An Inconvenient Tax-Review

I mentioned this movie just a few days ago. Since then, I discovered that it’s available on iTunes so I downloaded it and watched it yesterday.

I will say that it’s the best documentary on the U.S. tax code that you’re likely to see. It’s enjoyable and informative. However, it’s still a documentary on the U.S. tax code. It’s not Harry Potter and the Deathly Hallows Part 2, Thor, or even Atlas Shrugged. You need to want to know about the tax code to watch it.

Participants in the movie include notable personalities from the left and the right, which is nice. You don’t feel like you’re being indoctrinated to a single point of view. Instead, the movie matter-of-factly lays out the history of the U.S. tax code, and what it means for today. They start actually with the Boston Tea Party, and go all the way up to President Barack Obama’s (D-USA) administration.

As an aside, if you have the time, you really should do some research into what the Boston Tea Party was really all about. We put up today with far more than what they considered intolerable. Those patriots would have long since stormed the Capitol and demanded change. The modern day Tea Party movement is called extreme, but our requests are incredibly tame compared to 1773.

Anyway, as usual for me of late, I digress. That’s not covered in much detail in the film, so you’ll have to do your own research. What is covered in the film is the origin of the income tax during the Civil War, its resurgence just before WWI, and the expansion to affect the middle class during WWII.

After WWII, most changes to the tax code were done as a way to curry political favor rather than to affect revenue. This is the primary reason for the explosive growth in the size of the tax code, which is what the movie is truly about. I know I’ve shown this chart multiple times in the past, but it’s worth seeing again.

There are several very important points that are made in pretty rapid succession at about this point in the film, and they’re all worth noting.

1. Since President Ronald Reagan (R-USA) signed the Tax Reform Act of 1986, the size of the tax code has exploded. There have been over 14,000 changes to the tax code. That’s about 1.5 changes per day since then.
2. Politicians like how complex the tax code is. It enables them to hide things in it or to buy votes or buy corporate support.
3. Politicians use the tax code to encourage or discourage behavior (home ownership, for example).

There’s a great quote here too:

“The tax code should raise revenue and then try to do as little else as possible, because almost everything else that it does is harmful.”

Another:

“The federal government forgoes about $1 trillion dollars a year because of deductions, credits, and exclusions in the tax code.”

Yes, you probably take advantage of several of these credits and deductions. I do, too. But if they weren’t there, your marginal rate would be much lower. And you’d be more confident when you turned in your tax forms every year, that it was actually right and that you’re not going to be audited. And you’d know that you didn’t miss some obvious deduction that could’ve saved you thousands of dollars.

The whole point of the film is that our tax code is a monster and that we’re in desperate need of real tax reform. Not just the limited tax reform that we had in 1986, but a complete overhaul of our tax system. The film is aimed more at making you understand the problem rather than present solutions, but it does spend a little time on the three most likely solutions at the end, with proponents of each speaking a bit on it.

The first solution is a flat tax. Over the last 20 years or so, this has probably been the favorite choice of your average taxpayer and many politicians. It’s the infamous 3 line tax form. What’s not to like? Well, progressives hate it. They don’t feel that it’s fair to low income earners. There’s a way to work around that of course (assuming you feel it’s necessary), by moving away from a completely flat tax rate to a sliding one so that even your rate is dependent upon your income.

My problem with the flat tax is that I don’t trust politicians. I don’t expect it to remain flat. I think if we completely flattened the tax code, after 20 years, or the first major funding crisis, we’d end up with 50,000+ pages of tax code again. I like the flat tax. I just think the idea is naïve.

The second solution is some sort of broad based consumption tax. The FairTax is shown as the prime choice in this regard. If you’ve read this blog for any length of time, you know that this is the one that I support. It’s much harder to game. There are no exceptions to the FairTax. Any exception makes it unfair. Any change is immediately obvious because your tax amount is right there on the receipt of anything you buy. Politics are experts at gaming things, and I’m sure they’d get around to gaming the FairTax eventually, but they’d have to work harder at it. I see no reason to make it easy for them.

The third choice is a different type of consumption tax that’s popular in Europe. It’s a VAT tax (actually, tax in that phrase is redundant, since VAT means Value Added Tax). The VAT has become increasingly popular among politicians in America the last few years. Sadly, you hear most often about adding a VAT to our existing tax code, rather than as a replacement. We should have a Boston Tea Party over that, because it’s insane and amounts to thievery. Anyway, a VAT adds a little tax in at every step of a production process. The problem with a VAT is that it’s not nearly as transparent as a flat tax or the FairTax, and in fact is subject to just as much gamesmanship and lobbying as our existing tax code. A VAT isn’t likely to reduce the complexity of the tax code to any significant degree over the long term. All it does it make it so you don’t have to write a check to the IRS once a year or once a quarter.

The film makes a good point that we desperately need this real tax reform. We probably need it right now more than at any time in our country’s history, as the tax code is incredibly burdensome on business, and we need the economy to start growing and growing fast. However, it also makes the point that there’s not a lot of political will in Washington to really reform the tax code and it’s hard to get people excited about it. “You mean we’re going to reform the tax code, but I’m not going to save any money? Uhhh…”.

Sadly, as much as I believe in tax reform, I don’t see it happening any time soon. The current administration has no interest in it, and one of the people in the film points out that it would likely have to happen in a second term Presidency to happen at all. So that means it’s not going to happen until after 2016. Even if I didn’t agree with that part, the simple fact is that we’re facing an economic crisis and an entitlement crisis at the moment (not unrelated to each other) as well as this tax code crisis (also not unrelated). It’s going to take an enormous amount of political will to solve the economic and entitlement crises. It’s hard to believe that politicians would be willing to stick out their necks even further to take on the tax code.

So, my opinion is that while this may be the most important time in American history to have tax reform, it’s probably the least likely time in American history for it to actually happen.

But I’ll keep banging the drum for it, and especially for the FairTax anyway. I’m stubborn that way.

Regardless of all of this, I enjoyed the film, and I think that if you want to spend an hour and a half understanding our income tax, that you’ll likely learn quite a bit in a fairly enjoyable fashion.

An Inconvenient Tax

 

If you’ve followed this blog for any time at all, you know that I’m no fan of our tax code. I’m opposed to a flat tax because I don’t believe it has any hope for long term success. We flattened the tax code back in 1986. Look where we are now.

No, we didn’t flatten the tax code completely in 1986, but given our history, how long do you think a flat tax would stay flat? 5 years? 1 year? 60 days?

Whatever it is, it won’t be long. That’s one of the many reasons I’m a FairTax supporter. A documentary called “An Inconvenient Tax” will be released on July 4, detailing exactly what our tax code costs us, how it came into being, and what we can do next. While the video doesn’t appear to endorse the FairTax, I think I can guarantee that it will be mentioned and discussed. You can pre-order it from Amazon for $14, and you’ll get it around July 4th. Expect a review from me by July 7th at the latest. Still, I encourage you to get it now and not wait for me. I guarantee you’ll learn something, and be angry at what our government has done to us.

Please check out the trailer below.  The website is www.aninconvenienttax.com.

 

 

An Inconvenient Tax from Life Is My Movie on Vimeo.

In Case You Missed It–Libs Hate Free Speech

There’s an article in yesterday’s WSJ about the IRS getting political and going after political donations. This is more of the Democrats ongoing plan to stifle free speech.

We wish we were shocked, but the plan is merely the latest play by Democrats to crack down on donors who support their opponents. In 2010 they tried and failed to pass the Disclose Act, which would have forced disclosure on business donations but left unions alone.

This year they've turned to harassment by regulation, first asking the Federal Communications Commission to require groups that run political ads to disclose their high-dollar donors. The Obama Administration is also working up an executive order to require anyone bidding for a federal contract to disclose if the company or its executives donated more then $5,000 to independent groups.

The Democrats want to control every aspect of our lives. They can not do that if we can make our voices heard and fight back. This is why they keep attacking the Tea Party, and why they did everything possible during the ObamaCare debates to make the Tea Party look like rabid angry racist mobs, despite lack of any evidence of such.

This week, President Barack Obama’s (D-USA) handlers smacked down the Boston Herald for refusing to play ball. They published a Mitt Romney op-ed on the front page on the day Obama was visiting Boston, so the Herald was cut out of his fund-raiser. Of course, the op-ed wasn’t exactly the most friendly one to the President:

When Ronald Reagan ran for president in 1980, he hung the Misery Index around Jimmy Carter’s neck. It consisted of the sum total of unemployment and inflation. Today, we have a different set of ailments. Instead of unemployment coupled with inflation, we have a toxic blend of unemployment, debt, home foreclosures, and bankruptcies. Their sum total is what we can call the Obama Misery Index. It is at a record high; indeed, it makes even the malaise of the Carter years look like a boom. Unemployment has fallen, but it’s fallen to a level that is still, by any historical marker, a national disaster. To suggest it as an achievement is to engage in what Daniel Patrick Moynihan famously called “defining deviancy down.”

This isn’t new. The Obama camp hasn’t exactly been friendly to the press lately. A San Francisco Chronicle reporter was booted from the White House press pool for recording a protest with her phone.

Update: In a pants-on-fire moment, the White House press office today denied anyone there had issued threats to remove Carla Marinucci and possibly other Hearst reporters from the press pool covering the President in the Bay Area.

Chronicle editor Ward Bushee called the press office on its fib:

Sadly, we expected the White House to respond in this manner based on our experiences yesterday. It is not a truthful response. It follows a day of off-the-record exchanges with key people in the White House communications office who told us they would remove our reporter, then threatened retaliation to Chronicle and Hearst reporters if we reported on the ban, and then recanted to say our reporter might not be removed after all.

And, they came after a newspaper from Pleasanton, CA for daring to say anything bad at all about the First Lady:

In an email to The Daily Caller, Gina Channell-Allen, president of the Pleasanton Weekly in Pleasanton, California, said that her paper “received a call from the White House asking us to take out part of the story because it reflected poorly on the First Lady.”

[…]

She also wrote a sentence that the White House thought made FLOTUS look snooty.

“Basically the reporter said that the First Lady didn’t speak to the pilots but acknowledged them by making eye contact,” Allen wrote in her email.

Hey, at least none of these people were locked in a closet.

As I said, these aren’t the first times that Obama and his gang have gone after the media when it’s dared to say something he didn’t like. During his Presidential campaign, his supporters went after talk radio. Hard.

Of course, it’s not just the press they want to shut up. It’s all of us. Remember their attacks against the Chamber of Commerce during the lead up to the 2010 elections? I do.

They have to do this, because the political favors and rewards like the ObamaCare waivers are going to be ramped up even more heavily. And they don’t want us to know. Every part of the government is going to be politicized and it’s all going to be about rewarding friends and punishing enemies. And keeping power, in order to continue the process.

However, there’s one way we can fix a lot of this, particularly in terms of the IRS.

Pass the FairTax. No more politicization of tax loopholes for friends and enemies. No more IRS. No problem.

Costs Of The Tax Code

Today’s Tax Day, so it’s only fitting we look at the cost of our tax code.

I apologize if I’ve posted this before. I’ve posted videos by the American Enterprise Institute narrated by Hiwa before, but I don’t believe I’ve done this one.

$338 billion in compliance costs. That’s money that’s sucked right out of our economy. It prevents companies from hiring, from making investments, and from paying dividends. The IRS is yet another bloated government agency that does nothing except put even more drain on our economy.

We need real tax reform. We need the FairTax.

H.R. 25

Congressman John Linder (R-GA-07) has retired, but the FairTax bill has been re-introduced by his friend Congressman Rob Woodall (R-GA-07), for the 112th Congress. As usual, it is H.R. 25, and has a record number of co-sponsors.

Check the above link and find out if your own congressman is a co-sponsor.

The FairTax legislation eliminates the current income tax paradigm and replaces it with a system of taxation based on consumption.  The bill was introduced on Wednesday with 47 original co-sponsors—the most original co-sponsors the bill has ever had for its initial introduction.

[…]

"Our current tax system is a bloated, convoluted mess that gives government power over Americans' pockets.  With 47 members of Congress and counting signing their names to the FairTax, we are closer than ever before to voting on legislation that eliminates the frustrating mess that is the IRS."

Canada Cuts Its Corporate Tax Rate

That socialistic country up north just cut its corporate tax rate to 16.5%. That’s about half of the rate in the U.S.

Canada is poised to cut its corporate-tax rate to 16.5% on Jan. 1, part of a decade-long campaign that some experts say is making the country one of the most cost-effective places to do business in the developed world.

This is on the heels of Japan also lowering their own corporate tax rate, as I mentioned previously.

Here’s a hint for you. If it’s cost effective to do business in a location, businesses will move there. If it’s not, businesses will move away. Japan and Canada clearly get this. The American leadership (ahem, President Barack Obama [D-USA]) clearly don’t.

The United States is rapidly becoming the least cost effective place to do business in the developed world. As I keep saying, unless we turn this around, and soon, the high unemployment and general stagnation in the U.S. from the last few years will be the “new normal”.

Remember in 2004 when the media was harping about how awful unemployment was when it was around 5%? It’s going to be a long time before we see unemployment at 5% again. How long for significantly less than that? I think the appropriate word might be “never”.

I apologize for sounding like a broken record. I know I’ve mentioned this several times. But the U.S. must stop trying to hurt businesses. This means we have to lower the tax rate, we have to stop over-regulating, and we have to stop creating disincentives to hire (ObamaCare). Until then, the best we’re going to get is a “jobless” and “moribund” recovery (adjectives often improperly used to describe the economic recovery in the mid 2000s).

Yes, I know that you can’t just cut the corporate tax rate substantially without doing something with the personal tax rate. However, I’m willing to take the hike there.

For a couple reasons.

One, as I’ve said repeatedly, corporations don’t pay taxes anyway. They pass it on to customers, employees, and stockholders. Moving the corporate tax to a personal tax just eliminates part of the complexity of our taxes. That’s a good thing.

Two, if it’s easier for businesses to grow and prosper, they will hire more and raise salaries more. This creates economic growth which in turn increases tax revenue without raising taxes. So, a reduction in the corporate tax rate will not require an equal increase in the personal tax rate to compensate for lost revenue. Again, that’s a good thing.

Of course, we can always adopt the FairTax. I’ve mentioned that before. I’ve also mentioned that I believe that replacing the income tax with a consumption tax is not only necessary, but, in the long run, inevitable.

Lies And The Lying Liars Who Tell Them

The Democrats have been running blatantly false ads about the FairTax.

Of course this is nothing new. The most common attack on the FairTax is to twist it into something it isn’t and then complain about the problems it creates.

Sen. Blanche Lincoln (D-Ark.) is just one of several Democratic candidates saying the FairTax -- a levy that replaces the federal income tax with a 23 percent sales tax on everything, including the purchase of a new home or car – is backed by Republicans and will bust family budgets if enacted into law.

Research supplied by FairTax.org shows that Democrats in 16 districts have run at least 31 ads blasting Republicans for supporting the tax. But many of these ads neglect to mention the levy is essentially a national sales tax that would replace the current federal tax system.

It’s even worse than that. Not only does it replace your income tax, it replaces all of the current federal tax system, including corporate taxes. The price of your goods isn’t going to go up by 23%, because you’re already paying that tax!

Also, the FairTax only applies to new goods and services. Don’t want to pay the FairTax on a car? Buy a used one.

The tax is extremely popular with the Tea Party movement, according to a recent poll by the Tea Party Patriots. The tax received an extremely high rating, beating out other tax proposals, like the flat tax, as well non-tax issues like the balanced budget amendment and term limits.
However, Jim Nunns, senior fellow at the Tax Policy Center, said factors like noncompliance and including government purchases in the tax could make it hard to implement the levy.
“If we wanted to get all of our revenue from a consumption-type tax, administratively, it’s probably much better to form a VAT [Value-Added Tax] or some variant of a VAT rather than a retail sales tax,” he told The Hill.

According to several sources, talks are under way on Capitol Hill to create a consumption tax, perhaps a VAT, that would be added to the current tax system to help the country get out of debt. There has been no serious discussion on implementing the FairTax, these sources said.

Wrong, wrong, wrong, wrong.

You often hear about noncompliance as the biggest issue of the FairTax. This from people who are at least trying to attack the actual FairTax, and not some trumped up other thing.

Who will collect the FairTax and pay it to the government? Business owners. There’s about 100,000 of those in the United States. Who pays income taxes? Anyone who receives income in the U.S. That’s about 100,000,000 people. Now which do you think is likelier to have trouble with non-compliance? This is a dumb criticism.

As for all the problems with a VAT, I detailed them extensively here. The short version is this. A VAT that replaces an income tax can barely be classified as reform. A VAT in addition to an income tax is completely the opposite of reform. It would make our tax situation an order of magnitude worse.

The Best News I’ve Read All Month

Tea Party primary wins give boost to 'fair tax' plan to kill federal income taxes.

Only one problem with the article. This quote here:

The levy received little attention during the 2005 tax reform debate under President George W. Bush because experts warned it raised less revenue than the current system and would force drastic cuts in the size of the federal government.

First, the Fair Tax is designed to be revenue neutral. It won’t force drastic cuts in the size of the federal government. It does make such things easier to implement, and makes increasing the size harder, but these are side effects.

Second, the “experts” that issued these warnings about the Fair Tax did no such thing. They warned about issues with a tax plan that’s similar, yet not identical, to the fair tax. Why does this matter? Because, every issue that they brought up, isn’t an issue with the actual Fair Tax Plan.

One common criticism that they brought up is that the 23% number was way too low, that it would be more like 40% once exclusions were added for food, etc. But the Fair Tax deliberately does not have these exclusions. That’s what makes it fair. It covers every B2C transaction that occurs in the United States, no matter what the product is, no matter who the ‘B’ is and no matter who the ‘C’ is. There are no exceptions. Period.

It is likely given the enormous growth of government that we’ve witnessed the last 4 years, that the 23% number is, in fact, now too low.

However, if you really want to get out of this recession, and get the economy moving again, giving us internet boom type of growth rates or even larger, then the Fair Tax is the way to go. As I’ve said before.

P.S. I know my page loads slow. The problem appears to be zoomclouds. I’m looking into changing my cloud.

A VAT Tax? I Hope America Isn’t That Stupid

John Podesta is in favor of a VAT tax. Before I get into what an insanely bad idea that is, let me add a few quotes.

“There’s going to have to be revenue in this budget,” said Podesta, Clinton’s former chief of staff and co-chairman of President Barack Obama’s transition team, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing today.

A so-called consumption tax would “create a balance” with European and Japanese economies and “could potentially have a substantial effect on competitiveness,” said Podesta. Value- added taxes in Europe and Japan encourage savings by taxing consumption.

Podesta contradicts himself between the first and second paragraph, and hopes we’re too stupid to notice. Or maybe he’s stupid enough that he didn’t notice himself, but I don’t believe that.

He correctly points out that one of the ways out of our coming financial crisis is by increasing tax revenue. Another way out is to decrease spending, but apparently he doesn’t consider that option. Actually, we’re going to have to do both.

Then he says that a VAT tax would “create a balance” with other economies which “could potentially have a substantial effect on competitiveness”. Well, yes and no. If you notice what Podesta is saying is that he wants to add a VAT tax to our existing tax code. This is another tax burden on the American taxpayer, and directly belies Obama’s promise to cut taxes for 95% of working Americans. But that’s beside the point. However, the reason the above economies are growing more than ours is not because they have a VAT tax in addition to an income tax, but that the VAT has largely replaced the income tax.

You don’t get the economic growth of a consumption tax without getting rid of the income tax. You never get economic growth by increasing the tax burden.

But, as I said, Podesta seems to think we’re too stupid to understand that contradiction.

Now if we were talking about getting rid of the income tax, then a VAT would only be a half-stupid idea as opposed to the completely brain dead idea that Podesta is proposing.

I know what you’re thinking. “But, Chris, you’ve raved about the FairTax a zillion times. Isn’t a VAT really the same thing?”

No. Not remotely. They’re both consumption taxes (and they really are consumption taxes, not “so-called consumption taxes”), but a VAT is largely a B2B tax while the FairTax is a B2C.

And this makes a huge difference. Why? Let’s go to the next paragraph from that article:

Podesta said such a tax may be regressive, but can be balanced by exempting some products and using “the money to support low-wage workers.”

Ding! Ding! Ding! Ding!!

In one sentence, we have just summed up everything that’s wrong with a VAT tax.

When you start talking about “exempting some products” and being able to “support low-wage workers”, that’s a code. And it’s code for shifting around the tax burden based on lobbyist power and shifting political winds.

See, from the perspective of politicians, VATs are wonderful. They can shift around the tax so that industries they don’t approve of are taxed more heavily, or industries in their state or district are taxed more lightly. Let’s look at the example of building a car.

Car manufacturers buy raw and manufactured materials from companies all over the world. And some of these manufactured materials (your Bose stereo system for example) are built by other companies that also buy raw and manufactured materials from other companies. These are all B2B transactions and eligible to be taxed by the VAT. Eventually, all of these materials are put together and sold to the consumer which is a B2C transaction.

Notice that by the time the car gets to you, the consumer, you don’t know how much tax was involved in the production of this car. And you’re paying the tax. You don’t even know that the reason you can’t get a Bose stereo in your Jeep is because the VAT tax has been structured to make Bose stereos artificially more expensive than JBL. You don’t know that GM has 100% UAW membership because UAW workers receive VAT tax revenue in order to “support low-wage workers”. And of course, you don’t know that your VAT is paying for that too.

Nor do you know that the $25,000 car you just bought only costs $18,000 in Europe because in order to increase international sales, the U.S. government suspends the VAT tax on the material products if the end product is sold overseas (this is a common implementation of VAT taxes in Europe).

Nor do you know why the price of that car jumped from $25,000 to $26,000 mid-year even though nothing on it changed. It was because the VAT tax code changed and some component along the way got taxed more. And the cost got passed on to you.

And you think our tax code is complicated now.

The whole point of having a B2B consumption tax (a VAT) instead of a B2C consumption tax (a sales tax) is to hide what things are being taxed and how much. The only people this benefits are lobbyists and politicians. Lobbyists get paid big bucks to get tax breaks for their constituents and politicians line their pockets with the lobbyist money.

And you, the American taxpayer, get screwed.

In contrast, a B2C tax is highly visible. You know when you’re buying something whether you’re paying the tax and how much. It’s right there on the receipt. When the cost of your item goes up, you’ll be able to see right there on the receipt that the politicians snuck in a tax increase (hopefully you were paying attention beforehand and informed your representatives that if they raised the tax, they better pack their bags for home, but I digress).

This isn’t a left/right thing, or a conservative/liberal thing, or a Democrat/Republican thing. This is a political class/average citizen thing. A VAT should get 0% support from the American public, no matter what their political persuasion. It will never help the American consumer, and will only help our “friends” in Washington D.C.

Again, Podesta hopes we’re too stupid to notice that.

April 15 – Tax Day – FairTax, Tea Parties, Total Income Tax, Oh My!

Well, long time readers of this blog know how I feel about our tax code. At the risk of being redundant, today is a good day to check out www.fairtax.org, and learn about the FairTax.

If you do a little research on it (and I encourage you to do so), you may run across a “fisking” website, www.fairtaxfraud.com. You can read my smackdown of this ill-informed site here.

I also encourage you to read both of the two books co-authored by one of the sponsors of the bill, The FairTax Book, and FairTax: The Truth: Answering the Critics.

Unfortunately, I have not been able to find any good website or book that criticizes the FairTax.  Not that there aren’t plenty of criticisms out there, but they’re universally bad. The most common tactic is to misrepresent what the FairTax is, and then to punch holes in all the problems with their misrepresentation. Or they’ll make meaningless claims like “you will no longer be able to deduct your mortgage interest from your income taxes” (which is technically true, but completely irrelevant as I point out in my smackdown that I mentioned above).

Perhaps I’ll be forced to write a critical post about it myself. I’ve said numerous times that the FairTax is not without warts. I’m pretty certain it’s impossible to create a wart free tax plan. It just has fewer warts than any other plan that I’m aware of.

One might ask if I’m going to be attending any of today’s Tea Parties. There is one here in Indianapolis.

View 2009 Tea Parties in a larger map

 

Unfortunately, I’ve had several circumstances that have caused me to miss time from work recently, and I know I have at least a couple more coming up, so I won’t be able to attend. I highly encourage you to do so, however.

I also encourage you to be suspicious of a Republican politician who jumps on the “Tea Party” bandwagon. These protests aren’t merely about high taxes, but high spending. Ask this Republican where s/he was the last 8 years when spending was out of control (or at least what we thought of as “out of control” then…drop in the bucket compared to now).

Not that there weren’t Republicans who tried to reign in the growth of government over the last 8 years. But they were the minority in their own party. And is the primary reason we are now saddled with the government we now have.

Today’s also a good day to reflect upon how much you actually paid in taxes this year. No, not the size of the check you’re writing today, or the size of the “refund” you’ll be getting, but the total amount you’re paying. Do you know? Most people don’t.

Mine? About $24,000 in federal and state income tax. Note that doesn't include FICA taxes, unemployment taxes, property taxes, vehicle excise taxes, sales taxes and probably a few dozen other taxes that aren't coming to mind at the moment. Even I don’t know my total tax burden offhand, although at least I keep a close enough eye on my finances to be able to calculate it.

Obama Looking at Tax Code Overhaul

According to Bloomberg, President Barack Obama (D-USA) is looking at ways to overhaul the tax code. I applaud the effort. It’s the first good idea I’ve heard come out of this administration.

Austan Goolsbee, a senior economic adviser to the president, will be named staff director of the task force, which will report back to Volcker, Orszag said. Members of the panel will include Harvard University’s Martin Feldstein, former chief economic adviser to President Ronald Reagan; Laura D’Andrea Tyson, a professor of economics at the University of California at Berkeley and former economic adviser to President Bill Clinton; Roger Ferguson, chief executive officer of Teachers Insurance & Annuity Association and a former vice chairman of the Federal Reserve; and William Donaldson, a former chairman of the Securities and Exchange Commission.

Orszag said “the only constraint” on the task force review is that there be no tax increases during 2009 and 2010, and that the proposals shouldn’t raise taxes on families earning less than $250,000 a year.

I’m fairly certain the results will be a dismal failure, but I’ll hold out hope.

Of course, there’s one simple way to do it and to meet Obama’s requirements and to solve our economic crisis at the same time.  Yes, I know I’m beating the FairTax dead horse, but I’ll continue to pound on this issue as long as I have this blog.

Please check out the FairTax official site. I love their new slogan:

Think of it as the World’s Biggest Economic Jumper Cables

I believe that if we are to survive as a nation, we must abolish the income tax and replace it with some sort of consumption tax. The longer we delay doing this, the worse off we’ll be. This is one place where we need to be following western Europe’s example. Most countries there have one already. Theirs tend to be VATs which is a much worse model than the FairTax, but at least it’s better than what we have now.

FairTax Fraud?

A commenter recently argued against my support of the FairTax and pointed me to a site called www.fairtaxfraud.com.

For review:

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including:

• A progressive national retail sales tax.
• A prebate to ensure no American pays federal taxes on spending up to the poverty level.
• Dollar-for-dollar federal revenue neutrality.
• Repeal of the 16th Amendment through companion legislation.

I'm not going to try to explain the FairTax here in any more detail than that except for the particulars necessary for rebuttal.  The post will be long enough. Go here for some more information.

Unfortunately, it's hard to take the FairTaxFraud seriously. You're greeted with hyperbole and misinformation on the very first page, before you even enter the site, with lots of marquees scrolling "information" about the FairTax. I think I copied them all down.

• Fair Tax Fraud
• LIES
• Un-Fair Tax
• Does NOT cut taxes
  • Does NOT eliminate the IRS
  • EVERY DAY is Tax Day!
• Everyone gets a welfare check from the government every month
• Money worked for an earned is taxed
  • Unearned money is not taxed!
• The Definitive Guide to Understanding the Biggest Tax Ripoff in the History of America
• The children of the rich inherit mansions tax free...
  • ...Poor couples pay a 30% tax when they buy a home
  • ...and lost the home mortgage deduction!!!
• Don't Get Sick!
  • You'll Have to Pay
  • a 30% TAX on your Surgery!!
• Created by and backed by billionaires,
  • promoted by hate radio and neocons,
  • the FairTax puts huge new taxes on
  • food, shelter, clothes, and medicine,
  • while making billion dollar estates, capital gains, and expensive gifts COMPLETELY TAX FREE!

These marquees are in various font sizes and colors and scrolling in various directions.

I don't like "shoot the messenger" type of arguments, but, seriously, if they want to be taken seriously, the opening page needs to be better than this. I know when I see lots of exclamation points and CAPITAL LETTERS in

LARGE FONTS

that I'm unlikely to be seeing a well-reasoned argument.

Sadly, the rest of the website lived up to my initial expectations.

Their page on The FairTax Book (entitled The Book, The Crook, and the Followers) seems mostly devoted towards attacking one of the authors, Neal Boortz, and for propagating wealth envy. Now, there's plenty of reasons to dislike Neal Boortz, and if you don't like him, fine. But the merits or issues of the FairTax should stand on their own, not the messenger. It doesn't matter who supports it and who doesn't. A good idea could even be supported by David Duke and still be a good idea.  Conversely, a bad idea could've been supported by Mother Teresa and yet still be a bad idea. Don't shoot the messenger.  Learn the message.

The link to the second page (The Real Supporters) has pictures to some of the supporters. Interestingly, one of the pictures is of President George W. Bush (R-USA). I guess anything supported by Bush must be bad, but he's not actually a supporter, and isn't listed as such on the actual page you're redirected to by the link. Despite being called "The Real Supporters" the page spends only a little time on the supporters, although that's actually a good thing. Because then I'd have to point out again the validity of "shoot the messenger" type arguments, but it does accuse FairTax supporters of belonging to a cult. There's little of relevance on this page except for some more wealth envy.

Then there's the next page, which finally has some "real" criticisms of the tax. The titles of this page is "Fairness VS. FairTax" with the subtitle "Fairtax is Fair and Balanced in the Fox News sense - like giving equal time to holocaust deniers." Ahh...the site brings up "hate radio", neocons, has a couple pictures of Bush for no apparent reason other than to make the FairTax look bad, and now it ridicules Fox News. So much for objectivity, but at least I now fully understand the slant. However, there are some points on this page worth debating.

Progressive & Regressive taxes describe taxes; not morals or political opinion. In a progressive tax, the more you earn, the higher your tax rate. In a regressive tax, the less you earn, the higher your tax rate.

Except that's not true, and even the linked articles don't claim that (you really should read the things you link to). The definitions of "progressive" and "regressive" have nothing to do with "earnings" but with wealth. An important difference as we'll see later.

The clever but dishonest presentations of the FairTax Book never tell the reader that there are two tax rates that the FairTax is proposing. Under the old income tax, your individual tax rate varied but covered everyone's income (100 percent) minus deductions. Under the FairTax we have two tax rates: 1. A sales tax rate of 30 percent for everyone.  2. An income tax rate that depends entirely on how much you consume.

I think this is never told to the reader because it's completely untrue. Then there's a nice little chart where they try to tie income levels to tax levels and "convert" the FairTax into an income tax, suggesting that a person making $30,000 is taxed at 92.5%. This is only true using the most bizarre definition of "tax" that I've ever heard of. Their argument is that since the  person making $30,000 a year is near the poverty level and has to spend all of that money on basic living commodities that he's taxed at nearly 100%. So, when you spend $5 on that Big Mac meal at McDonald's that's a $5 tax on you. Yeah. Right.

Then the rest of the page goes back to wealth envy, and some points that claim to show that the evil rich won't pay their fair share under this system. This is a fallacy, of course, but that didn't stop the authors from perpetuating it. The wealthy are very good at avoiding income taxes now, because they don't have income. They have money that's inherited, or capital gains, etc.  The FairTax is better at taxing these people because it's a tax on what they spend, not what they earn. So, if David Rockefeller, Jr. buys a $4M house in the Hamptons, he's going to pay about $1M in taxes under the FairTax plan. Under our current income tax?  $0? He has very little income.

Of course, wealth envy is denied later on:

Question: Should the spoiled, pampered offspring of a self-made man be allowed to get his parent's money and property, totally tax free without ever working for it or earning it just because he was ripped out of the right crotch at birth? (and maybe even run for president some day?)
Answer: Hell NO.

That question and answer speak for themselves on the wealth envy topic, I believe. It's also untrue. See my example on David Rockefeller, Jr., above. But, they had to bring it up, because their preferred tax plan imposes a heavy tax on inheritances. Because that's fair. Their idea of the "American Way" is that everyone has to start out from square one, with no advantages from their parents. I suppose that's fine unless you're a parent trying to give advantages to your children.

Here's an interesting excerpt.

It's a fact that drug dealers, prostitutes, and other assorted criminal types do a lot of cash-based transactions, but contrary to popular belief, this does not take place in a vacuum. When a criminal eats at McDonalds he still pay sales taxes. When a gang-banger wants some new bling or the latest shoes he pays taxes. When a prostitute rents an apartment she pays a portion of the property taxes. Is this going to change under the fair tax? No.

I guess this is meant to be a criticism of the FairTax, but I don't see how. This IS one of the merits of the FairTax. The criminal does already pay the sales tax at McDonald's. This is why the FairTax works. Since all revenue comes from sales, and not non-taxable income, it's all taxable. So, the criminals pay taxes, the "idle rich" pay taxes, international tourists pay taxes, and even illegal immigrants pay taxes. The taxable base is much larger under the FairTax plan.

Next comes one of the standard whines about the FairTax. It doesn't balance the budget and it doesn't reduce spending.

Ok, that's true.

So?

No, I mean that, really.

So?

Not that those aren't admirable goals, but should I expect a "tax plan" to do that? No, that would be a "government reform" plan. You want to talk about that? I'm all ears, and will gladly jump in and join the discussion, but let's not be foolish enough to confuse two entirely different issues.

The link to next page, entitled "The FairTax Effect" has a nice picture of a nuclear warhead exploding. This is to represent the fallout of the FairTax plan, I guess.

They have two interesting sections. The first is "What You Lose Under the FairTax":

1. The Home Mortgage tax deduction - no more deduction your mortgage interest - no incentive to buy a house.
2. The Per-Child tax deduction for dependants - no more help for large families.
3. The deduction for State and Local taxes - tack on the taxes.
4. The College Tuition tax deduction - sorry kids.
5. Roth IRA - will be taxed twice because your money is taxed again when you spend it.
6. Charitable Contributions deductions - no help for the faithful.
7. Child Care Credits - no more help for single moms and poor families with kids.
8. Refinancing Points deduction - no more incentive to refinance.
9. Health Insurance Premiums deduction - no more help for the sick.

There are varying degrees of truth and varying degrees of idiocy here.

Let's take this one at a time.

1. Mortgage tax deduction -- Yes, you're right.  There's no income tax deduction on your mortgage payment.  Because you no longer pay income tax.  Of course, you'll be paying your mortgage out of pre-tax dollars (because your income isn't taxed), so why should you care anyway? Also, it's generally believed that the FairTax would cause interest rates to fall dramatically, letting you lower your payment considerably. As for the mortgage payment deduction being the only reason to buy a house, if you really believe that, stop reading now.  You're incapable of logical thought.
2. Per-Child tax deduction -- Yes,you're right. There's no income tax deduction for your children. Because you no longer pay income tax. The monthly pre-bate however is based upon the size of your family, so while this claim is technically true, the "benefit" remains the same.
3. Deduction for State and Local Taxes -- Yes, you're right. There's no federal income tax deduction of your state and local taxes. Because you no longer pay income tax. In all likelihood, once the FairTax is adopted at the federal level, your state will follow suit.
4. College Tuition Tax Deduction -- Yes, you're right. There's no income tax deduction for college tuition. Because you no longer pay income tax. And your tuition is not taxed under the FairTax, so you'll actually save money here.
5. Savings -- Yes, you're right.  You've already paid taxes on this money and it will be taxed again when you spend it.  Somehow that's different from the way it is now, I take it?  Remember, when you buy gasoline or food or your Nintendo Wii, the corporation doesn't pay taxes! Your price is adjusted so that you pay the tax for them. Nothing changes here. A difference which makes no difference is no difference.
6. Charitable Contributions -- Uh huh.  You really think people contribute to charities because of the tax deductions? So, I give $1,000 to the United Way so I can deduct $1,000 from my AGI and lower my tax bill by about $300? If you actually are a person that spends $1,000 to save $300, then you're right.  The FairTax is not for you.
7. Child Care Credits -- Yes, you're right. You no longer get a credit on your income tax for child care. Because you don't pay an income tax. Also, see above, as this is just a repetition of the incorrect statement about the per-child deduction.
8. Refinancing Points Deduction -- Yes, you're right. You no longer get a refinancing points deduction on your income tax. Because you don't pay an income tax. As for incentive to refinance, I would hope that the lower interest rates would be incentive enough.
9. Health Insurance Premiums Deduction -- Yes, you're right. You no longer get this deduction on your income tax. Did I mention that you no longer pay an income tax? Of course, doctor's charges to insurance companies are not taxed, only direct charges to you are. This means your premiums will drop.

This isn't that hard to figure out.

Now, for the next section.  "What You Gain Under the FairTax:

1. New 30 percent tax on every New House or property you buy.
2. New 30 percent tax on Cars, Boats, Campers, Home Appliances, TV's
3. New 30 percent tax on Food, Clothing, Shelter, Rent, Electricity, Gas, Phone Service
4. New 30 percent tax on Medicine, Surgical procedures, Hospital stays, Dental Services
5. New 30 percent tax on Legal Services, Trial Services, Legal Advice, Legal Winnings and losses.
6. Double Taxation on Roth IRA's or retirement money you took as a lump sum.
7. Your consumption is now directly linked to inflation - prices go up - your taxes go up.
8. Interest on Credit Cards, Loans, and Mortgages now taxed at 30 percent on top of what you owe.
9. You now have to pay the government for permission to live in America by paying taxes on all you consume.

• 1-5 are just different ways of saying the same thing. As I've mentioned before, you're paying all of those taxes now. They're embedded in the purchase of everything you buy. #4 is moderately interesting. I pointed out earlier that doctors won't charge insurance companies the FairTax, but this says that you do pay the FairTax for medical expenses.  Ah ha! I've been caught in a lie! No, it's very simple, really, B2B transactions aren't taxed (mostly), but B2C transactions are.
• Double taxation on savings -- we've looked at this before.
• Tax is tied to inflation -- This is technically true, but that would cause an increase in overall tax receipts meaning a smaller debt, or even a surplus. This is a bad thing, how?
• Loan interest taxed -- This is not quite correct. The only part of interest that is taxable is the difference in your interest rate and the prime rate. And, as I said earlier, interest rates should go down, so this should be a wash. This is possibly a valid point. The only one I found on the entire site.
• Pay taxes to live -- Ok, fine. I have no answer to this. Other than to say that you a) already are, b) don't have to tell the government incredibly personal details about yourself once a year (or four times a year for your small business), and c) you could avoid most of the tax entirely buy purchasing only used goods if you are terribly concerned about this.

The next section has more wealth envy and plants FUD by worrying about what will happen when the FairTax fails. Since it will make the U.S. a business haven, which will grow the economy greatly, that seems unlikely.

The pre-bate section is loaded with bad math. It assumes that everything is going up in price by 30% with no real basis to support such a claim. This quote is also interesting.

If fact, the excuse used in the FairTax Book for not making food tax-free is that it would benefit the wealthy disproportionately. Give us a break. Who do they think they are fooling? You would have to be an uneducated moron to believe that.

Then I'm an uneducated moron. Who spends more on food? The millionaire or the person living at the poverty level? Since poverty level expenses are essentially untaxed due to the prebate, it sure looks like to me that the millionaire is going to pay a lot of taxes on food that would go away if we didn't tax that.

There's a section on salary that's worth addressing. Your salary may be reduced due to the FairTax. It will be reduced to approximately what your current "after-tax" amount is. Your company may elect to do that so it can lower it's prices. Or, your company may not, and your salary may stay the same, giving you a very large raise, in effect. Most likely, it will take a little while for the dust to settle here. That's a legitimate criticism (Note that my criticism here is not exactly the one on the page, which isn't legitimate).

The FairTax plan calls for people to stop paying social security - both the employees and employers share. That's it...just stop paying it. Just take it out of the general fund.

True, but we've been doing that since the Reagan administration. We just pretend we're not by having two different line items on your paycheck.

The rest of the page has already been debunked.

I've never claimed the FairTax was without warts, just that it has fewer warts than anything else I've seen to date.

The rest of the site lists some of the authors preferred alternatives to the FairTax. I haven't investigated these alternatives thoroughly. Some of them may be better than the FairTax. I doubt it, though, because they clearly either don't understand the FairTax, or are deliberately spreading misinformation on it. Either way, it makes it difficult for me to believe any of their other claims.

GOP 2.0 - Rebooting the Republican Party

I stumbled upon a great post by Doug Ross about what Republicans need to do. Of course, it's possible that I think it's great because so much of it mirrors my statements here.

Indeed. The Republican brand has lost its way. I believe that it's time for citizens to rise up and demand a new Republican Party! I'm calling it GOP 2.0. And I'm perfectly willing to throw out those "Republicans" who are stuck on stupid -- and are stuck in the GOP 1.0 world.

His tenets include:

• Strengthen Nation Defense
• Gain Energy Independence
• Secure the Borders
• Death to Earmarks
• Death to Corruption
• English as a National Language
• Implement Flat Tax or Fair Tax
• Reduce Size of Government
• Spur Healthcare Competition
• Address Entitlements

And as he says:

This should not be a platform. It should be a promise -- an ironclad commitment -- to voters.

As they say, read the whole thing.

The FairTax and Economic Growth

Great blog post on what we can expect our economy to do when we adopt the FairTax.

I'll just give you the money quote.  But read the whole thing.

Our economy would be almost three times larger in 2082 if we average 3.5% growth than it would be if growth averaged 2.0%. The “present value” of our GDP over the 75-year period would be more than 70% larger. The implications of this difference are staggering