By Robert Dell
Millions of Americans who recently endured needless hours of toil and stress completing tax returns want fundamental tax reform and relief from the oppression of the current tax code, which includes a $400 billion annual compliance burden and which even progressive economists concede is a national disgrace.
Recently House Republicans began such an overhaul by passing the Ryan budget, which promises to cut the top marginal rate to 25 percent -- while offsetting the revenue loss by reducing tax exclusions, deductions and credits. But unless the GOP wins back both the Senate and the White House in November, their budget has little chance of becoming law. Why? Because virtually all Democrats agree with the assessment of the budget provided by White House advisor David Plouffe: that it "showers huge additional tax cuts on the wealthy" at the expense of the non-wealthy.
But if the goal is to obtain more revenue from the wealthy, there are better ways to do it than raising the top marginal income tax rate, as proposed in the Obama budget. The rich have ways of excluding or minimizing income that are not available to most of us. Hedge fund manager John Paulson, for example, made $9 billion in fees over a two-year period, yet paid no income taxes. By borrowing against "carried interest," fund managers like Paulson can spend lavishly and defer all taxes until they cash out of their investments. Real estate moguls like Donald Trump can utilize the depreciation deduction and tax-free exchanges to reduce, defer and potentially eliminate federal taxes.
In any given year, any of the nation's 400 billionaires could realize more losses than gains in their investment portfolios and thus pay less in federal taxes than someone earning near the poverty level, who neglects to offset his payroll taxes by filing for the earned income tax credit!
Republicans could adopt a different strategy and some have by sponsoring the Fair Tax Act. The FairTax would replace nearly all federal taxes with a single-rate tax on national consumption spending coupled with a cash payment to all households of record to offset taxes paid on private spending up to the poverty level.
The FairTax is not a tax cut for the rich. By definition, "rich" people are those with high net worth and/or high lifetime income who consume a lot -- like Bill and Melinda Gates. People with high wealth and lifetime income who theoretically consume at the poverty level would not be materially rich but impoverished -- until they spend more commensurately with their wealth and lifetime income. Until they do, why would we want to tax away their investments (which presumably expand employment and global output) or their charitable contributions (which presumably direct aid to the least advantaged and most deserving)?
The current tax code destroys wealth and diminishes wealth creation excessively, but it does not effectively tax wealth (in the sense of raising revenue). The FairTax would tax spending from wealth in addition to fostering more wealth creation. Some progressives will contend that the FairTax is less progressive than the current code as measured by effective tax rates relative to single-year gross or taxable income. But they should consider that a tax is more truly progressive if its burden falls most on the people who consume the most -- and they are those who tend to have the highest wealth and lifetime income. There is never a strong correlation between current income per capita and current expenditure per capita. Again, keep in mind that millionaires and billionaires who spend a lot from their wealth can often fall into the low-income category.
Some progressive economists, such as Cornell's Robert Frank, have even argued that income inequality is not an egalitarian concern per se. The issue for Frank is consumption inequality, which the FairTax would likely reduce.
Under the FairTax, real GDP and national income could be 10 percent higher than under the current code in just a few years. Most of us would be paying more in taxes, but would be richer on an after-tax basis. However, a 2007 study by economist David Tuerck and the Beacon Hill Institute concluded that if we group taxpayers by expenditure per capita, the average taxpayer in the top decile loses under the FairTax (with lower levels of after-tax consumption than under the current system, despite growth in income).
Writing in The Huffington Post a year ago, Democratic strategist Lanny Davis suggested that the FairTax was "worth a debate." Since the Reagan era, when has any prominent Democrat opened such a door to the Forbes flat tax or its variants, including the Ryan proposals? President Obama and Democratic leaders in Congress are on record opposing the FairTax, but they have failed to consider how and why it could enhance tax progressivity as to consumption and wealth. For open-minded progressives and for Republicans interested in achieving something greater than the pre-2008 election status quo, the FairTax is the tax reform plan most worthy of study and public debate.
Robert Dell resides in Atlanta and is author of the recent book, Back From Serfdom. An excerpt from the book's chapter on the FairTax is available at fairtax.org.
NEVER file federal taxes again.
NEVER be the subject of an audit.
NEVER pay to have your taxes done.
NEVER have to do all the arcane paperwork, filling out silly schedules just to get a few more bucks back.
NEVER needing to call some useless "Tax defender" company to get you out of hot water with the IRS.
NEVER saving receipts, unless you have another need for them.
NEVER having illegal residents get off scott-free while you pay.
NEVER having criminals get off scott-free while you pay.
NEVER having to worry about paying the taxes on your investments, until you decide to spend them.
NEVER having to worry that what you worked all your life for to pass to your heirs will be confiscated by the Government.
And probably the most important feature of the FairTax, because there is a zero tax rate on businesses,
NEVER having to worry about finding a job.
How about if you want to sell whirlygigs you made on the side of the road? Well, if you are not a business, you will be paying the tax on all the components (and tools, etc.). So you really have not beat the tax after all.
Yes, I have read Atlas Shrugged twice and don’t recall anything in it about the greater or lesser morality of advocating transitional policies that move society in the direction of a more minimal state. Nor am I aware of any non-fiction essay, speech etc. in which she advocated the immediate, permanent cessation of all welfare-regulatory state activities to the exclusion of transition policies.
Abandoning individual rights is the hallmark of a functional society - individuals abandon rights in order to not infringe on those of others. It is the very nature of law that some coercion is used, if need be, for society to function. To believe solid research can be replaced by fancy nomenclature such as "anti-mind" only demonstrates that the precise opposite is true: Good old Rand and her followers are intellectual sloths who simply cannot be bothered to do their homework.
Didn't the fair tax act of 1983 die at the end of the legislative year? Would you have it that Fair and Tax should never be used together again? Would you also have the same for the titles of every bill that has ever passed or died in since the first congress. Should we also retire the first names John or Tom?
The Fair Tax act of 2011 is bill H.R.25 in the 112th congress and is not the same as the Fair Tax Act of 1983 which is now dead but was H.R.327 during the 98th congress.
Fact is that very different bill names are frequently reused from one congress to the next.
H.R.327 during the 98th congress had the SHORT TITLE OF: Fair Tac Act of 1983, and its OFFICIAL TITLE was: A bill to broaden the base of the individual and corporate income taxes, to significantly reduce tax rates, to flatten out the rate schedules of the individual income tax, and to simplify the tax laws by eliminating most credits, deductions, and exclusions.
On the other hand
H.R.25 during the 112th congress has the Short TITLE: Fair Tax Act 2011 and it's OFFICIAL TITLE is: To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.
There is no conflict the with constitution because the states are not forced into administrating it. becoming a local taxing authority under the Fair Tax requires an agreement be made between a state and the federal government. It is all voluntary. In those states that don't wish to the US treasury is the local taxing authority. but the tax is still a federal tax.
As to bureaucracies when states administrate the Fair Tax it would not add much if any to their their existing bureaucracy. and they would be entitled to keep 1/2 of 1% of the revenue they collect for their service. As to complexity and cost of the existing bureaucracy its costing way to much for what its collecting.
(Actual numbers may need to be tweaked as necessary)
• First $100K (indexed for inflation) of income for everyone is tax exempt.
• No differentiation on source of income. All income above $100K regardless of how or where made, is taxed (including capital gains, deferred comp, SS, non-cash perks such as a company car, a cellular phone, discounted gym memberships, memberships to a country club, housing - employer-provided or employer-paid, group insurance - health, dental, life etc., disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, paid vacation, profit sharing, funding of education, other specialized benefits and any other material awards.)
• No deductions or exemptions.
• Tax rate for all income (any source) above $100K is 17%.
• Tax rates for FICA and Medicare are zero below $100K but apply uncapped above $100K.
• Means testing for SS and Medicare benefits established above an actuarially determined gross income level that ensures adequate long-term, revenue neutral funding for these programs.
Potential downside: Probably massive unemployment among tax accountants and attorneys.
This is the Fairtax hustle -- that it's just a simple personal retail sales tax. Total nonsense. Only 1/5 of Fairtax is about taxes on personal retail spending like we are used to, according to President Bush's JCT report on Fairtax. In fact, 80% of Fairtax are goofy, impossible and fraudulent unconstitutional taxes on the military, on city, on county and on states.
Don't believe me? Then read their goofy Orwellian documents YOURSELF. REad how they define a person as "any government" in some long rambling deceptive defintion, then elsewhere say "certain persons" have to pay taxes on wages, pensions, and virtually everything else.
Look at their tax tables. No wonder their own researcher -- Dale Jorgenson of Harvard -- essentially repudiated Fairtax.
They also have massive impossible taxes on ALL cancer victims -- without exception. DO you think a destitute cancer victim can or will pay 50K in taxes on their surgery and chemo? Think -- think real hard.
As WIlliam Gale, PhD and Brookings Institute fellow who studied Fairtax said, "They lie a lot". Understatement.
http://fairtaxgoofy.blogspot.com/
Even here, you slightly mischaracterize, by omission, the FairTax here as a "retail sales tax on personal spending". The FairTax *only* applies to goods once *consumed* at a retail (i.e. personal-use) level. "Used" items (i.e. items that have already been retail sold) wouldn't be taxed.
Another fact you overlook is that the Bush administration studied their own twisted, hybrid-version of the FairTax, *not* the FairTax legislation as written (HR 25). Even worse, after all was said and done, they didn't release any the underlying data/calculations that were used to reach their conclusions, eliminating the possibility of peer review. Any claims of the form of "The Bush Administration did an analysis on the FairTax ..." are false and any conclusions deriving from that premise are invalid.
I'd ask if you have your checkbook ready to cut me that $50,000 check after repeatedly disproving your arguments all across the Internet under your many aliases, but your offer is even more of a farce than you claim the FairTax to be. Luckily for you, your comments can't be held as being a legally binding or several people could sue you for breech of contract.
Currently cities and states and the federal government already pay the cost of payroll taxes on every government employee as well as the embedded cost of corporate income and other taxes
What it shows is that the pre-tax income inequality between the top and the bottom is around 9 when adjusting for household size (officially its much larger than even that) The consumption ratio between the top and the bottom is around 3.5. Therefore, with the "fair tax", you neccesarily get a dramatically *REgressionary* rate where the top paying 20% of their income and the bottom paying 60%!
The data is prerecession, and I can only imagine that the ratios have become far worse. Its common knowlege that the reccesion fell hardest on the poor, and that the rich drastically increased their savings rate, so that regressionary quality of the proposed tax will only have been exacerbated by the recent crisis. Furthermore, these numbers likely only deteriorate as we approach the super rich whose incomes literally cannot be spent on material goods in the same ratio, no matter how many yachts they buy. There aren't cars or homes that expensive anywhere on the planet.
If a rich man spends 10% of his income and that is taxed at 23%, then his effective tax is 2.3% making the FairTax regressive.
That conclusion is built on a faulty premise of using a mans entire income as the reference. With an income tax you look at his taxable income, not his gross. With the FairTax you need to look at his taxable spending, not his gross.
If you started a Hair Salon business and wrote off 90% of your gross with mortgage loans, insurance, and stocked your shelves with product, while paying 15% self employment tax and 7% income tax on the remaining taxable income, then you too would only be taxed at 2.3% of your gross.
A fairer way to look at the FairTax is only look at what a man buys for himself. That which he heirs away or gives to a friend in need is taxed when they spend it and shouldn't even be considered income the the giver.
But if you are arguing for either the elimination of business income tax deductions, or taxing business purchases under the FairTax, then you would cascade taxes in each stage of production. Cascading taxes would be disastrous to small business under either system, because the market would favor monolithic business that produce from raw material to the retail shelf to avoid cascading taxes.
A flat tax on earnings, not consumption, is the way to go. That way you are not penalized with a higher tax rate on your overtime pay so that you actually aren't earning time and a half, but may even be earning less per hour effectively on every extra hour you work, which is what a progressive tax system does. But, ALL INCOME HAS TO BE TAXED EQUALLY. The reason Warren Buffet pays a lower tax rate than his secretary, is because most of his earnings are in the form of dividends and capital gains