Changes in the American Tax System

I'm a supporter of the Fair Tax, a progressive national sales tax to replace the current IRS and payroll tax system.

This proposal is not some scheme to get out of paying taxes, but is real legislation with growing support in Congress:

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The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.

The FairTax Act (HR 25, S 1025) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.

The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

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Thoughts?

According to me, FairTax System is a big fraud!

FairTax proponents are correct in their assessment of the Internal Revenue Code:

The current U.S. income tax code is widely regarded by just about everyone as unfair, complex, wasteful, confusing, and costly. Businesses and other organizations spend more than six billion hours each year complying with the federal tax code. Estimated compliance costs conservatively top $225 billion annually—costs that are ultimately embedded in retail prices paid by consumers.

The Internal Revenue Code cannot simply be "fixed," which is amply demonstrated by more than 35 years of attempted tax code reform, each round resulting in yet more complexity and unrelenting, page-after-page, mind-numbing verbiage (now exceeding 54,000 pages containing more than 2.8 million words).

But could the cure they offer be worse than the disease?
The FairTax is a consumption tax in the form of a national retail sales tax on new goods and services. It is designed to replace "federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes." The FairTax would also abolish the IRS and repeal the 16th Amendment.

The elimination of the 16th Amendment, the IRS, and all those taxes sounds like a great idea that all free market economists and advocates of liberty could agree with. So if the FairTax is such a great thing, why would anyone in their right mind oppose it?

That is exactly what people have been hearing:

* "What could you possibly have against the FairTax?"
* "The FairTax is the only way to go."
* "I find it weird that you would oppose the concept of the Fair Tax."
* "The choice boils down to the Fair Tax (H.R. 25) or the current 'system.'"
So, what's wrong with fair tax system?

The Fair Tax Act of 2005 is H.R. 25 in the House (introduced on January 4) and the identical S. 25 in the Senate (introduced on January 24). FairTax proponents who complain about the complexity of the Internal Revenue Code are going to have a hard time convincing those of us who have actually read this bill (it came to 59 pages when I printed it out from my computer) that it will simplify the tax code when it contains language exactly like that which appears in the tax code:

(b) Rebate Defined- For purposes of subsection (a) (2), the term 'rebate' means so much of an abatement, credit, refund, or other payment, as was made on the ground that the tax imposed by chapter 41, 42, 43, or 44 was less than the excess of the amount specified in subsection (a)(1) over the rebates previously made.'.

Strangely absent from the list of co-sponsors of H.R. 25 is Congressman Ron Paul(R-TX). Representative Paul has consistently been named the "taxpayers' friend." If the FairTax proposal was as friendly to taxpayers as its proponents say it is, I would expect Congressman Paul's name to be first on the list of co-sponsors.

FairTax advocates claim that their plan would repeal of the 16th Amendment. However, all H.R. 25 does is repeal Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes. The only mention of the 16th Amendment in H.R. 25 is when it says: "Congress further finds that the 16th amendment to the United States Constitution should be repealed."

To repeal the 16th Amendment would require a constitutional amendment. Can Congress be relied on to pass a constitutional amendment that repeals the 16th amendment after a national sales tax has already been enacted? And even if Congress passed a constitutional amendment, it would still have to be approved by three-fourths of the states. Without the repeal of the 16th Amendment, what is to prevent an income tax from being imposed again after a national sales tax has been enacted?
Although the FairTax would eliminate the filing of all individual tax returns, the FairTax turns every business into a tax collector. Every small service business and every Internet business that does not currently collect state sales taxes will have to collect taxes for the federal government. Every doctor will now have to charge sales tax on his services. Where will this end? Will the neighborhood boy who mows lawns have to begin collecting federal sales tax on each lawn mowed? Will the neighborhood girl who baby sits have to do likewise?

The national retail sales tax rate under the FairTax plan is 23 percent. That is on top of state sales taxes that are currently collected by forty-five states. That is on top of the sales tax that many cities and counties also collect. That is on top of the special taxes that exist on hotel rooms in most areas of the country. I suppose that a national retail sales tax would also apply to gasoline. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax. Does this mean that there will be an additional 23 percent tax on each gallon of gasoline?

The FairTax will make it easier for Congress to raise taxes. The initial rate of 23 percent is supposed to begin in 2007. For years after 2007, "the rate of tax is the combined Federal tax rate percentage." This combined percentage is the total of three things: the general revenue rate (stated to be 14.91 percent); the old-age, survivors and disability insurance rate; and the hospital insurance rate. This is all but saying that the rate will be adjusted every year. And it will be very easy for Congress to do so. To raise several billion dollars of additional revenue, all that will be necessary is for Congress to raise the tax rate by one percentage point by small adjustments in one or more of the three items that make up the combined percentage rate. It will be sold to the American people as "a penny for progress," or some other deceitful scheme.

Under the FairTax system, there are no longer any Social Security and Medicare taxes. However, this does not mean that Social Security and Medicare will be eliminated. The inclusion in the combined percentage of the old-age, survivors and disability insurance and the hospital insurance rates means that the Ponzi scheme known as Social Security will continue as is—only the way it is funded will change.

The "underground economy" that income tax advocates complain about will certainly increase under the FairTax system. Even if the highly dubious claim that there will be an "average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax" is true, not having to pay a 23 percent tax on an item is a tremendous incentive to make a purchase in the "underground economy."

The claim that the IRS will be eliminated under the FairTax is bogus. Although the national sales tax will be collected by the states from retailers, it is still a national sales tax, and as such, its collection will have to be overseen by some agency of the federal government. Just because the bureaucracy will no longer be called the IRS doesn't mean that it will be eliminated. According to The Fair Tax Act of 2005:

There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.

Title II, chapter six, section 603 of The Fair Tax Act sets up the Problem Resolution Office and authorizes "problem resolution officers." There will still be tax courts according to title II, chapter six, section 602 and chapter nine, section 7451. Changing the phrase "Internal Revenue Service" to "Department of the Treasury" and "Commissioner of Internal Revenue" to "Secretary" doesn't eliminate the federal bureaucracy.

With the FairTax, the federal government will also be a tax collector in a new way: at the post office. There is no exemption of postal goods and services mentioned anywhere in the Fair Tax Act of 2005. I suppose this means that stamps, P.O. Box rental services, and package mailing services will be subject to the new 23 percent tax.

The FairTax is progressive. What could possibly be fair about a progressive tax where some people have to pay a higher percentage than others merely because they are deemed to be "rich"? How is the FairTax progressive? I thought it was a flat 23 percent on all new goods and services? It is and it isn't. Under the FairTax plan, everyone pays the 23 percent tax on everything, but "every household receives a rebate that is equal to the FairTax paid on essential goods and services." The rebate is given out each month, and is based on family size and the poverty level. But like the current tax code, the FairTax can also function as a tool for income redistribution because "the poor [will] actually pay less than zero-percent retail sales tax on their spending. Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes."

The real problem with the FairTax is threefold. In " An Open Letter to the President, the Congress, and the American People Concerning Reform of the Federal Tax Code," which is posted on the FairTax website along with the endorsement of seventy-five "professional and university economists," we can see the trouble with the FairTax immediately:

We are not calling for elimination of federal taxation, which would be irresponsible and undesirable. Nor does our endorsement call for reduced federal spending. The tax reform plan we endorse is revenue neutral, collecting as much federal tax revenue as the current income tax code, including payroll withholding taxes.

There is only one word to describe the fact that the federal government now spends almost $3 trillion a year: obscene. At least 90 percent of what the federal government spends is unconstitutional, wasteful, or against the limited-government principles of the Founders. The only thing the FairTax does is change the way the state confiscates the wealth of its citizens. As Congressman Ron Paul says: "The real issue is total spending by government, not tax reform."

Because the FairTax is a consumption tax, Murray Rothbard's conclusion about consumption taxes is apropos:

The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.

The FairTax does nothing to tame the federal leviathan. The solution is nothing less than a drastic reduction or wholesale elimination of its revenue source. What is fair about allowing the government to confiscate 23 percent of the value of every new good and service? FairTax proponents may call it necessary legislation, but I call it highway robbery.

(I have used mises.org for this.. (as i haven't written 15 entries yet, I couldn't post the original url).

The Lies of the FairTax

Lie #1: taxes would be voluntary under the FairTax. In his discussion of the origins of the FairTax, Boortz says that the AFFT sought "a method of taxation that would be totally voluntary, that would allow all citizens to pay what they choose, when they choose, by how they choose to spend their money." Boortz has the audacity to say that "there is nothing coercive about the FairTax." It is "a truly voluntary tax system." The government should allow you to "keep your money in an investment account of some kind, earning interest for you, until you decide to pay taxes to the federal government." The FairTax would allow people to "judge for themselves when and how they're comfortable making taxable purchases."

Well, if the FairTax system is voluntary, and allows everyone to pay what they choose and when they choose, what happens if someone decides that they don't want to pay any taxes to the federal government? The same thing that happens now: fines and imprisonment. The FairTax is not a voluntary tax at all. The whole idea is a contradiction in terms. Boortz's statement about people keeping their money until "they're comfortable making taxable purchases" is ludicrous. There is no way to avoid buying new items. One can buy a used car, a used house, and used clothes, but one cannot purchase used food. One could argue that our present tax system is also voluntary: Don't earn any income and you won't have to pay any income taxes.

Lie #2:the FairTax rate would be 23 percent. Throughout the book, Boortz gives the FairTax rate as 23 percent. It is not until near the end of the book—in the chapter, "Questions and Objections"—that he admits it is really 30 percent. But even then he still insists it is 23 percent.

Those of us who were skeptical from the beginning noticed this when we got to page 84. There Boortz used the example of a single mother with two children spending $45 a week on groceries. He claims that the removal of the taxes currently embedded in the price would lower the cost of the groceries to $35.10 (a dubious proposition). But then he says: "Add the FairTax, and the groceries would cost $45.58. I learned in the sixth grade that if an item cost $35.10, and I add to it $10.48 in sales tax, then I paid a tax rate of almost 30 percent—not 23 percent. Boortz says in the "Questions and Objections" chapter that "critics of the FairTax have a way of dwelling on this 30 percent figure." I wonder why? Although Boortz explains that he is using an exclusive rate rather than an inclusive rate to figure the percentage, his "mathematical equivalent of a game of semantics" still results in a FairTax rate of 30 percent. This is why Boortz prefers the national sales tax to be included in the price of each item—so the consumer doesn't realize that he is really paying an extra 30 percent in sales tax, not Boortz's new math amount of 23 percent.

Lie #3: the FairTax would abolish the IRS. Boortz claims that his book is about transforming the nation by sending "one of its most hated institutions," the IRS, to "that place in the government guano heap of history." The goal of the FairTax is to "eliminate the IRS." Boortz even jokes about IRS agents working at a fast food restaurant after the FairTax is implemented.

Calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the FairTax. It should not be forgotten that the FairTax is a national sales tax. According to The Fair Tax Act of 2005:

There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.

The Fair Tax Act also sets up a "Problem Resolution Office" and authorizes "problem resolution officers." There will even still be tax courts. Boortz himself also states: "We envision a department of the Treasury to deal with Internet and catalog sales, with stiff penalties for those selling into our communities who do not abide by the law." The FairTax will abolish the IRS in the same way that it will abolish the income tax—by replacing it with something else.

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Originally Posted by Muskan

The Fair Tax Act of 2005 is H.R. 25 in the House (introduced on January 4) and the identical S. 25 in the Senate (introduced on January 24). FairTax proponents who complain about the complexity of the Internal Revenue Code are going to have a hard time convincing those of us who have actually read this bill (it came to 59 pages when I printed it out from my computer) that it will simplify the tax code when it contains language exactly like that which appears in the tax code:

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Have you seen the current tax code? In one tax case, the defendant's attorney had the entirety of the printed IRS code and regulations placed on a table to demonstrate to the judge the absurdity of expecting anyone to be able to follow it without violation -- during his argument, the table collapsed. And you find it unacceptable to replace this with 59 pages?

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Originally Posted by Muskan

FairTax advocates claim that their plan would repeal of the 16th Amendment. However, all H.R. 25 does is repeal Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes. The only mention of the 16th Amendment in H.R. 25 is when it says: "Congress further finds that the 16th amendment to the United States Constitution should be repealed."

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Untrue. HR25 contains a sunset provision on the Fair Tax. If the 16th Amendment is not repealed by a particular date (dependent on the date of passage of the Fair Tax), the Fair Tax legislation sunsets and automatically ceases to be law. This was added expressly to address the issue of the 16th Amendment potentially causing both a Fair Tax and Income Tax to be in place.

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Originally Posted by Muskan

Although the FairTax would eliminate the filing of all individual tax returns, the FairTax turns every business into a tax collector. Every small service business and every Internet business that does not currently collect state sales taxes will have to collect taxes for the federal government. Every doctor will now have to charge sales tax on his services. Where will this end? Will the neighborhood boy who mows lawns have to begin collecting federal sales tax on each lawn mowed? Will the neighborhood girl who baby sits have to do likewise?

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Every business that currently collects sales tax for the State is already equipped to collect the Fair Tax. In return for the doctor having the <sarcasm>onerous burden</sarcasm> of collecting sales tax, something all point of sale software is perfectly capable of doing, we eliminate the entirety of payroll tax recording and remittance. In other words, we eliminate part of the current tax collection process and roll it into the other, already existing, process.

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Originally Posted by Muskan

The national retail sales tax rate under the FairTax plan is 23 percent. That is on top of state sales taxes that are currently collected by forty-five states. That is on top of the sales tax that many cities and counties also collect. That is on top of the special taxes that exist on hotel rooms in most areas of the country. I suppose that a national retail sales tax would also apply to gasoline. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax. Does this mean that there will be an additional 23 percent tax on each gallon of gasoline?

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Nice argument to target gasoline in these times, but you fail to mention that the entirety of the individual's paycheck is given to them, eliminating the Federal Withholding tax, FICA and Medicare taxes. You ignore the elimination of embedded taxes on every product sold in America.

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Originally Posted by Muskan

The FairTax will make it easier for Congress to raise taxes. The initial rate of 23 percent is supposed to begin in 2007. For years after 2007, "the rate of tax is the combined Federal tax rate percentage." This combined percentage is the total of three things: the general revenue rate (stated to be 14.91 percent); the old-age, survivors and disability insurance rate; and the hospital insurance rate. This is all but saying that the rate will be adjusted every year. And it will be very easy for Congress to do so. To raise several billion dollars of additional revenue, all that will be necessary is for Congress to raise the tax rate by one percentage point by small adjustments in one or more of the three items that make up the combined percentage rate. It will be sold to the American people as "a penny for progress," or some other deceitful scheme.

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Untrue. Right now, the tax code is so large and complex that people have no idea what they're being taxed on or how much. The Fair Tax places most taxes in a single place where people will know there's been a tax increase -- this is why so many lobbyists and special interests are opposed to the Fair Tax, because it will eliminate the tax breaks and loopholes they currently earn their living on. In the recent $700Billion financial bailout, there's a provision for a $2,000,000 tax break for a company in Oregon that makes wooden arrows -- the Fair Tax would eliminate that kind of absurdity.

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Originally Posted by Muskan

Under the FairTax system, there are no longer any Social Security and Medicare taxes. However, this does not mean that Social Security and Medicare will be eliminated. The inclusion in the combined percentage of the old-age, survivors and disability insurance and the hospital insurance rates means that the Ponzi scheme known as Social Security will continue as is—only the way it is funded will change.

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A specious argument -- the Fair Tax is not touted as solution to the Social Security problem by anyone, it simply replaces the collection method. Fixing Social Security is a separate problem -- and no proposed alternative to the Income Tax proposes a fix to Social Security.

If you want to argue that Social Security is broken and desperately in need of a drastic solution, I'll completely agree with you, but to use that as an argument against a taxation strategy is absurd -- the two have nothing whatsoever to do with each other.

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Originally Posted by Muskan

The "underground economy" that income tax advocates complain about will certainly increase under the FairTax system. Even if the highly dubious claim that there will be an "average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax" is true, not having to pay a 23 percent tax on an item is a tremendous incentive to make a purchase in the "underground economy."

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Patently false. The "underground economy" referred to is illegal activities. Under the Fair Tax, every dollar spent that was earned illegally will be taxed at the point of sale. When a drug dealer buys his Lexus, he'll be coughing up 23%. What you're referring to is the supposition that the Fair Tax will suddenly result in massive amounts of under the table sales in order to avoid the tax -- what you're argument fails to consider is the massive infrastructure necessary to support the sale of products in that manner. Sure, there will be "cash" sales of goods and services that stay off the books -- much as there are today in order to avoid the income tax -- but to have any significant impact would require massive "underground" markets. If someone opens a secret Best Buy out of their garage, I think it would be noticed.

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Originally Posted by Muskan

The claim that the IRS will be eliminated under the FairTax is bogus. Although the national sales tax will be collected by the states from retailers, it is still a national sales tax, and as such, its collection will have to be overseen by some agency of the federal government. Just because the bureaucracy will no longer be called the IRS doesn't mean that it will be eliminated. According to The Fair Tax Act of 2005:

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There's a huge difference in manpower and power of an agency needed to support a sales tax vs. income tax. Look at the tax enforcement agencies of States with only a sales tax vs. those with an income tax. The IRS elimination means that the days of individual Americans having to file on April 15th, having to keep records all year, having to fill out forms, having to call the IRS with questions that 50% of the time are answered wrong, of individual Americans having to face the full police powers of government in an audit -- are gone.

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Originally Posted by Muskan

With the FairTax, the federal government will also be a tax collector in a new way: at the post office. There is no exemption of postal goods and services mentioned anywhere in the Fair Tax Act of 2005. I suppose this means that stamps, P.O. Box rental services, and package mailing services will be subject to the new 23 percent tax.

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Oh, my god! You're right -- keep taking that $1000 a month FICA from me, 'cause I don't want to pay an extra penny on my stamps!

I ask: "So what?"

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Originally Posted by Muskan

The FairTax is progressive. What could possibly be
fair about a progressive tax where some people have to pay a higher percentage than others merely because they are deemed to be "rich"? How is the FairTax progressive? I thought it was a flat 23 percent on all new goods and services? It is and it isn't. Under the FairTax plan, everyone pays the 23 percent tax on everything, but "every household receives a rebate that is equal to the FairTax paid on essential goods and services." The rebate is given out each month, and is based on family size and the poverty level. But like the current tax code, the FairTax can also function as a tool for income redistribution because "the poor [will] actually pay less than zero-percent retail sales tax on their spending. Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes."

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A very small percentage of Americans who make less than the Poverty Index will receive a very small amount more in the prebate than they pay out in taxes. Even as a pretty hardcore Capitalist, I'm okay with a family of four living on poverty-level income paying no taxes. I'm okay with that family even getting a little extra out of the prebate. Precisely because the poor spend a higher percentage of their income on retail goods and services -- if it were simply a consumption tax without the prebate, then it would place a disproportionately high burden on the poor.

Under the Fair Tax, the poorest Americans are exempted from taxation and the the tax burden is based on how much you spend.

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Originally Posted by Muskan

Lie #1: taxes would be voluntary under the FairTax. In his discussion of the origins of the FairTax, Boortz says that the AFFT sought "a method of taxation that would be totally voluntary, that would allow all citizens to pay what they choose, when they choose, by how they choose to spend their money." Boortz has the audacity to say that "there is nothing coercive about the FairTax." It is "a truly voluntary tax system." The government should allow you to "keep your money in an investment account of some kind, earning interest for you, until you decide to pay taxes to the federal government." The FairTax would allow people to "judge for themselves when and how they're comfortable making taxable purchases."

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The concept of the "voluntary" quote is clearly laid out in the book and taking the phrases of a sentence out of context doesn't make your point true. It is voluntary in the sense that an individual is free to make the choice to buy something at the retail level and pay taxes on it or to save and invest the money tax free. I think everyone can comprehend the concept of buying the candy bar and paying tax or saving the money and not.

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Originally Posted by Muskan

Lie #2:the FairTax rate would be 23 percent. Throughout the book, Boortz gives the FairTax rate as 23 percent. It is not until near the end of the book—in the chapter, "Questions and Objections"—that he admits it is really 30 percent. But even then he still insists it is 23 percent.

Those of us who were skeptical from the beginning noticed this when we got to page 84. There Boortz used the example of a single mother with two children spending $45 a week on groceries. He claims that the removal of the taxes currently embedded in the price would lower the cost of the groceries to $35.10 (a dubious proposition). But then he says: "Add the FairTax, and the groceries would cost $45.58. I learned in the sixth grade that if an item cost $35.10, and I add to it $10.48 in sales tax, then I paid a tax rate of almost 30 percent—not 23 percent. Boortz says in the "Questions and Objections" chapter that "critics of the FairTax have a way of dwelling on this 30 percent figure." I wonder why? Although Boortz explains that he is using an exclusive rate rather than an inclusive rate to figure the percentage, his "mathematical equivalent of a game of semantics" still results in a FairTax rate of 30 percent. This is why Boortz prefers the national sales tax to be included in the price of each item—so the consumer doesn't realize that he is really paying an extra 30 percent in sales tax, not Boortz's new math amount of 23 percent.

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This is a clever argument used by so many Fair Tax opponents who are either being deliberately deceptive or are unable to understand the difference between an inclusive or exclusive tax. You're comparing the Fair Tax to sales taxes in States that have an exclusive tax -- meaning that the tax is calculated outside of the total purchase price. The Fair Tax is not being compared to those taxes because it doesn't replace them, it's compared to the Income Tax, which is an inclusive tax -- meaning that the tax is calculated as part of the total. In order to have an apples-to-apples comparison, the Fair Tax rate is calculated inclusively so that it can be compared to the current Income Tax rates. (http://www.fairtax.org/site/PageServ...0107_bartlett3)

Here's the difference:

Buying a candy bar for a dollar and paying 6% sales tax is different from earning a dollar and paying 15% income tax. In the first instance, the total that changes hands is $1.06 -- that's the total of the transaction. In the second, the total is $1.00. Income Tax comes from the total.

Because the Fair Tax is being compared to the Income Tax, it's calculated the same way in order to provide a fair, clear means of comparison. By insisting that it be calculated differently from the Income Tax, you muddy the waters.

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Originally Posted by Muskan

Lie #3: the FairTax would abolish the IRS. Boortz claims that his book is about transforming the nation by sending "one of its most hated institutions," the IRS, to "that place in the government guano heap of history." The goal of the FairTax is to "eliminate the IRS." Boortz even jokes about IRS agents working at a fast food restaurant after the FairTax is implemented.

Calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the FairTax. It should not be forgotten that the FairTax is a national sales tax. According to The Fair Tax Act of 2005:

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Addressed in a previous post. Of course there has to be an enforcement and collection agency, but they don't have the power of today's IRS to audit and torment individual taxpayers, they don't have the pounds of regulations to learn before filing -- because they don't file anything.

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Originally Posted by Muskan

There is only one word to describe the fact that the federal government now spends almost $3 trillion a year: obscene. At least 90 percent of what the federal government spends is unconstitutional, wasteful, or against the limited-government principles of the Founders. The only thing the FairTax does is change the way the state confiscates the wealth of its citizens. As Congressman Ron Paul says: "The real issue is total spending by government, not tax reform."

The FairTax does nothing to tame the federal leviathan. The solution is nothing less than a drastic reduction or wholesale elimination of its revenue source. What is fair about allowing the government to confiscate 23 percent of the value of every new good and service? FairTax proponents may call it necessary legislation, but I call it highway robbery.

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Completely irrelevant to the issue of replacing the Income Tax with the Fair Tax.

Government spending, government waste and whether government has the right to tax at all are not relevant to an argument about how a government that already does those things goes about it.

It would be really nice if we could fix all of the ills and abuses of government all at once with one Bill, but that's never going to happen. What we can do is address specific, single problems. What the Fair Tax tries to address is the antiquated, loophole-ridden, lobbyist-driven Income Tax code -- that's all.

You are taking me completely wrong.
I am not saying that current taxing system is any better than fairtax.
I am saying that fairTax is a fraud.

First of all, any type of compulsory taxation is wrong and unreasonable by default.
Taxation can be said right only if it is Voluntary.

Under the Fair Tax, the poorest Americans are exempted from taxation and the the tax burden is based on how much you spend.

And why should you or I or anybody worry for the poor or rich or anybody else?

Simple thing is, consumption is not always fixed nor is it dependent on whether you are poor or rich.
No matters if you are poor or rich, if you are suffering from diabetes, you will need insulin.

The Fraud of FairTax, instead of being a step towards, no tax or Voluntary taxation, is just another fraud of same redistribution of income, snatching from the earners to pay for the lazies. It is just RobinHood like Robbery.

Then Fairtax System has got its own problems.

Problem #1:The FairTax hides the amount of sales tax being paid. Boortz explains how "the FairTax was designed as what's called an 'inclusive' tax—that is, the tax is included in the list price of the product." He reasons that "since our current income taxes are figured on an inclusive basis—that is, they are taken out of our paychecks, not added to them—it was decided to handle the sales tax in exactly the same manner." How could someone write a whole chapter on the evils of the withholding tax and then turn around and recommend a hidden tax like the FairTax? Boortz even has the audacity to claim that with the FairTax the "consumer is completely aware of what he is paying." Really? Suppose the FairTax is implemented next year. Go stand in front of a store and ask the typical American how much federal sales tax he paid on the item he just bought for $139? Give him a calculator and ask him again. Unless he is familiar with figuring percentages, the average American will not be able to tell you how much sales tax he just paid.

Problem #2:The FairTax is progressive. Boortz correctly identifies a progressive income tax with Karl Marx. Yet, because of the prebate, the FairTax sets up a progressive tax system like we have now. Millions of Americans will pay no taxes at all. Others will have some of their taxes offset by the prebate. "The rich" will still be paying the majority of the taxes—something Boortz says he considers "class warfare."

Anyways, you have already commented that you have no problem regarding that.
But I do have a problem with that, and many more will have the same problem. Why should I pay for being rich? Why should I pay just because someone else is poor?
It is ridiculous and it is just a form of Sacrifice, and sacrifice without consent is a crime in my eyes.

Problem #3: The FairTax is an income redistribution scheme. Boortz calls the Earned Income Tax Credit "a prime conduit for income redistribution from high-income earners to the poor and middle class." Why, then, would he promote a FairTax Plan with a prebate that in essence allows the majority of citizens to not only pay no taxes, but in many cases gives them money over and above that which they paid in sales tax? What's fair about making "the rich" subsidize the poor and the middle class? Boortz calls Social Security an "income redistribution and welfare program." But under the FairTax Plan, Social Security is even worse. At least now it is funded by payroll tax contributions that are independent of deductions for federal income tax. Thanks to the prebate, many people will receive a free retirement program via Social Security who never contributed a dime towards their retirement, or as Boortz says: "All benefit and no burden."

Problem #4:The FairTax creates new tax collectors. From doctors and lawyers to garbage collectors and tree trimmers—multitudes of individuals and businesses that never collected taxes before will be turned into tax collectors for the federal government. Will a teenage babysitter be required to collect the FairTax from her neighbors?

Problem #5:The FairTax creates new taxes. All Internet purchases will be subject to the national sales tax. So will heart surgeries, kidney transplants, and appendectomies—plus the drugs prescribed by the doctors doing the procedures. Want to attend a baseball, football, or basketball game? Better save up a little extra to take care of the FairTax that will be imposed on your tickets.

Problem #6: The FairTax creates new taxpayers. If there are no exceptions and no exemptions then churches and other non-profits will be forced to pay a national sales tax on every purchase. The FairTax will basically do away with not-for-profit entities. The FairTax would also count as taxable the purchases made by federal, state, and local governments. This means the government will be using taxpayer money to pay taxes to itself.

Problem #7: The FairTax makes it easier for the federal government to raise taxes. All Congress has to do is slightly increase the initial 23 percent rate. A penny here, a penny there; a quarter of a cent now, a half of a cent later. Just a little at a time, of course. It might be to compensate for inflation, to give seniors a cost of living raise, or to pay for some manufactured crisis like bird flu . Since the federal budget goes up every year, and the FairTax is supposed to be "revenue neutral," the FairTax rate will have to go up right along with the federal budget. You can count on an increase every year, for if government budgets are not under control now, why should we expect Congress to magically become fiscally responsible just because the FairTax is adopted?
Furthermore, since Social Security and Medicare would be funded out of general revenues the FairTax rate would also have to go up to fund the ever-increasing cost of these programs. Then there are the escalating costs of the new prescription drug plan. And if the amount of the prebate "is updated every year to keep up with inflation," the FairTax rate will have to be raised in like manner. How can Boortz recognize that "there is absolutely no limit to the government's desire for your money" and then express hope that the FairTax rate "will go down in the future" if "Congress can keep government spending down"?

Problem #8: The FairTax makes it easier for state governments to raise taxes. In the name of simplicity and efficiency, the states would be inclined to follow the lead of the federal government. States that currently have no sales tax could add one. States that have exemptions on certain items could get rid of the exemptions so as to match the federal government. States that have no sales tax on services could begin taxing services like the federal FairTax Plan would do.

Problem #9: The FairTax has unknown and potentially huge transition costs. Boortz asks a good question: "How will the switch to the FairTax be made?" But then he gives a very naïve answer: "Cold turkey!" He explains that "on January 1, we'll begin to get our gross pay with no deductions." Boortz gives one "transition rule": The value of any inventory on hand December 31 can be used as a credit against collecting taxes in the next year." This should get accountants to work figuring out how to value each company's inventory the highest. Will it be specific identification, average cost, FIFO, or LIFO? But what if a company's fiscal year does not end on December 31? This will cause massive accounting problems. And especially for the federal government since the government's fiscal year begins on October 1.

Problem #10:The FairTax makes certain exceptions while supposedly having none. After saying that there are "no exclusions or exemptions" under the FairTax, Boortz specifically mentions exemptions for Internet access services and tuition. Therefore, his complaint that "exempting certain items—such as food and prescription drugs—would again open the door to an entire battalion of lobbyists to argue that the portion of the industry that they represent is clearly an essential product" is unjustified for he has already opened the door to that very thing.

Problem #11: The FairTax has great potential for fraud. Boortz envisions the prebate amount being issued to a card "like your bank debit card." Since every head of household would have one of these cards, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers. And since the FairTax only applies to new items, there will also be a tremendous incentive for new items to be reclassified as used or previously owned. Businesses could offer a slight increase in the price of a reclassified item in exchange for not having to charge customers the 23 percent national sales tax that would be due if the item was considered new. Enforcement of the "proper" classification of items would require an army of federal bureaucrats that would rival the IRS.

Problem #12:The FairTax has the potential to turn thousands of law-abiding Americans into criminals. Since the FairTax contains no exemption for even the smallest business, anyone who does not collect the FairTax on any good he produces or services he provides is breaking the law. Mow a yard—collect the tax. Babysit—collect the tax. Repair a car—collect the tax. If you don't collect the FairTax then you are a criminal. Once again, the FairTax would have a terrible enforcement problem.

Problem #13: The FairTax does not repeal the Sixteenth Amendment. When FairTax advocates discuss their plan, they talk as though the FairTax would result in the repeal of the Sixteenth Amendment that gave us the income tax. To his credit, Boortz doesn't make that mistake, but when many people read about "saying goodbye to the income tax," that is what they think. The FairTax bill now pending in Congress ( H.R. 25 in the House and the identical S. 25 in the Senate), repeals Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes.
The only mention of the Sixteenth Amendment in H.R. 25 is when it reports: "Congress further finds that the 16th amendment to the United States Constitution should be repealed." But to repeal Sixteenth Amendment would require a constitutional amendment. Are we to believe that Congress would vote to repeal the Sixteenth Amendment after the passage of the FairTax? And even if Congress did so it would still have to be sent to the states for approval by three-fourths of them.
So, barring the repeal of the Sixteenth Amendment, what is there to prevent an income tax from being imposed again after a national sales tax has been enacted? And what is to prevent any of the other taxes replaced by the FairTax being re-imposed due to some unanticipated budget shortfall or "crisis"?
Is Boortz that naïve to think that Congress will be satisfied with just the FairTax? And even if the Sixteenth Amendment was repealed after the imposition of the FairTax, any previous tax not on income could be brought back. Can Congress be trusted to do anything else? I can easily envision Congress proposing to lower the rate of the national sales tax in exchange for the addition of a supplemental Social Security tax because we need more money to fund Social Security. Then, a few years later, the national sales tax rate would be right back up to where it was before the "exchange."

Problem #14: The FairTax does not eliminate all federal taxes. Although it is implied throughout the book that the FairTax will be a replacement for the various federal taxes, there are some federal taxes that will still be with us under the FairTax. Even Boortz slips up one time and says that the FairTax would "replace virtually all personal and corporate taxes." Two examples of federal taxes that will still be with us under the FairTax are the excise tax on gasoline and the various taxes that one pays when purchasing an airline ticket. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax, which adds 18.4 cents to the price of a gallon of gas. So under the FairTax, we would have added to each gallon of gas federal excise tax, state excise tax, and federal sales tax. This is just the minimum. The states could also begin applying their sales tax to gasoline. A recent airline ticket I purchased had added to its price a federal excise tax of $15.28, a federal segment tax of $12.80, and a September 11th security fee of $10.00. And what about federal taxes on tobacco and alcohol? The FairTax will merely replace one visible tax with another while leaving intact the invisible ones.

Problem #15: The FairTax is not at all about lowering the amount of taxes the government collects. Boortz terms the FairTax a "tax reform measure, not a government reform measure." It "changes the way revenues are raised for the legitimate operations of the federal government." But if the FairTax raises the same amount of revenue to fund the same federal programs, then what does Boortz think the federal government does that is illegitimate? Is there anything he considers to be illegitimate? If so, then why would he expend so much energy on changing the way the federal government collects taxes instead of changing the amount that the federal government collects in taxes? The fundamental problem is clearly taxation, not the tax code. What is wrong with the federal government's tax code is not that it is too complex, but that it makes possible the almost $3 trillion a year that the federal government spends. As the French laissez-faire economist Jean-Baptiste Say (1767–1832) once said: "The best tax is always the lightest." Or, as our modern-day Say in Congress, Ron Paul (R-TX), says: "The real issue is total spending by government, not tax reform."

Problem #16: The FairTax doesn't even begin to address the root of the problem. Boortz does refer to Frank Chodorov (1887–1966), reminding us that he "once observed that, by enacting the income tax, the American government was proclaiming that all wealth belonged to the government, and whatever wealth the government did not seize from the person who created it should be looked on as a concession—a gift from the government." But Boortz doesn't quote Chodorov, and he gives no source that he is referencing. He subtly seems to imply that Chodorov was opposed to the income tax because it was an income tax and that, therefore, he might be inclined to support the FairTax if he were alive. But this couldn't possibly be true because Chodorov considered taxation itself to be robbery . How is justifying the federal government spending almost $3 trillion a year of the taxpayers money, as long as it is collected "fairly," any different from the viewpoint that Chodorov condemns? While making the case for not allowing exemptions from the FairTax for food, Boortz, in using the example of a wedding reception, inadvertently shows his true colors: "Would it be fair to allow a multimillionaire to spend $20,000 on food for a large wedding reception at his estate, and not pay any sales tax on that purchase?" Why, of course it would. It would be fairer than forcing the American people to pay a 23 percent national sales tax on every good and service they purchase.

Problem #17: The FairTax makes welfare universal. Millions of people who never took a dime from other taxpayers in the form of food stamps, SSI, AFDC, Medicaid, WIC, or housing assistance will now be on the federal dole via the prebate. The FairTax is welfare for the masses. It makes us all wards of the state. Perhaps it would be best, in the interest of equity and efficiency, if all the money Americans earned was just paid to the state and then distributed to every American in a "fair" manner. The government could just keep what it needed, redistribute what's left, and do it all without the FairTax.

Why FairTax is Fraud?
The FairTax is not the solution. And because it allows the federal government to confiscate the wealth of American citizens less intrusively and more efficiently, it will become part of the problem—the problem of the ever-increasing, ever-intruding, ever-destroying welfare/warfare state. The FairTax is a fraud. Yet Boortz ties rejection of the FairTax to believing that America is a great country because of its government, "as so many politicians do." Politicians who oppose the FairTax do so because they "thrive on dependency."

The antidote to the fraud of the FairTax is a good dose of the wisdom of Murray Rothbard: "There can be no such thing as 'fairness in taxation.' Taxation is nothing but organized theft, and the concept of a 'fair tax' is therefore every bit as absurd as that of 'fair theft.'"

Boortz believes that the abolition of the income tax will make the bad day of April 15 "just another beautiful spring day." With its unsubstantiated claims, ridiculous lies, and numerous problems, the FairTax will ensure that everyday is a bad day, not just April 15.

(Even Now i cannot post the related url's!)

Muskan, the premise of your argument appears to be that you want no tax system. Which I can agree with, but it isn't practical or realistic. We're going to have a tax system, like it or not. And you're repeating arguments that I've already pointed out where you're facts are faulty -- such as the 16th Ammendment being repealed (sunset provision); as well as a lot of arguments about things that Fair Tax doesn't do that it's simply not intended to.

The point of the Fair Tax is that it's better than what we have now and it's realistically achievable.

The Fair Tax site (http://www.fairtax.org) rebuts your other arguments.

Quote:

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Originally Posted by Muskan

Why FairTax is Fraud?
The FairTax is not the solution. And because it allows the federal government to confiscate the wealth of American citizens less intrusively and more efficiently, it will become part of the problem—the problem of the ever-increasing, ever-intruding, ever-destroying welfare/warfare state. The FairTax is a fraud. Yet Boortz ties rejection of the FairTax to believing that America is a great country because of its government, "as so many politicians do." Politicians who oppose the FairTax do so because they "thrive on dependency."

The antidote to the fraud of the FairTax is a good dose of the wisdom of Murray Rothbard: "There can be no such thing as 'fairness in taxation.' Taxation is nothing but organized theft, and the concept of a 'fair tax' is therefore every bit as absurd as that of 'fair theft.'"

Boortz believes that the abolition of the income tax will make the bad day of April 15 "just another beautiful spring day." With its unsubstantiated claims, ridiculous lies, and numerous problems, the FairTax will ensure that everyday is a bad day, not just April 15.

(Even Now i cannot post the related url's!)

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You know, I can certainly sympathize with the desire to do away with taxes altogether and I know that the Federal Government can certainly perform the tasks it's Constitutionally mandated to perform without the Income Tax or most other taxes, relying solely on existing tariffs and usage fees. In an idea world, sure.

Unfortunately, the reality is that we do have entitlement programs, we do have big government, we do have wasteful spending and we do have corrupt politicians beholden to the lobbyists who've created a tax code that can't be understood by people whose full-time job it is to do so.

I'm sorry there's no tax proposal out there to fix all that. There is one that'll make things incrementally better and simpler. The "fix-everything-or-nothing" approach simply doesn't work.

The Fair Tax is something that is definately needed. Ther current tax system is flawed and has over 10,000 pages. Fair Tax can be summed up in 200 pages.