What's New?
 This Site
 Organizational Basics
 Systems Thoughts
 Business Applications
 Working Papers
 Social Issues
 Systems Links
 Consulting Links
 ST Class
 Libertarian Objections
 Liberal Moments(SM)
 Political & Economic Links

Get our Bulletin

Home > Politics
The 'Fair Tax'
by Bob Powell, 8/21/07
Printer-friendly page Printer page
Email Page Email article

Mike Gravel Supports What's Called a "Fair Tax"

This is unfortunate. Superficially, it has appeal, but not on looking more closely it's the opposite of fair. It ignores how the world really works.

The "Fair Tax" doesn't address redistribution of costs:

There are two kinds of socialism. Redistribution of income is the one recognized; redistribution of costs is generally not recognized. It's also known as externalizing costs or socializing costs, internalizing profits.

The externalization of costs is one of the main ways corporations make a profit. Get someone else to pay the costs associated with pollution or the costs of unsafe jobs or the costs of roads, schools, police stations, and fire departments needed to support the ability of developers and homebuilders to sell their products. See "Market forces" vs the "free market" and Colorado Springs: A Broken Region.

Corporations are parasites to the extent they can get away with it. Under current law they are illogical to do otherwise; their fealty is to stockholders, not the public. The "fair tax" doesn't address this at all.

The "Fair Tax" doesn't address the need to tax corporations

This "fair tax" even promotes the conservative meme that "Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes." This is from Fair Tax Answer 23. But the idea that corporations should not be taxed is the fiction.

Corporations may be fictitious, but they are LEGAL entities. Under current law (which should be changed) they are persons with all the rights of persons. Corporations selling products and services require the support of common infrastructure and government services. The market can only efficiently allocate resources when the costs of supporting the creation of those products and services is built into all the products people purchase. Different products and services burden common infrastructure differently. Individuals in turn pay sales tax to pay for the services that support their own economic activity. Anyone who believes in "market forces" should know that corporations should also be taxed. See Corporations Should Pay Taxes.

The "Fair Tax" promotes economic inequality

There's an even more fundamental reason the "fair tax" sales tax is a bad idea. See Wealth Happens.

Mark Buchanan, in his April 2002 Harvard Business Review article, describes that sales taxes introduce "resistance" in the transfer of resources from those who have them to those who don't. Sales taxes and no capital gains and dividend taxes promote inequalities of wealth ... we've got enough of that already.

Beyond this, Buchanan notes also from a complexity theory perspective that disparities in wealth happen due to natural dynamics, even when everyone starts out with equal ability and resources. The dynamic he describes is called "path dependence" in system dynamics and "success to the successful" in systems thinking. Just because this is somehow "natural" doesn't mean that it should rule society, even though that's what economic conservatives and libertarians believe.

The "Fair Tax" misrepresents what the Tax Rate would have to be to be Revenue Neutral

The Gravel site maintains that "Best estimates indicate that the rate would be somewhere between 20 and 25%."

But their "tax-inclusive" sales tax rate of ~23% tax is really a 30% "tax-exclusive" sales tax to which we generally refer. And to be revenue neutral, the rate would have to be a "tax-exclusive" sales tax of 56%.

Media Matters - Ignoring Bush tax panel's findings, Boortz again misled on "Fair Tax":

... (In their book, Boortz and Linder said the proposed tax rate is "currently 23 percent" but could be "somewhat lower" [page 76].)
But neither Boortz nor Hannity explained that Boortz was referring to a "tax-inclusive" sales tax rate. As Media Matters for America has noted, inclusive taxes are calculated differently from the "tax-exclusive" sales taxes generally used by state and local governments. In fact, the "23 percent" inclusive tax touted by Boortz would actually be a 30 percent sales tax as most Americans understand it.
Moreover, according to President Bush's Advisory Panel on Federal Tax Reform, to whom Far Tax proponents submitted their proposal, the actual revenue-neutral rate for the Fair Tax would likely be much higher than the 23 percent tax-inclusive (30 percent tax-exclusive) rate touted by Boortz and Linder. In its November 1, 2005, final report, the Advisory Panel noted that the figures provided by Fair Tax proponents conflicted with the calculations of the Bush Administration's Treasury Department:
In their submission to the Panel, proponents of the FairTax claimed that a 30 percent tax exclusive sales tax rate would be sufficient not only to replace the federal income tax, but also to replace all payroll taxes and estate and gift taxes and fund a universal cash grant. In contrast, the Treasury Department concluded that using the retail sales tax to replace only the income tax and provide a cash grant would require at least a 34 percent tax-exclusive rate.

Media Matters - CNN, Fox interviewers left unchallenged and Boortz's misinformation on sales tax proposal

At the heart of Boortz and Linder's proposal lies a bait-and-switch that they have yet to be questioned on -- one that makes their idea far less palatable in truth than in the version they are selling. ...
Boortz and Linder contend that actual consumer prices would not rise under the NRST [national retail sales tax], but regardless, their proposed "tax-inclusive rate" is a 30 percent sales tax as most Americans understand it. But even this 30 percent number probably underestimates what Boortz and Linder's proposal would entail. In fact, in order to meet their requirements, the effective tax rate could be as high as an astonishing 56 percent (tax-exclusive).
Why would the rate be as high as 56 percent (tax-exclusive)? The answer lies in Boortz and Linder's contention that their proposal would be "revenue-neutral" (i.e., it would bring the same amount of money into federal coffers as does the current tax system). While economists disagree about the tax rate necessary to achieve revenue neutrality under Linder's plan, a 2000 study conducted by Lindy Paull of the Congressional Joint Tax Committee (JTC) after Linder first introduced the Fair Tax Act in 1999 placed the revenue-neutral rate substantially higher than Linder's 23 percent. According to the JTC memorandum, dated April 7, 2000, the NRST "tax-inclusive" rate would have to be 36 percent in order to achieve long-term revenue neutrality. Under a 36 percent tax-inclusive rate, the $100 widget would cost $156.25 ($56.25/$156.25 = 36 percent), for an exclusive tax rate of 56.25 percent.

The "Fair Tax" assumes No Black Marketeering

An (exclusive) sales tax of 56% will create major black market sales. It will be a black market business gold mine.

As noted just below the middle of the page at the first Media Matters link above, "Fair Tax" proponents assume there will be no cheating:

The Advisory Panel further stated that Fair Tax advocates "appear to assume that there would be absolutely no tax evasion in a retail sales tax," an assumption that the Advisory Panel called "unreasonable".

The "Fair Tax" is Orwellian

Naming it a "fair tax" when it is anything but makes it Orwellian.

It should make anyone suspicious that a plan is called a "Fair Tax" ... that's just like Bushian naming programs "Clear Skies" and "Healthy Forests" when they're the opposite.

It's called a "Fair Tax" instead of a "national sales tax" ... sounds better. It's not a "Fair Tax" mainly because it's a rich-get-richer plan.

It's no wonder considering who is promoting it. The "Fair Tax" is a "national sales tax" with a "universal tax grant". And considering who invented and backs it: Neal Boortz, a Libertarian ... economically as right-wing as possible  Read some of what Media Matters has to say about him.

Consider who's promoting the "Fair Tax"

Media Matters - Boortz read Media Matters reader comments aloud while again smearing adult minimum-wage earners

On the August 4 edition of his nationally syndicated radio show, Neal Boortz responded to a Media Matters for America item that documented his August 3 remarks describing adult minimum-wage earners as "incompetent," "ignorant," "stupid," "worthless," and "pathetic," by again smearing them. Before referring to Media Matters as "some left-wing, Democrat website" and citing Media Matters' reader comments, Boortz said of minimum-wage earners, "If you are a grown adult in this country who is not suffering from some hideous physical or mental disability, and you are trying to raise children on the minimum wage, then you are a 100 percent pure unadulterated loser. ... I am so sick and damned tired of all those left-wing bedwetters and sympathy pimps out there ... just moaning over these people who have squandered their American birthright by becoming just the dregs of socie[ty]."

He is completely ignorant of, or ignores, the "more people than jobs" policy that forces wages at the bottom to between zero and subsistence level. See There's no 'free market' for Labor. 

John Linder (R-GA), Boortz' co-author, is in Denial of Market Failings

John Linder (R-GA) is in denial of market manipulation. On his site is this on the Role of Government:

The more the government tries to regulate private industries (like electricity), the higher the prices and the lower the supply levels have become.

This is not true. Public power is cheaper. Privatized power companies restrict supply to pump up prices ... Enron did it in CA.

John Linder is in denial of the downsides of what's known as "free-trade." Here he is on Trade:

America must return to our tradition of global leadership for expanded free trade, and not retreat into the mistaken protectionism of the past. We must work to open markets, eliminate tariffs and barriers, and ensure that our nation remains at the forefront of global economic success.

What's actually happening is "reverse protectionism" and the destruction of the U.S. economy. Who benefits most: Corporations, stockholders, and already-overpaid CEOs.

In Summary

There is no way this "Fair Tax" will be constructed to elevate those people that Mr. Boortz describes in a despicable way. He designed this proposal and knows very well it will be regressive and wants it that way. It's a great example of class warfare with the primary goal of eliminating taxes on dividends and capital gains.

URL: http://www.exponentialimprovement.com/cms/fairtax.shtml

Top of Page Top of Page Email this Article Email Article Printer

© 2003 Continuous Improvement Associates
Lies about Socialism
Oppose 2C sales tax increase: Pay for Past Sins; Sin No More
Global Warming & Hurricanes to Utilities Board 9/20/17
Sanctuary City Lies
Global Warming Flooding Threat to Utilities Board - Quit Coal First, 8/16/17
Single Payer Rally Speech 7/30/17
Global Warming Presentation to Utilities Board 7/19/17
Response to Gardner on BCRA: Liar, Pants on Fire
Scarborough Promotes Failed Right-Wing Policies
Cory Gardner's 'Better Care' Betrayal