Utterly Meaningless » Blog Archive » SOUNDS FAIR TO ME

SOUNDS FAIR TO ME

Filed at 6:33 am under by dcobranchi

Life among the Fayettevillians is always interesting. A LttE:

Show support for the ‘fair tax’

Several months ago, I wrote Sen. Elizabeth Dole asking her where she stood on HR 25, the Fair Tax bill. She replied that she didn’t support it for several reasons, one of which was that it would do away with the tax deduction for the interest paid on a home mortgage.

This didn’t make sense to me, so I wrote back and asked, “If I am not paying any federal tax, keeping all the money I make, why would I need a tax deduction?”

Later I received a form letter basically stating the same position as before. She didn’t support the Fair Tax because it would do away with the tax deduction on interest paid on a home mortgage.

Well, duh…

Fellow readers, I ask you to:

Determine how much you and your spouse paid last month in federal tax plus payroll tax. Call this number “X.”

Determine how much your monthly interest is on your home loan. Call this number “Y.”

If you had rather keep all of X instead of giving it to Dole and the other politicians and them giving you back Y, write Dole and see if you can explain to her why a tax deduction for the interest on your home mortgage is a moot point if you are not having to pay a tax in the first place.

Dole’s address is: 555 Dirksen Senate, Office Building, Washington, D.C. 20510. And pass on to her my warmest regards.

Tom Davis
Retired Army colonel

Fayetteville

Don’t colonels in the Army need to do some basic reasoning?

28 Responses to “SOUNDS FAIR TO ME”


Comment by
COD
February 17th, 2006
at 11:05 am

He might need to re-read Bortz’s Fair Tax book. I don’t think he understands how it works. I haven’t read the book, but I believe it’s essentially a flat tax on all income over some baseline level.


Comment by
Daryl Cobranchi
February 17th, 2006
at 11:18 am

No– It’s a 23% federal sales tax on EVERYTHING. So that $200,000 house is suddenly a $246,000 house.


Comment by
R Thompson
February 17th, 2006
at 12:32 pm

But, with no embedded taxes on the materials and labor used to build the house, the house would cost only $154,000. The total cost with tax would be $200,000: The sales tax is 23% of the total, or 30 cents on each dollar (the way you figured it above).

Daryl, I’ve enjoyed reading your blog as I am considering education options for my two young children. You should read the FairTax book and understand it before you make a judgement. If you are willing to do that I’d be happy to send you a copy. Let me know…


Comment by
COD
February 17th, 2006
at 12:45 pm

Wow. I never picked up that it was a sales tax. I gotta pay closer attention.


Comment by
Daryl Cobranchi
February 17th, 2006
at 1:43 pm

And my existing $238,000 house would now cost a buyer $292,740, right? And a new identical house, based on your calculations above, would cost the buyer $238,000? So, I have to drop my price by $54,740 to be competitive. Funny, I don’t think that’s going to be too popular a proposal.

And I’ve read some serious discussions by real economists of Boortz’ book. I don’t think there’s any reason to read the original.


Comment by
R Thompson
February 17th, 2006
at 3:12 pm

From
fairta...n.html:

What is taxed? The FairTax is a single-rate, federal sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed.

So the sale of your “used” house would not be subject to taxation.


As for “real economists”:
fairta...ay.pdf

There is plenty of factual, quantitative research at the fairtax site. I’m surprised at how closed-minded you appear to be regarding this issue given how logical and well-thought-out your opinions are regarding home education and government control.

There are plenty of sources spreading misinformation about the Fair Tax. Don’t be one of them. If you read the book and still oppose the tax, at least make your arguments fact-based, please.

Thanks for the response to my comment. My offer to send a copy of the book still stands!

-RT


Comment by
Daryl Cobranchi
February 17th, 2006
at 4:23 pm

I started to mention this possibility in the previous comment but deleted it because it was clouding the point. So…

OK, so I’m an unscrupulous developer. I build a house and sell it to a “friend” for $1.23 He in turn re-sells it to the real buyer for $238,000 cheating the government out of its 23% and undercutting the competition by $54,740. And it would be perfectly legal because you couldn’t tell me how much to sell my house for.

Beside which, it would undercut consumer spending and trash the economy.


Comment by
R Thompson
February 17th, 2006
at 5:25 pm

The point is, both equivalent houses would be $238,000. The “free” market will still work as it always has, except that people will have more buying power.

> Beside which, it would undercut consumer spending and trash
> the economy.

Where do you get this idea? Please explain further.

I will need to think for awhile about your “unscrupulous developer” scenario. I may need to re-read some sections of the book.

It sounds like you are not open to changing your mind on this issue. If you are opposed to the idea because of the person who wrote the book, that’s fine… he makes his money making people angry on talk radio. Ignore his rhetoric and look at the facts in the book or on the fairtax site.

There are too many good reasons to support this issue to dismiss it without understanding it fully.

Thanks for spending the time to discuss this with me…


Comment by
Daryl Cobranchi
February 17th, 2006
at 6:16 pm

I’ve just been reviewing a bit myself. I’d forgotten that the FairTax advocates play a little fast and loose with the definition of a 23% tax. They calculate it backwards to the way sales taxes work. It’s really a 30% sales tax. And the analyses I’ve seen indicate that Boortz neglected some fundamental expenditures that would actually push the tax rate to almost 60%.

I just read a libertarian take on it that pointed out something I hadn’t considered– the proposal is for everyone in the country to get a rebate check from the government every month for the taxes paid on essentials. Thus, we’d all end up on the government dole for hundreds of dollars a month. No thanks.

And how do you figure that people would have more buying power? It makes no difference if the government takes 30% in income tax or 30% in sales tax.

Finally, consumer spending accounts for roughly 2/3 of our economy. A sales tax discourages consumption.


Comment by
Tim Haas
February 17th, 2006
at 8:15 pm

A sales tax in the absence of any other taxes would not discourage consumption. What the hell else are you going to do with your money?

Also, it’s not really true that 30 percent income tax is 30 percent sales tax — collecting income tax engenders much higher transaction costs for both the government and the payer. You’re right about the “rebate” idea, however — a better approach would simply be to exempt essentials, as many states already do (non-prepared food, shelter, clothing under a certain per-item dollar amount.)


Comment by
R Thompson
February 17th, 2006
at 8:21 pm

I mentioned the 23 vs. 30% part in my first comment. I agree that it’s misleading to quote 23% all the time, but to me 23% sounds as high as 30% at first glance.

Can you point me to the analysis that shows a 60% tax rate? I’ve not heard of that.

How is getting getting a rebate of some of the taxes I’ve paid “being on the government dole”?

With the fair tax, prices of goods would go down or wages would go up since corporations would not be paying all the embedded taxes. That’s where more buying power comes from.

The reason I like the fairtax the most is that it allows people to see how much the government is taking from them. With the current tax system, taxes are hidden in so many different ways… taxes on corporations, withholding, etc. Ask random people how much they paid in taxes last year… many will answer, “I got money back!” People don’t realize how much they pay to the government. With the fairtax that will be transparent. If people feel the 30% tax is too high they will hold their elected officials accountable.

I hope you’ll read the book or the info on the fairtax site someday. If not, please don’t spread incorrect facts about it. It’s obvious I’m not going to change your mind right now so I’ll stop trying.

Would you rather see more incremental changes to the current tax code? Or no tax at all? Or is the current system working just fine?


Comment by
Daryl Cobranchi
February 17th, 2006
at 10:22 pm

I’m a cheap bastard. If something is priced at $100 and I know I’m going to have to give the government another $30 on top of that, there’s an excellent chance that I won’t spend anything. I’ll just stick it in my IRA and bank on the government dumping the FairTax before I need the money.


Comment by
COD
February 17th, 2006
at 11:03 pm

A 30% sales tax would also encourage the mother of all black markets.


Comment by
Rikki
February 17th, 2006
at 11:15 pm

I’m just curious as to what that would mean for those of us making so little money we pay NOTHING in income tax, other than the act of loaning a little money to the govt which we get back every year.


Comment by
speedwell
February 18th, 2006
at 2:25 am

Daryl, I just sent you a letter because my comment got way too long.

But the gist of it was that the “Fair” tax could very likely amount to a 100% OR MORE effective income tax on businesses, based on the way accountants figure business income. My second point was that rather than abolish the IRS, the “Fair” tax was an excellent way to keep all those bureaucrats, enforcers, and flunkies on the public payroll–keeping tabs on the locations of all their milk cows–I mean taxpayers, and strong-arming comnpanies into putting themselves out of business.

There are many, many more perfectly valid objections raised by this writer: mises....y/1975 that must be noted. Although I didn’t refer to it specifically in the letter, do not miss the comments here: blog.m...28.asp

Let me know what you think!


Comment by
Daryl Cobranchi
February 18th, 2006
at 6:51 am

There are lots of holes in the FairTax proposal. The Mises piece hit on quite a few: turning everyone into a dependant of the government, encouraging a black market, encouraging folks to call “new” items “used,” a huge bureaucracy to enforce it. Fortunately, this idea will go absolutely nowhere (other than the remainder bin at B&N).


Comment by
Daryl Cobranchi
February 18th, 2006
at 7:02 am

And if this goofy idea ever does get enacted, I’m hoarding gold on December 31st. I’ll only mark mine up 29% and then re-sell it. A 30% inflationary jump on January 1st would be a very interesting thing to watch.

Boortz is either stupid or naive. Prices might come down in the long run, but the instantaneous transition effects would be horrendous. Evidence? Look at how gasoline is priced. When there is a disruption in supplies, prices rise immediately. How long do they take to come back down after the crisis is over? Businesses have little or no incentive (other than what the competition is doing) to lower prices, especially for “essentials.”


Comment by
Daryl Cobranchi
February 18th, 2006
at 7:04 am

Rikki,

According to the proposed legislation, everyone in the country would get a check from the government every month.


Comment by
Rikki
February 18th, 2006
at 8:14 am

Is it weird that I find being on the government ‘dole’ more offensive than paying taxes?


Comment by
Tim Haas
February 18th, 2006
at 10:25 am

This may be a bit incoherent, as I haven’t been sleeping a lot the past few nights, but …

How about we debate the general merits of a consumption tax without reference to Linder’s proposal, which is clearly flawed (no doubt intentionally for the benefit of the entrenched nomenklatura, as speedwell points out).

To me a consumption tax seems inherently more fair (to the extent that one buys into the concept of “those with more pay more”).

With a consumption tax, everyone pays the same rate — a concept currently considered “regressive” — but because those who have little spend little, they would end up paying little to no tax (especially if, as I would have it, essentials, including shelter and non-elective medical care, would be exempt at the point of sale; I realize of course that there’d be a huge argument about what constitutes “essential”, but current practice in many states gives us some precedent). Those with few resources could also avoid tax by buying used when possible. (Plus, of course, they do pay tax now — it’s just hidden in the cost of the products.) On the other hand, those with more end up paying more, but at a consistent rate that doesn’t encourage manipulation of income and deductions to avoid certain threshholds.

There’s a moral, or moral-ish, point to be made here that I’m not capable of articulating at the moment, but let me just say for now that the current byzantine system practically begs all of to fudge, if not outright cheat, and a consumption tax would at least partially correct this; and the current level of compulsion to report our financial dealings to the government — a gross inversion of the proper relationship of man to the state — would be eliminated.

I don’t buy the argument that a high consumption tax would kill the economy. Europeans pay a 17 percent sales tax (the VAT) on top of their already high income taxes, and they don’t seem to have dropped off into Third World status.

I also don’t buy the black market scenario, at least not completely — too much work for most of us to source all of our consumer goods from Vinnie in the back alley.

I also think there’s a certain defeatism in the condemnation of alternative taxing schemes; let’s remember that the income tax is less than 100 years old, and withholding dates only from WWII. A large-scale change is theoretically possible; before Reagan the top tax rate was 70 percent.


Comment by
Daryl Cobranchi
February 18th, 2006
at 12:03 pm

To the extent that a consumption tax would remove the disincentive to save built into our current system, I’d be at least inclined to consider it. The devil is in the details, though. Every proposal I’ve seen gores someone’s ox. I have absolutely no confidence that such a drastic change could be implemented without there being dozens (hundreds, thousands) of Christmas balls attached. It’d be a lobbyist’s dream come true.

I do think a consumption tax on the order of 30 – 50% would kill the retail market for a long time. Folks would be much more inclined to “make it do or do without” than they would to buy new. Do you really think prices would drop to compensate for the tax increase? Sounds like a free lunch to me.


Comment by
Tim Haas
February 18th, 2006
at 12:25 pm

I’m under no illusions that the ideal system — truly simple, with no Christmas balls — could be enacted, so I can understand your skepticism. However, it would be no different from the current system in that respect, and at least has the advantage of transparency at the point of consumer contact (unlike with FairTax, I wouldn’t want it hidden in prices, but shown just as state sales taxes are).

Some of your problems could be solved by phasing in the new sales tax while reducing income tax proportionately (a situation in itself fraught with danger — we could end up with our own VAT plus income taxes– but see my caveat above).

But to your larger point, yes, prices would fall, because retailers would have the same incentive they always do — unless they sell product, they go out of business. I predict things would settle out pretty quickly.

Ultimately, it would be like a currency revaluation — disruptive, yes, but Europe has gone through it repeatedly over the years, most recently just a few years ago when they switched to the Euro, and survived just fine.


Comment by
NMcV
February 18th, 2006
at 5:10 pm

I don’t know enough about economics to counter any of the arguments here, but I do have one point to consider, re Daryl’s “unscrupulous” developer.

Here in NJ, we had a “luxury tax” that nearly killed one of our oldest industries, boatbuilding. The “haves” who were meant to pay the most tax easily got around this. Some had boats shipped to other countries, where they were purchased by their vacationing buyers. Other bought boats in bare-necessities versions for a lower price (sometimes beneath the “luxury” line), and then having them refitted with all the goods — and with no additional tax burden. Either way, they avoided the taxes.

Meanwhile, folks who could just afford a nice boat found that their family cruiser or fishing boat was now a “luxury Tax” item, which they could no longer afford. SO they didn’t pay the tax… or the salaries of the boatbuilders.

I’m sure something similar could just as easily happen with houses. The black market would certainly grow, because many “have-nots” buy “non-essential” items. The rich would find ways around it, the prro would find ways around it, the middle-class will get screwed again. (Or am I just a touch too cynical?)


Comment by
NMcV
February 18th, 2006
at 5:12 pm

Oh, and shouldn’t we keep tabs on our government’s *spending*? If they don’t spend as much, we don’t have to fork over so much, right?

Let’s start with the pork. Then the perks. Plenty of places to go from there.


Comment by
Tim Haas
February 19th, 2006
at 9:19 am

That was actually a federal tax you’re talking about, which was finally repealed in 2002. The problem is that narrow excise taxes, especially on top of the regular tax structure, can be (and offer great incentive to be) evaded — something that would be harder to get away with under a general sales tax that all (or most) businesses would be responsible for collecting and reporting. All those who bought stripped boats and upgraded, for example, would still be taxed on the additions, and those who bought overseas could be charged when the boats were delivered and registered, as we have to pay sales tax in New Jersey if we buy a car in no-tax Delaware.

But to the bigger point about spending: Think back to your Victorian novels — when the wayward heir apparent was overspending, did the marquess put him on a budget? No — he choked off his supply!


Comment by
Burlgt
February 20th, 2006
at 4:52 pm

Several arguements here should be re-examined

1) The black market. There’s a HUGE black market currently on income taxes. People either being paid under the table or engaged in illegal activity. The FairTax ensures these people will be taxed, at least to some extent when they purchase goods

2) There is either an increase in net earnings or price before taxes. I’m not sure which happens, but it’s one or the other (really probably a combo of both).

3) You have to look at it as 23%. If you make $1000 and pay 23% in taxes you have $770 to spend. OR you have $1000, and you spend 770 on items and 230 on taxes. Same thing. To argue 30% (230/770) is playing number games.

4)Conversion – There’s got to be a plan to convert over by providing a credit for items. It’s in HR25, but I don’t recall the details. At any rate, I think you’ll look foolish stocking up on things inside your house.

5) I’m not convinced encouraging savings is a bad thing. It’s the whole point of 401K and IRA accounts. If anything people don’t save enough right now. Consumer spending is a suspect measure of the economy.

6) To reduce fraud, etc the tax has to exist on everything. The “yacht tax” was so devastating because it focused on taxing one thing. Essentially it does the exact same thing a “sin taxes” – creates an incentive to avoid that activity. I’ll argue that spending as a whole is not an avoidable activity.

7) No collection system can be more complicated than the IRS. The cost of compliance is huge.


Comment by
speedwell
February 20th, 2006
at 5:16 pm

Killing a few minutes while i wait for the clock to let me go home from work…

1. Yeah, right, compliance will be universal. (Can’t stand it anymore and pees herself laughing.)

3. Do I need to wipe your nose in it? You calculate tax on the base price. 230 is 30% of 770. If I tried to pull your game on you in a retail store, you’d try to get me fired for fraud.

4. I’ll look a lot less foolish when I compare myself to people who haven’t prepared for the national disaster.

6. Oops, all out of pee.

7. Never underestimate the willingness of legislators to legislate, or of bureaucrats to… bureaucratize?

Oh, and what in the “Fair” tax repeals the 16th Amendment, pray tell?


Comment by
Burlgt
February 21st, 2006
at 9:43 am

#1) Regarding the black market – people have been arguing against the FairTax b/c it creates a black market. I’m arguing the black market already exists under the income tax. Any new black market will be offset by the current black market purchasing products.

#3) If you can’t accept inclusive vs. exclusive math, then we’re never going to agree on any other details. It’s a 30% sales tax, and that equals a 23% consumption tax. You’re taxing 23% of the total consumption. Does that work for you?

#4) Section 902 of HR25 has a Transitional Inventory Credit. Basically this cancels the consumption tax for inventory purchased under the income tax structure.

#7) True, but it will be much more transparent when they change the tax rate and you notice it next time you buy bread than if the create deductions, move brackets around, refuse to fix the AMT, etc, etc, etc. Transparency is the #1 reason I support tax reform.

Section 101 repeals all income taxes, 102 all payroll taxes, and 103 all gift and estate taxes. I agree that the 16th amendment should be repealed as well. I’d actually like a provision stating that the FairTax goes into place when the 16th amendment is repealed. However, that’s b/c I don’t want both, but constitutionally, nothing prevents both now.