Tuesday, August 26, 2008

Fair Tax my A$$...

A friend sent me one of those emails that always seems to make the democrat out to be a greedy pro-tax urchin and the conservative to be a friend of the poor downtrodden welder, specifically related to FairTax.org...so I sent him this...

I'm sending this from my personal email so I don't lose my job... and its a Big, long email…get ready.

That is a pretty propagandized email, pretty one sided toward McCain, and not very factual for either candidate. I’m still waffling on who I’ll support. I always liked McCain, but he’s being deluded by the religious right too much. Republicans need to shake those crazy people loose. I disagree strongly with Obama’s proposed increases and revisions to capital gains and estate taxes, because I have a lot to lose, and because that money that I stand to inherit isn’t mine, rather it belongs to my family. That’s Baby’s money. I like Joe Biden and I think he will add a good deal of moderation to some of those proposals. Remember that Biden wanted to make personal finance responsibility an issue back when he supported legislation that would make it harder for folks to declare bankruptcy to shed credit-card debt. I’m big on fiscal responsibility.

I’ll hold judgment until I find out McCain’s running mate, but I think the god-mongers will dictate who he picks and that will end it for me. If he bucks the pressure, makes a maverick decision like the ones he’s been known to do for 30 years, and picks Lieberman or maybe Romney, and I’ll think about it…

I consider myself a social lefty and a fiscal conservative. That said, I think that our government is universally burdened by a lot of crap that I shouldn’t have to pay for, but I do not believe in the Fair Tax Plan either. I think most people who like the idea of the Fair Tax can only see the trees and not the forest. For you and me, Fair Tax wouldn’t realize much of a savings, and considering our penchant for buying cool new cars and satellite radio and I-pods and crap like that, we may actually pay more! Where Fair Tax fails, and where the money lost would hurt the most in government budgets is taxes on the rich and super-rich. Fair Tax cannot possibly re coupe the tax responsibilities of the Bill Gates and the Warren Buffets and the Paul Allens of the world, based solely on their purchases. Bill Gates was on NPR a few years back (when he made a record contribution to the UN and announced the formation of the Bill and Melinda Gates Foundation) explaining that he makes more money on interest than he could possibly spend in a year so why not donate it to a worthy cause? (Unfortunately, most rich do not make donations unless a tax benefit on income is involved.) Why wouldn’t we tax him as heavily as we do? He directly benefitted way long ago from small business development grants and local government assistance dollars for small businesses…programs which would suffer under Fair Tax cutbacks, and now I think it’s perfectly fair to assume that he needs to pony up and kick in for the next round of Steve Jobs and Larry Ellisons…it’s a good investment.

So in my estimation the net effect of Fair Tax would be…

1 - You and I would still have our burden, similarly unchanged from today only paid out incrementally as we bought milk and eggs and I-pods and 20 inch rims and EWRs. If we stopped buying toys, regressive taxes like sewer fees and storm water runoff fees and garbage collection fees, would take the place of direct tax dollars and we’d be paying anyway…only more, because…

2 - …The super rich wouldn’t pay nearly as much as they do now, (even though by Gates admission he can’t spend it fast enough) greatly reducing cash-flow at the federal level, because...

3 - You can only be taxed so much for purchasing a Bentley before nobody would ever buy a new Bentley again. Used luxury goods would be bought and sold at fudged prices to avoid taxation. New big-ticket products would languish unsold and become undervalued. Companies which drive valuable and strategic subsectors of the economy like shipbuilding…Boston Whaler and Hunter Yachts, and aviation…Cessna, Embraer and CRJ jets, would suffer because only used private yachts and jets would sell. In order to ensure the economic viability of new product manufacturing, and fair market pricing of existing goods and services, there would have to be some huge government machine created to make sure that private transactions for second hand items were properly valued and that Fair Tax was collected accurately…just another IRS with a different set of initials for us to hate. The government would still be heavily involved in collecting money from each of us. It is inescapable.

4 – Non-profit donations would dry up without the opportunity for income tax deductions. If I can’t write off my annual contribution to the United Way that I authorize my employer to make on my behalf, if that isn’t a pre-tax contribution, then I ain’t making it. Humane Society, MADD-SADD, NAACP, ACLU, WWF, Greenpeace, Amnesty International, hell even Fair-Tax.Org, would all be broke and done, whether we liked them or not. We mock the ACLU and Amnesty, but can you imagine being jailed for saying something unpopular and protesting in public and having nobody come to your aid? I like having non-profit watchdog organizations monitoring the actions of my government. It makes me feel safe at night when I know that unchecked government monitoring of my phone-calls, movements and conversations are called into question publicly by heavy-hitters like the ACLU. Tax deductable contributions fund many things that I cannot even fathom not having around.

5 – And finally…The real issue would still go unaddressed. Pay special attention here, because this is important...Middle-Americans feel like we pay too much for government programs which we, sitting in the comfort of our air-conditioned homes and drinking our glamour beers, feel are abused. We don’t want to fund an abused welfare system that gives single mothers more dough if they have more kids, rather we want people to get off their butts and get jobs. We don’t want to hear about our tax dollars going to abused federal funding mechanisms like Community Development Grant initiatives and Federal Housing programs and burdensome correctional reform programs and illicit drug use interdiction initiatives and many other government programs that we as mainstream Americans have what we believe is very little need for supporting and even less direct benefit from funding. Unfortunately, the perception, accurate or not, right or wrong, is that these programs support chiefly minority populations in our country. And therein is the rub…No elected official in our representative government would ever stand on the floor of the House of Representatives and say that which the frustrated taxpayer who is pushing for reduced tax burden would never say publicly for themselves…I’ll let you fill in the blanks with the rest of it because I think its pretty self evident what descriminating issues I’m getting at… This is where efforts like Fair Tax get traction. There's this perception that we will only pay for what we use under FairTax, and the reality is just the opposite. There will still be public insistance, and politicians who cow-down to it, that support be given to social concerns like welfare and food stamps for the 'lazy', no matter how abused the program is, and we as middle class americans will lose direct support of the institutions we use, and our standardized services will become fee-based regressive taxes to take up the slack. Welcome back to 30% taxes.

In short, “my friend” (as McCain is apt to say) Fair Tax is a hoax. A ruse. There will still be bills to pay for our government services. Roads will be needed, and schools will be needed, and the military will still be needed. Social programs will also live on…because in the end, politicians like the rest of us that they represent, will still fund programs that middle America sees as coddling the lazy and inept among us because no politician would commit political suicide to refuse to. Just as no American would put a sign in their yards claiming first hand responsibility for saying what and who they would and wouldn’t support funding for either.

I am against new taxes for retirement accounts, and changes to capital gains on investments related to family wealth inherited from generation to generation, but I do not see the harm in increasing taxes on gasoline, homes over 2400 (I actually think it is 2800) square feet, and tax increases for resource consumptions and services like water usage and sewer and garbage collection. I think the country would be better off if we took more responsibility for our individual environmental impacts on our own accord and out of our own sense of community responsibility, but that’s not the way modern America thinks. Forcing people to behave responsibly, like a mandated speed limit and a minimum drinking age, seems to be the only way that Americans are held accountable for their individual costs as citizens. We all want school but nobody wants to pay. We all want clean air and water and but nobody wants to pay. We all want to end homelessness and hunger and all those other bleeding heart feel good issues, but nobody wants to pay. Sorry man…somebody has to pay, and sometimes, it is in fact for something that we just may not like, in addition to that which we desperately need.

Here's a good example. Under the current structure, I give Kenn and Jay $1100 for a new EWR. They make money and declare their income and the government gets paid and some of that goes to policies that I don't agree with, but a good many that I do. Under Fair Tax...I would pay $1353 for my EWR...$1100 and $253 (23% in FairTax) in taxes. Nearly 1400 bucks!!! ERRRRRR! Sorry, but for that money I'd buy a used Fat Chance, lie about how much I paid for it to duck the Fair Tax, have the frame repainted and repaired as needed in some simplified barter system where no money traded hands but rather I just did some guy a favor using my own skills and had him do the frame work, again to duck the Fair Tax. Then, the government gets nothing, begins to lose money on things like police protection, transportation, trash collection and education, and now I get hit with a pure regressive tax like a drug abatement civil security fee for police funding, or an increased license fee for my car for road construction, or a book and library fee for the school, or a trash collection fee for my garbage. Wheres the improvement? The provision of government services still COSTS MONEY. That won't go away. Tax burden won't go away.

The Fair Tax website has this little nugget in there...which I think is telling. "...at some point, the voice of the people will eclipse the voices of the relatively small number of Washingtonians who profit working the income tax system at great cost to the nation. Enactment of the FairTax will require an activist citizenry and a resurgence of what has been too often forgotten--public policy can and should be driven by the public. All that is required is that we all dare to be fair and remind our elected officials that they work for their constituents." Yeah right. Sure. ...and suddenly politicians will become that much more in-tune with the individual constituant. That just isn't possible, because the reality is pretty clear, politicians speaking for us all in Washington and in our local governments are an average of the feelings and goals and wants of all of us. The reason they seem watered down and full of shit is that they are speaking at any given time for millions of very different people. That's just the compromise of representative government.

Don't even get me started on the 16th amendment. "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." That's a pretty well crafted sentence...Basically it says that I don't care who the hell you are or where you live, you're going to pay for your government, a government that tries to balance the needs of 350,000,000 people. It cannot address you alone. If you ever feel completely at ease with the policies and direction of your government, Matt...Run. Run away! I'll be right behind you, because something is terribly wrong.

Fair Tax is a ruse.


ctyankee said...

That's a lot of political vitriol for a Tax issue.

While I see your concerns, I believe you need to re-evaluate your conclusions a little more objectively.

Or are you saying that you have established a plan to avoid taxation under the FairTax and assume that everyone else in the US would behave exactly as you anticipate.

See you made some statements that show your lack of familiarity with the people you claimed to represent.

Used Luxury Goods -- is more of an oxymoron than you realize.

The industries you say will be destroyed are operating under the current system with all the embedded tax surcharges simply passed along in the higher finished price of goods.

Charities pay embedded taxes in every box, bag, pallet, and salary... Hospitals, pass the taxes along to the insurance companies, now and will continue to do so under the FairTax.

You are hung-up on exemptions, because without them the people would have revolted under the Income Tax **YEARS** ago! So you feel the FairTax must apply the same pacifiers of be doomed from the start.

If that's your logic, please at least say so -- don't hide & couch your objections in lies and accusations.

Utahdog! said...

You started off pretty sweet and engaging and then perverted your response into a good bit of mindless mud-slinging of your own. You've made your misguided decision...there's no need to try to take my hand and lead me out into traffic with you. Hiding and couching objections? Lies and Accusations? Please.

Steve said...

What?? You're even THINKING about voting for McCain? Romney? Lieberman??


DavidFL10 said...

We don’t know each other and I hope you don’t mind me posting here. I troll for mentions of the FairTax and try to refute inaccuracies where I can. You and I come from the same prospective of social liberal, fiscally conservative. I’m trying to decide between Cynthia McKinney and Bob Barr now, but when the presidential race began, I supported Mike Huckabee beginning after the debate in Columbia. However, I took a job as the Florida Director with my second choice, Mike Gravel (He was the angry old guy on the end at the early Democratic debates). On opposite sides of the spectrum on social issues, they both support the FairTax because it truly is what it claims to be—fair.

You state: “For you and me, Fair Tax wouldn’t realize much of a savings…and…may actually pay more!”
You’re correct that for most honest people, the bottom line is a wash. The difference in most cases comes down to the level of discrepancy between what someone actually has available to spend compared with what he admits to the government he made. For more than a third of Americans who have too few exemptions to itemize, the discrepancy is miniscule thanks to employer reporting laws. The discrepancy grows for those who work under the table, hide big chunks of their income, or earn the money illegally in the first place and are barred from reporting it even if they wanted to for some reason (grin). I was kind of amazed when I started filing schedule “C” and “E” on my taxes how easy it was to fudge the numbers here and there to increase my refund check.
When the American income tax was first conceived in the dawn of the 20th century, the consumption-based system Americans struggled under had been so badly corrupted by the wealthy (tariffs and excises were consistently higher on goods used by commoners than on goods used by the elites) that a complete paradigm shift was needed. Teddy Roosevelt, a great environmentalist, social liberal, and fiscal conservative, said in support of the new tax proposal:
I speak diffidently about the income tax because one scheme for an income tax was declared unconstitutional by the Supreme Court; while in addition it is a difficult tax to administer in its practical working, and great care would have to be exercised to see that it was not evaded by the very men whom it was most desirable to have taxed, for if so evaded it would, of course, be worse than no tax at all; as the least desirable of all taxes is the tax which bears heavily upon the honest as compared with the dishonest man.

You state: “Where Fair Tax fails…is taxes on the rich and super-rich.”
It is my contention that the rich and the super-rich have been able to manipulate the income tax system to such an extent today that a complete paradigm shift is again needed. Furthermore, the super rich have been able to confuse the concepts of wealth vs. income. I’m not a “soak the rich” kind of guy, but if there is any benefit to that idea, it seems to me the ones who deserve soaking are the already wealthy living idly on old money as opposed to those working hard to become wealthy as our system does now.
Warren Buffet admitted freely that because of the numerous exemptions and write offs, he paid a significantly lower effective tax rate than did his secretary. Which do you think spent more on new goods and services and thus would have paid a higher percentage under the FairTax?

To your specific points:
1 – I don’t know exactly where you are set financially, but I know I would benefit greatly under the FairTax. For background, my partner and I spend just under two times the poverty rate for our household size. We are nowhere close to rich, but after we pay the mortgage and back debt, we can afford food, shelter, and other necessities like cable TV. Taking into consideration that the prebate untaxes us to poverty spending, we’d pay 23% tax on our above poverty spending for an effective rate of 11.5% give or take. So far, that is close to a wash as our effective rate including payroll taxes was just under 11% last year. The difference is in how we spend the money we make. We have $22,000 in credit card debt that we will be able to pay off with completely untaxed dollars under the FairTax system. We live in a home that was previously occupied and intend for the next one we buy to be likewise “used”. Instead of just getting to write off the interest on our home, we will get to make the entire mortgage payment with completely untaxed dollars. We can’t afford an Ipod, have little interest in 20 inch rims, and have no idea what an EWR is.
The bottom line for my family is that almost half of our spending goes to old debt or house payment and wouldn’t be taxed under the FairTax. The half of our spending we do spend on new goods and services will be compensated by the prebate. We would be almost completely untaxed until such time as we get out of debt and actually start spending more on the new goods and services we wish we could afford.

2 – You are mixing wealth with income. So much of Gate’s income is tied to Microsoft stock that if Microsoft were to have a bad year and the stock lose value, Gates may have zero or negative income in a particular year. Do you think his spending will decrease? I believe there are far fewer people who spend a lot less than they make than there are people who spend a lot more than they tell the government they make.

3 – You don’t have to fudge prices on used goods to avoid taxation. The FairTax will be paid once to the end user. If a company is selling Bentleys at a loss to help the end users pay less in taxes, that company will soon go out of business. If the same person closes a number of losing businesses, I certainly hope the sales tax authority of his state notices and gets suspicious.
There will certainly be some transition bumps, but there are trade offs for these companies also. You are correct that the transition may hurt a yacht maker without an overseas market, but new yachts, planes and cars manufactured in this country will have a huge boom in exports. For the first time, they will have neither corporate taxes nor matching payroll taxes and will pay less for their raw materials because corporate and payroll taxes have been removed from the entire supply chain. They will be able to lower prices and/or increase profits that way.
I would rather have the taxes collected by each individual state. At least that way, I will have the chance to a) change the way it works with my vote for state legislature, b) move to a different state or c) at least have a higher authority to appeal to in the Federal government if I feel I’ve been wronged.

4 – I disagree completely that non-profit donations would dry up without the opportunity for income tax deductions.
Under the current system:
If you itemize your taxes,
keep records of all donations,
donate only to registered "non profit" organizations,
follow all the rules
and donate less than 50% of your adjusted gross income,
you can donate with dollars you paid payroll tax on, but not income tax.
Under the FairTax, you don't pay payroll or income tax. You are taxed only when you as the end user buy something. You are free to give your money away to anyone you please, registered or not, completely without tax consequence. It may be true that donations from major donors to major established non-profits may go down--mostly due to perception instead of actual savings. If you’re in the 30% tax bracket today and give United Way $1000, you save just under $300 on your taxes. There is indeed incentive there, but you've still shelled out $700 extra to avoid paying $300 to the government. What will go up far more under the FairTax is giving from individual to individual or to organizations that do good work, but have never gone through the hassle of setting themselves up as registered not-for-profit organizations. There is no stronger correlation for amount of giving than what one has available to give. The FairTax removes the income taxes and will allow us to have more money in our pockets. What do you think that will mean?

Besides, if you've ever worked for a "non-profit" organization you know they have lots of restrictions on what they can and cannot do and say. I've seen a church lose its non-profit status because someone in the pulpit accidentally used the phrase "vote for" instead of "support" when talking about a particular candidate. Volunteers for Americans for Fair Taxation are allowed to tell other FairTaxers which candidates do and do not support HR25, but the national organization could lose their status if a volunteer leader (even in a different state) actually recommends one candidate over another. All that arm-twisting by the government goes away under the FairTax.

5 – And finally…I can’t dispute any of that. The FairTax does not address spending and any supporter is indeed incorrect if she thinks it will, in and of itself, change patterns of spending. My counter to that is to again bring up how much cheating goes on under the current tax system and why.
It has been empirically proven that human beings will freely give “stuff” away (even to the point of sacrifice) if they believe that the burden of giving is fairly distributed among those who have and fairly distributed among those in need. Everyone knows there are huge inequities in the current system—specifically on the “giving” side. Nobody believes it is equitable or fair. Even progressives who would freely choose to give more to the programs they espouse feel perfectly justified in making sure their tax burden is as low as possible.
I envision a taxation system under the FairTax that will become to be regarded as evenly split among those who have and also completely protects from taxation those who are in true need. I may be more optimistic about human nature than you, but I believe under such a paradigm, the compulsion to cheat on one’s taxes will be less and the stigma of someone trying to get away with buying or selling on the black market will be higher because the honest folk will know that it is only the criminals and dishonest who do so.

I still don’t know what EWR is (from a Google search of “EWR & Fat Chance”, I think it has something to do with bicycles) but it doesn’t matter. Your premise is you are willing to give away something that costs you $1100, but not if you had to pay 23% sales tax on the same item. Let’s examine that. Under the current system, how much do you have to earn to have that $1100 to give away? Include payroll taxes and income tax, (but not state tax because that won’t change), and if you’re self-employed count both sides of the payroll tax. Is that number pretty close to $1353? It’s a wash and only a matter of perception that the tax is associated with the EWR and not the money. But maybe the perception isn’t all that bad. Will that used Fat Chance end up in a landfill if you don’t reuse it? Would Kenn and Jay be just as well served with a used item? I don’t know what you mean by “lie about how much I paid for it to duck the Fair Tax”; if it’s used, no taxes regardless of honesty about the price. There are provisions about collecting the tax on bartered transactions to go after businesses over using the practice, but in cases where the amount fails to meet the deminimous exemption of $500 per year, it would likely not be relevant here.
I forget the exact statistics, but fewer than 100 corporations handle something like 80% of the sales of new goods and services. These companies will have no incentive to help the consumer cheat on his taxes. If every single other small business cheated 100%, we would already have a higher compliance rate than the current system.

And finally, if you ever feel completely at ease with the policies and direction of your government, save an extra room for a complete stranger from Florida.

Utahdog! said...

davidfl10, you are welcome to post responses here to any blog entry I make. I may not agree with you, but the discussion is good for all of us. Thanks for your input!

DavidFL10 said...

I thought if you didn't respond to anything else in my post that you'd at least fill me in on what a EWR is.

Utahdog! said...

Its a bike company. Eastern Woods Research.