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The FairTax Series: America's Road To Prosperity Part 2

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  1. Hank Van Gieson says:

    Bob,

    First, a word or two on the VAT. The only difference between a VAT and the Fairtax is that the VAT collects the revenue at each stage of production while the Fairtax collects the revenue at the retail cash register. Both collect exactly the same amount of revenue at the same rate. It is disingenuous to suggest that a VAT isn’t a replacement tax. A VAT can certainly replace all the same taxes as the Fairtax. A VAT can also appear on the retail sales receipt in exactly the same fashion as the Fairtax receipt mandated in HR25. It has always puzzled me as to why the US is the last country to fail to implement a VAT as did 130 other modern nations. By the way, a VAT would have significantly less illegal evasion as well as legal tax avoidance due to the self policing nature of the VAT collection process. Check it out!

    Now, you should also know that the income tax code can fit on 6430 pages, not 67,000 or 83,000 as you suggested. Remember, the Fairtax is only replacing four titles of the 11 titles in the current tax code. The entire code plus all the associated regulations plus any Supreme Court tax decisions did add up to over 65,000 pages in 2005. But, the Fairtax is only replacing 29,000 of those pages including the Regs. You might also be interested in the fact that the original 1909 income tax legislation was 36 pages long, while HR25 has something like 135 pages. Comparing HR25 to the entire tax code is just plain sneaky. The only accurate comparison would be the number of pages in the original implementing legislation.

    Compliance costs have been grossly exaggerated by AFFT ever since 2005. Please go to this link to understand what the 2005 Tax Foundation claimed, and pay close attention to page 16, where the old compliance cost model was scrapped and a new IBM cost model implemented. http://www.taxfoundation.org/files/sr138.pdf If you then check out page 95 in your 2010 1040 Instruction booklet, you will see that individual tax compliance costs dropped from $110 billion in 2005 to $36 billion in 2010, assuming 150 million individual returns at $240 each. Compliance costs have always been grossly exaggerated prior to 2005, and AFFT made no corrections to reflect the important change to the IBM model. Shame on them.

    Finally, about embedded tax costs. Dr Dale Jorgenson, economist (singular), did the only embedded tax cost study I am aware of in 1997 for AFFT. He concluded that tax costs averaged 22% of all costs across 35 industries, but he assumed that businesses would get to keep employee tax withholding amounts in order to achieve the most cost reductions. If we all get 100% of our pay/pensions, then the best businesses can do is to reduce their costs by 10% on average. Reduce costs 10% and add the 30% sales tax and retail prices will rise by 17% on average. AFFT, (Dr Walby, Director of Research) believes the 10% is really 12%, but the difference can be attributed to the fact that Walby used 2001 data, while I used 2007 data. Some difference should not surprise anyone. A retail price rise of 15-17% means that workers are going to need their increased take home pay plus the prebate to break even. And, retirees who pay no income tax or make no payroll contributions, will see no income increase except for the prebate, and will be hurt badly by the Fairtax.
    It is also incorrect to claim that anyone “pays the embedded tax”. Embedded taxes impact only one thing and that is retail prices. Individual tax burdens are not impacted by one thin dime. If you want to add the word “indirectly”, it would be more accurate, imho.

    • Excellent segment, Bob. Well written. Regardless of what Mr. V says, you and I both know the FairTax is the best plan out there. We need good people like us to continually educate others about the FairTax.

      Keep up the great work!

  2. Peterthegreat says:

    But Uncle Bob, Canada has a VAT and the rate there is only 5%, in fact it started out at 7% and went down. Why would the great USA have a rate that starts LOW and goes so HIGH? The USA isn’t like Europe Bob, its much more like Canada (only colder). Since Canada appears to have a sound monetary system and has zero bank failures, provides health care to all, has the same % level of home ownership as the US (withouth any mortgage deduction) and not to mention that Canada has a corporate tax rate (15%) that is less than half the US CT rate (35%), what makes you “think” that a VAT rate in the US would need to be so high? Honestly, the VAT which is not a European tax, but rather a global tax (there are only 5 regions in the world without a VAT), can’t be all that bad, if the rest of the world has adopted the tax why would it not work here in the USA (btw, the rest of North America also has the VAT).