Response from Boortz today:
boortz.com
Then Mr. Taranto was back at it again in Tuesday's column. Here ... I'll just do a little cut-and-paste exercise here so you can read for yourself what he had to say:
FAIR TAX FLIMFLAM
Yesterday we noted Mike Huckabee's weird claim that the so-called fair tax--a national consumption tax that would theoretically replace levies on income--would allow the government to collect taxes from pimps, prostitutes and drug dealers. But as we pointed out, it would also mean that johns and drug addicts would get to buy sex and drugs with pretax income.
Radio talker Neal Boortz, a fair-tax flogger, answers a Wall Street Journal editorial on the subject with some more strange claims:
We really do hate to break it to the editorial board at the Wall Street Journal, but the simple fact of the matter is that the FairTax is not calculated like other sales taxes. The FairTax is included in the price, not added on top of the price. Perhaps the board would be less inclined to misstate the terms of the FairTax if they actually read the book or H.R. 25, but we're patient people, so we'll explain this one more time:
(a) Current state sales taxes: You look at the item on the shelf. The item is priced at $100.00. You take that item to the cashier. The cashier adds the state sales tax to the $100. If that sales tax is 7 percent, you pay $107, take your receipt and walk out.
(b) FairTax: You look at the item on the shelf. The item is priced at $100. You take the item to the cashier. The cashier asks you for $100. You pay your $100, take your receipt and walk out. You look at the receipt. The receipt tells you that 23 percent of the $100 you paid for that item is the FairTax and will be forwarded to the federal government. You call upon your years of education and quickly calculate that $23 is 23 percent of $100.
So according to Boortz, under the current system, when you buy a $100 item, you pay $107, including sales tax. Under the fair tax, you'd pay $100--and you wouldn't pay any taxes on your income either. It's not just a free lunch, it's a free dinner and a couple of free rounds of top-shelf booze!
Well, sorry to burst Boortz's bubble. In reality, retailers are not going to reduce their prices to absorb the new tax. That means under the fair tax, you wouldn't get a $100 item for $100. You'd get a $77 item, on which you'd pay $23, or 29.9%, in federal tax.
And you would actually pay more than $100. The fair tax doesn't do away with state sales taxes, so that in Boortz's hypothetical example, you'd pay either $5.39 or $7 additionally (depending on whether the basis is the after-tax price or the actual value of the item) on the $77 item with the $100 price tag. That means the total tax on the $77 item would be either 36.9% ($28.39) or 39% ($30).
As for escaping the income and payroll taxes, don't count on it. This would happen only if two-thirds of each house of Congress and the legislatures of 38 states agreed to repeal the 16th Amendment. It could happen, but we're not about to bet 30% of all our consumption on it.
H.L. Mencken supposedly observed that no one ever went broke underestimating the intelligence of the American people. If the fair tax folks' estimates prove correct, however, the people may all end up going broke.
Boortz response:
Before I deal with a few of the points Taranto made, let me tell you that about two years ago I traveled to New York City to participate in a FairTax debate. It was poor little old me up there in front of an audience at the City University of New York against some fancy professor of tax law from Yale University who once served as an assistant Treasury secretary. Sitting right there in the audience was .. James Taranto. When the debate was over Taranto and I walked several blocks to a dinner hosted by the debate sponsors, talking about the FairTax all the way. That conversation carried through dinner as well. Its quite odd how he seems to have forgotten much of what we discussed.
At any rate ... let's have fun with a few of Taranto's charges from yesterday's column. One particular facet of the FairTax that the WSJ and Taranto can't seem to grasp is the concept of embedded taxes. Nowhere in any WSJ critique of the FairTax have I seen an acknowledgement of the fact that virtually all of the taxes that we pay to the federal government, either as individuals or businesses, eventually end up embedded into the prices of goods and services at the retail level. Research shows that the percentage of the price of a consumer item represented by this embedded tax averages around 22 percent. These embedded taxes disappear with the FairTax, to be replaced by the FairTax levy. That brings us to this gem from Taranto's column:
"Well, sorry to burst Boortz's bubble. In reality, retailers are not going to reduce their prices to absorb the new tax. That means under the fair tax, you wouldn't get a $100 item for $100. You'd get a $77 item, on which you'd pay $23, or 29.9%, in federal tax."
What? Who said that the retailers were going to reduce their prices to absorb the new tax? Prices are going to go down because one of the biggest cost factors in the pricing structure is going to go away! The profit structure for these businesses that sell these goods and services is going to remain essentially the same. The embedded taxes go away to be replaced by the FairTax.
I've heard concerns expressed that some businesses or retailers will try to maintain their prices at the current levels in an attempt to earn a quick windfall profit with the disappearance of their tax burden. Well .. let them try. Their tactics will soon be evident to the customers.. and business will suffer. Imagine, if you would, an oil company deciding to keep gasoline prices up after a dramatic drop in the price of crude oil. The competitive forces of the marketplace simply aren't going to permit it. There are examples of industry-wide price reductions after the elimination of taxes, but you'll have to read The FairTax Book for those.
Another concern of Taranto's. He's spot on here ... but he just hasn't done his research:
"As for escaping the income and payroll taxes, don't count on it. This would happen only if two-thirds of each house of Congress and the legislatures of 38 states agreed to repeal the 16th Amendment. It could happen, but we're not about to bet 30% of all our consumption on it."
Exactly so, Mr. Taranto. That is why H.R. 25 will be passed with a provision which states that the FairTax will go into effect on the first day of the year following the repeal of the 16th Amendment. No FairTax supporter is foolish enough to give our government the opportunity to tax both our income and our consumption at the same time. Once the FairTax is passed, and once people start imagining life without the IRS, income tax forms, audits, and politicians using tax policy to control behavior .. and once they start dreaming of April 15th being just another Spring day .. the pressure on our politicians to repeal the 16th Amendment will be immense.
The FairTax is the first tax reform plan ever developed by the private sector. Over $20 million dollars of research was poured into this effort. Scholars and economists from places such as MIT and Harvard were deeply involved. It is the most thoroughly researched piece of tax legislation in this history of this country, and if passed it would create the greatest transfer of power from the political class to private citizens in the history of our Republic. Is our economy going through a rough spot right now? Some think so. Imagine what happens if the United States becomes the world's biggest tax haven.
OK .. I'm getting wound up here. I need to chill. Will I keep using Taranto's columns in my reading assignments? You bet ... 'cause he's good. Now we know he's not perfect. |
