Replace All Federal Taxes on Income with the Fair Tax Act , HR 25 and S 122

The FairTax Fantasy

That's the title of a new book by national radio talk-show host and Law Professor Hugh Hewitt, and Assistant Professor of accounting, and tax accountant Hank Adler. They sub-head is "An Honest Look at a Very, Very Bad Idea".

I just received my copy, am currently reading it, and will try to give as fair a summary as possible of what the authors focus on, as well as comparing it to the FairTax as presented by national talk show host and author Neal Boortz, and Representative John Linder.

Full disclosure: I have been a proponent of the FairTax for years, and although there are certainly serious questions raised by Hewitt and Adler, I find their arguments on the whole less than compelling so far.

First of all, the fact that a book like this has been researched and written is actually a good thing. It not only brings FairTax questions and shortcomings to light--which is the only way they can be adequately and effectively addressed--but it gives significant additional credibility to how much headway the FairTax has gained over the years as more people learn about it.

Hewitt and Adler both agree that the tax system as we know it is a mess, and that major reforms are needed. Their premise is that the FairTax is so flawed that a huge amount of energy is being wasted by the hundreds of thousands of us on a tax system that hasn't a prayer of passing. They feel the energies should be focused elsewhere.

Part One of a summary follows:

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Permalink Reply by S. Grey Tilden on April 30, 2009 at 3:25pm

I have a question about purchasing goods and services as an "investor" or "business" under the Fair Tax similar to the housing scenario mentioned above. Currently corporations can't write off expenses that exceed their revenue. But under the Fair Tax they won't have to report revenue and their business-to-business transactions will be tax free. What will stop individuals from incorporating themselves, buying goods and services for personal use, and using their unprofitable "company" as a massive tax shelter?

Permalink Reply by David Shipp on April 30, 2009 at 4:12pm

What stops them now. You will have to be a registered retailer, just like now, and when you buy an item you will not have to pay tax on materials. When you sell the final product, It will be taxed at the retail level. Just like now. Your trying to complicate something that isn't. Currently it is complicated, After Fairtax it will be easy. Retail, wholesale. That's it.

Permalink Reply by Todd McLaren on April 30, 2009 at 5:09pm

S. Grey:

Since businesses have to be licensed, that may work for some things, ie. I'm in the voiceover business, so virtually all audio/visual equipment I buy I wouldn't have to pay the FairTax on. Would that include a plasma TV? Well, I'm required to monitor certain programs for work, so the answer is yes.

But I already write that stuff off now.

Don't think that the government will buy into someone who incorporates as a car dealer, an appliance distributor, and a grocery store just to save the tax on their car, dishwasher, and food. Remember, individuals will no longer be subject to audits...but businesses will.

Permalink Reply by David Shipp on April 30, 2009 at 11:20pm

Sorry but the items you mentioned are not for resale so you will be paying tax on them. Remember, Fairtax is a tax on consumption and services, You will pay tax on tools, there is no deductions, only tax exempt for resale. Fairtax is not a policing agency, it is a simplified tax system. Make no mistake, you will pay tax. You will pay less tax in the long run, AND you will not have to keep records And you will not have to file. You won't have to think about what you can get away with out paying tax on. If you don't want to pay any tax, only buy used equipment. Simple. Don't try to make it complicated.

Permalink Reply by David Shipp on April 30, 2009 at 4:23pm

There is absolutly no way that there will be no DECREASE in the cost of production. It is IMpossible. It will not happen immediately but it will happen, and that is why the big corporations that now have manufacturing in other countries are not going to weant to support Fairtax. Fairtax makes the US production in line with the rest of the world by decreasing our prices to the rest of the world by no less than twenty percent and most likely higher than that. If I manufacture a Widget, every person involved in the production of that widget including the truck driver who delivers it and teh people who stock the shelves both in my factory and in the retail store, ALL pay income tax and they ALL have employers who pay federal tax on their labor. Under the Fairtax system, ALL that goes away. By the way, I hate to mention this as some people find this to be a negative, but Fairtax taxes goods AND services, Rent is taxed, because you are paying for a new months service every time you pay rent. Fairtax is the ONLY solution to the absurd "Keynesian economic" stimulus bull s-_-t Obama is practicing. Fairtax is the Only way the US will be able to pay down the debt by my Grand childs lifetime.

Permalink Reply by Joe McCune on May 1, 2009 at 9:52pm

You might want to double check this, but in my opinion, and to keep the math simple, let's say Investor A buys a house with a mortgage payment of $770 and rents it to renter B. Investor B buys a house with a mortgage payment of $770 and rents it to renter A. I would submit that with rent being taxable, that both houses would have to rent for $1000 just for the Investors to break even. Is this a worthwhile investment, or would you be better off to go ahead and pay the FairTax on the purchase price and live in your own house. As for the new vs. used, until the FairTax is paid on an item it will be considered new for tax purposes.
As for the deductions going away, the people who are going to be "hurt" by the deductions going away are mostly the "rich" who everyone wants to see get hurt anyway.
In response to the wealthy being able to leave larger estates to their heirs, if the heirs choose to spend the money, it would be subject to the FairTax. Today under the income tax, the wealthy have come up with trust funds and all sorts of other tax shelters, to pass wealth from one generation to the next. Why shouldn't the middle class be able to do the same?

Permalink Reply by Art Villa - Global Perspective on May 2, 2009 at 11:51am

Good points Joe.

Permalink Reply by Todd McLaren on May 2, 2009 at 12:35pm

Many of the Adler/Hewitt arguments point out potential flaws that may exist in the execution of the FairTax (the key word being "may") without admitting that the same problems exist under the current system...and are worse.

Thanks especially for this clarification: "As for the new vs. used, until the FairTax is paid on an item it will be considered new for tax purposes." That makes many things more clear.

Permalink Reply by Pat Conroy on May 3, 2009 at 6:43pm

The embedded taxes I am referring to are the taxes someone would pay if they buy something overseas in order to avoid the FairTax. That's Hewitt's premise for Bob #1 being able to avoid paying taxes.

It won't be cheaper overseas. It will cost roughly the same as buying it here and paying 23% FairTax. So it wouldn't make much sense for Bob #1 to buy his yacht or Rolex in Italy or Switzerland.

Permalink Reply by Todd McLaren on May 4, 2009 at 11:01am

True. Rolex was a bad example.

I think what they were referring to is a luxury item produced in the USA and sold overseas. They claim that the buyer would pay substantially less since the FairTax isn't included in items sold outside of the country. It's one of the selling points by Boortz and Linder, no? That US items would be so competitive in foreign markets?

Import tarrifs overseas may blunt savings from being substantial, but I wonder about a situation like this: An American yacht manufacturer offering delivery in, say, the Caymans, or Bermuda. Again, no FairTax paid. It's why so many ships sail under the Liberian flag, isn't it--the costs are so much less.

Again, I just don't have the answer, which is why I bring it up. I want as much ammunition as possible when selling the FairTax to others.

Permalink Reply by Pat Conroy on May 4, 2009 at 4:30pm

I see. Well, I guess this may be one of the issues that will have to be dealt with. Of course, similar things are ongoing with the current system. Corporations can avoid income taxes on foreign earnings.

Maybe instead of tariffs being enacted, other countries would see the wisdom of the FairTax and inact their own versions. After all, the US copied the income tax from Europe and they copied it from China.

Permalink Reply by David Shipp on April 30, 2009 at 4:07pm

The main thing that needs to happen is for No one else to buy this book and put money into these guys hands!!!!

The Main issue (according to what I read in your summary) it is that they are thinking that somehow MY MONEY belongs to the GOVERNMENT. As an example of this thinking you mention a fighter in NY who does not pay tax on his winnings,,,WHO CARES , it is his money!!! The Fairtax will increase what the government receives, ANd it will make everyone totally aware of how much the government is taking from them since they will see it on a day to day basis. Then, ONce all the Fairtax supporters realize that we were able to change one thing in government, may be as a group (the same group) we can actually improve our government and bring back government by the people. (One Senator in Penn just showed the whole country how much He cares for his constituents. ) As for the percentages, that is just a small detail that is easily misconstrued. If you calculate the current twenty five percent income on a family making over $65100.00 it actually calculates out to some thing between 33 and 34 % with out figuring in the hidden taxes that are added to production and with out adding in FICA which Fairtax absorbs.
Some one needs to publish this book on the internet so NO one else needs to buy it and put money into the authors pocket.