Answer to the Opponent of the Fair Tax
Question: 1. If you are going to do away with the IRS, who will collect the tax. (It will still be the IRS, we’ll just give them a sweet sounding name.)
Answer: The states will collect the tax and will receive a quarter of a percent from each transaction to perform this function.
Question: 2. How do you intend to deal with “prebate” fraud? (The IRS can’t track income in real time — it takes about 18 MONTHS to match W-2s with tax returns in the SAME computer system — so how will they (or whomever) track family composition in real time?)
Answer: In order to receive the Prebate Payment it would be necessary to submit your social security number or if in the case of a multi-person household, the name and social security number each member of the household to the federal government. These names and numbers would be verified against the Social Security Administration database.
Question: 3. With a 30% tax on ALL new goods, how do you intend to deal with the massive black marketing that will result. (Any city or state with high tobacco or alcohol taxes will tell you that black marketing is a REAL problem.)
Answer: For starters the tax as presently constituted is 23% not 30% since the tax is an embeded tax and is included in the price of an item. For example if a customer pays $100 for a new watch, $23 is submitted to the government in payment of the tax and $77 is retained by the seller. Since about 22% of the price today is the embeded taxes paid to produce the item, the end result is virtually a wash. On top of that the purchaser is no longer paying, income tax, payroll tax, death taxes, medicare taxes and a host of other taxes. If you earn $50,000 a year, you get to keep the entire amount. Not a bad deal if you ask me.
Question: 4. How do you intend to deal with financing of the $60,000 tax on a new $200,000 home — a modest price in much of the nation? (The home is still only worth $200,000 so the lenders won’t lend the extra $60,000.)
Answer: If this is a NEW house you pay the seller the $200,000 he is asking and 23% of that or $46,000 is remitted to the federal government. Again if you are earning $50,000 a year and you are no longer sending Uncle Sam $10,000 a year of your earnings, you will be amortizing that house in less than 5 years. On top of that, the embeded taxes that were previously in all phases of the house construction are no longer included in the price of the house. Again this will likely end up reducing the cost of the house by nearly the same amount of the tax.
Question: 5. Ditto for the $6,000 tax on a new $20,000 car. (Same as #4.)
Answer: Same answer as item 4. You see a car for $20,000, you pay $20,000. The car dealer gets $15,400 and the $4,600 embeded tax is remitted to the federal treasury. As for the car dealers going bankrupt, don’t know if you noticed but they’re doing that now all by themselves.
Question: 6. While you claim that the manufacturers of goods and the providers of services will reduce their prices due to the lack of corporate taxes, how to you plan on ensuring that that actually happens? (Sounds like quasi-communisim with central control on prices. Shudder!)
Answer: If 3 manufacturers are making Widgets and the cost of producing those Widges drops 22%, they could continue to price the items they produce at the same price and make an extra profit but like the airlines a couple of years ago, one of them is likely to want to gain market share and will reduce that price in order to do so. The other 2 have no choice but to drop the price too. We don’t need anyone to make sure this happens. Market forces will take care of that.
Question: 7. How to you explain to the single mother with 2 kids that the EIC that she was depending upon for basic survival is being replaced by the “prebate” BUT she’ll now pay about $5,400 in taxes that she didn’t have to pay before? (Virtually every penny she earns pays for essential goods and services. She’ll be cruicified by the added tax burden as she doesn’t pay any income taxes now but WILL pay heavily under the co-called “Fair Tax.”)
Answer: First off your question indicates that you don’t understand the “Prebate” consept. No American citizen would pay taxes on basic goods and services. This is where the Prebate comes into play. Each year the Federal Government determines what amount of earnings a person or family needs to earn to keep them above the poverty level. This comes to many thousands of dollars and this number is divided by 12 and that individual or family will receive a check for that amount each month to cover those basic costs and services. The mother and 2 kids will not pay $5,400 in taxes but will likely receive much more than that in prebate payments.
Question: 8. How do you plan to deal with the outcry from the World Trade Organization as untaxed American goods flood the global markets, shutting out imports in the US and local products overseas? (Hmmm… Go back to corporate income taxes? Whoops! There goes a prime argument for the “Fair Tax!”)
Answer: Frankly I’m not concerned about the World Trade Organization. What is likely to happen is that instead of companies fleeing the United States, they will not only return but that other companies around the world will rush to sell products in the United States. What a fantastic shot in the arm for this nation!
Question: 9. How will you deal with the Paris Hiltons, Steve Forbeses, Bill Gateses (insert favorite rich person’s names 1,500 times) who will simply make their major purchases overseas and bring them into the US as used and therefore tax-free. (Remember the failed Luxury Tax from the 80s that put yacht dealers out of business in droves and tossed their employees onto the unemployment and welfare lines.)
Answer: Again your question fails to see the fundamentals. Let’s say Paris Hilton goes to Paris or anywhere in Europe, she’s not going to be buying anything tax free. She’s going to be saddled with hefty Value Added Taxes and it is much more likely that those same goods purchased overseas will be much much cheaper at home.
Question: 10. Finally, how to you explain to the middle class taxpayer earning $50,000 per year with a family of 4 and paying almost no income tax that he now has to pay $10,000 in taxes MORE than his “prebate” amount? (I’d love to hear that one too!)
Answer: Again your limited familiarization with the fundamentals of the Fair Tax mislead you. I don’t know where you get your figures but I seriously doubt that someone earning $50,000 with 3 depends is not paying an income tax. Even if he were not, he would still be paying payroll, social security, medicare and possibly the AMT. He’s still going to come out miles ahead of where he is now.
I can understand your hostility to The Fair Tax. However, I would urge you to read “The Fair Tax” by Rep. John Linder and Neal Boortz with an open mind. If you still feel the same way, I’d just say let’s agree to disagree. Thank you for giving me an opportunity to answer some of your questions.