base by a lot…) as well as a tax that is more regressive than our current code. However, both of these concepts are also addressed in a flat tax system, and the mechanism for collecting flat tax on incomes is already in place, whereas FairTax would require more transition costs (and more transition problems, some of which I think are insurmountable from an economic standpoint).
JohnTant on April 24, 2009 at 7:43 AM
Unless there would be a Constitutional Amendment specifying that the tax rate was capped and implemented at a simple flat percent, you will get exemptions and modifications out the wazoo… which will be tremendously complicated to implement.
Plus, your calculation doesn’t work…
You’re taxing state taxes on items.
Buy a $100 item with 6% sales tax = $106. If we use your calculations and add on a Fed 23% tax… $106 x 1.23 = $130.38 with $1.38 being a Fed tax on the state tax being collected. Seems kind of funny to me…
dominigan on April 24, 2009 at 9:42 AM
You have created a strawman; intentionally spending beyond one’s means is not the issue AndrewsDad or I was addressing. He claimed that we “should get behind something that rewards work (income) and discourages (taxes) excessive spending.”
The statement I made that you excerpted argues that person A has no right to dictate the extent to which person B expends B’s own resources. Attempts to do so are immoral because they are inimical to the right of private property.
The extension of credit to B by person C — while it obviously (c.f. our current condition) can lead to the outcome you fear — is irrelevant and introduced to the discussion entirely by you.
Troll Feeder on April 24, 2009 at 1:32 PM
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