Ah, the FairTax. It seems I just can’t get away from writing about it in one form or another. If you’ve never heard of it, I’ve already covered many of the most salient points when I first wrote about it. Lately, I’ve gotten more jaded about the whole concept, and wrote about several of the flaws with the FairTax, at least in its current form.
Perhaps it’s fate, then, that I stumbled across FairTax: The Truth
Summary
FairTax: The Truth starts, appropriately enough, with the history of the FairTax. The preface details its genesis as an attempt by three Texas businessmen to find a way to improve the nation, focusing on improving the horrendous tax code we currently have in place, and growing into a mass movement. The introduction continues on the theme of building support and the impact of the FairTax, as well as presenting several of the broad details of the Fair Tax plan.
The first chapter, entitled ‘The Ball is Rolling,’ provides a short summary of some of the many people who support changing the tax code to a FairTax system, from the various television personalities who support the change to anecdotes of ordinary citizens going far out of their way to support the tax. The second chapter attempts to explain the authors’ devotion to the cause, providing some of the positive results expected from adopting the FairTax as well as why they personally feel so strongly about it (mainly having to do with the expansion of the role of the federal government, as well as the larger amount of taxes required to fund it).
The third chapter covers some of the economic reasons to support the FairTax, in particular the positive effects it would have on businesses in the United States. According to the many studies cited, the FairTax would increase the number of jobs in the US (as companies would relocate their workers here), increase the amount the government takes in via taxes (by increasing the tax base and encouraging economic growth) and help solve any Social Security shortfalls (by changing the method of funding). The fourth chapter provides evidence of the growing trend around the world of lowering tax rates (particularly corporate tax rates) and switching from taxing income to taxing consumption (mostly via a VAT, value-added tax), and imploring the US to take the lead via the FairTax.
The fifth chapter covers some of the advantages of the FairTax. It frames the advantages in terms of some of the most contentious issues currently facing the country, like immigration, and provides ways in which the FairTax would improve the situation. For immigration, it notes that much resentment is based on immigrants not contributing to the system, which would change under the FairTax system (since every purchase would send taxes off to the federal government).
Chapter six attempts to debunk some of the myths about the FairTax. It notes that such a tax would add transparency to the tax system, decrease the chances of further tax increases, and likely boost employee earnings and/or decrease prices (depending on whether companies affected choose to pass their savings onto workers or consumers).
Chapter seven looks at how to view some of the criticisms of the FairTax, particularly through the ideals of simplicity and fairness. Chapter eight covers some of the critics of the FairTax, and divides them into two categories: those who have a vested interest in the current tax system (from Realtors to insurance companies) and those who have a different political agenda (particularly those who think the tax code should be used for more than just raising funds for the government). Chapter nine covers some of the criticisms that are barely worth mentioning, such as the FairTax not reducing government spending, not reducing the average American’s tax burden, and being a front for Scientologist’s attempts to eliminate the IRS (yes, that is actually in the book).
The tenth chapter is the real meat of the book, the worthwhile criticisms. It starts with over six pages on that most frequent criticism of the FairTax, whether it’s 23% or 30%, and goes on to address issues such as whether the tax would provide enough funds for the government to work (the answer provided: yes), whether taxing services (as required under the FairTax for the provided rates to work) could be successful (answer: yes) and whether taxing the government for the goods and services it provides could actually work. (Arguing that it’s needed to keep the government from having an unfair advantage over private industry; although, as businesses are exempt from the tax, it seems like it’s going to give private industry an unfair advantage, as well as increasing the amount the government needs to spend, increasing the taxes that are required, and thus defeating one of the main points of the Fair Tax.) There’s quite a few other issues addressed, from mortgage interest deductions to charities to progressive taxation, all of which are addressed with multi-page responses (which I don’t have the space to reiterate here).
Chapter eleven discusses many of the people who have led the grassroots campaign to bring the FairTax to national attention. Chapter twelve is a bit of a thought experiment, asking you to imagine yourself having lived under the FairTax system your whole life (which functions exactly as its supporters claim), and then being asked by a politician to consider switching over to the current system of taxes that exists in the United States, and wonders whether anyone would actually do so. The book ends with an appendix discussing the Presidential Advisory Panel on Tax Reform, and particularly its (mostly negative) comments on the FairTax (and consumption taxes in general).
Pros
-Easy to Read: As the authors commented in their first chapter, most books on taxes and tax reform tend to be dense, nearly unreadable tomes. FairTax: The Truth is very conversationally written, in a fairly easy to understand manner. You can get a good idea of what the FairTax is all about, and have many of your potential questions answered.
-Well-Cited: One thing that always convinces me of a particular position is having facts, figures, and studies to back up that position. This book has those in spades, citing dozens of studies done by various groups and individuals about the impact of the FairTax on many aspects of life. It all adds up to a very compelling argument in favor of the FairTax.
-Fairly Persuasive: As you might guess, the overall effect of the book is to make the reader much more enthusiastic about the FairTax. Most critics should find reasonable answers to their qualms, supporters should find more data to back up their position, and politicians can find justification for supporting the FairTax, all within the confines of this book.
Cons
-Not Every Criticism Addressed: As thorough as the book attempts to be in silencing critics of the FairTax, there are still criticisms that go unanswered. Many of the issues I brought up in my own post about the flaws are not addressed, from handling the distinction between new goods, used goods, and business goods to how foreign countries will react to the FairTax. That last point seems especially inexplicable, given that one of the major advantages of the FairTax, according to its supporters, is how much stronger it will make the US in terms of drawing foreign jobs to its shores; it seems hard to imagine that foreign countries will not react in some way that will likely nullify that advantage, at least. (One caveat: I haven’t read The FairTax Book yet, so perhaps all my qualms have already been addressed in such detail that Mssrs Boortz and Linder did not feel it was necessary to reiterate. If so, my apologies; although, posting the answers to these criticisms prominently on the FairTax website would help to silence myself and other critics.)
-Some Mistaken Arguments: There are several arguments made in the course of the book that upon closely inspection, fail to hold water. Some are merely overtaken by events; claiming that the Bush tax cuts caused the economy to boom was a reasonable argument back in late 2007, for example. Other mistakes are less easily waved away; one in particular is claiming conflating the average and marginal tax rates in the current tax system. Given the amount of time and effort spent defending the FairTax rate as accurate, it seems like a double standard to then claim that the ‘average’ American in the 25% tax bracket pays 25% of his income toward income taxes (then adding the pay roll taxes, both the individual and corporate shares, onto that amount).
-Decided Conservative Bent: It’s hard not to notice while reading this book that the authors are a Libertarian radio talk show host and a Republican Congressman. From minor points (the occasional joke at a Democratic lawmaker’s expense) to major ones (implying that the Democrats (and anyone who would support a progressive tax system) are communists), the book is definitely not meant for those on the left side of the aisle. (Full Disclosure: I’m a registered Democrat, and I was less inclined to support the FairTax after reading this book.)
Overall
FairTax: The Truth
(Note to the Authors: if you happen to read this review, don’t take it that I’m opposed to the FairTax; I actually think it could be a good idea. A little less venom toward the left (if you’re hoping to change a decades old approach to taxation, you could use all the help you can get, particularly if you also want to repeal the Sixteenth Amendment) and answers to a few more criticisms (both mine and those of other organizations like FactCheck.org) and the third FairTax book would make a lot more converts.)
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Mark
on January 30 2011
You didn’t read the book closely.
Read page 138. GO on, go read it.
In fourteen years, Fairtax has never said one word about a massive half trillion dollar tax on city and state governments.
Not in their books.
Not in their videos.
Not in their speeches.
A half trillion dollar tax on city and state governments.
But in this book — they mention it in one sentence. ONE. Here is the sentence, paraphrased.
“Under our plan, all city and state governments will pay to the federal government a tax on all their spending — on all their purchases, on services and goods, including labor (wages).”
That’s right a tax on all city and state governments. On all their spending.
Did you notice that sentence? Of course not.
And you weren’t supposed to notice. It’s like a magician pulls a rabbit out of his hat, you aren’t supposed to notice.
Does Fairtax really think they can get over half trillion dollars from city and state governments? That is what you should have thought when they let that slip.
They don’t say by what authority they will tax city and state governments. They don’t say by what mechanism.
They don’t say whether Fairtax has researched this part, or asked city or state governments about it.
They don’t create a list of states, and show how much each state goverment would have to pay, by their estimates.
They don’t show a list of cities, with an estimate on their tax burden.
And you didn’t wonder about any of that. You read the sentence — right? You read where they said every city and every state government will pay these taxes?
You didn’t even blink.
Let me explain this clearly – this tax on government is in ADDITION to the tax they tell you about, the tax on people. The 23% personal tax on all we spend. That, they tell you about (sorta).
This is a different, separate tax on government. Fairtax is a massive two tier system. A “people” tax. And a “government” tax.
It’s goofy as hell. It’s insane. It’s preposterous nonsense. They can’t tax city and states, for about 40 reasons.
It’s unconstitutional, for one. It’s a lie for another. City and state’s can’t pay it, for another. No Congressman in their right mind will vote to make every city government to pay massive taxes to the federal government.
City and states could just say NO — and what are they going to do about it, send in the marines?
City and state won’t have the money.
And Fairtax knows that. When you realize Fairtax knows this is goofy stuff, you will understand Fairtax. It’s not a serious plan. It is a farce.
I mean literally a farce.
But that lunacy is how their math is added up. When they add up their “taxable base” — meaning things they can supposedly tax — they include all city and state spending.
They may as well pretend they can tax moonbeams and baby farts. Seriously. That is exactly as logical.
Only, even you would spot the farce, if they said “We will tax all moonbeams, and baby farts for a half trillion dollars”.
YOu would spot that, right? That is why they didn’t use that one.
But you would read page 138 above, and just slide on, like a Bernie Madoff sucker. Clueless.
Do you know what that means? No, you don’t have a clue.
That means the state of California will have to pay the federal government 20 billion dollars out of their 86billion dollar budget.
That means every city in California will have to pay the federal government massive amounts of revenue.
Every state. Every city. Even every county.
This would be truly massive taxes — between 600-800 billion a year.
This is IN ADDITION to the tax they tell you about, the “people tax”.
Unlike you, when I read that sentence, I contacted Fairtax spokesman to explain it. A massive tax on every dollar city and states pay — including a tax on money they pay for WAGES??
I found out, the only spending city and states DON’T pay taxes on, is education.
I got this from talking to official fairtax spokesman. I have a blog about the conversation —
http://fairtaxfineprint.blogspot.com/
Oh, there is no question this massive tax on city and state governments is central to Fairtax. Every fairtax official I have spoken to, admits it readily. OF COURSE we tax city and state governments!
Go read what they said about it.
http://fairtaxfineprint.blogspot.com/
And then read this other blog (yes they are mine)
http://fairtaxunmasked.blogspot.com/
Oh, these spokesman had all kinds of excuses for WHY they have to tax city and state governmments.
That’s not the point. The point is – THEY CANT.
And THEY KNOW IT.
1) they can’t tax city and state governments
2) they know they can’t.
This plan is literally a farce. I was for it, till I ran into these insane fine print deceptions.
Now, it takes a while to realize, Fairtax leaders know this is pure BS. They know it’s wacko. They know they can’t tax city and state and county governments. Got that? They know!
But their leaders are NOT trying to pass this. Their suckers are trying to pass it, some well meaning saps. But for 14 years Fairtax has knowingly fed people BS.
WHy?
Becasue they could not tell the ugly truth about a national sales tax. Oh, you could have a national sales tax, but unless you lie about your math (such as pretending to tax the goverment) you come up with a tax rate of 60% or so.
That is very well established, by the way. See the Joint Committee on Taxation report from 2005. A national sales tax would be 60%. Not 23.
SO Fairtax pretends to get massive taxes from city and states.
But it doesnt end there. Fairtax concocted this “prebate” which would cost 800 billion dollars. Incredibly, Fairtax doesnt count the prebate as an expense “because people just use that to pay their taxes”.
Can you imagine? It’s goofy.
And then they also have this wacked out massive tax on city and state governments. That’s about another 800 billion dollar deception.
Maybe now you see why they haven’t ever allowed a hearing under oath.
Maybe now you see why they don’t even have indexes in their books
Maybe now you see why they never mention in speeches videos and 99.99999 percent of their writings, any mention of this massive tax on city and state governments.
Before you review any books about taxes again,
have someone read them closely.
Roger, the Amateur Financier
on January 30 2011
@Mark: That is one very long (but thought-provoking) comment. Here’s the short response: I did miss that particular comment first time around, as well as the implication that governments should pay the Fair Tax (but not businesses; which seems to give businesses an unfair advantage over government organizations, the exact thing that taxing government organizations is supposed to avoid). I will be the first to admit, I don’t commit every word of the books I read to memory, nor do I investigate every claim that they make. Luckily, there are others out there who investigate such claims and as long as I keep myself open to new information, eventually the truth should win out. Thanks for pointing out this particular twist to the Fair Tax question; I modified my original post, and hopefully, it more properly represents the truth about the Fair Tax. (I’m definitely getting more and more skeptical about the Fair Tax the more I worry about how it would actually work.)