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

Been Reading H.R. 25, Have Questions

In general, I have been a promoter of The Fair Tax for several years now. However. recently I have been trying to better inform myself about the provisions of H.R. 25 so that I might be better armed to defend The Fair Tax from those who raise objections to it. In studying the bill itself, I have discovered additional questions THAT I HAVE about it, which I must ask and have answered before I can continue my support for it.

As I read through all 131 pages of the bill, I discovered how very difficult it
is to actually follow with any degree of clarity and continuity what the measure is or isn't saying. The legalese and verbiage becomes so incomprehensible that I get lost and find it impossible to make sense of it. I need someone to help clarify in plain English what it is saying . Also, IF I am understanding it correctly, although I definitely see the superiority of a consumption tax over an income-tax based system for raising revenue to fund government, I find some areas of H.R. 25 that are so OBJECTIONABLE that I foresee MAJOR and INSURMOUNTABLE stumbling blocks to it ever becoming law, unless H.R. 25 is amended to address certain specific issues.

For example, I now foresee a number of enforcement problems I had not
previously thought about when I had envisioned H.R. 25 as a simple 'sales tax' to be collected on 'merchandise' to be collected at the cash register. In reading the measure, I now realize all the 'services' and service oriented businesses that are to be included in the scope of H.R. 25, and it is clear to me that enforcement is going to become a much bigger headache than I had originally imagined.

I can see thousands of small contractors trying to 'outbid' their competitors for various kinds of home improvements, using shelter from the NRST as leverage, and homeowners gladly going along. And then there are lawn and pool specialists, and exterminators, carpet cleaning and replacement firms, auto mechanics, etc.,etc. ad infinitem, an enforcement nightmare. Merchandise is one thing, but services??? That's going to be problematic, big time.

Furthermore, I began to feel the resistance building in myself that will
be common to all in paying 'sales taxes' on medical services and providers, which we all feel are already at out of control levels now, and are causing insurance rates to soar. I can't imagine being asked to pay a retail sales tax on any Medical service. Sales tax on medicine is already accepted in States where there is a sales tax, but NOT Doctors, Dentists, Clinics, Obstetricians, Veterinarians, & Hospitals. That would never fly.

Another thought came to mind from reading the bill: without setting a
ceiling--say, $10K for imposing the NRST, buying some "big ticket" items
would become so expensive as to make them cost prohibitive for many and
would actually hurt the economy to the degree that sales of such items
would be inhibited. Cost for things like New Cars, Tractors, Mobile Homes, and even stationary houses would be increased way too much unless a ceiling were set for imposing the NRST.

In my opinion, those who calculated the necessary 'revenue neutral' rate
were much too conservative in estimating the impact of revenue to be derived from the 'underground' economy, which is not presently contributing to Federal revenues. Therefore, 23% is way too high as a starting point. I think a smart way to make the bill easier to sell and a more practical way to test its revenue producing properties, would be to set up an incremental plan of implementation. Gradually phase out the income taxes, while phasing in the NRST over five years, or even ten. Start by reducing all income taxes by 50% and add a 10% NRST. In this way, it would become clear the effective revenue production of the NRST as well as identifying the problems that were going to accrue to it as it kicked in.

So, there are definitely questions/issues that need to be discussed and
worked through before H.R. 25 is actually re-introduced and voted on in
the next Congress.

Arthur Bruce Robertson
Lake St. Louis, MO.

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Comment by Kenneth Hansen on March 17, 2014 at 7:57am: Wow, I just found your blog post and am in agreement with your views. I also feel that a phase-in of the Fair Tax rate over a 10 year period, corresponded to an incremental decrease to our tax code liability would be in the best interests both the Fed and society. This will provide real numbers per year that could be crunched and allow for an orderly transition with out the possibility of unforeseen hurdles causing mayhem to our economic fabric. Also allowing for the transition of IRS employees into lateral employment via retraining or placement. This need not be a brutal and combative attack on the Federal funding apparatus but a complimentary and civil process that is fruitful to our way of life. As we progress through the transitional period, we will be better able to determine the Tax Rate required to sustain Federal programs and functions. Making adjustments to the Tax should not be a cumbersome task either, it should be an adjustable component of the code. My concern is that the majority of our elected brethren may find this sudden change as too disruptive...causing its languishing in the halls and eventual death over time. So, let us consider the tact that all would like to see the dismantlement of the IRS as the norm and foster its phase out in a civil and just fashion. This will entice further support and exponential Co-Sponsor support ensuring that H.R. 25 will not be short lived but a true heroic American accomplishment to usher in the the 21st century.

Comment by Jeff Launiere on January 19, 2011 at 6:28pm: As far as services, a couple of points. First, many landscapers, painters and contractors are not paying taxes now. As a Realtor I often have these folks come to me wanting to buy a home. In 2005 or 2006 they would get a no doc or stated income loan. Today they tell me they declare $15,000 per year, but they really make $90,000. They hide most of their income. They cause you and I to pay more because we cannot hide money. Same with bartenders and waiters who don't declare all their tips. And of course drug dealers, pimps and prostitutes who declare none of their incomes. Will they charge the tax later, some might, some might not, but when they make a purchase with their money, say at the local Target or they buy and appliance or car they will be paying taxes.

The other point about that is there will be millions less tax filers under the Fair Tax. Although the IRS will be disbanded the Treasury would still monitor compliance. Most sales and business is through large fairly large companies and they are paid a fee for collecting the Fair Tax. If they do not then they will face large legal repercussions. Imagine even being a small contractor. If I as a buyer of the service do not pay the tax or try to talk the contractor out of charging it, then I am also guilty as is the provider. All the contractor would need is one individual to report that their contractor did not charge the Fair Tax (remember it must be shown on receipts or invoices) that person would quickly be investigated. Compliance really is much simpler. I as an individual may not know if my landscaper is paying his income taxes or not, but if he does not charge me the Fair Tax I will know. Might I say to John Adams a landscaper when shopping for these services that Joe Smith another landscaper said he would do it for this price and would not charge the tax. Maybe John Adams is honest and charges the tax. Might he report Joe Smith for not charging it.

Regarding Medical Services you must understand that you already pay taxes on this, but it is as an embedded tax. A physicians office for example pays payroll taxes for the employees and the physicians pay their own income and payroll taxes. These are all removed with the Fair Tax removing the 22% embedded tax. You are just paying the Fair Tax with these services. The same is true at a hospital or other health care facility. The embedded tax is removed and the Fair Tax is added basically coming out to a wash.

As far as large items, the same holds true. I am a Realtor and when you go to a builder and purchase a home you pay the embedded taxes the builder adds into the basic costs, such as the income taxes, payroll taxes and all the embedded taxes of the lumber, shingles, windows all the other items required to build the home. The embedded tax comes out to 22% - 26%. All of these go away. Yes it sounds like a lot to pay the 23% Fair Tax, but the cost will really be about the same. And of course the costs of tax compliance probably reducing the cost further. Even as a Realtor with the time I spend for record keeping, tracking mileage, keeping receipts will go away and I can likely sell more homes, providing more income and reducing my costs, which I can put into marketing or even to reduce the commission I charge.

Cars, boats are the same. The car dealer pays tons of taxes which get embedded into the price, but are eliminated with the Fair Tax.

The other thing to understand also is that also people are now paying an embedded tax on say the home they buy, they are buying that home with their take home pay after income and payroll taxes have been taken out. Say you make $1,000 per week and after federal income taxes and payroll taxes are taken you are left with $700. With the Fair Tax the embedded tax is removed, and then the Fair Tax is added in making the price very similar, but under the Fair Tax you are getting your full $1,000 per week in your check. You can buy a home much quicker under the Fair Tax.

Also remember used items will not be taxed as the tax has already been paid.

Comment by Gary R. Anderson on November 28, 2010 at 9:05am: GEE, where do I begin??? You effectively told us that you don't like the FairTax, but want some kind of thing that is good for just YOU -- no matter if the country can function or what. No tax on services? OK, the tax on goods just goes to 60%. --Does THAT float your boat? How about Joe the plumber having to file instead of every citizen? --Is THAT a nightmare? THERE'S ONE THING that will kill FairTax, and that's people deciding to want only what's good for their situation, and what gives THEIR portfolio an edge. It makes you no better than Congressmen selling off favors and tax breaks!

Comment by John K Eck SR on November 18, 2010 at 6:09pm: The book FairTax The Truth addresses many of your concerns.

Comment by Kerry Bowers on November 18, 2010 at 2:55pm: Hi Arthur,

I concur with you that there is some language in the bill that is a bit confusing and convoluted. I have forwarded to Congressman Linder's office some suggestions for better understanding of certain sections and noted some errors to them as well. His staff has replied and indicated they will take these under consideration along with Congressman Woodall's additions for the next introduction of the bill to the 112th Congress. I also strongly advise you to read the pamphlet, "An Illustrated Guide To Understanding the FairTax" I developed for the Florida FairTax Educational Association that you can read at: http://www.fairtax.org/site/DocServer/An_Illustrated_Guide_to_the_F... . One note as to services. Today you pay huge embedded taxes for services. In my service business for every $100 I want to put in my pocket, I charge my customers $167. The $67 goes to pay for my share (employee) and the employer share of payroll taxes, 14.21%, plus 25% for the marginal rate income tax bracket this money falls into above my other sources of income. So my embedded tax rate is 40%, well over the misunderstood 22% addressed by Dale Jorgenson and referenced in Boortz and Linder's books. Under the FairTax to put $100 in my pocket, I need only charge my customers $130, interestingly, a 22% savings to them over my current rate. Fortunately for me, I have no financial compliance costs as my wife is a CPA and a former IRS agent, else my embedded taxes would be higher. I cannot dispute there will be those that try to dodge the system, but the system, by design, is better suited to prevent such occurrences, and especially when compared to the system today whereby you can make hundreds of thousands of dollars and pay no income tax and do so legally. I appreciate your strong interest in the FairTax and once you compare it to the alternatives there is only one answer - the FairTax.

Best Regards,
Kerry Bowers
Florida FairTax Educational Association

Comment by Marilyn Rickert on November 15, 2010 at 2:24pm: Hi Arthur,

The FairTax bill is written in legislative language. Which is why bills are usually written by lawyers.

Everyone who reads the bill are going to find changes they want to make, I am no exception, but we must have a bill that will actually work in practice. Over $20 million dollars have been spent in research to make sure we have a tax system that actually works.

Thanks,
Marilyn