The Wall Street Journal and the Cato Institute’s Daniel Mitchell have branded the “FAIR Tax” sales tax proposal a loser issue for political candidates. In a more-in-sorrow-than-anger tone, the Journal notes the difficulties of candidates who embrace this national sales tax:
In 16 House and three Senate races so far, Democrats have blasted GOP candidates for at one point or another voicing an interest in the FAIR tax. In Kentucky’s Senate race, Democrat Jack Conway is running a TV spot charging that Republican “Rand Paul wants a new 23% sales tax on groceries, clothes, prescriptions, everything.”
FAIR tax proponents are right to say these Democratic attacks are unfair and don’t mention the tax-cutting side of the proposal, but the attacks do seem to work.
The Journal concludes:
Our advice to the FAIR taxers is that voters will start to take the idea seriously once the income tax is on the road to repeal. Until then, our advice to candidates would be to avoid the FAIR tax and focus on goals that are more achievable and less politically self-destructive.
There’s a better reason not to push the FAIR Tax: it’s a bad idea.
It should be enough to say “23% sales tax” to stop the discussion. I don’t know of any sales tax nearly that high that has ever been effectively administered. The ceiling for an effective sales tax seems to be around 10%.
Yet it’s worse. As people generally understand sales taxes, the FAIR tax has a 30% rate — it would be about 30% of the price computed without the sales tax. FAIR Tax fans say that the “tax inclusive” rate is theoretically accurate, but this would go against almost universal practice for obvious practical reasons. In real life, it would never raise the revenue supporters expect, as the rate would be high enough to trigger massive non-compliance.
Further, it would be administered by the states. Supporters say this would enable you to get rid of the IRS, but I’d rather deal with them any day than the 50 state revenue agencies.
Finally, the FAIR Tax includes a strange “prebate” to low income taxpayers. That will require determining who is low-income — a challenge when there is no income tax. This would be an administrative nightmare.
That the current income tax is ugly enough to drive people into the arms of the FAIR Tax says terrible things about the income tax, but that doesn’t make the FAIR tax pretty.
Related: Huckabee Hawks the FAIR tax.
Tags: Cato Institute, Daniel Mitchell, FairTax, megan mcardle, Wall Street Journal
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Mike Huckabee has an open challenge to debate any Democrat or critic of the Fair Tax. Why don’t you take him up on his offer?
BTW, it might do the author some good if he/she/? would actually knew the subject matter. If so, such ‘perplexing’ things as the prebate wouldn’t present such a problem. A suggestion: http://www.fairtax.org a good place to begin. You’ll find answers to your questions as well as the answers to the critics that, so far, are the only ones it seems you’ve bothered reading. They’ve been well known, rebutted and refuted for years.
As for the ‘high’ rate, every American worker has a minimum of 23% taken from their paychecks. That’s only counting the income tax and Soc.Sec./FICA, not state, city and local income taxes. Welcome to the true rate of passing the buck onto someone else for years and waking up to have the true cost of government right in front of your eyes. The payroll taxes are the most regressive of taxes. Those making the least have to live without that 23% in their paychecks. They are least able to afford it.
The income tax is tax-inclusive and the Fair Tax is meant to replace the income tax giving the reason for the 23% rate that way, we could compare a tax-inclusive rate for the income tax to a tax-inclusive rate for the Fair Tax. Either way it is calculated the same amount of money is paid in tax. If I’m not mistaken the tax-exclusive rate for the 23% rate of the income tax is around %80. Make THAT comparison to the Fair Tax tax-exclusive rate of 30%.
FYI, the prebate is based on tax rate * poverty level which is based on household size and is sent monthly.
I have an open challenge to Mike Huckabee, or anybody else, to post to my comment section.
To be fair, I am with Joe on this and I have read both the Fairtax book and paged through the website. I have yet to find answers to the following two issues, both of which I consider major.
1) What would the states do for their income tax returns? As most of them base their income tax collections upon calculations on the federal return, either using the same numbers or a total such as federal AGI. Without eliminating their income tax returns (and unless they want to raise their sales tax rates, I can see no viable alternative to raise the revenue most need to function), there would still be large compliance costs. If anything, these costs would increase, as each taxing jurisdiction would make it
To Joe and Dave: Start with reading the legislation: “Bill Text 111th Congress (2009-2010)H.R.25.IH” http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.25: After reading it, ask any questions you would like. I’ll try to answer them. I respect honest skepticism.
A quick response to your compliance questions: there will be an agency to oversee the tax and states, 45 currently having sales taxes, also use their current authorities. Overall, a reduction in number of filers from @ 150 million to only registered retail business eliminates @ 90% of filers making detection a greater possibility than under the income tax. Furthermore, it operates in much the same manner as state sales taxes and given the fact that no one, business or employee, will be taxed on income and workers have received the equivalent of a minimum 23% permanent pay raise and a choice in amount of taxation, why buck the system when you can buy many items used and not be taxed. It’s also highly unlikely that the mafia, street gangs, etc. are going to start packing new washers and dryers for sale on the black market when drugs, guns, prostitution, etc are more profitable than trying to help someone with a pocket full of money trying to avoid a sales tax. It’s also highly unlikely Walmart would want to risk fines, penalties, payment of tax deficit and potentially greater legal ramifications nor do they love you so much that they are going to let you slide on the tax. They don’t now. They won’t then.
Dave, what are the tax-exclusive percentage rates for each of the income tax, capital gains, etc.?
Fairtax is not SORT of a scam, its not SORT of a farce — it’s a complete and utter bit of nonsense.
And it’s leaders know it.
Fairtax pretends not just PEOPLE pay taxes, but GOVERNMENT will pay massive taxes. In fact, under their pretend “plan” Government will generate of its own revenue, like a magic pony that poops gold
Don
The Income Tax system is a psychotic legal system and only gets worse year after year after year.
The Income Tax code itself is 70,000 pages of arbitrary and contradictory laws and opinions that even government officials do not understand.
(Try calling them and getting a consistent answer to the same tax question.)
This plus at least a million more pages of Revenue Rulings, Letter Rulings, Tax Memorandums, Tax Publications, Tax, Federal and Supreme Court Opinions that are written in an effort to explain the mind numbing Income Tax code.
Most personal, financial and business decisions all have to take into account the Income Tax system and generally require expensive assistance from tax accountants and lawyers who themselves generally have contrary opinions and some do not even understand the Income Tax code (same as the government officials).
This is no way to fund a government and unless something is done, like instituting the Fair Tax or the Flat Tax, this Income Tax system is going to continue to wreak havoc on the US economy and its citizenry.
My W-2 for this year shows:
Wages $100,000
Federal Income Tax: $19,700
Social Security Tax: $6,200
Medicare Tax: $1,400
That is a total Federal tax of $27,400 on my $100,000 of wages.
If these income taxes were replaced by a national sales tax of the same percentage, when i go to the grocery store and pay a $100 grocery bill, $27.40 of that bill would be to pay the national sales tax and $72.60 would be for the products and other state and local sales taxes.
I currently do not participate in any illegal, black market activities due to the current income tax structure. If the Federal government shifts the collection of taxes from my paycheck to my purchases, I would not begin participating in illegal activities. They say this new sales tax will be revenue neutral, meaning the government will get its cut of my money, either from my paycheck with the current income tax system or from my purchases with a national sales tax.
Most states and local governments already administer existing local sales tax collection. I have no reason to think that those same agencies would have a problem administering the collection of a national sales tax. I have never had an issue with the collection of local sales taxes on my purchases.
In regard to the prebate, I think the FairTax plan uses the prebate to eliminate the sales tax on the basic necessities of life for all taxpayers and their dependents, not just low income taxpayers. There is no need to report income level when applying for the prebate.