Top Arguments Against The FairTax
And WHY They Are ALL BUNK
Criticisms from ‘The Left’
Criticisms from ‘The Right’
Criticisms from ‘The Government’
Criticisms of the General Variety
This smokescreen counts on the notion that many Americans have a problem with applied arithmetic. A 30% EXPLICIT tax is the EXACT same thing as a 23% IMPLICIT tax.
Some examples should make this clear.
· If a suit costs $100 and a 30% sales tax is in effect, you will pay $130 for the suit. Suit cost is $100. Tax is $30. That is a 30% EXPLICIT tax rate ($30 / $100) = 30%.
· If total cost for a suit is $130, including $30 tax, you will pay the SAME $130 for the suit. Suit costs $100. Tax is $30. That is a 23% IMPLICIT tax rate ($30/$130) = 23%.
So what’s the big deal? Well, think of how Income Taxes are ALWAYS stated. By IMPLICIT RATES. When we are told a marginal rate is 25%, what is understood is that this means $25 is taken out of every $100 made. But that rate can also be expressed as 33% because $25 represents 33% of the $75 the taxpayer actually gets to keep.
It is a fact that a sales tax is generally expressed as an EXPLICIT rate, and that the revenue-collection mechanism of The FairTax is a national retail sales tax. But how can The FairTax be compared to The Income Tax if we don’t express the rates in the same manner? So either both are expressed in IMPLICIT terms or as EXPLICIT terms.
FairTax proponents will express their tax rate as 30% BUT ONLY if Income Tax proponents express their rates in EXPLICIT terms also. But they insist that we express our rate as the higher number EXPLICIT rate while they get to express their rates as the lower number IMPLICIT rates.
The jury is out on whether this argument is put forth by arithmetically-challenged but well-meaning opponents or …. well ….. LIARS who know full well what they are doing
There are only TWO (2) details for implementing The FairTax. Number ONE (1) is a national retail sales tax to collect 23% of retail sales as federal taxes. Number TWO (2) is a universal (same amount to EVERY American) rebate to offset such taxes on poverty-level purchases.
These 2 details are clearly stated in HR25, the piece of FairTax legislation currently before the U.S. House of Representatives.
HR25 also CLEARLY states that The FairTax is a 100% REPLACEMENT for ALL U.S. Income Taxes (Personal Income Tax, Social Security and Medicare Tax (FICA), embedded Corporate Taxes, Capital Gains Tax, Estate Taxes, etc).
The ONLY people who have ever claimed The FairTax represented an additional tax are those that have as their agenda to SLANDER The FairTax. No mis-interpretation here, no ignorance of math, no excuse. This ‘argument’ is pure LIE.
This is another case of either a LIE or not being able to do simple math.
The math for computing The FairTax rate is simply multiplying retail purchases by 23% (this is amount that was collected at time of purchases) and then subtracting the FairTax prebate (the EXACT same amount is received by every American). The math for computing the Income Tax rate is admittedly FAR tougher because one must take into account Personal Income Tax, Social Security and Medicare Tax (FICA), embedded Corporate Taxes, Capital Gains Tax, etc.
Well, if you compute those rates for some representative income levels the hypocrisy is obvious. By the way, the following calculations assume a family size of 4 with ALL income being spent on retail purchases. This gives artificially higher FairTax rates at high income levels.
For the few Americans making $500,000 per year, they pay an average of 37% in federal taxes now. Under the FairTax, federal taxation would be reduced to around 22%. Savings of approximately 25% under The FairTax.
For the many more Americans making $100,000 per year, they pay an average of 32% in federal taxes now. Under the FairTax, federal taxation would be reduced to around 19%. Savings of approximately 35% under The FairTax.
For the many, many more Americans making $50,000 per year, they pay an average of 25% in federal taxes now. Under the FairTax, federal taxation would be reduced to around 14%. Savings of approximately 45% under The FairTax.
For the many Americans still making only $35,000 per year, they pay an average of 23% in federal taxes now. Under the FairTax, federal taxation would be reduced to around 10%. Savings of approximately 55% under The FairTax.
For the unfortunate Americans making only $20,000 per year, they pay an average of 19% in federal taxes now. I know that this figure is actually lower if the Earned Income Tax Credit is figured in so let’s be charitable and say 9%. Under the FairTax, federal taxation would be reduced to around 0%. Savings of well over 100% under The FairTax.
Obviously, the more your annual income the LOWER the tax savings.
And don’t even start on the whining about the ABSOLUTE AMOUNT of taxes paid by Bill Gates going down more than the ABSOLUTE AMOUNT of taxes saved by Ms. Jane Doe waitress. Any measurement of tax rates or tax savings have to be made in PERCENTAGES to even be meaningful.
This is a true statement, but has NOTHING to do with The FairTax.
The reason a sales tax is in and of itself regressive is simple: the poorer you are the higher percentage of your wealth you must pay for survival of your family. This is again simple math. Thus, if the sales tax paid is viewed as a percentage of wealth, the poorer you are the higher that percentage actually is.
The FairTax has as ½ of its plan a national retail sales tax. The other ½ of the plan is a rebate to EVERY American to completely cover ALL of those federal sales taxes for spending needed to maintain a poverty-level lifestyle.
The FairTax is MUCH more PROGRESSIVE than the U.S. Income Tax Code. It effectively DE-TAXES every American who has to (or chooses to) live at the poverty level.
This ‘argument’ is almost exclusively from liberals and/or socialists who think the whole world is a conspiracy of rich vs poor. They are proud because they know an economic fact (probably the only one they know) but refuse to recognize that The FairTax directly addresses that fact.
This stems from the myth that there
are benevolent entities called corporate fairies who
In the real world, Corporate Income Taxes (along with the cost of attorneys, tax accountants, bookkeepers and lobbyists) are considered a cost of production same as labor and material. The price of a corporation’s goods or services is based on those production costs.
So corporations never really pay taxes, they collect taxes from their customers for the Government. How could it be otherwise? Any taxes corporations turn over to the Government were obtained from their sales.
In fact, Corporate Income Taxes are simply a way for any government to impose a tax on citizens without having to tell them they are being taxed. Call them embedded taxes, hidden taxes, etc. They are completely disingenuous.
The FairTax replaces ALL Income
Taxes, including Corporate Income Taxes. By eliminating those production costs,
American goods and services will fall an average of 15 to 20%. This will be an
incredible boost to our foreign trade and increase the attractiveness of the
But since corporations don’t actually pay taxes right now The FairTax isn’t a way for them to escape anything, EXCEPT maybe all those added compliance costs they no longer need worry about.
I was accused of this one on a Democratic blog site. The accuser insisted I was lying when told of how GREAT the poor are treated under The FairTax. It appeared that his arrogance would not let him comprehend a plan to aid the poor that did not originate with his Democratic Party heroes.
It is true that until recently
there were NO Democratic co-sponsers of HR25. But
that had little to do with ideology and a
This is an unfortunate situation, where the Democratic Speaker of the House refuses to even read a bill just because she thinks it part of some vast Republican conspiracy. To my knowledge she has never articulated what her problem with The FairTax is – other than that it’s supporters are primarily Republicans and Libertarians.
To myself, definitely NOT a Republican, The FairTax is historically a Democratic piece of legislation. It is HIGHLY progressive in it’s tax rates, so much so that Americans at the poverty level are completely de-taxed for the first time in decades.
But maybe that is the problem. Both major Parties have always claimed that the U.S. Income Tax is progressive, but that isn’t really the case is it. The only progressive rate is the Personal Income Tax component. FICA (Social Security and Medicare) is HIGHLY regressive in nature because EVERYONE pays (or has confiscated) the exact same rate on all income up to $92,000. Poor people should rightly complain about that. And embedded taxes collected (from the public) under the guise of Corporate Income Taxes is also HIGHLY regressive.
It may be helpful (especially for Republicans) to see my arguments about why taxation should be progressive.
Republican Presidents Gerald Ford
and Ronald Reagan introduced and expanded the Earned-Income Tax Credit (EIC)
directly to offset this regressive nature of the Income Tax Code. I doubt
Democrats want this known as they usually claim sole stewardship of the poor in
So … it may just be that this some kind of Machiavellian Republican trick is to ensure that the 3 LARGEST Federal Tax adjustments to REALLY help poor Americans originated with Republicans.
Somehow I doubt that’s what is behind The FairTax though. But IF I were a Democrat I couldn’t see the value in just blindly following Ms. Pelosi down such a self-fulfilling political alley.
Nor is it meant to. It is a Tax Replacement plan to make taxation fairer and more efficient. Most supporters fully agree that U.S. Government spending is out of control. But that is a separate fight.
The FairTax is designed to be revenue neutral.
But this is in many ways a bogus argument for a much deeper reason. People who ask it for the most part care really about reducing the amount of tax burden that we face as a Nation. They mistakenly think that the only way to reduce this tax burden is to reduce Government spending. This is an invalid assumption.
There is a $500 BILLION per year mandate that the U.S. Government will never acknowledge but does exist. That is the approximate cost American taxpayers and companies spend every year solely to comply with the U.S. Income Tax Code. Lawyers, lobbyists, tax preparation services and software, hours of preparation, etc. Not one dollar of that $500 BILLION goes to our Government and (unless you are a tax lawyer) none of it benefits you.
The FairTax ELIMINATES all of it! No filing Federal Taxes ever again.
That $500 BILLION may not be Federal taxes, but it is certainly part of our collective tax burden because the ONLY reason we pay it is to comply which this highly-inefficient Income Tax system.
That $500 BILLION represents roughly 20% of the yearly national tax burden.
So The FairTax does more than anything ever has to cut the nation tax burden. And that’s before any program is cut. Why would it make any sense to cut Government programs before eliminating that 20% total waste every year?
To put $500 BILLION a year into perspective:
· It’s at least 4 TIMES larger that the ‘Bush Tax Cuts’.
· It’s larger than the national deficit.
Okay, but too high for what?
It is not too high to REPLACE the tax system we now have. If every American were to pay the same rate, that works out to 17%. But, realizing that tax rates must be progressive the MAX rate is theoretically set at 23%, with the majority of Americans effectively paying rates of less than 15%.
Effective tax rates for American taxpayers are currently in the neighborhood of 10 – 37%. Effective rates under The FairTax will be 0 – 23%.
Is 23% too high? Probably …. But that MAX rate brings about FAR lower tax rates for EVERY American taxpayer than what they now pay.
Yes, taxation has to be progressive. To believe otherwise is not Right or Left, it is just plain Wrong.
Every human has to expend resources
just to maintain their life. In the
It is wrong to assume that spending to just try and achieve poverty-level is ‘a choice’. Most of us CHOOSE to spend far above what is required to achieve a poverty-level lifestyle. For someone just keeping their family at poverty level, to call such spending a CHOICE is a travesty. To tax such a poor family would be to essentially have a SERFDOM TAX, where one is taxed simply for the right to LIVE.
That is not
Okay ... so I’ve never actually heard this one. But given the paranoid, back-stabbing nature of American politics I’m sure Republicans will say that when Democrats start accepting The FairTax.
It may be helpful to see my reply to the criticism that The FairTax is just some Republican trick.
The FairTax reimburses EVERY American the Federal sales tax that will need to be paid on purchases necessary to maintain a poverty-level lifestyle. That is one (1) of the TWO (2) detailed implementation rules of The FairTax.
Obviously, that means EVERY American will receive a rebate check thru the mail or electronically credited to their account. Remember that the base revenue-neutral rate was raised from 17% to 23% to accommodate this progressivity.
To some, Government checks = Welfare. But wait … not in the period after April 15th. It’s NOT welfare then because the Government is maybe returning some of our own money back that it’s over-collected. Yeah, that’s right!
Such thinking is silly. There would be 3 ways to implement the Progressive feature of The FairTax.
1. Have differing sales tax rates for individuals based on how wealthy they look. This would be impossibly complicated, easy to cheat at, and plain stupid. Sounds kinda like the current Income Tax Code, doesn’t it.
2. Have exemptions for basic necessities (food, medicine, ?). Problem is, who should decide what is a necessity for me? Lobbyists and lawyers would love this. How much would it cost to get legislation passed to declare donuts or Viagra as necessities, anyway?
3. Allow Americans to spend THEIR money as they CHOOSE to. Give EVERYONE money up front to cover sales tax on THEIR CHOICES up to the level needed to maintain poverty level.
The FairTax folks choose the option that supports FREEDOM, SIMPLICITY and PERSONAL CHOICE. You can look at it this way; the 23% tax is artificially inflated to allow for that 3rd option.
If you equate ANY money coming from The Government to The People as Welfare (unless it follows April 15th of course) then that is a problem you have to work out yourself.
Hint – Try thinking outside the box just a little bit.
This is one of the many flawed conclusions put forth the by the President’s Commission on Tax-Reform. The reasoning is that since The FairTax’s 23% Federal tax is paid on ALL retail transactions, the Government itself will have it’s purchasing power in effect reduced by 23% on it’s own retail purchases.
This ‘argument’ has several holes.
First, it disregards totally free-market Capitalist forces, which guarantee that prices of American goods and services will drop 15 – 20% due to elimination of Corporate Income Taxes and Payroll Taxes. This is a troublesome oversight, since I thought that such free market Capitalism was among the freedoms the U.S. Government was supposed to be protecting for us.
Second, it does not take into account that the Government itself would no longer have to pay Payroll Taxes (its portion of FICA) on it’s own MASSIVE workforce. That will save it TONS of money to pay for any real or imagined overall price increases.
Third, disturbingly the entire Commission findings were estimated from a STATIC economic model. This is the same mistake our government oftentimes makes when trying to estimate the impact of tax cuts. Anything about The FairTax has to be estimated with a DYNAMIC model that takes into account the HUGE economic growth the Nation is sure to undergo.
The members of that Commission would rather have the U.S. Government exempt from paying the 23% FairTax rate at all.
Think about that. This would mean the total elimination of any competition between the public and private sectors. To have a Government entity perform a service would ALWAYS be 23% cheaper (all other things being equal) than having a private sector entity perform the same service. Talk about Socialism. We would be giving the Government the ideal means to take over EVERYTHING, under the guise that it would actually be cheaper for all involved.
I want the U.S. Government to get out of our lives as much as possible.
BTW – My opinion is that the Commission was composed of bought-off little Weasels since the whole section on The FairTax was so blatantly outrageous. Hopefully they got big pay-offs from the lobbyists who bought them off.
Criticism: The FairTax will negatively impact the housing market.
This argument stems from the fact that there would no longer be mortgage interest deductions under The FairTax.
Duh … there is no more deductions of any kind because there will be NO tax returns to file.
The come-back is always the same. ‘You mean a $200,000 house will have $46,000 added because of this FairTax? So instead of a deduction I get an added sales tax!’
Well … sort of.
Fact #1. We are only talking about NEW houses. A USED house is not (by definition a RETAIL sale). The FairTax is FAIR, taxes are collected only once, at the RETAIL time of sale. So this hypothetical $200,000 house is NEW or The FairTax doesn’t even figure into the equation.
Fact #2. If this house now (pre-FairTax) costs $200,000 then after The FairTax it will sell for no more than $170,000 unless someone somehow repeals the concept of free markets. No more corporate income taxes or payroll taxes to consider as production costs. Competition WILL ensure the sales prices drop..
Fact #3. The final cost of this house would be approximately $221,000 of which $51,000 would represent the Federal sales tax. That is because (implicitly) $51,000 is 23% of $221,000 or (explicitly) $51,000 is 30% of $170,000. But $51,000 = $51,000 in any case (see the bogus 23% vs 30% criticism).
Fact #4. It is true that the house that cost $200,000 before The FairTax would increase in price by about 11%. It’s also true that this house would be paid for from wealth resulting from 100% of your income rather than 80% (or less) of your income. Remember – you get your ENTIRE paycheck all the time under The FairTax. MORE MONEY to save for a down-payment. MORE MONEY to pay a mortgage. YOUR MONEY. YOUR CHOICES.
Fact #5. With no more national withholding, the HUGE influx of capital in the marketplace almost immediately slashed interest rates. And it’s the interest rates that effect the mortgage payment more than anything.
Let’s see. You get at least 20% more money each month in your pay. A NEW house (or car, or clothes, etc) costs maybe 11% more. Mortgage money from the banks cost 25% or so less. How is that in any way a bad deal?
Oh yeah … I guess we do lose the joy in deducting that mortgage interest from those no-longer-needed tax forms.
This was the very first argument I had, several years ago. Then I thought on the subject.
This argument was mentioned prominently in the Tax Commission Report, but they of course didn’t spend any time actually thinking at all.
Where would these black market goods come from? No one has ever answered that basic question.
With any black market, goods or services are sold such that customers can escape regulatory or economic impositions by some authority. For our purpose the ‘authority’ is the ‘U.S. Government’. An example of a ‘regulatory imposition’ is a ban on weapons sales. The example we are interested in of an ‘economic imposition’ is taxes.
The first-guess answer to the question ‘where would the goods come from’ is that goods would be bought WHOLESALE (FairTax doesn’t apply) and then just simply sold off-the-books (without charging The FairTax). Won’t work. The ONLY way to escape paying the sales tax component of The FairTax (ie buy wholesale) is to be registered with the sales tax collection agency (usually at the State level). Registering in effect means that you declare your intention to buy wholesale and pay the sales tax after you in turn sell the items retail. The only tax enforcement then becomes the accounting/auditing necessary to ensure that wholesale purchases are linked to sufficient amounts of sales tax revenues. It is entirely possible to buy goods WHOLESALE and then sell them without collecting sales tax, but the problem is that it is the buyer of the wholesale goods that owes the sales tax. As is the case currently, a business COLLECTS sales taxes and then turns them in. If a businessman fails to collect those taxes he/she is on the hook to turn over … well …. they won’t stay in business long.
A black marketer usually buys goods
in an environment with little or no taxes and then sells those goods in an
environment where the ‘normal’ market is subject to higher taxes. The most
prevalent form of this in the
However, it is exactly those types of intra-State sales taxes that was cited by the Tax Commission as proof that raising sales tax rates results in increased black market activity. They pointed out that raising the sales tax for a State has historically resulted in black market sales of goods purchased from neighboring lower-tax States. How this brilliant piece of reasoning has anything at all to do with Federal tax rates I don’t grasp.
There are of course the more minor black market cases involving stolen goods or illegally imported goods. These are law enforcement issues however, and should not even enter the discussion about viability of a consumption tax.
Bottom line is that 80 – 90% of all
RETAIL goods in the
You’re probably right. It should shrink by 80% or so, however.
Collection of the national retail sales tax will for the most part be handled by individual States, since most of them already have apparatus in place to collect State sales tax. HR25 specifies that such States will get to keep a small percentage of the Federal sales tax they collect, as compensation for any added trouble.
But I’m sure there will be some agency at the Federal level to coordinate things. Whether it’s called the IRS or not really doesn’t matter.
As to all the large number of displaced IRS workers … well there is this little problem at the Mexican border …..
This to me is the most dangerous piece of bunk.
I really wish the names (Fair and Flat) did not sound so much alike. Steve Forbes and Dick Armey refuse to call their plans an Income Tax but if it waddles and quacks it’s a dang duck. In this case, an Income Tax duck. It makes no difference (really) if an Income Tax is Flat, Bumpy or FireEngine Red – it is a flawed idea.
The Flat Income Tax has all the flaws of any income tax.
· It still bases taxation off reported income, not actual wealth.
· It still in effect exempts criminals from paying Federal taxes. They don’t report income so legally they don’t even owe taxes.
· It still splits FICA off as a separate income-based DEMOGRAPHICALLY-unsupportable train wreck waiting to derail in a few short decades.
· It still requires the filing of annual tax returns. They may be simpler, however, but they are still required.
· It leaves in place the phoney-baloney farce of Corporate Income Taxes.
It leaves in place, though PROBABLY lowers, the mandated tax compliance spending which drains hundreds
of BILLIONS of dollars from the
That political candidates, namely Republicans, can brag about being supporters of both The Flat Tax AND The FairTax does nothing but prove that politicians will sell their soul for votes. It is the same as saying they are both FOR abortion and AGAINST abortion. Makes NO sense!
REAL FairTax supporters abhor the idea of an Income Tax. That is what needs to be replaced. The 16th Abomination to the U.S. Constitution was the gravest injustice ever inflicted upon the Constitution and our Founding Fathers. Those Founders WOULD be leading a revolt if they were still alive, of that I have NO doubt.
Flat (Income) Tax supporters are
generally ignorant of what that plan really means. It REQUIRES the 16th
Abomination to the
I hear this a lot but don’t quite understand it.
Are wage-earners going to find it difficult to get used to NO Federal Income Tax and NO FICA (Medicare & SS) Taxes? I doubt that is what ‘nightmare’ is supposed to mean.
Are consumers going to find it difficult to pay extra (maybe 10% or so) for every RETAIL purchase they choose to make with a portion of their extra (certainly GREATER THAN 10%) take-home pay? I doubt that is what ‘nightmare’ is supposed to mean.
Are States going to find it difficult to collect sales tax? The majority of States have sales-tax collection agencies already and HR25 pays the States to tap into those existing agencies. Maybe a little bit of a ‘nightmare’ but States will get paid for their troubles.
I’ve been asked about the ‘nightmare’ of reprogramming cash registers. I won’t even dignify that with an answer.
This claim by several liberal organizations always centers round the same thing. A plan is invented which they call The FairTax but is substantially different. The rate necessary for that made-up plan to replace the Income Tax system is then computed. The information is published that The FairTax requires that computed tax rate. And the made-up rate is still usually specified as an exclusive rate to make it look even worse when compared to the inclusive tax rates of an Income Tax.
These claims in NO way represent the tax rate required for The FairTax (the REAL FairTax). The plan is clearly spelled out and is very simple.
Examples are usually hard to quantify because these organizations rarely spell out in much detail what the rules are for their own made-up ‘FairTax’ plans. They don’t care, after all, they just want the rates to be high.
I have seen some of these phony plans do the following:
· Exempt food and medicine (NO retail transactions are exempt under The REAL FairTax)
· Add FICA Income Tax rates (there are NO FICA Income Taxes under The REAL FairTax)
· Exempt Government retail purchases from sales tax (Government spending is treated the same as consumer spending under The REAL FairTax)
Some of these made-up plans are so
different from The REAL FairTax that it’s just scary. In 2004 the Democratic
National Committee paid a liberal
But wait .. it gets worse. A lot of politicians (with either vested interests in keeping the Income Tax and/or plain old stupidity) quote reports straight from these dishonest organizations. And a lot of Americans (especially those with decidedly Socialistic leanings) buy the LIES.