HR-25 The Fair Tax for 2009

[ClayPigeon]

Conservatives all over should be familiarizing themselves with HR-25 The Fair Tax. Information is available on the FairTax.Org web site as well a FairTaxNation. I would give you the links themselves, but I haven't posted a sufficient number of things to yet allow me that capability. There are also two books available that explain the pro's and cons's of The Fair Tax. Both books are written by GA Rep. John Linder and Neal Boortz. The first book is called The Fair Tax and the second FairTax: The Truth: Answering the Critics. I've read both books in the form of Audio Books and they explain every aspect of the Fair Tax. I will touch briefly on a couple of points concerning the Fair Tax but leave it up to the individual to look deeper into this legislation and topic. First the Fair Tax is not a VAT or Value Added Tax. It is a consumption tax on all goods and services and replaces the federal income tax, payroll tax and social security tax. This tax is "revenue neutral" which means it would bring in the same amount of revenue as the Income Tax does now. Its also an "inclusive tax". If an item costs $10, that's what you pay. Unlike a sales tax is that is added to the price of items. There is lots more to the Fair Tax then what I have space to cover here. The actual HR-25 Bill can be viewed at tinyurl.com/l67xzw. Good luck and glean as much as you can and educate yourself on this historic piece of legislation.

[The Roach]

I don't understand why conservatives should be for the "FairTax." Here is a good critique of the proposal.

A better option would be to begin cutting government programs from all over the budget, cut taxes across the board, simplify taxes, and deregulate. The resultant budget surplus could be used by the government to invest in various debt instruments (say, the debt of state and local governments as well as governments of countries allied to the US) in order to begin to have a source of funding other than taxes.

[Rightwing Nutjob]

Originally Posted by The Roach

I don't understand why conservatives should be for the "FairTax."

Now brace yourself, Roach, as the defenders of this horrid tax system can begin defending it with comments about it being a "voluntary" tax and not a regressive sales tax system. They can argue how bureaucracy will somehow be stripped away while still needing to write monthly checks to every worker in the nation. Oh well. Been there, seen it, got the t-shirt. And many of them are just as fanatical as many Obamabots, Ron Paul fans and Ron Paul haters.

[Conservative Libertarian]

Even though the Fair Tax would be an improvementover the present system, I'm still not really fond of it. I prefer the elimination of all taxes except a consumption tax.

[The Roach]

I find the biggest problem with the "FairTax" is its prohibitively high rates. A huge underground economy would develop in an attempt to avoid the high sales tax rates imposed by the "FairTax."

Moreover, although "FairTax" supporters claim that the "FairTax" doesn't tax investments (in the traditional economic sense), the "FairTax" actually taxes investments at higher rates. Imagine this: as a business owner, you buy a new factory and new equipment for that factory. All of those new capital goods you just bought come with a whopping 22% sales tag on top of the already expensive price tag. And now you produce goods with those capital goods and guess what? There's a 22% sales tax on the goods you produce, further taking a huge bite out of your profits. And what if you don't profit? Well you still pay the 22% sales tax and lose business since your customers still have to pay a 22% sales tax! At least corporations that lose money don't have to pay a corporate income tax.

Another thing relating to investment and economic growth is that the "FairTax" unfairly taxes higher order goods. A higher order good is a capital good that produces a capital good that produces a capital good, etc. A capital good is a good that produces another good or service. Imagine this: a higher order good you purchase as a businessman is taxed at the prohibitively high 22% sales tax. Then the products you produce with this higher order good are taxed at 22%. Then the products that your customer produces with the capital good he purchases from you is taxed at 22%. This goes on until the line reaches lower order goods (or goods that people consume and use every day, like food and clothing). When you add all the taxes up together, your income from the higher order good you purchased might be taxed at absurdly high rates - say, 90%.

What's worst about the above scenario is that higher order goods are what make an advanced economy. Capital goods make it possible to produce goods en masse, expand supply, and thus to make those goods cheaper. Increased production is the definition of economic growth. Well, higher order goods are capital goods that produce capital goods. We want more higher order goods in order to increase economic growth, since more abundant and cheaper capital goods mean that even more consumer goods are produced. In other words, more higher order goods = bigger economy = more prosperity = lower prices. The "FairTax" will slow economic growth significantly due to this problem. It's much better to have 30% income taxes, 35% corporate taxes, and 20% capital gains taxes than it is to be taxed at 22% a half dozen times or more.

I'm afraid that if a FairTax is passed, then the resultant slow economic growth will just harm conservatives who advocated for the FairTax.

A far better alternative would be to radically shrink government and fund it via tariffs and selective sales taxes, not across the board sales taxes on everything. For example, eliminating all trade barriers and quotas and replacing those with a low tariff would bring in huge new revenue to the United States. A series of "sin taxes," including taxes on all drugs (as a New Right conservative I am pro-legalization), could bring in some pretty significant revenue, judging by how large the drug industry is.

Revenue could be brought in to the federal government in some pretty different and creative ways. For example, if Congress took control of its power to coin money, this money-creation could be a significant source of revenue. Today, the Federal Reserve creates money by lending money into existence to private banks or by buying government bonds from private individuals. Most of the money the Fed creates goes to private individuals connected to the Fed, not the government. By Congress taking control of this power, billions in revenues could go to Congress yearly. Another innovative idea would be that government sell off many of its assets after it radically downsizes (e.g. selling many office buildings and various conservation areas) and use that money to invest in state, local, and foreign government bonds. The interest earned off of such an investment could be used to supplement tariffs, selective sales taxes, and money creation as a source of revenue. Other methods could include the changing of federal roads to toll roads and the creation of federal lotteries.

[Brett]

My main problem with it: It's 23%, which is a lot.

[Susanna]

Originally Posted by Brett

My main problem with it: It's 23%, which is a lot.