Wednesday, November 28, 2007

Neal Boortz Explains the Fair Tax

The Fair Tax is a hot issue in the 2008 Presidential campaign and is part of the reason that Mike Huckabee has gained so much attention and momentum in recent months.

Unfortunately, some old blue-blood Republicans are attacking the Fair Tax, basing their opinion on bad data or outright lies.

Neal Boortz offers a short explanation of how the Fair Tax works and will restore our nations economy:

Last Thursday Townhall contributor Hank Adler published a column on this website entitled “A Hard Look At The Fair Tax (sic)”. Almost immediately the emails started pouring into my show – literally by the hundreds – urging me to post a response to Adler’s rather stinging critique of the FairTax.

Since Congressman John Linder, the author of H.R. 25, The FairTax Act, and I wrote “The FairTax Book” in 2005 we’ve seen an unprecedented and ever-growing nationwide interest in this tax reform idea. Let’s face it, you have to be doing something to capture the imagination of the American people to have a book on taxes debut No. 1 on The New York Times Bestsellers List. There are some, though not in what we call the mainstream media, who think that Governor Mike Huckabee’s embrace of The FairTax is an important element to his rise in the GOP presidential sweepstakes.


Read the rest of the article here...

1 comment:

Anonymous said...

There were many flaws in Hank Adler's diatribe against the FairTax. Elsewhere, I addressed some of his specifics, as follows:

Just a few observations about your poorly-prepared piece at Townhall, Mr. Adler:

[Quoted Rate] The effect of FairTax, as against current income tax rates, ought to be quoted inclusively as 23%; otherwise, you must inflate income tax rates accordingly: 28% becomes 38% and 35% really is 54%.

[Investments] Fees charged, on investments, would include the FairTax.

[State Agencies] Most states have a sales tax, so this should be no big deal. Some minor adjustments would be required, but those states having an income tax should realize positive scales of economy for reduced points of collection.

[Prebates] Thus, lawful residents would NEVER pay the ENTIRE 23%. Kotlikoff found, as follows:

The effective tax rate percentages, that different income groups would pay under a FairTax consumption tax, are calculated by crediting the monthly "prebate" (rebate of tax on necessities) against all likely monthly spending of citizen families (1 member, and greater based on figures established by the Dept. of HHS - a single person receiving ~$200/mo. A family of four receiving ~$500, in addition to family earners receiving their WHOLE paycheck). Prof.'s Kotlikoff and Rapson (10/06) have concluded,

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Further,, per Jokischa and Kotlikoff (circa 2006?) ...

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

[Evenhandedness] Given the following considerations, I fail to see how you can logically conclude that the current IRC is a "more evenhanded approach to collecting necessary Federal revenues,"

• The IRC has grown so large, no one can fully understand its provisions.

• The IR Code creates a "gaming opportunity" for business and other special interests seeking favorable treatment. When these "tax favors" are doled out by politicians, the cost of these "evenhandedness distortions," are borne by those who are adversely affected by the favored status (e.g. tax credits on certain types of hybrid auto's are at the expense of all of the other auto dealers, employees, companies, shareholders, taxpayers).

You then state that the IR Code is not the "long term" answer, but that - without further comparison - HR 25 "is not the right long term answer." (Of course, this is a sheer non-sensical conclusion that does not follow from the faulty previous statement.)

UNDER "Impacts on Taxpayers," under HR25...

[Eliminates tax rate differentials] This has been shown above to be incorrect (see [Prebates] above). And, the combined "possible 43%" (Fed. St. and Local) that you say the tax rate could "easily exceed," - well, whereever this condition exists, it EXISTS NOW inasmuch as FairTax is revenue neutral. It's just that FairTax will make the true tax cost VISIBLE (horror of horrors).

[Reduced Purchasing Power] First off, embedded unseen business taxes in prices have been found by Jorgensen (Harvard) to average 22%. Households will have more disposable income because they'll have their whole paycheck + the prebate. Various studies have pegged the GDP increase from 7% - 13% just in the first year.

[Investor Homebuyer Advantage] As the investor "sells" the space monthly, tax would be included in rental price and paid monthly.

[Soc. Security Recipients] They're paying embedded taxes currently, plus income tax on receipts. That ends, and a prebate is added. (See also [Prebates] above.)

[Elim. of safety net] Your IRC "safety net" comes at too expensive a price. By letting earners keep the fruit of their labor, and supplementing it with a prebate, these "inducement gimmicks" - deductions, credits, blah, blah, are no longer needed. Charitable giving goes up with more disposable income. You can afford child care now that Uncle Gubmint isn't grafting a chunk of your paycheck.

[Rich profit?] FairTax captures past wealth, as well as current earnings. So, no matter if Uncle Moneybags spends it, or his kids spend it, it eventually gets taxed. (See [Prebates] above.) The "rich" are quite comfortable with the current system. The FairTax eliminates all but poverty-level protection. You start making exceptions, and the rate goes skyward. The prebate ensures poverty protection most equitably and it eliminates "setting up tax industries" to game exceptions (which ultimately double tax the consumer with a higher rate, and consulting fees, e.g., like the current system does in so many ways).

Talk about a FEUDAL SYSTEM! The Lords are the Politicians who make regular proclamations according to influence by lobbyists, their "Entreators to the Lord's Court." The milking of we Peasants ENDS under FairTax.


[Compliance Costs] Any way you cut it, your conclusion is just plain wrong. What's the first income tax prepared? The state's? Plainly not. That's because the states reference the Federal return. Compliance costs DROP PRECIPITOUSLY under FairTax - no more individual income tax returns for wage earning families. Points of collection DROP 90%, as I've seen referenced elsewhere.

What's more, Sales and Use Taxes are vastly less complex to complete.

UNDER "Administrative Decisions & Impacts"...

[State Conversions & Costs] You said, "it is possible that not a single state would decide to become a sales tax authority" and "it may also be far more expensive than admin. of the current IR Code." Boy, now those sound like really reasonable conclusions, don't they (tongue firmly in cheek).

[Registration for Prebates] The current SS system is hardly done without fraud. So, by what measure are you speculatively evaluating the logistics of simply translating this over to FairTax prebates?? We're already providing monthly checks to seniors. YOUR STANDARDS of expected performance are the only elements that have "at least a touch of unreality.

UNDER "Economic Certainty..."

[Neutral Rate] Let' see what FairTax.org had to say about that:

"The Treasury estimates for a national retail sales tax reported by the panel were not an estimate of the FairTax legislation. The panel concocted a base of their own, one apparently designed to produce the highest possible rate. Rather than follow the FairTax legislation, they apparently used a typical state sales tax base that is far, far narrower (many exemptions) than the single-rate/no exemptions FairTax."

FairTax.org continues...

"In addition, the Treasury refused to compare rate quotes on an apples-to-apples basis. Rather than quote the rates for replacement systems in a direct comparison to the income/payroll tax rates they replace, they used 'econospeak' sleight of hand to compare apples to oranges. Since the ill-fated beginning of the income tax, it has been quoted by government (and taxpayers) in what economists call a 'tax-inclusive' manner. 'My tax rate was 23 percent' means if you earned $100, the government kept $23. If you talk about that rate as if it were a sales tax, which is added on to a purchase (tax exclusive), the income tax rate is 30 percent. No matter what, the government gets $23.

"... the Treasury **refuses to make public** [emphasis mine] its scoring methodology – estimating the tax base and revenues – for these plans. Providing such methodology is standard operating procedure in the academic world, yet the Treasury has ignored requests for this information from both FairTax.org and academia.

"...The Beacon Hill Institute at Suffolk University and Laurence Kotlikoff, Professor of Economics at Boston University, have teamed up to provide a sound methodology for estimating the FairTax base and computing the FairTax rate.4 Their paper demonstrates that the 23 percent rate specified by the Fair Tax Act (HR 25) is eminently feasible and suggests what led Gale5 and the President’s Advisory Panel on Federal Tax Reform6 to reach the opposite – and incorrect – conclusion. (Paper available at http://snipurl.com/taxnotes_galerebut - see also: http://snipurl.com/taxpanelrebutted )"

CONCLUSION

I could go on and on about your presumptuous diatribe biased against the real tax reform that the FairTax represents.

Let's align the tax collection function to work with the economy, not against it. America's working families are paid because the companies they work for sell goods and services. Let's pay for government the way America's families are paid - when, and because, something is sold. Let us work, together, to end the enslavement of the Tax Code and to restore Liberty to America's working families.