Fair Tax Not So Fair Afterall

 

For some time now, Americans have been begging and pleading for some sort of tax relief, some taming of the ever burgeoning Internal Revenue Service. Several have tried to come up with new ideas over the years and now, we have what is referred to as the “Fair Tax” recommended and being pushed by a Republican, Linder and a Radio host, Neal Boortz. Have they hit on a good idea or are we just heading for deeper troubles from being over taxed?

 

Like I have repeatedly said, no tax reform is going to work until we get control on the outrageous spending by D.C. The Fairtax initiative has some good points and probably would work, provided the spending by Congress is brought back in control.

 

Washington has a long history of unnecessary taxation that was intended to be temporary. They also pass these taxes off on us by claiming it’s the wealthy that will be paying the largest bulk of them, or all of them. Doesn’t work that way.

 

Currently, there is another effort by some to repeal the telephone tax that was passed in 1898 to finance the Spanish American War. It was billed as a tax on the wealthy, since only the wealthy had telephones back then. We won that war in 4 months and today; everyone in America with a telephone is still paying that tax. The last effort to repeal it was vetoed by Clinton in 2000. For 107 years, we have been paying a tax to finance the Spanish American War. 

 

http://newsmax.com/archives/ic/2005/8/3/111530.shtml

 

Use this as just one example of how we can trust government to stop taxes they love to collect and spend.

 

Another problem I have with the proposal is all the hype about it repeals the 16th Amendment, the Amendment that gave us the Income Tax. Sorry, but it takes a little more than just passing this bill to repeal the 16th Amendment. It requires another Constitutional Amendment to repeal a current Constitutional Amendment. That means a two thirds vote in both the House and Senate and then ratification by a majority of the states over 7 years. In the meantime, even if Income Tax isn’t collected, it’s still on the books and if Congress decides we have a "National Emergency," we could end up paying both.

 

Fairtax is billed as a 23% ‘inclusive’ tax. Please note the use of the word "inclusive." Most of us see a 23% sales tax and automatically think it’s 23 cents on the dollar, like sales taxes are today. According to FAQ on Fairtax.org, number 47, this isn’t the case. It’s actually 30 cents on the dollar.

 

http://www.fairtaxvolunteer.org/smart/faq-main.html#47

 

Supporters do not mention this little known fact prevalently and I would imagine most don’t even realize it. At Fairtax.org, it’s placed near the end of a long list of FAQ. To me, that is being deceptive.

 

This National Sales Tax, as per the 133-page bill being proposed, is only on NEW products. Used and existing things aren’t charged the tax. That being the case, existing homes and cars will become more attractive than ever and greatly preferable because, why buy a new $38,000 car and have $11,000 in sales tax tacked on, when last years model is available for $35,000 and no tax? Provided, of course, that dealers haven’t seen this as a way to gouge extra profits out of you and have the used car priced beyond it’s actual worth but less than the $49,000 you would actually pay for the new car. Same thing with housing. Potentially, this huge tax, even with our paychecks being larger as no withholding will be taken out, could expand the existing home market even more than it is today and actually dry up the new home market due to their being an extra 30 cents per dollar tax added to the new home price that isn’t on the existing home. This, of course, could end up putting a lot of construction workers and autoworkers in the unemployment line.

 

To spur regrowth in those areas, Congress could be inclined to start "exempting" certain purchases from the tax which opens the door to lobbyists and eventually sends us right back to where we are today.

 

Supporters say this will end the IRS. Looking deeper into the bill, it requires an Administrative Authority be set up for collection and overseeing of the program, including seeking out fraud, collections, administering the registering of every "qualified" family for prebates and monitoring each and every seller in America, which also will be required to register with the state authority as sellers and collect and pay the sales tax. Sounds to me like the paperwork and beauracracy we wish to end will just be renamed and given more authority.

 

Back to sellers registering. Each and every seller must be registered as those who sell new items and provide services must charge and collect the tax. It isn’t only on goods, mind you, but on services as well. Will this possibly end up requiring the kid down the street that mows our lawns and the babysitter watching little Johnny when we and Mrs. go out, to register and charge us an extra 30 cents on every dollar we pay them now? I don’t find any exemptions within the bill to exclude them.

 

Bartering is mentioned within the bill as a taxable service as well. This means, we trade labors with a friend and according to the new law, must collect taxes equal to the service we provide our friend.

 

It is also claimed that those engaged in illegal activities will now end up paying tax on their illegal income through purchases they make. Again, they don’t pay income tax now and the bill exclude used and existing items from the tax. Those people already operate under the radar and do you honestly believe they will openly start operating within the radar now? I don’t. They will either purchase from the Black Market that will inevitably be set up or purchase used or existing items, still not paying taxes.

 

It’s also said; again, this tax will be more on the wealthy than the poor. Balderdash. Thirty cents on the dollar for a person making $15,000 a year is a lot harder than on a person making $1,500,000 a year. And again, the wealthy have the ability to simply purchase large ticket items, such as a Yacht, overseas and register it out of the country or by purchasing an existing item, again. The poorer among us are still stuck paying 30 cents on the dollar for small ticket items and sending in their required reports to hopefully regain their tax dollars back every month in the proposed prebate. Oh, and the wealthy also qualify for this prebate, but won’t be nearly as dependent on receiving it.

 

The problems I’ve outlined here are just the tip of the iceberg, I’m afraid. As much as I despise the IRS and Income Tax and want to see them eliminated, jumping off the deep end before looking long and hard at the evident downsides and pitfalls, which are claimed to be non-existent, is suicidal, to me. Like I said above, this tax does nothing to state taxes, which are still to be collected, on top of this tax. I’m fearful we could end up paying double the tax we do today, especially since this bill does nothing to lower spending at the federal level. In fact, the group of economists supporting this bill makes this known in their open letter of support. In it, they say;

 

We are not calling for elimination of federal taxation, which would be irresponsible and undesirable. Nor does our endorsement call for reduced federal spending. The tax reform plan we endorse is revenue neutral, collecting as much federal tax revenue as the current income tax code, including payroll withholding taxes. (emphasis added)

 

http://fairtax.org/pdfs/Open_Letter_President.pdf

 

To me, we first have to tame the beast of out of control spending for any tax reform to work. As I said on Free Republic, we can’t tame a monster by simply changing how we feed that monster. Blindly passing this Fairtax into law now could, in my estimation, bankrupt the citizens even more than we are today.

 

I’m calling for a major tax revolt from "we the people," voter and citizens of this country to force D.C. into less outrageous spending. Then, we can push for elimination of the 16th Amendment while calling for a more reasonable tax rate on us, through sales, if need be.

 

Lew

 

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