Replace All Federal Taxes on Income with the Fair Tax Act , HR 25
Tax avoidance issue
A couple of weeks ago I was randomly selected to participate in a telephone town hall meeting with Congressman Roy Blunt of Missouri. Time ran out before I was able to ask my questions but I was able to leave them on voice mail following the meeting. This afternoon I received a call from Dan Wadlington, a representative of Congressman Blunt, regarding my questions and request for follow-up. Mr. Wadlington was quite aware and knowledgeable regarding the FairTax, which I took to be a positive sign.
According to Mr. Wadlington, Congressman Blunt is not and has never been against the FairTax. He does not support it, but neither is he against it. He is in favor of tax reform and would support any plan that would simplify our tax system and make it more fair. However, he does have concerns about the FairTax bill.
His primary concern, it seemed to me, was that of tax avoidance. "Why," he asks, "if the tax is placed only on new houses and new autos, would anyone build a new house or buy a new auto? If people can avoid paying a tax, they will."
I must admit that this is an argument I have no ready response to. This aspect of the FairTax plan has always left me unsatisfied as well. While I still believe a consumption tax is preferable to our current system of taxing income I think we need something better than to say, "People have and will always endeavor to avoid paying taxes. That won't change under the FairTax plan." We need to be able to, at least, show that tax avoidance or evasion will not be higher under the FairTax.
Any help with this argument would be most appreciated. I loaned out my original FairTax book and don't have it readily available for a refresher on this point. I believe this is an argument we are going to need to be able to counter effectively. Thanks.
According to Mr. Wadlington, Congressman Blunt is not and has never been against the FairTax. He does not support it, but neither is he against it. He is in favor of tax reform and would support any plan that would simplify our tax system and make it more fair. However, he does have concerns about the FairTax bill.
His primary concern, it seemed to me, was that of tax avoidance. "Why," he asks, "if the tax is placed only on new houses and new autos, would anyone build a new house or buy a new auto? If people can avoid paying a tax, they will."
I must admit that this is an argument I have no ready response to. This aspect of the FairTax plan has always left me unsatisfied as well. While I still believe a consumption tax is preferable to our current system of taxing income I think we need something better than to say, "People have and will always endeavor to avoid paying taxes. That won't change under the FairTax plan." We need to be able to, at least, show that tax avoidance or evasion will not be higher under the FairTax.
Any help with this argument would be most appreciated. I loaned out my original FairTax book and don't have it readily available for a refresher on this point. I believe this is an argument we are going to need to be able to counter effectively. Thanks.
Replies to This Discussion
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Permalink Reply by chiefcook on
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When an individual wishes to buy a replacement item such as a home, car, clothes etc they will have a choice. They can buy "used" and avoid the tax or they can buy "new" and pay the Fair Tax. In order to buy "used" someone else must sell that item. They (most likely) will have purchased an upgraded or better item. Many times, this would have been a "new" item. Everything must be "new" when it is first purchased. So, there will always be the federal taxes collected by the government.
Buying "used" items is known as recycling! "GOING GREEN" How can this be considered a bad thing?
The current business concept is everything is disposable. Styles change too rapidly. Everyone wants the "latest and best" items. These items will be "new" goods. Technology is advancing too rapidly. Who would want to buy a DOS based PC-AT computer? (I have a couple I can sell! They have a 20M hard drive and 16K RAM!) There is only a short life of things manufactured in the current market. Autos have "self-destruct" life of about 100.000 miles. There will always be people that will want the latest model every year.
The repair costs for the majority of items is way too high. Under the Fair Tax, manufacurers may have to consider making items that will last a longer time so that their product can be recycled (sold as used!)
This may help get you thinking about responses the the "tax avoidance" question.
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Permalink Reply by Nancy L. Gatchel on -
Understandable. However, under the Fair Tax, cost of new items will rise maybe 1% from what they are today, or stay the same, and possibly be even less expensive. So, when someone has a 30% or more larger paycheck, and a monthly prebate check, I sincerely doubt this will be an issue. Folks will still want that brand new car, that new computer, a new home, etc., and will be paying virtually the same price they're paying today.
So while I appreciate your congressman's position, I believe it's unfounded.
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Permalink Reply by Randy Stone on
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After someone buys a new car or home, under the Fair Tax, and they then re-sell it. It will be priced to re-coup as much of the original cost as possible. That would include what the original buyer paid in taxes as well. So all things being as they are, the used car or home will be priced about the same as today in comparison to new.
Therefore, I do not think many would opt to only buy used, because it really would not be any better bargain than it was before the Fair Tax. The real issue on that is....they will have MORE MONEY in their pockets to make purchases.
Does the congressman really think we will buy this arguement of the government getting mad about not being able to double tax us anymore? And what about all those today who never pay taxes that will suddenly help us support our government after the Fair Tax! I think the Fair Tax will reign in more of the tax dollars of tax cheats and avoidance than many realize.
The Fair Tax plan is so simple that they fail to see all the benefits of it. They have cheated Americans so long that they do not trust anything simple that they can't manipulate to cheat us again.
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Permalink Reply by Dan Hunt on
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Tim
No one will be able to avoid paying taxes as some goods cannot be purchased used. They will also have to pay the tax on services since they can't be classified as used. The Fair Tax will boost a person's purchasing power by putting more money in their paychecks with the elimination of income taxes. The more money people have the more they tend to spend and more likely to buy new items. The prebate will lower the effective tax rate on necessities including housing, autos while eliminating the embedded corporate income taxes making new homes and autos more affordable.
Regardless if these facts, It will be impossible for everyone to purchase all used items indefinitely as the supply of used goods would eventually be eliminated.
I'm sure there are more points that I'm missing.
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Permalink Reply by Randy Stone on
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the point is, that at one time the item was new and taxes were collected. The Congressman is not concerned about tax avoidance (because it has been taxed once) but that the government will not be able to tax the same item many times over!
the double or more taxation elimination is one of the strong points of the Fair Tax being Fair!
Washington will try to thow us off any way they can. Again, this is NOT a tax avoidance issue! It is a point of how much tax can they get away with taking from Americans!
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I think its a valid point. Most avoidance will come in the durable goods sector. Non-durable goods won't be effected as hard. It will take awhile until consumers adapt to higher paychecks and higher costs on goods and services.
The problem with going to the used market is that as demand increases, so will prices. This won't be money that filters back to the government in the form of consumption tax. This will be profit from too much demand for the lower priced used products. Eventually, you'll have an equilibrium price where some people will say the used item is too expensive for the value. Then they will turn to the new products.
You may also end up with more people saving more. That strengthens the dollar. Imports become cheap, and drives down the price of new goods. It also lowers the cost of borrowing. Lower borrowing costs and higher incomes make new goods easier to buy.
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Permalink Reply by Randy Stone on
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So, how many times should we expect to be taxed on the same item? Washington likes it when they can collect taxes on a single item many different times. THAT is what the congressman is concerned about, not that taxes are avoided (because it was collected when it was new) but that they can't collect more!
Just another way to try to stumble us up. There are far more taxes NOT BEING COLLECTED today that there will be with the Fair Tax.
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Permalink Reply by Randy Stone on
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Today, the Federal Gov'mt does not collect taxes on used items. The amount of imbedded taxes is very small compared to the item when it is new. States that collect state sales & use taxes is the only taxes on used items and that may or may not change after the Fair Tax because it is a state tax not a ferderal tax.
So the congressman knows this already. He just wants to make up arguments against changing the complexity of the current code.
The Fair Tax points out that items will be taxed only when new, so it would be fair to Americans NOT to be Taxed multiple times. He is trying to play on that point to make us believe that people will avoid taxation when in fact nothing changes except that Gov'mt ges less.
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But, the federal government does make money on used items, if someone makes a profit. For example, a used car dealer buys a car for $X and sells for $Y. The differential less expenses is considered profit, and is taxed.
Same goes for housing. Buy at one price and flip to a higher price (not done much today). The profit is taxed. The government loved the housing bubble, until it burst.
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Permalink Reply by Tony on
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According to Mr. Wadlington, Congressman Blunt is not and has never been against the FairTax. He does not support it, but neither is he against it. He is in favor of tax reform and would support any plan that would simplify our tax system and make it more fair.
WOW, he must talk to Tom Cole (R-OK) a lot.....thats EXACTLY the response we get from him!!
This is a response he can give to anyone without upsetting the pro FairTax or anti-FairTax crowd.
Its a typical politicians response to not upset you either way.
Call him again, answer him with the answers given below and demand an answer.
I'm so sick of politicians answering questions without answering questions.
My response to the question:
The cost of new items will remain relatively unchanged. Removal of 23% embedded cost of taxation and replacement with the FairTax - no real change.
Add the extra in their paycheck and the prebate.....there's a big change!!
Buy him a copy of the book, get him the DVD.....educate him.
He may know about it and just not be for it.....but then he can't say he doesn't know about it.
I say if he's not for it.......he must be replaced....but thats just me ;)
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Permalink Reply by Randy Stone on
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Well put, Tony.
I agree with that point "I say if he's not for it.......he must be replaced....!
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The cost of new items will remain relatively unchanged. Removal of 23% embedded cost of taxation and replacement with the FairTax - no real change.
Add the extra in their paycheck and the prebate.....there's a big change!!
Here's where you lose me. The only tax that's going away is some Federal corporate taxes (which the company may decide to dole out as dividends), and the half of the FICA taxes that they pay on labor. I don't think labor is going to take a wage cut just because they won't have to pay income, medicare or SS taxes. I think they're going to want to have the same wages as before.
Therefore, prices won't go down that much. Those embedded taxes come out of labor's pay, and are collected by industry. And the 23% is an average rate. The more labor intensive the industry, the more embedded tax. So, some things will drop in price and some things won't drop much, if at all.
Where the rubber hits the highway is when the consumer has more money in his pocket, thanks to a weekly increase in pay and a monthly prebate. Prices will be higher after the tax is in, but he has the disposable income to meet those higher prices. There is no free lunch.
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