Flat tax better proposal than so-called ‘Fair Tax’

  • By STEPHEN C. ELDRIDGE
  • Wednesday, September 10, 2014 2:32pm
  • News
Flat tax better proposal than so-called ‘Fair Tax’

(Editor’s Note: The following Point of View was submitted in response to one about the Fair Tax that ran in the Homer News Aug. 28.) 

The “Fair Tax,” FT, is a fraud —  it is more wealth  redistribution, and a financial scam. In their own words, FT proponents proudly advertise that it is more progressive (more welfare). 

Of prime importance, the Prebate is not a real refund of FT paid as it appears to be. It is a new $600 billion entitlement, which would have all Americans receiving a substantial monthly check from the federal government — a very bad idea for those of us who are not Socialists. We simply cannot afford yet another huge entitlement that will only be increased in the future. 

The FT and the Prebate would leave the working poor making no contribution at all to funding the federal budget and paying nothing even for their personal Social Security/Medi benefits. The FT and the Prebate FT then extend tax welfare to the non-working poor — and also take the next Progressive Cloward-Piven step toward giving Social Security/Medi to all regardless of work, by removing the tax “penalty” for reporting Social Security wages, thereby “inviting” the fraudulent reporting of SS wages (as noted by other authors). 

The Prebate is apparently calculated to merely repay the poor for any FT they pay, but actually would pay them far more than any FT they might pay (by “assuming” the poor spend more than the underlying HHS poverty guidelines and also by “assuming” they will pay FT on all of their purchases, but they won’t). FT also provides free SS/Medi to the working (and some non-working) poor. 

FT’ers today still market the original FT lie that while workers get a large raise, retail prices will remain the same as before the FT, but that just cannot be true. FT is merely supposed to change the method of paying  the same total dollars of tax we pay today, so that if you get a big raise, prices must go up by the same total dollar amount (except for a minor amount for savings in compliance costs). Retail prices will rise by 25-30 percent.   

Initially, FT-retained Harvard Prof. Dale Jorgenson who first said prices would come down by 22 percent “embedded taxes” (over time) and go up $23 (30 percent x  $78) for FT. He later explained that the 22 percent “assumed” that employees surrender their “raises” — thus his true maximum price decline is about 7 percent (i.e., at least a 21 percent price increase after adding 30 percent FT). AFFT’s chief economist, Karen Walby, then said the decline would be 12.5 percent, but when one  corrects her figures, they agree with Jorgenson. Note that both of their figures assume that 100 percent of their maximum potential decline will occur. Most of the 7 percent is the employer’s share of SS/Medi taxes which may be paid out in higher wages. Generously assuming that half of that 7 percent maximum is passed on to  customers translates into a 25-30 percent price increase after adding 30 percent FT. 

The FT results in a 40-70 percent in-your-face retail sales tax that would spark a taxpayer rebellion that would destroy our retail-sales-sensitive economy. 40 percent = 30 percent (not 23 percent) FT + e.g., 10 percent S/L sales tax and 70 percent is the rate needed at a sample 30 percent FT evasion rate (the FT incredibly assumes zero evasion and zero intentional reduction in spending and zero migration from new to used goods). 

In addition to that 40-70 percent tax, the FT contains several hidden taxes (but FT’ers fraudulently say that “the FT is fully transparent — just look at your receipt and you will see all of the FT you will pay”). 

 1. FT’s 30 percent rate is really 42+ percent; the 12+ percent is hidden by having federcal, state and local governments paying FT (which is likely unconstitutional) — ultimately, they must get that money from you. 

2. The initial 30 percent rate is 1-5 percent short and that plus any other revenue shortfall will have to be made up by raising more FT (or a new income  tax);

 3. The fed budget will rise for higher Social Security benefits and higher COLA’s payable to all federal retirees, both induced by FT’s price increase of nearly 30 percent, and for fraudulent new Social Security benefits invited by FT’s removal of the “tax penalty” for reporting Social Security wages (as noted by other independent authors). More FT (or a new income tax) would be required to fund these. Used property is advertised as being exempt from FT, but may well not be exempt because of requirements that FT must have been paid and three listed credits against the FT were not claimed. 

The FT’s new IRS may well be far worse, far more invasive than today’s IRS (the buyer is liable to pay FT and get/show a receipt and consumers may be audited). Also, we may well have to file an “annual FT Summary.” 

As also noted by others, the FT leaves us more vulnerable to winding up with both a new income tax and the FT. Congress will repeal the FT’s laughable Sunset Clause and (with the 16th Amendment surely still firmly in place) enact a new income tax which I believe is Congress’ true ultimate objective — i.e., to be able to grab even more of our money to redistribute to those who will vote for them and contribute to their campaigns. 

Seniors will start to pay for Social Security/Medicare again and some will pay a second and third tax on their earnings. Many middle class seniors will pay more FT than they would have paid in income tax and many will lose purchasing power because of:

1. The nearly 30 percent price increases;

2. The higher state, local and federal taxes required  because they must pay FT and can only get the funds from us;

3. Higher federal taxes due to higher Social Security and pension COLAs and fraudulent Social Security benefits. 

The FT promises grand economic benefits which are all unpredictable — mere  hype and change. The FT employs marketing hype and hyperbole, making countless  unsupportable claims. 

What we need is a Flat Income Tax with no deductions, no exemptions, no credits and a 10 percent rate, with business income taxed to shareholders on a very  simple basis (i.e., no corporate income tax). See H.R. 1040 (which has been included in Paul Ryan’s new budget), but with changes as noted here: IRS is neutered, one page tax filing, everyone pays — more evolutionary. Call your representatives in Congress and let them know that this is what you want. 

Stephen C. Eldridge is a retired tax consulting professional, an attorney and CPA who lives in Cosby, Tenn. He writes that his “mission is to counter the FairTax grass roots lobby’s deceptive sales-hype propaganda marketing campaign.” His website is sceldridge.wix.com/sceldridge.

 

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