From the Fair Tax website with respect to a couple of your arguments:

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"The FairTax is regressive and shifts the tax burden onto lower and middle income people" The truth: The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases. Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most. In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free. How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here. Secondly, not everyone's average net tax burden falls. For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system. Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.

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"The FairTax will not be enforceable and evasion will be rampant" The truth: More than 80% of all tax returns are eliminated under the FairTax--every individual filing. What remains are retail outlets collecting the FairTax. Of these, 80 percent of all retail sales now occur at large retail chains like Wal-Mart. The point is oversight will still reside under the Treasury Department but the government's responsibility will be over a far smaller "universe" of tax collection points making compliance oversight far less costly and far more effective than the current system which costs $265 billion a year in compliance costs and still comes up $350 billion a year short of what is owed.

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The FairTax Basics The FairTax has been called the most thoroughly researched tax reform plan in recent history. This section offers a quick introduction to the FairTax and tax reform. Scholarly research tells us that . . . * The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars $358 billion more than the taxes it replaces. [1] * The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan. [2] * Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case. [3] * Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10. [4] * The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be. [4] * Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place. [4] * The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted. [4] * By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent. [4] * Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system. [5] * Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively. [6] * Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax. [7] * Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20. [8] * On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [9] * The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent. [10]

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Originally posted by Shakka From the Fair Tax website with respect to a couple of your arguments:

i know alot about consumption taxes as i have studied VAT and state and local taxes extensively. In the quoted portion, the text notes that the rich will be taxed at an ETR of 23 percent on dividends and cap gains. I would like to know how it is still a consumption tax if the 23 percent rate applies to dividends and cap gains. If the author means the 23 percent will apply when those dividends and cap gains are used for consumption, then the author has mistated that the rate as an effective rate, and also underestatimated the rate at which the rich re-invest.

in the first paragraph the author states the poor are subject to an 11 percent tax while the rich are subject to a 23 percent tax. How exactly are they going to differentiate the purchases made by rich from purchases made by the poor so that different rates will apply? Doesn't this draw a line that you are unwilling to draw with income taxes (ie., what is rich)? In many cases the rich buy some of the same products as the poor. If the author intends to give credits to the poor to lower the effective rate on the poor, then it clearly shows the fair tax isn't fair to the poor; otherwise, why would a credit be necessary? If higher tax rates apply to different products, there will be many of the same definitional problems that are pervasive in our current income tax scheme. a tax becomes difficult to administer, and compliance costs increase when the tax is subject to interpretation. Only when a single rate applies to all purchases does the system become easy to administer.

Those explanations are rather unhelpful. They don't really do much other than champion the tax without providing any means for accomplishing what has been said.

On major problem with a national consumption tax is that almost every state already applies a consumption tax. If a national consumption tax were to apply, it would be likely that congress would try to prohibit states from using sales taxes. In that case, states would just increase their income taxes, and we would get nowhere. The federal government would simply switch places with the states and the states with the federal government.

As for compliance, those numbers seem way off. in any event, try to get walmart on board for carrying most of the tax compliance burden. While the cost may go down, the burden will also shift to sellers, the strongest lobbyists of all.

under the fair tax how are corporations taxed. Since corporations aren't final consumers their purchases shouldn't be taxed otherwise there would be a 'cascading' tax effect; meaning taxes will be paid on the tax cost built in the product. Do you propose that corporations go untaxed? or would there still be an income tax paid by corporations? if that's the case, the argument for a fair tax is limited because the income tax isn't entirely eliminated.

Last edited by jerZ07002 on Oct-24-2008 at 23:10

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Originally posted by jerZ07002 in the first paragraph the author states the poor are subject to an 11 percent tax while the rich are subject to a 23 percent tax. How exactly are they going to differentiate the purchases made by rich from purchases made by the poor? Rich people buy some of the same products as the poor. If the author intends to give credits to the poor, then it clearly shows the fair tax isn't fair to the poor; otherwise, why would a credit be necessary?

They would still pay the same prices at the point-of-sale, but based on their reported incomes they would receive monthly "tax credit" checks meant as a rebate towards basic necessities (as I understand it).

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Those explanations are rather unhelpful. They don't really do much other than champion the tax without providing any means for accomplishing what has been said.

Perhaps you should read the book, which is much more in depth and explanatory of how things would work.

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On major problem with a national consumption tax is that almost every state already applies a consumption tax. If a national consumption tax were to apply, it would be likely that congress would try to prohibit states from using sales taxes. In that case, states would just increase their income taxes, and we would get nowhere. The federal governmetn would simply switch places with the states and vice versa.

methinks you're creating obstacles that may or may not present themselves, but may merit some scrutiny. I'm not sure if this is discussed or not, but I would imagine it is.

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As for compliance, those numbers seem way off. in any event, try to get walmart on board for carrying most of the tax compliance burden. While the cost may go down, the burden will also shift to sellers, the strongest lobbyists of all.

I don't understand why you think it would be so difficult--just about every single retail establishment already complies with tax reporting--what makes you think that they would suddenly choose to violate federal law?

I for one am all for completely revamping our current, absurdly complicated tax code and the concept of the Fair Tax appeals to me. On the surface it sounds superior to what we have in place now.

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Originally posted by Shakka I don't understand why you think it would be so difficult--just about every single retail establishment already complies with tax reporting--what makes you think that they would suddenly choose to violate federal law?

tax compliance is costly, and ugly. even with computers you would be surprised.

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Originally posted by Shakka I for one am all for completely revamping our current, absurdly complicated tax code and the concept of the Fair Tax appeals to me. On the surface it sounds superior to what we have in place now.

obviously i'm biased as a tax lawyer. complexity gives me a job. FYI, i have studied cosumption taxes, and i am certainly not opposed to them, i just think taxing only consumption is the not the correct answer.

how would you propose taxing corporations? since they aren't consumers, any tax they pay on purchases would be built into the price of the product, and consumers would pay tax on a portion of the price which was previously taxed. thus, consumption taxes don't tax business purchases. so, how would a corporation be taxed? would they go untaxed? would a corporate income tax still apply? if that's the case the argument for a fair tax is weakened.

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Originally posted by jerZ07002 tax compliance is costly, and ugly. even with computers you would be surprised. obviously i'm biased as a tax lawyer. complexity gives me a job. FYI, i have studied cosumption taxes, and i am certainly not opposed to them, i just think taxing only consumption is the not the correct answer. how would you propose taxing corporations? since they aren't consumers, any tax they pay on purchases would be built into the price of the product, and consumers would pay tax on a portion of the price which was previously taxed. thus, consumption taxes don't tax business purchases. so, how would a corporation be taxed? would they go untaxed? would a corporate income tax still apply? if that's the case the argument for a fair tax is weakened.

Do you believe that government is required to tax every entity in some way or another to justify its existence?

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Originally posted by Shakka Do you believe that government is required to tax every entity in some way or another to justify its existence?

that's a good question. our current system takes contrary positions on this issue. we allow LLCs, REITs, partnerships, S corporations, and RICs to all go untaxed. However, we apply a double tax (corporate level and dividend tax) on public corporations. My personal view is that profit making entities in which the owners have limited liability should be taxed separately from its owners because the business entity has rights and protections under law and should contribute taxes for the maintenance of those rights. However, I think taxes on business should be low because individuals consume more government resources (not exclusively, as corporations can sue in court, etc...). perhaps something in the 15% - 20% range.

This is from my congressman...

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Dear Friend: Thank you for contacting me about H.R. 1424, the Emergency Economic Stabilization Act. I appreciate knowing your thoughts on this critical issue, and I thank you for taking an interest in your government. As you are well aware, we are facing a global economic downturn as serious as any in the lifetime of most Americans. Like you, I am extremely frustrated by the outcome of the deregulation of our financial markets, lack of oversight and accountability, and excessively risky behavior on the part of financial institutions, all of which threaten the stability of our economy and jeopardize our individual financial security. Economic Turmoil Recently, Congress voted on legislation to respond to the extreme economic turmoil facing our nation. Voting for this measure was very difficult for me. But, this crisis required swift and decisive action, and we in Congress worked across party lines to address it. Ultimately, I voted in support of a measure I believe will help restore confidence in our nation's financial institutions and will take steps to prevent Wall Street's troubles from further affecting ordinary Americans. Among those effects, many Americans have already seen the value of their retirement savings plunge recently due to the volatility in the stock market, and the frozen credit market is already straining small businesses and could impact lending for ordinary Americans. For the last several years, Wall Street engaged in irresponsibly risky lending practices in the hope of making billions of dollars in profit. Today, those actions have caused an extraordinary tightening of credit markets. As a result, individuals living paycheck-to-paycheck could see their credit card limits slashed and interest rates increased. Consumers could also find it harder to get the loans they need to pay for school, buy a car, or refinance a home. This is affecting industries across the board, and our overall economic growth is slowing considerably. Even healthy businesses are finding it increasingly difficult to get short term loans to help with cash flow. This could jeopardize their ability to meet payroll or pay daily operating expenses, and many businesses could find themselves needing to lay off personnel. Though limited access to credit is not affecting all companies at once, it could soon become a larger problem. We are already seeing the consequences of the tight credit market in the monthly increase of the national unemployment rate. Given that credit is the driving force in our economy, this financial rescue legislation is an attempt on the government's part to loosen the credit market and keep our economy from going into a more severe recession. The Legislation H.R. 1424 was signed into law on October 3, 2008. Although the final legislation is not perfect, it is vastly different from the Bush Administration's initial request for a "blank check." This bipartisan compromise includes greater protections for taxpayers, strict oversight and new regulations that will limit executive pay, and measures to help ordinary Americans at risk of foreclosure. Specifically, H.R. 1424 will enable the Department of Treasury to purchase problematic assets from financial institutions so that banks may continue providing loans which are essential to economic growth. Of the $700 billion authorized for this use, $250 billion is already available and another $100 billion will be available upon a presidential certification of need. All of these actions are subject to Congressional review, including the release of the final $350 billion. Three separate oversight entities will closely monitor the Treasury Department's implementation and management of the plan. A board appointed by bipartisan leaders of Congress will have the authority to overturn the Department of the Treasury's decisions, and a new Inspector General will monitor all decision made by the Treasury Secretary. The Government Accountability Office will also conduct audits to prevent waste, fraud, and abuse. The bill establishes meaningful judicial review of the Treasury Secretary's actions, and requires that all transactions under this plan be posted online for the public viewing. In addition to selling back assets assumed by taxpayers once the markets stabilize, the plan will reimburse taxpayers through partial ownership in participating companies and other measures that will recover assets from Wall Street corporations to cover potential losses. If the cost to the taxpayers is not paid in full within five years, the legislation directs a future President to deliver a plan to Congress to recover the remaining costs from Wall Street firms. For companies who sell their troubled assets to the federal government, the legislation also limits top executive pay and eliminates multi-million dollar golden parachutes, or contracts which direct the payment of large benefits in the event a company is acquired or the executive is terminated. In order to help average Americans, the bill includes provisions to address foreclosures and greater protection of deposits. H.R. 1424 requires the Treasury Department to draft a plan to require that government-owned mortgages in danger of foreclosure be diverted to loan workout programs to prevent the foreclosures that are driving down home values across America and encourage financial institutions to do the same. Another provision increases the Federal Deposit Insurance Corporation (FDIC) deposit insurance limit from $100,000 to $250,000 through 2009. The Work Ahead As I mentioned previously, H.R. 1424 is meant to address the immediate problems facing our economy. This does not mean that those who caused this situation will not be held accountable. The House Oversight and Government Reform Committee is holding hearings throughout October to examine the regulatory mistakes and financial excesses that led to the market breakdowns on Wall Street. The first two hearings were held the week of October 6th to determine what led to the bankruptcy filing by Lehman Brothers and government intervention for American International Group (AIG). Hopefully, the findings of these hearings will guide necessary legislative action during the upcoming months. Other Congressional Committees holding investigative hearings include the Budget Committee, the Education and Labor Committee, the Ways and Means Committee, the Joint Economic Committee, and the Transportation and Infrastructure Committee. It is clear that the House of Representatives will continue to focus our efforts on both accountability and economic recovery. The Federal Bureau of Investigations (FBI) has also begun investigations into possible fraud involving the four giant corporations at the center of the financial crisis — Fannie Mae and Freddie Mac, Lehman Brothers and AIG – including their executives. In addition to the major corporate cases, the FBI has approximately 1,400 open investigations into smaller companies and individuals suspected of mortgage fraud. Beyond holding individuals and companies responsible for the situation we are in today, Congress is also working to bring further relief to the American people. Over the next few months, the House of Representatives is expected to consider further legislation in response to the financial crisis. Among the measures proposed are investments in critical infrastructure to both provide jobs and rebuild our roads and bridges, tax and other relief to stimulate the economy and assist those who have lost their jobs, and a temporary relaxing of some laws to help individuals facing financial difficulties as a result of the devaluation of their retirement and education investment accounts. Impact on El Paso As a rapidly growing border city, El Paso cannot afford to lose businesses and jobs due to the tight credit market. Though our region's economy has been relatively stable, the national financial crisis has already had an impact on El Paso. An example is the recent halting of the Northeast El Paso housing development project due to lack of financing. Although this legislation wasn't perfect, it was far better than what was initially proposed by the White House. This was a extremely difficult vote for me; however, not taking action would have been very detrimental not only to our country but also to El Paso, and for those reasons I supported legislation to help alleviate the current financial crisis and to restore needed oversight of Wall Street. Please contact me or my staff if I can be of further assistance. Also, please visit my website, www.house.gov/reyes to sign up for my email newsletter, learn about my recent activities, and obtain information on federal programs. Sincerely, Silvestre Reyes Member of Congress

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