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Forget the “Fair Tax,” there are better options
Published Tuesday, February 12, 2008
The letter from Dick Grenell of Ashby in the Feb. 5, Daily Journal, compels me to offer another point of view on the so-called “Fair Tax,” which is being advocated by Mike Huckabee, a Republican presidential candidate.
Sometimes called the flat tax, it is regressive; that is, the less you earn, the more you pay as a percentage of your income. Is this fair?
People in the lower income brackets have to spend most of their income on consumer goods, necessities such as food, clothing, household supplies, medicine, cars, school supplies, and such items as toys, books, DVDs, etc., which under a flat tax, would all be taxed at anywhere from 25 to 50 percent.
The federal income tax code we have now isn’t perfect, but it could be cleaned up and adjusted. Originally it was formulated to be progressive, that is, the more you earn, the more you pay as a percent of your income. But that has all changed since the “Reagan Revolution,” when the Republicans started lowering taxes on the wealthy, and decreasing funding for public education, services, national parks and forests, and social programs for the poor and disadvantaged. This has resulted in a huge upward transfer of wealth from the middle class to the wealthy.
The very richest people, those who earn millions and even billions of dollars per year, spend only a tiny fraction of their income on consumer goods, while most of it goes into investments. So under the deceptively named “Fair Tax,” the millionaires and billionaires among us would pay practically nothing, as a percentage of their income. This is not fair.
The Bush tax cuts for the wealthiest citizens, combined with loopholes and tax shelters such as money in off shore investments, etc., have resulted in giving those with the most income nearly a free ride. It’s the middle class whose income tax bill is the highest, relative to their income.
The “Fair Tax” is not problem-free. It could spawn a black market where merchandise would be bought under the table, out of the country, or in some other way where there would be no record of sales and purchases. And it would have to be very high, some studies say 50 percent, in order to make up for the loss of funds from the income tax.
We are now, through the policies of the Bush administration, heading toward a replay of the Gilded Age, when in the late 1800s,, a few people in the oil, steel, shipping, railroad, coal etc., industries controlled most of the nation’s wealth, while millions lived in desperate poverty. It came to an end through a terrible depression and World War II. Are we headed that way again?
In a Democracy, everyone is supposed to be on a level playing field and be given a fair shake, so that all have an equal opportunity to succeed. History shows that when most of the wealth of any nation accumulates at the very top, it becomes more and more difficult for those at the bottom to survive, let alone compete and advance.
Think of the revolutions in France, Russia, and China. But America, where “All men are created equal,” was never intended to have an aristocracy.
When the Democrats are back in office, I hope — and expect — they will adjust the federal income tax to (1) index the Alternative Minimum Tax to inflation, and (2) raise the rate on the very wealthiest people, those in the top five percent or so of earnings, so they will again pay their fair share.
Forget about the “Fair Tax.” When the alternatives are considered, simplifying the current version of the tax code seems to me better than tossing it out and starting over with something worse. Remember, be careful what you wish for; you might get it. Think about it.
Elizabeth Sweder - Fergus Falls
Comments
The Daily Journal is happy to host community conversations about news and life in Fergus Falls and the surrounding area. As hosts, we expect guests will show respect for each other. That means we don't threaten or defame each other, and we keep conversations free of personal attacks. Witty is great. Abusive is not. If you think a post violates these standards, don't escalate the situation. Instead, flag the comment to alert us. We'll take action if necessary. It's not hard. This should be a place where people want to read and contribute -- a place for spirited exchanges of opinion. So those who persist with racist, defamatory or abusive postings risk losing the privilege to post at all.Posted by pilsnerurquel (anonymous) on February 12, 2008 at 1:20 p.m. (Suggest removal)
The "Fair Tax" system unfairly penalizes lower and middle income individuals by forcing them to pay a greater percentage of their income on tax and less on essential goods and services such as food, rent, gasoline and clothing. Under this system the rich get richer while the poor and the middle class get left even further behind. My advice to anyone who thinks we should abandon the progressive tax system is to read "The Wealth of Nations" by Adam Smith.
Posted by FairTaxJeff (anonymous) on February 12, 2008 at 1:26 p.m. (Suggest removal)
curious if you even read the Fair Tax, before critiquing it?
Posted by Dewey715 (anonymous) on February 12, 2008 at 2:49 p.m. (Suggest removal)
It is apparent that neither you nor the first commenter are very familiar with all the provisions of the FairTax, in particular, the Prebate.
When applied, the Prebate totally untaxes the poorest among us. Those at the poverty level would effectively pay no tax and those below that level would even have additional spendable income. Because no one pays tax up to the poverty level, those who spend at double the poverty level would have an effective tax rate at half the published rate.
Please, complete the research. It only degrades the appearance of your knowledge and intellect when you comment without having reviewed the complete information.
Posted by kiboheagen (anonymous) on February 12, 2008 at 4:18 p.m. (Suggest removal)
Elizabeth Sweder needs to research her topic and refrain from her class warfare stance. She obviously has no grasp of this topic.
I'm not one to shoot the messenger, but please go into discussion of the FairTax with some knowledge. It has nothing to do with one's income, it is a unique (unlike a state sale's tax) consumption tax that replaces, amongst other taxes, the income tax.
Posted by pilsnerurquel (anonymous) on February 12, 2008 at 6:41 p.m. (Suggest removal)
Dewey715, no need to be patronizing. I have spent a great deal of time researching Fair Tax pros and cons and the fact remains that a tax on consumption simply does not benefit anyone other than the wealthy. It's not a fair system. Those who have the least amount of disposable income are those who are forced to give up the most. You can spin it any way you like but "The Fair Tax" is only endorced by a small minority of extreme right wing Republicans who favor a complete elimination of most government agencies, including the IRS. It's not practical, it's not constitutional and it's definitely not fair.
Posted by dculling (anonymous) on February 13, 2008 at 4:18 a.m. (Suggest removal)
pilsnerurquel,
Direct unapportioned taxes (income taxes) were unconstitutional in Adam Smith's time. When America's progressives had a love affair with Karl Marx they added the 16th amendment allowing what the founding fathers knew was a stupid idea, the income tax.
How the heck are we going to pay the Social Security and Medicaid for all those baby boomers, programs that they paid for? Have you noticed the debt of those programs is going to explode in less than 20 years?
Consumption taxes have been proven to grow the economy faster than any other tax system. The FairTax will give us the growth we need to meet those obligations and still bring in plenty of revenue for you big spending Democrats.
The FairTax is a non-partisan tax reform proposal researched by many of the best minds in economics today. Instead of listening to political ideologues, please visit:
http://www.fairtax.org/
If you'd like to participate in a moderated discussion about the FairTax you can join me at:
http://www.fairtaxblog.com/
Posted by FairTaxJeff (anonymous) on February 13, 2008 at 7:36 a.m. (Suggest removal)
"The federal income tax code we have now isn’t perfect, but it could be cleaned up and adjusted".
First, if it could be cleaned up and adjusted, why hasn't it already been done ???
Second, you're naive about both the Fair Tax AND the status quo tax code. Here's a quote from someone who knows/knew the tax code a lot better than any of us:
"Eight decades of amendments... to [the] code have produced a virtually impenetrable maze... The rules are unintelligible to most citizens... The rules are equally mysterious to many government employees who are charged with administering and enforcing the law".
-Shirley Peterson, Former IRS Commissioner, April 14, 1993 at Southern Methodist University
And that was 15 years ago when the tax code was "merely" 30,000 pages !!!
Posted by yepUbetchya (anonymous) on February 13, 2008 at 8:57 a.m. (Suggest removal)
Hey Jerry, did you pay Rush and Hannity for that canned statement. Or maybe they paid you because you are so smart and would not listen to that when you can have "driveby media". right? Let me get something straight, not every statement can associate someone with a political party. Second, Jerry, I am by no means a Democrat, so please do not come back another "oh you poor Democrat" bit. Not all Democrats are poor, and not all Democrats are pro-tax. So the next time you come on and poke your little prod, try to use "your" brain, and leave the hannity and rush for the radio.
Posted by Mel (anonymous) on February 13, 2008 at 9:08 a.m. (Suggest removal)
One thing about the Fair Tax is that everyone pays, even the people that file no tax return, and there are many. Wouldn't it be nice to Not have to file a return every year?
*"You can't build up the poor by tearing down the rich"
*"You can't tax yourself into prosperity"
Posted by LordKilborn (anonymous) on February 13, 2008 at 3:26 p.m. (Suggest removal)
Unfortunately, the author of this article has many inaccuracies in what she wrote.
1. The FairTax is NEVER called the "Flat Tax". They are two separate proposals. FairTax is 23% on consumption with a prebate to exempt everyone up to the poverty level of spending; the Flat Tax is a 17-19% income tax across the board for everyone, and it is NOT revenue neutral. The FairTax is H.R.25 and S.1025; the Flat Tax is H.R.1040. The author needs to check her facts. This misunderstanding of hers colors the rest of her article, as she keeps talking about the "Flat Tax".
2. People in the lower income levels would be virtually untaxed under the FairTax, as every family in the U.S. would receive a "prebate" - a pre-refund of the taxes that would be paid on poverty level necessity spending for families of different sizes - a figure already calculated by the Department of Health and Human Services for use in welfare. Those "necessities" that the author mentions above would be essentially exempted due to the prebate. I fail to see how DVDs qualify as necessities, however.
3. Our present income tax system still IS progressive, contrary to what the author implies ("Originally it was formulated to be progressive... But that has all changed since the “Reagan Revolution,”...). The "progressive" problem with the present tax code, beyond its immense complexity, is that it taxes investments lower than income to encourage investment in the economy. The upper classes tend to have more investments, so they tend to pay more investment and dividend taxes (15%) than high income level taxes (35%). Of course, the complexity of our system means that in 2007, a number of people had to pay a tax preparer $175 just to find out they only got the $50 refund from the phone excise tax repeal (a $125 loss). And every year, the compliance costs eat up about $300 billion. See the Tax Foundation (www.taxfoundation.org) for more details on tax compliance costs.
4. The author of this article assumes millionaires spend very little, when in reality, they tend to spend much more than the middle class and the lower class. Where the FairTax helps the middle and lower classes the most is in saving money, because both income and investment is untaxed. Therefore, a family making $50,000 a year can live on $36,000 and save $14,000 for children's education and their retirement, whereas that same family today only nets about $39,000 after taxes, allowing them only $3000 a year to save.
5. The FairTax is directly proportional to spending level. The prebate ensures that no one is taxed on poverty level spending. It is therefore VERY progressive, as poor people spend little and rich people tend to spend a lot (though there are a very few misers). For a chart demonstrating this effect, see www.fixthecause.com/FairTax_progressivit... .
-----CONTINUED-----
Posted by LordKilborn (anonymous) on February 13, 2008 at 3:27 p.m. (Suggest removal)
6. The "black market" the author warns about is unlikely to develop. The tax collection points reduce from over 160 million returns (presently) to about 30 million retailers and service providers (under the FairTax); AND the tax complexity drops from 60,000 pages and numerous loopholes to less than 150 pages and NO loopholes, meaning evasion will be much more difficult, and enforcement will be much easier, than under the present system.
7. The author is under the delusion that the top 5% don't pay much in taxes these days. If she cares to actually research the truth, the actual statistics are available at:
http://www.irs.gov/pub/irs-soi/04in06tr....
In reality, the top 50% pay 96.54% of all income taxes, the top 10% pay 65.84% of all income taxes, the top 5% pay 54.36% of all income taxes, and the top 1% pay 34.27% of all income taxes. That is hardly "sticking it to the poor" or "paying their fair share"; I'd say that is paying MORE than their fair share!
8. Finally, if the Democrats were going to index the AMT to inflation, they could have already done it. The Republicans were willing, and the President was willing. Dems had the power, and they did NOTHING about it. What makes the author think they'll do anything about it if they DO happen to gain control of both branches?
-LK
Posted by anamerican (anonymous) on February 14, 2008 at 11:05 a.m. (Suggest removal)
LK,
Great response to the article. It highlights the reality of taxes paid, and hopefully will educate the whiners that complain that the 'rich' get all the breaks. I enjoy the quasi-realistic "Barstool Economics" piece that is circulated on the net (Google it). Though not perfect, in general sums up the realities of the tax complaints between those in differing levels of income/wealth.
Posted by Stonewall (anonymous) on February 14, 2008 at 2 p.m. (Suggest removal)
I would favor a flat tax, but never the "fair tax". Fair to who? Not your average Minnesota family of four, or average retired couple. I'm not democrat or republican, but if you want to see the revolution come sooner than later, vote for Ron Paul or Mike Huckabee.
Posted by Dewey715 (anonymous) on February 15, 2008 at 1:10 a.m. (Suggest removal)
Stonewall -- May I ask why you do not consider the FairTax to be fair?
Posted by Dewey715 (anonymous) on February 15, 2008 at 3:04 p.m. (Suggest removal)
Pilsnerurquel…
I simply do not understand how anyone can say that totally untaxing the poor is of no benefit. Nor would taxing those at double the poverty level at a rate of 11.5%. Today an inclusive 26% of my earnings are taken by federal taxes before I see a dime. Under the FairTax the maximum rate is 23% and, in my case, 12.7% after the prebate is applied.
As for your last statement, the FairTax is very practical, Florida and Texas function very well without an income tax, it is constitutional because it is proportional and the only people it’s not fair to are those who are not paying taxes today.
Posted by DogLover (anonymous) on February 19, 2008 at 1:03 a.m. (Suggest removal)
It's all about the money. The politicians are going to vote to protect theirs and don't think they're going to bite the hands of the "wealthy" who doanted so much money to help them get into office. It will be a game either way. But, atleast they will wrap it in pretty paper, put on a pretty bow, before cramming it down Americas' throats!
If politicians are involved... their will be no "fair" shake.
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