Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“No state has an inherent right to survive through conscript troops and, in the long run, no state ever has. Roman matrons used to say to their sons: "Come back with your shield, or on it." Later on, this custom declined. So did Rome.”     Robert A. Heinlein,    The Notebooks of Lazarus Long

March 6, 2008

Fair Tax Webinar with Neal Boortz

by Stephen Littau

Neal Boortz has a webinar on the Fair Tax for anyone who would like to learn more about the bill which would replace the income tax with a national sales tax. Boortz explains what the Fair Tax is, how it would work, and answers the common questions/criticisms of the plan.

Anyone interested in going to the webinar can click here to attend.

www.fairtax.org

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3 Comments

  1. Stephen,

    As you know, I used to be an absolutely huge proponent of the plan, to the point where I used to contribute to a pro-FairTax blog. I think the plan, as written, is quite brilliant, and would reap some pretty large benefits for our economy and society.

    But there’s a problem. As my cynicism for government has grown, I have lost all faith that government would enact the FairTax as written. They would twist it to their own purposes and a Fair tax would become a typical Washington monstrosity. Within a few years, it wouldn’t surprise me to see voters begging for the “good ol’ days” of income tax, after what Congress would do to destroy the intent of the FairTax.

    Comment by Brad Warbiany — March 6, 2008 @ 8:46 pm
  2. Brad, it might pain you to know that the FairTax proponents lie about the FairTax’s main feature, the prebate and that it doesn’t exempt poverty-level expenditures from tax. Here’s the e-mail that I sent to the FairTax website people:

    Re: The FairTax levies a 5.29% Tax on Poverty Wages

    This might come as a shock to you (or maybe it doesn’t), but the FairTax does not exempt poverty-level expenditures from tax. In fact, it levies a 5.29% tax on all households earning their respective poverty level wages. I will use the family of four who make the poverty level of $28,000 per year as an example.

    When this family spends their $28,000, the FairTax will remit $6,440 of that amount to the government and the family will obtain $21,560 in goods and services. The prebate mechanism will rebate the $6,440 back to the family to supposedly allow them to obtain the remainder of their poverty-level goods and services. But here’s the rub: the FairTax is still being computed when they spend the rebated money. So when the family goes to spend the $6,440, $1,481.20 is remitted to the government and the family obtains $4,958.80 in goods and services. This final remittance to the government is not rebated and therefore is the tax paid by this family. It figures out to be an effective tax rate 5.29%. This figure can be easily figured out by taking 23% of 23%, because 23% of the 23% prebate is not rebated, therefore it is the tax.

    The new prebate would have to calculated using the tax-exclusive rate of 29.87% (.23/.77) instead of the tax-inclusive rate of 23%. But with the increased prebate going into effect, this would present a two-fold problem.

    In the first scenario, since prebate spending went up X dollars, to maintain the same level of non-prebate government spending, revenue would have to increase… Revenue+X = (Prebate+X) + Spending. But for revenue to increase, the rate has to increase, and if the rate increases, the prebate would also increase. This process has no end, so it would mean that you would have to admit defeat and say that at current government spending levels, the households living at the poverty level would have a tax rate of 5.29% and the non-taxable portion would be 77% of the poverty level for that particular household, which would be $21,560 for a family of four (instead of $28,000).

    The second scenario is more pleasant but less plausible because it is not revenue-neutral in the way that politicians like it. If prebate spending goes up, the equation can be modified to look like this: Revenue = (Prebate+X) + (Spending – X). Thus, you can say that you can fix the prebate problem as long as spending goes down an equal amount. We all know that this is a joke. At the very least, any tax reform that has a chance in Washington must be revenue-neutral to -positive. The FairTax rate was derived to be revenue-neutral so as to be politically possible.

    But the main fact is that it is a lie when you say that the prebate will “ensure no American pays federal taxes on spending up to the poverty level.” [Source: http://www.fairtax.org/site/PageServer The fact that the FairTax taxes people in poverty at 5.29% makes H.R. 25 fatally flawed as written and possibly fatally flawed permanently as a distinct concept.

    Comment by Logan — March 7, 2008 @ 11:36 am
  3. Logan,

    Considering that I don’t think Congress would ever let HR 25 though un-amended anyway, I wouldn’t say any of this “pains” me to know.

    But why would that make the FairTax “fatally flawed”? In many ways, even with that caveat it would still be a better system than we have now, even for the poor. The 5.29% tax on poverty wages assumes that the poor spend 100% of their income on new goods subject to the FairTax. I would say that many poverty-level people buy a lot of goods secondhand, and could quite easily be buying enough goods secondhand to offset that 5.29%, wouldn’t you? I would also say that a large portion of their income is spent on things not subject to the tax anyway.

    Comment by Brad Warbiany — March 7, 2008 @ 1:37 pm

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