End the IRS: Get the FairTax and Get Your Whole Paycheck

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Mike Huckabee, “is the change agent the nation most needs.” From The Dallas Morning News endorsement from delegate rich Texas.

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End the IRS:

FairTax An example of this change Huckabee advocates is ending, eliminating, closing down a government agency: the Internal Revenue Service. The beloved IRS.

Kyle Hamilton is blogging on the FairTax on mymanmitt, founded by my good friend Justin Hart. They are skeptical of real tax change. Our competitors supporting Romney do not believe that real change is possible, or maybe not necessary.

But the IRS supporters deserve a review of their criticisms of the Huckabee FairTax proposal.

So Your Business Blogger asked Sidney Bostian, one of my former CEOs to evaluate the FairTax proposal. He is a past president of the Heritage and Eisenhower Banks in Northern Virginia. He worked on Wall Street and taught economics at the University of Virginia. His comments are in bold following commentary from Kyle Hamilton.

Fair Tax rebuttals

First, several people made the point that Europe has a Value Added Tax (VAT) that is more than the 10% figure that I quoted. All of the research that I read made a distinction between the VAT and a national retail sales tax like the Fair Tax. This distinction is based on the mechanics of the tax. The value added tax looks at what a firm adds to the value of a product where a national sales tax is an excise tax levied at the point of sale. The end result looks similar because the VAT is passed on to the consumer. However, the VAT requires firms to report the value added at each stage of production. A national retail sales tax does not require any such reporting other than that the national rate has been applied. The figure I used looked just at those countries using a national retail sales tax and did not include those countries using a VAT.

All European Countries which have VAT, also have Income Tax. The Fair Tax (AKA NRST) does not require the business reporting infrastructure of the VAT since sales are taxed only at the retail (final sale) level.

Second, several readers expressed frustration at the current tax system and argued that we are essentially paying the same rate as what the Fair Tax would impose. That may be true, but I don’t understand how that merits scrapping the current system. If the Fair Tax does the exact same thing, why should switch?

The reason the tax rate for the Fair Tax approximates the average tax rate for the current system is that Lindner and his colleagues have structured their proposal to “revenue neutral” when compared to the current system. Obviously, reducing government spending can reduce the Fair Tax rate.

The tie goes toward stability, does it not? People have planned, not just in the short term, but in the long term for the tax benefits of the current system. Revolutionizing the way we tax would upset the expectations of a millions of Americans and businesses.

Since when has this consideration inhibited Congress in engineering major revisions of the Tax Code? Also, Fair Tax Advocates have outlined steps to address transition issues.

Thus, doing something that drastic requires not just generalized frustration, but serious injustice. Generally, I think that frustration with the current tax system has made people over-eager to do something else. I don’t deny that the current system has its flaws. Indeed, it should be flatter and simpler. However, taking the extreme position of overhauling what we have and disturbing the expectations of those who are paying taxes seems unwise to me.

Income taxes (even flat and simple) will never cause the “super rich” (eg Warren Buffet who always advocates for tax increases) to pay their fair share, because much of their income is recognized at their discretion. However, even when they recognize no income, they spend a lot of money and would then pay taxes.

Labor, income should not be taxed.

But the best part is getting your whole paycheck — no deductions.

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Thank you (foot)notes:

mymanmitt is very gracious to include commenters who support the FairTax.

Dallas Morning News Endorses Mike Huckabee

DMN editorial board recommends Mike Huckabee for the GOP nomination.

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2 Responses

  1. Sorry, but you’ve been duped. The Fair Tax ain’t fair. In a short comment it’s not possible to go into all the rationale for this statement, but lets just hit two points.

    (1) Unless the Sixteenth Amendment is repealed prior to the implementation of the Fair Tax [and not the wimpy Congress passed law that promises to repeal it], you can be assured that we will have both the National Sales Tax / Fair Tax AND the income tax. We’ve been fooled many times — income tax only for the rich, social security will never taxable, IRAs never had RMDs at first, and many other “camels” that have stuck their nose in — why would you trust the politicians now?

    (2) Taxation in any form is THEFT. By what moral authority does the majority impose this “theft”? If a tax isn’t truly voluntary, then it is coerced. This is supposed to be the “land of the free”. What a joke!

    No, sorry, we are on the “road to serfdom”. The sheep are being enslaved by degrees. Our revolutionary “fore fathers” would be ashamed at what we have let happen to the American Experiment.

    Sorry, but only Ron Paul is pointing the way out of this mess. You can nuke the IRS by cutting spending back to Clinton era numbers.

    Without a fundamental revolution, the Fair Tax does NOTHING for the largest tax we pay — the Inflation Tax.

    The Fair Tax is at best a flawed distraction — lipstick on one ugly pig — to take our eye off the ball.

    Sorry, but I respectfully disagree.

    Ferdinand J. Reinke

    Kendall Park, NJ 08824

    Webform that creates an urgent email => http://2idi.com/contact/=reinkefj

    Web page => http://www.reinke.cc/

    My blog => http://www.reinkefaceslife.com/

    LinkedIn url => http://www.linkedin.com/in/reinkefj

  2. Hank Van Gieson says:

    Jack/Charmaine,

    I’m sure Sidney meant well, but that’s not much of a rebuttal of Kyle’s commentary. In any event, why not ask Sidney to comment on some more detailed Fairtax issues, or perhaps just answer these questions:

    (1) Is Sidney aware that the Fairtax taxes governments at all levels? How will the state and local governments pay the estimated $300 billion annual federal tax cost? (2)Does Sidney agree that our republican form of government consists of two independant sovereign powers—Federal and States—and that under our Constitution, one can’t tax the other in view of the long standing Supreme Court doctrine of “intergovernmental tax immunity”. (3) Does he recognize that all current senior retirees will be forced to resume paying into the Social Security Trust Funds with their sales tax dollars? (4) Does he understand that all after tax savings will be essentially double taxed?(5)Ask him if he would accept the creation of a group of 30 million workers that might never pay one net dollar into the federal treasury, yet would still qualify for full Social Security pension and health care benefits? (This is brought about by the Fairtax prebate, which completely untaxes all family units at or below the poverty level. And that’s a lot of families!). (6) Has he considered tha fact that the $600 billion annual prebate would be the largest cash grant entitlement program in the history of our country? The prebate comes at a time when entitlements are squeezing out discretionary spending, including vital national Defense. As an economist, wouldn’t Sidney rather reduce federal government spending than change the way the federal government collects revenue?

    There are many other criticisms of the Fairtax, but this sample is probably enough. By the way, I do support a national sales tax, but the Fairtax plan is not the way to get there!!

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