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Is making taxes "fair" the answer? Congressman John Linder's FairTax legislation would change the method used to collect taxes without changing the amount. Is this what the American taxpayer really needs?



[ILLUSTRATION OMITTED]

Although tax season has come and gone once again, the various proposals for tax reform are still with us. These tax-reform plans, even though they appear outwardly out·ward·ly  
adv.
1. On the outside or exterior; externally.

2. Toward the outside.

3. In regard to outward condition, conduct, or manifestation: outwardly a perfect gentleman.
 to be quite different, have one thing in common that dooms them from being taken seriously by advocates of liberty and less government: they are all revenue-neutral plans seeking the most fair and efficient way to fund the federal government's ever-increasing, multi-trillion-dollar budgets.

The current federal tax code found in the 20 volumes of Title 26, "Internal Revenue," of the U.S. Code A multivolume publication of the text of statutes enacted by Congress.

Until 1926, the positive law for federal legislation was published in one volume of the Revised Statutes of 1875, and then in each sub-sequent volume of the statutes at large.
 of Federal Regulations is a complex, intrusive monstrosity monstrosity

1. great congenital deformity.

2. a monster or teratism.
. With its progressive brackets (10, 15, 25, 28, 33, and 35 percent) and refundable tax credits, it is used to redistribute re·dis·trib·ute  
tr.v. re·dis·trib·ut·ed, re·dis·trib·ut·ing, re·dis·trib·utes
To distribute again in a different way; reallocate.
 wealth while funding the interventionist welfare/warfare state. Since the surest way to return the size, scope, and cost of the federal government to its proper constitutional authority is to cut off its funding, there is no question that most of the tax code needs to be substantially eliminated and the rest radically overhauled. But could the cure offered by a tax-reform plan be worse than the diseased federal tax code it is designed to replace?

Gaining Momentum

Judging from its well-organized and highly vocal supporters, chief among tax-reform proposals would have to be the FairTax, a progressive national retail sales tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. . The FairTax is the brainchild of three businessmen concerned about the crippling effects on the economy of the current federal tax code. After adopting the name "FairTax" for their tax-reform plan, they formed Americans for Fair Taxation Americans For Fair Taxation (AFFT), also known as FairTax.org, is the United States' largest, single-issue grassroots organization dedicated to fundamental tax code replacement.  in 1997 and enlisted Representative John Linder John Elmer Linder (born September 9 1942), American politician, has been a Republican member of the United States House of Representatives since 1993, representing Georgia's 7th congressional district (map).  (R-Ga.) to introduce FairTax legislation in Congress. Linder first sponsored the "Fair Tax Act" in the House in July of 1999, and has reintroduced a FairTax bill at the beginning of every term of Congress since then.

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The current incarnation of Congressman Linder's FairTax is H.R. 25, the "Fair Tax Act of 2007." The bill has 70 cosponsors, including former presidential candidates Thomas Tancredo (R-Colo.) and Duncan Hunter (R-Calif.). Notably absent from the list of cosponsors is Representative Ron Paul (R-Texas), widely acknowledged as the taxpayer's best friend because of his consistent voting record against unconstitutional spending. Although the FairTax bill is currently languishing lan·guish  
intr.v. lan·guished, lan·guish·ing, lan·guish·es
1. To be or become weak or feeble; lose strength or vigor.

2.
 in the House Committee on Ways and Means WAYS AND MEANS. In legislative assemblies there is usually appointed a committee whose duties are to inquire into, and propose to the house, the ways and means to be adopted to raise funds for the use of the government. This body is called the committee of ways and means.  (as it does each time it is introduced), the FairTax itself has been in the news of late because of its support by two prominent individuals: Mike Huckabee This article or section contains information about one or more candidates in an upcoming or ongoing election.
Content may change as the election approaches.
 and Neal Boortz Neal Boortz (born April 6, 1945), is a U.S. Libertarian talk radio host and commentator. His radio show, The Neal Boortz Show, is based in Atlanta, Georgia and is nationally syndicated by Cox Radio, the Jones Radio Networks and is the sixth for overall listeners with 3. . Former Republican presidential candidate Mike Huckabee was a vocal supporter of the FairTax during his presidential campaign. Radio talk-show host Neal Boortz is the author, with Congressman Linder, of the recently published FairTax: The Truth, Answering the Critics (2008), which is a sequel to their previously published The FairTax Book (2005).

The FairTax is a progressive, revenue-neutral consumption tax in the form of a national retail sales tax on all services and the final sale of all new goods. Services such as tuition and job-related training courses are exempt. All other services are subject to the FairTax, including medical procedures, funeral services funeral service nmisa de cuerpo presente

funeral service nservice m funèbre

funeral service funeral n
, rent, and haircuts. Purchases for business or investment purposes are exempt. The FairTax is only levied on new goods, but the tax is absolute--nothing is exempt. This means that new construction, new cars, food, and all Internet purchases of new goods would be taxable.

The FairTax is designed to replace the personal income tax, corporate income tax, estate tax, gift tax, unemployment tax, alternative minimum tax, Social Security tax, and Medicare tax. Under the FairTax proposal, there would no longer be taxes on capital gains, interest, dividends, gambling and lottery winnings, self-employment earnings, or income of any kind. But there would also no longer be tax deductions Tax deduction

An expense that a taxpayer is allowed to deduct from taxable income.


tax deduction

See deduction.
 for home mortgage interest, charitable contributions charitable contribution n. in taxation, a contribution to an organization which is officially created for charitable, religious, educational, scientific, artistic, literary, or other good works. , casualty or theft losses, and medical expenses. Additionally, the FairTax does not eliminate tariffs, federal excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. , special federal taxes on things like airline tickets, or any state and local taxes.

The FairTax system includes a monthly payment from the federal government to all households to reimburse them for the sales tax paid on basic necessities. The amount of this "prebate" is based on the government poverty level and family size. Initially, a family of four would receive a monthly rebate of $525. The prebate is not in any way based on income; Bill Gates (person) Bill Gates - William Henry Gates III, Chief Executive Officer of Microsoft, which he co-founded in 1975 with Paul Allen. In 1994 Gates is a billionaire, worth $9.35b and Microsoft is worth about $27b.  would even get it.

The appeal of the FairTax is quite obvious: no more complex tax code, no more taxes withheld from paychecks, no more 1040 forms, no more record keeping, no more compliance costs, no more business decisions based on tax consequences, no more social engineering with the tax code, no more IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  audits of individuals, no more April 15, etc. The prebate merely sweetens the deal.

Since the FairTax, like all current tax-reform plans, is revenue neutral, it is predicated on the supposition that any tax-reform plan must allow the federal government to raise the same amount of revenue that it does currently. This means that rather than lowering the overall tax burden of the American people An American people may be:
  • any nation or ethnic group of the Americas
  • see Demographics of North America
  • see Demographics of South America
, the total amount of taxes the federal government extracts from the citizens of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area.  would be the same as it is now. All federal programs, all federal agencies, all federal projects, all earmarks, all pork-barrel spending--they would all continue just as now. Thus, Congress can continue its spending orgy while appearing to lower taxes. Put another way, the FairTax is meant to allow the federal government to confiscate To expropriate private property for public use without compensating the owner under the authority of the Police Power of the government. To seize property.

When property is confiscated it is transferred from private to public use, usually for reasons such as
 the wealth of its citizens more efficiently. The FairTax also shifts the debate from how much wealth the federal government confiscates to the manner in which it is done.

The FairTax perpetuates the fallacy fallacy, in logic, a term used to characterize an invalid argument. Strictly speaking, it refers only to the transition from a set of premises to a conclusion, and is distinguished from falsity, a value attributed to a single statement.  that the government has a right to confiscate a percentage of the value of each new good sold and every service rendered. This is no different than claiming that the government has a right to the portion of each American's income that it takes under the current system. As the late economist Murray Rothbard Murray Newton Rothbard (March 2, 1926 – January 7, 1995) was an influential American economist, historian and natural law theorist belonging to the Austrian School of Economics who helped define modern libertarianism.  explained:
   The consumption tax, on the other
   hand, can only be regarded as a payment
   for permission-to-live. It implies
   that a man will not be allowed
   to advance or even sustain his own
   life, unless he pays, off the top, a fee
   to the State for permission to do so.
   The consumption tax does not strike
   me, in its philosophical implications,
   as one whit more noble, or less presumptuous,
   than the income tax.


The FairTax is also a highly progressive system--perhaps even more so than our current system according to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3.
 FairTax advocate Neal Boortz. Thus, like the present system, it favors "the poor" over "the rich." Although everyone would pay the same rate under the FairTax (when purchasing goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. ), many Americans would pay no taxes at all, and many more would have most of their taxes offset, thanks to the monthly prebate.

Tricky Diction

Mathematically, the FairTax just doesn't add up. The stated rate of the FairTax is too low to achieve revenue neutrality, and the amount by which prices would fall under a FairTax system--because of the removal of the cost of taxes that are currently embedded Inserted into. See embedded system.  in the price of all goods--has been grossly exaggerated.

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The rate of the FairTax is always given as 23 percent. Sometimes the caveat is added that the rate is figured inclusively (the tax is included in the price of the product) rather than exclusively (the tax is added to the price of the product). But how many pick up on the caveat and how many are fully aware of the FairTax promoters' sleight of hand sleight of hand
n. pl. sleights of hand
1. A trick or set of tricks performed by a juggler or magician so quickly and deftly that the manner of execution cannot be observed; legerdemain.

2.
 in how they calculate the tax in practical terms?

Suppose you buy a $1.00 item, though, admittedly, there's very little you can buy these days for $1.00. If a 23-percent tax is added to the cost of an item, you'd expect to pay a total of $1.23. But that's based on calculating the tax exclusively--not how the FairTax would be calculated. The FairTax would be calculated inclusively, meaning that 23 percent of the total cost of the item would have to be applied to the FairTax. For that to be the case, a $1.00 item would actually cost $1.30 when the FairTax is applied--the additional 30 cents (or 30 percent) being 23 percent of $1.30.

Wouldn't it be simpler to understand if the FairTax were promoted as a 30-percent tax as opposed to a 23-percent tax that's calculated inclusively? Of course it would be, but it wouldn't be as marketable. Obviously, it is much easier to sell a national sales tax if the rate is "only" 23 percent. The fact remains, however, that under the FairTax system, everyone will pay an extra 30 cents on the dollar to purchase a new good or service regardless of whether he thinks the rate is 23 or 30 percent. And in spite of what the rate may in fact be, some economists don't think that either of these rates would be high enough to make the FairTax revenue neutral. The FairTax also artificially broadens the tax base by requiring governments to pay taxes on goods purchased and salaries paid. This results in the absurdity of the federal government paying taxes to itself.

Although it seems like the exchange of most federal taxes for the FairTax would lead to higher prices on all new goods and services because of the imposition of a national sales tax, FairTax proponents claim that the removal of embedded taxes would result in the prices of goods and services falling by enough to offset the amount of the FairTax imposed. However, this would not be the case. Advocates of the FairTax are correct that the current price of consumer products includes embedded taxes, but they are mistaken concerning their amount and their effect if removed. There are just not enough embedded taxes to be removed to offset the FairTax. Personal income taxes, which account for almost half of all federal revenues, are borne by consumers, not embedded in product costs. The FairTax would not eliminate any excise taxes embedded in the costs of goods. It is mainly corporate taxes and the employer share of social insurance taxes that are embedded taxes. And although we can be certain that retail prices will increase by 23/30 percent under the FairTax, we don't know Don't know (DK, DKed)

"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.
 with any certainty how much they will decrease after the embedded taxes in the price of goods are removed.

But, it could be argued reasonably by FairTax proponents that even if the costs of goods and services go up somewhat after the imposition of the FairTax, the combination of higher take-home pay take-home pay
n.
The amount of one's salary remaining after federal, state, and often city income taxes and various other deductions have been withheld.
 (because of the elimination of withholding taxes The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. ), the prebate, and the elimination of the costs of complying with the tax code will result in a lower overall tax burden. Well, to begin with, this assumes that the stated rate of the FairTax would be high enough to achieve revenue neutrality--a very dubious proposition. Secondly, since state and local governments would have to pay taxes to the federal government under the FairTax, they would have to raise their taxes to cover the new taxes they would have to pay, thus increasing the overall tax burden. Thirdly, the federal government would have to come up with an additional half a trillion dollars to pay out the prebate. Since the prebate is not included in the federal budget right now, the overall tax burden would have to increase by the amount of the prebate. And then there are the extra billions of dollars that the federal government will need to pay the FairTax to itself. This means, of course, that the FairTax is not really revenue neutral at all. Finally, there won't be a great savings of : tax-preparation dollars because the FairTax is only a federal tax, and states will still be forcing corporations and individuals to prepare returns.

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Auditing the FairTax

Practically, there are a number of problems with the FairTax as well.

First, maintaining that the FairTax is a "fair" tax system, or one that is "fairer" than our current system, is highly subjective. As Boortz himself acknowledges in his new book on the FairTax: "Whether a tax system is 'fair' is a complicated economic and philosophical question, one that inevitably involves oversimplification o·ver·sim·pli·fy  
v. o·ver·sim·pli·fied, o·ver·sim·pli·fy·ing, o·ver·sim·pli·fies

v.tr.
To simplify to the point of causing misrepresentation, misconception, or error.

v.intr.
 and subjective judgment."

Second, FairTax proponents have made so many grandiose grandiose /gran·di·ose/ (gran´de-os?) in psychiatry, pertaining to exaggerated belief or claims of one's importance or identity, often manifested by delusions of great wealth, power, or fame.  claims for the FairTax that it is hard to take them seriously. The FairTax, they say, will result in unprecedented economic growth, a tremendous increase in capital investment, substantially lower interest rates, the creation of millions of new jobs, the saving of Social Security and Medicare, the doubling of the economy within 15 years, and the greatest transfer of power away from the government ever seen. It is also claimed that the FairTax is voluntary since one could choose not to purchase a new good and therefore not have to pay any tax on it. But aside from the fact that one cannot purchase used food, the FairTax is a voluntary tax only in the sense that the present system is "voluntary": if one chooses not to earn any income under the current system then one doesn't have to pay any income tax. One must buy things as a matter of course to live in a modern society.

Third, the FairTax eliminates neither the 16th Amendment nor the federal tax code. Nor does it eliminate what is now called the IRS. To repeal the 16th Amendment would require another amendment. And contrary to the claims of FairTax promoters, calling the IRS by another name while redirecting its mission is hardly eliminating it. Just as the income tax would be replaced by the FairTax, so the IRS would be replaced by the "Sales Tax Bureau" in the Treasury Department. The FairTax bill also wouldn't replace the federal tax code. It repeals four subtitles sub·ti·tle  
n.
1. A secondary, usually explanatory title, as of a literary work.

2. A printed translation of the dialogue of a foreign-language film shown at the bottom of the screen.

tr.v.
, redesignates seven others, and adds a new one that implements the FairTax.

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Fourth, adopting the FairTax doesn't mean that the income tax couldn't be re-imposed. Congress might simply decide to resurrect the income tax because it is not politically expedient to raise the rate of the FairTax. This could be sold to the American people by lowering the FairTax rate, reinstituting the income tax, and then claiming that the combination of the two was revenue neutral. And even if the 16th Amendment were repealed, there is nothing preventing Congress from implementing some form of an income tax.

Fifth, the FairTax prebate will give some people more money "back" than they paid in (national sales) taxes, much like the earned income tax credit The United States federal Earned Income Tax Credit (EITC) is a refundable tax credit that reduces or eliminates the taxes that low-income married working people pay (such as payroll taxes) and also frequently operates as a wage subsidy for low-income workers.  does today. Like any refundable tax credit, the prebate is just another income-redistribution scheme.

And sixth, FairTax proponents are very naive to think that Congress wouldn't turn the FairTax into a monstrosity just as hideous as the current tax code. The rate of the FairTax could be raised at any time. The exemptions currently on certain services could be removed. The prebate could be subject to a means test means test
n.
An investigation into the financial well-being of a person to determine the person's eligibility for financial assistance.


means test
Noun
, or simply eliminated for upper-income taxpayers and increased for seniors, the poor, minimum-wage earners, and anyone receiving public assistance.

Reducing Taxes

The fundamental problem is clearly taxation itself, not the tax code. The problem with the code is not that it is too complex, too intrusive, too long, too full of loopholes, too unfair, or too progressive. The problem is that it is used to feed the federal leviathan leviathan (lēvī`əthən), in the Bible, aquatic monster, presumably the crocodile, the whale, or a dragon. It was a symbol of evil to be ultimately defeated by the power of good.  in the amount of almost $3 trillion a year.

Since it is a tax-reform proposal instead of a tax-reduction proposal, the FairTax merely changes the way that taxes are collected. It is an incremental Additional or increased growth, bulk, quantity, number, or value; enlarged.

Incremental cost is additional or increased cost of an item or service apart from its actual cost.
 step toward neither lower tax rates nor lower taxes. And it is certainly not a plan to return the size, scope, and cost of the federal government to its proper constitutional authority. With President Bush's proposed new budget topping $3 trillion and the national debt fast approaching $10 trillion, the need of the hour is clearly to rein in to check the speed of, or cause to stop, by drawing the reins.
to cause (a person) to slow down or cease some activity; - to rein in is used commonly of superiors in a chain of command, ordering a subordinate to moderate or cease some activity deemed excessive.

See also: Rein Rein
 government spending Government spending or government expenditure consists of government purchases, which can be financed by seigniorage, taxes, or government borrowing. It is considered to be one of the major components of gross domestic product. , not change the way the government raises its revenue. FairTax proponents have the proverbial cart before the horse. Their energy is misdirected. As Congressman Ron Paul has remarked on several occasions: "The real issue is total spending by government, not tax reform."

The income tax should be repealed, not replaced. The IRS should be abolished, not given a new name. Tax reform should result in revenue reduction, not revenue neutrality. Because the FairTax falls far short of these goals, it should not be considered a "fair" tax. It should therefore be rejected by all Americans who favor a return to the limited government of the Founders.

Laurence M. Vance is a freelance writer who has reviewed both of Boortz and Linder's FairTax books.
COPYRIGHT 2008 American Opinion Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:TAXES
Author:Vance, Laurence M.
Publication:The New American
Geographic Code:1USA
Date:May 12, 2008
Words:2795
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