"Fair Tax" advocate on KVOR claimed 23 percent sales tax proposal is "revenue-neutral"; Bush tax panel disagreed
Summary: Guest host Gary VanDyke of News Radio 740 KVOR's Afternoon Show on August 16 allowed Americans for Fair Taxation spokesman Bill Spillane to assert that the proposed "Fair Tax," which would replace all federal taxes with a "23 percent" retail sales tax, would be "revenue-neutral." In fact, a panel commissioned by President Bush has suggested that the actual revenue-neutral sales tax rate for the proposal would be significantly higher.
During the August 16 broadcast of News Radio 740 KVOR's Afternoon Show, guest host Gary VanDyke uncritically allowed Bill Spillane, who is National Spokesman and District Director for Americans for Fair Taxation, to claim that a so-called "Fair Tax" proposal to replace all federal taxes with a "23 percent" national retail sales tax would be "revenue-neutral." In fact, as Colorado Media Matters has noted, President Bush's Advisory Panel on Federal Tax Reform -- to which Fair Tax advocates submitted their proposal -- suggested that the revenue-neutral sales tax rate for the proposal would be far higher than 23 percent.
Fair Tax advocates propose abolishing the Internal Revenue Service and replacing all existing federal taxes (including corporate, Social Security, capital gains, and estate taxes) with a national retail sales tax on most consumer and government purchases. The Fair Tax system would include a monthly cash rebate (sometimes called a "prebate") intended to offset the tax for poverty-level households.
Discussing the Fair Tax proposals submitted to Congress (currently H.R. 25 and S. 1025), Spillane dismissed criticism of the legislation by "people who have reorganized the bill to their own liking and stuffed deductions or whatever else in there and then recalculated and said, 'Oh my God, it takes a 60 percent sales tax to raise the same amount of money.' " Spillane then asserted, "We have studied this with some of the top economists in the country from coast to coast over and over again, and it comes out to about 23 percent inclusive." Later, Spillane explained that the Fair Tax "raises the same amount of money as the present income tax does. That's why it's called 'revenue-neutral.' "
However, Spillane did not mention that one critic of the proposal was the president's tax reform panel, which asserted that the actual revenue-neutral rate for the Fair Tax would likely be much higher than the 23 percent rate that Spillane touted. In its November 1, 2005, final report, the Advisory Panel explained that the figures provided by Fair Tax proponents conflicted with the calculations of the Bush administration's Treasury Department. The report described the 23 percent tax-inclusive rate cited by Fair Tax Act sponsor U.S. Rep. John Linder (R-GA) as a 30 percent tax-exclusive rate. (The two figures represent different ways of describing the same tax):
In their submission to the Panel, proponents of the FairTax claimed that a 30 percent tax exclusive sales tax rate would be sufficient not only to replace the federal income tax, but also to replace all payroll taxes and estate and gift taxes and fund a universal cash grant. In contrast, the Treasury Department concluded that using the retail sales tax to replace only the income tax and provide a cash grant would require at least a 34 percent tax-exclusive rate.
Some may wonder why the tax rate estimated by FairTax advocates for replacing almost all federal taxes (representing 93 percent of projected federal receipts for fiscal year 2006, or $2.0 trillion) is so much lower than the retail sales tax rate estimated by the Treasury Department for replacing the income tax alone (representing 54 percent of projected federal receipts for fiscal year 2006, or $1.2 trillion).
As Media Matters for America noted, the panel explained in its final report that the Fair Tax proponents' proposal appeared to have made internally inconsistent assumptions that largely account for their "relatively low revenue-neutral tax rate." According to the Advisory Panel:
First, it appears that FairTax proponents include federal government spending in the tax base when computing revenues, and assume that the price consumers pay would rise by the full amount of the tax when calculating the amount of revenue the government would obtain from a retail sales tax. However, they neglect to take this assumption into account in computing the amount of revenue required to maintain the government's current level of spending. For example, if a retail sales tax imposed a 30 percent tax on a good required for national defense (for example, transport vehicles) either (1) the government would be required to pay that tax, thereby increasing the cost of maintaining current levels of national defense under the retail sales tax, or (2) if the government was exempt from retail sales tax, the estimate for the amount of revenue raised by the retail sales tax could not include tax on the government's purchases. Failure to properly account for this effect is the most significant factor contributing to the FairTax proponents' relatively low revenue-neutral tax rate. [emphasis added]
The panel further stated that Fair Tax advocates "appear to assume that there would be absolutely no tax evasion in a retail sales tax," an assumption the Advisory Panel called "unreasonable." [emphasis added]
The panel did not provide an alternative revenue-neutral rate for the Fair Tax, and economists disagree about what that rate would be. But a 2000 study conducted by Lindy Paull of the Congressional Joint Tax Committee after Linder first introduced a version of the Fair Tax Act in 1999 estimated that the revenue-neutral rate for the Fair Tax would be 36 percent using the tax-inclusive method employed by Linder, and 57 percent using the tax-exclusive method that most states use to describe their tax rates.
From the August 16 broadcast of News Radio 740 KVOR's Afternoon Show:
VANDYKE: This is going to be a sales tax.
SPILLANE: Right.
VANDYKE: So that in the numbers I've seen, it's about 23 percent sales tax.
SPILLANE: Yes, that's right --
VANDYKE: Which is, you know, when you, when you look at sales taxes already for federal sales tax, and then plus your income tax, what we're talking about is, if you don't go out there and buy a whole bunch of stuff, you won't be paying much, will you?
SPILLANE: No, that's correct. However, because of the prebate, your, your tax rate, your overall tax rate, will be quite low depending upon how much you spend. It has, has nothing to do with how much you earn, but how much you spend. For example, with a prebate for a family of four, if you choose to spend about $54,000 a year on only new goods and services, your overall tax rate, including payroll tax and so forth, the whole thing will be about 11 and a half percent. Now, that, that's less than just the payroll tax, let alone the income tax.
VANDYKE: But what I'm reading also is that it eliminates Social Security withholding, eliminates hidden taxes, eliminates taxes on education, but it still raises the same amount of money to finance the federal government as our current tax system.
SPILLANE: That's exactly right. And, and this has been studied over and over again. I mentioned early, at the top, that there are plenty of lies about -- about the Fair Tax out there, and one of them is that, "Oh my gosh, the only way to replace all of our spending and so forth, all of our taxes that we have now, is to have a humongous sales tax rate." And that's just not true. These are people who have reorganized the bill to their own liking and stuffed deductions or whatever else in there and then recalculated and said, "Oh my God, it takes a 60 percent sales tax to raise the same amount of money." We have studied this with some of the top economists in the country from coast to coast over and over again, and it comes out to about 23 percent inclusive.
[...]
VANDYKE: OK, so what about, what happens to corporate taxes?
SPILLANE: They go away.
VANDYKE: They go away, which means products now can probably be sold a bit cheaper than they were to cover those corporate taxes.
SPILLANE: Absolutely.
VANDYKE: You know, corporations do not pay taxes, folks. They don't pay taxes. They charge you an excess amount of money over and above the cost of goods and over above their profit so that they can pay the taxes. So you're actually paying corporate taxes. So you're paying income taxes, you're paying Social Security taxes and all these other taxes, but you're also paying the corporate taxes every time you purchase something. And we're talking about eliminating that entirely. Can this be done and still do the things we do around this country? Are we gonna have programs fall off the face of the world because there's no funding for them?
SPILLANE: No, sir. This raises the same amount of money as the present income tax does. That's why it's called "revenue neutral." Raises the same amount of money. So those are separate issues. If you want to have roads built, or potholes fixed, or a new hospital on the corner, or whatever the case may be, that's a separate issue. That's appropriations, that's spending. This is only the issue of raising the federal tax money.
—C.H.
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Comments (4) Show
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Sounds like KVOR has become a mouthpiece for every wacko right-winger out there, from Bill Spillane to local loonies like Ed Bircham, Will Perkins, Gun Nut Ron, and sackcloth-and-ashes homophobe Mike McKee.
They're almost as bad as KOA.
While Mr. Spillane could have been more clear on what the Fair Tax replaces (for instance, under the Fair Tax, there will no longer be any payroll taxes), he is correct in stating that the president's tax panel did not scrutinize the "Fair Tax". They talked about a generic sales tax, complete with numberous deductions, such as food and medicine, etc., and concluded that they would not recommend a 50 or 60 percent sales tax. That is NOT the Fair Tax (and yes, I watched them dicuss this on C-Span during their debate).
Everyone will have more money in their pockets under the Fair Tax, and everyone will have CHOICE of whether they pay the tax on all spending beyond poverty level (spending up to poverty level will be tax-free through the prebate).
Leading economists around the country, conservative and liberal alike, have estimated the revenue-neutral Fair Tax rate at approximately 23% inclusive/30% exclusive. And, with no business taxes, there is no build up and cascading of taxes (and related costs such as compliance) to the consumer; just a one time tax at the point of final consumption. Pure and simple, and TRANSPARENT.
Visit www.OperationOffTheFence.org for the simple, complete details, and for a national grassroots movement of citizens (it doesn't require your money, just your active citizenship).
Thanks for the interesting post. It should be noted that FairTax.org and Dr. Laurence Kotlikoff have rebutted the conclusions of the President's Tax Panel. Specifically,"Panel statement #3: The FairTax proponents’ calculations used faulty assumptions and a higher sales tax rate would be needed to be revenue neutral."FairTax response: The Treasury estimates for a national retail sales tax reported by the panel were not an estimate of the FairTax legislation. The panel concocted a base of their own, one apparently designed to produce the highest possible rate. Rather than follow the FairTax legislation, they apparently used a typical state sales tax base that is far, far narrower (many exemptions) than the single-rate/no exemptions FairTax."FairTax.org continues..."In addition, the Treasury refused to compare rate quotes on an apples-to-apples basis. Rather than quote the rates for replacement systems in a direct comparison to the income/payroll tax rates they replace, they used 'econospeak' sleight of hand to compare apples to oranges. Since the ill-fated beginning of the income tax, it has been quoted by government (and taxpayers) in what economists call a 'tax-inclusive' manner. 'My tax rate was 23 percent' means if you earned $100, the government kept $23. If you talk about that rate as if it were a sales tax, which is added on to a purchase (tax exclusive), the income tax rate is 30 percent. No matter what, the government gets $23."... the Treasury **refuses to make public** [emphasis mine] its scoring methodology – estimating the tax base and revenues – for these plans. Providing such methodology is standard operating procedure in the academic world, yet the Treasury has ignored requests for this information from both FairTax.org and academia."...The Beacon Hill Institute at Suffolk University and Laurence Kotlikoff, Professor of Economics at Boston University, have teamed up to provide a sound methodology for estimating the FairTax base and computing the FairTax rate.4 Their paper demonstrates that the 23 percent rate specified by the Fair Tax Act (HR 25) is eminently feasible and suggests what led Gale5 and the President’s Advisory Panel on Federal Tax Reform6 to reach the opposite – and incorrect – conclusion. (Paper available at http://www.fairtax.org/PDF/TaxingSalesUnderFairTax.pdf .)"Study both: http://snipurl.com/taxpanelrebutted + http://snipurl.com/ftgalerebuttal---With regard to effective percentages that different income groups would pay, as shown charted in Ms. Calmes's article, Prof.'s Kotlikoff and Rapson (10/06) have said,"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans."Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."Study: http://snipurl.com/kotcomparetaxrates---And, finally,"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."Study: http://snipurl.com/kotftmacromicro
MMFA Gets it Wrong on the FairTaxIt is a common misperception, deliberately created, that the President’s Advisory Panel on Federal Tax Reform studied the FairTax. What really happened is a stark reminder of how far the Washington establishment will go to protect the income tax system. In fact, the panel ignored more than $20 million of research on the FairTax, created their own flawed national sales tax with myriad exemptions and assumptions, and then declared – while refusing to publish their assumptions – that a national sales tax would necessitate a punitively high tax rate. We encourage MMFA and others to request that such assumptions be made public. Finally, after the tax panel finished their work, the two former senators leading the effort joined Washington, D.C. income tax lobbying firms.Charged with recommending fundamental reform of the tax system, the President’s Advisory Panel instead only recommended changes to the existing income tax code. In this, the panel joined a long line of reformers who, charged with simplification of the tax code, have always managed to further complicate an already nearly indecipherable collection of 67,500 pages of arcane and sometimes contradictory tax regulations. In truth, the income tax system has become a patchwork quilt of political favors that has little to do with the economic health of the nation or the burden on taxpayers. It is estimated, in fact, that compliance costs alone, because of the system’s complexity, amount to $265 billion annually.The coterie of defenders of the income tax system begins with congressional committees that derive great power and political support from manipulation of the tax system. The power to bestow favors to well-heeled constituents, punish political enemies, attempt social engineering through tax regulations, award tax breaks to the wealthy clients of powerful tax lobbyists, and award endless research grants to an army of those from the academic world is jealously guarded by several congressional committees and all those who benefit from the income tax “industry.” Members of both parties are equally enamored of this power, while simultaneously perennially – and hypocritically – declaring, “Something has to be done to simplify the tax code.” The FairTax raises every penny now raised by the income tax system but eliminates the role of tax lobbyists, broadens the taxpayer base to include illegal immigrants and the underground economy, and completely eliminates all federal payroll and income taxes on all Americans, including the poor. All individual tax returns are eliminated under the FairTax because taxes are paid at the point of final retail sale. Double and triple taxation of income is also eliminated, as are “embedded” income tax costs thought to be as much as 20 percent of the current retail price of American goods and services.At the same time, the FairTax takes the federal government out of business decisions that are now increasingly driven by tax considerations, taxes wealth when spent, eliminates the tax advantage now enjoyed by foreign producers exporting goods to the United States (which is helping to kill the “Made in America” label), allows every American to take home their entire paycheck free of federal withholding, and provides a broader revenue stream to Social Security and Medicare.Noted economists have predicted that trillions of dollars of American wealth that has moved offshore in recent years will come flowing back to the United States after enactment of the FairTax and that even foreign corporations will look favorably on relocation to the United States. While the FairTax tax rate is calculated to create a revenue-neutral replacement of the income tax system, most economists believe that robust growth will result in additional revenues to the federal government. The FairTax rate of 23 percent is expressed in the same “inclusive” manner as income taxes. A tax rate expressed in an “exclusive” manner would amount to 30 percent. FairTax.org has adopted the inclusive manner so that the public can compare tax burdens between the two systems but has made the distinction abundantly clear in our writings and on our Web site. Because the prebate goes to every legal American household, it represents a good deal of federal tax-free spending monthly for the middle class and creates a “progressive” system where the greatest benefit of the prebate starts at the bottom of the economic spectrum. FairTax research can be found at www.FairTax.org.
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