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Rejecting FairTax Part Four: The Negative Income Tax Credit

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Rich Mitchell is the Sr. Managing Editor of Conservative Daily News. His posts may contain opinions that are his own and are not necessarily shared by Anomalous Media, CDN, staff or .. much of anyone else. Find him on twitter, facebook and

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  1. Lordy, Lordy, where to start . . .

    Understanding folks who publish without knowing their subject challenges all logic. See this article in a publication calling itself “conservative” shocks me. I do not wish to personally attack the author, but the sheer number of falsehoods in these articles leads me to ask if the author did not read the bill at all, did not understand what he read, thinks the FairTax threatens him, or has some hidden anti-FairTax agenda. Under the FairTax, lobbyists and the politicians who cater to them have the most to lose, though both, as well as IRS employees and tax accountants, will surely find more productive employment.

    Let us examine the false statements, beginning at Part 1.

    1) Depositing money into an account does not incur a tax; no consumption has taken place, only a transfer. If the bank charges a fee to an end-consumer for a service, then that “service” might incur a tax.

    2) The FairTax taxes nothing twice. Interest on financed purchases adds separately to a purchase price. The FairTax may tax the total only once, but neither twice.

    3) The FairTax prebate obviates complicated tax structures designed to exempt “necessities”.

    4) The FairTax does not regressively tax the populace. Due to the prebate, the effective rate (as a portion of spending) only reaches the full 23 % for the highest spenders. Those below the poverty line pay no FairTax at all, sharply in contrast to what they pay now in hidden income tax priced into products and the ultimately regressive payroll tax.

    5) Again, the FairTax does not target the poor. Wake up. Everyone pays retail tax. All citizens receive a prebate. Therefore, the effective consumption tax rate rises from 0 % to 23 % with increasing spending.

    6) Potential black markets under the FairTax pale next to uncollected income tax–tax evaders, criminals, illegal aliens, etc. Nation-wide chains handle a very high portion of retail sales; for example, Walmart would not operate in the black market. For those small retailers who might do so, the policing retail businesses requires far fewer enforcers than an income tax system that attempts to police every individual and business in the country.

    7) The FairTax taxes only retail sales, not business purchases.

    8) Doh! One does not deduct expenses from the FairTax; that complication belongs to income taxes and their brethren (VATs). FairTax–simple! VAT–complicated! Income tax–complicated! The author completely misses this feature and all his paragraphs about businesses trying to deduct expenses, favoring large businesses, keeping the poor poor, stagnation, et. al. apply to income taxes and VATS, not to the FairTax. Wasted words.

    Part 2

    9) The FairTax hides nothingl it will appear clear as day on each receipt. Income tax costs hide in your receipts.

    10) Inclusive 23 %, exclusive 30 %, yadda, yadda, yadda. The existing income tax rates INCLUSIVELY tax spending.

    11) Summing rotten melons and foul turnips (FIT and FICA tax on wages) doesn’t yield strawberries (tax on retail consumption). The author should consult a reputable economist to understand how the FairTax replaces existing revenues rather than babbling nonsense.

    12) The author attempts scare tactics about increasing prices but neglects to consider the hidden income tax costs removed from prices in every production step and the increased take-home pay available for spending. The grocery example falls flat for not considering the decreased grocery costs to the grocer and the decreased employee FICA costs, not to mention the accounting and tax compliance costs.

    13) The FairTax does NOT tax employee wages. Wages represent untaxed business inputs. The FairTax taxes only “retail” services; e.g., an end consumer delivery charge. The author again blatantly misrepresents it.

    14) State and local taxes will not increase any more than the price of goods as mentioned above.

    15) The IRS does go away. Additional personnel at the SSA, et. al will not begin to compare to the IRS staff size.

    16) Almost all states already collect sales tax; adding to the amount causes no burden relative to the portion states will receive in exchange. States that do not currently collect sales tax may defer to another state for service. The states will lose no freedom or incur any burden from the federal government.

    17) The states have repealed amendments before. Congress has ammended the Constitution before–no show stopper, even if deemed appropriate.

    18) The FairTax gives Congress no power to manipulate the economy. When no taxes on citizens hide as corporate income tax and appear in plain view on every receipt, citizens will not easily allow Congress to monkey with the tax structure.

    19) The SSA already tracks every citizen and issues checks to those eligible. Sending out prebate checks amounts to nothing more than changing a computer program. Bingo, no more IRS.

    20) The author invents problems to moan about that do not exist. The FairTax does not means test the prebate.

    Part 3

    21) The present income tax began as a tax flatter than that proposed by Forbes and anyone else. Resetting it sounds great but only restarts the lobbying cycle. The FairTax lets people keep what they earn, not an income tax. The income tax requires complicated assessment of income, if not for citizens, then for businesses, which pass the cost to consumers.

    22) Indeed, the FairTax achieves all the supposed benefits the author lists for a flat income tax much more effectively–simplicity, corruption, tax elimination, economic stimulation, complicated deductions.

    23) Predictability indeed. Economists know that consumption tax bases remain much more stable through economic fluctuations than income tax bases. People who lose their income still spend money–whether from government benefits, charity, borrowing, savings, or whatever. The income tax rules change every year and businesses constantly expend money and effort in compliance and tax planning. The FairTax obviates all that nonsense.

    Part 4

    24) The author rambles off topic on welfare, but suffice it to say that a negative income tax credit would not nearly encourage work like the FairTax, which imposes no penalty whatsoever to earning wages. Under the FairTax, what you earn over the level of basic consumption remains completely in your pocket.

    Mark Kuster