Here is specifically why I believe that you do not understand the FairTax (apologies for my cutting and pasting from one of my earlier blogs):

From the link I provided in my previous post to Boortz’s website:

THE FAIRTAX --- STRAIGHTENING OUT SOME CONFUSION

Neal says:

“When the FairTax is implemented, and when business and personal income and payroll taxes disappear, your employer is going to have to make a decision. He will either take some or the entire amount he had been withholding for federal income and payroll taxes and add it to your weekly check, or he will readjust your pay figures so that your entire paycheck will be equal to what you used to call "take home pay" before the FairTax."

Neal says:

"Now, let's elaborate on the "keep 100% of your paycheck" line that appears in The FairTax Book. It is certainly true that after the FairTax becomes law there will be no more withholding from your paycheck for any federal taxes. What you earn is what you get. This is not to say that your gross pay will equal what it was before the FairTax."

Neal says:

"The "keep 100% of your paycheck" concept can more easily be applied to those who either change jobs or come into the labor force after the implementation of the FairTax. A new worker will negotiate a wage with an employer knowing that the amount negotiated will be the amount that worker receives every two weeks ... no deductions. Likewise, when you change employers you, too, will negotiate a wage that will not be subject to withholding, and you will get 100% of your wages in each paycheck.”

It is perfectly clear that you are not going to get 100% of your paycheck. It is going to be reduced by the FairTax amount of 23%

What do you think Neal is talking about when he says: “...or he (your employer) will readjust your pay figures so that your entire paycheck will be equal to what you used to call take home pay"?

Why do you think he has to “elaborate on the "keep 100% of your paycheck" line that appears in The FairTax book?”

Is his statement that: “This is not to say that your gross pay will equal what it was before the FairTax” somehow unclear?

My favorite: “The "keep 100% of your paycheck" concept…”

Concept?

So McDonoughDawg, please explain how you can believe that my take home pay will equal my gross pay and pianoguy, please explain how my take home pay goes up to my gross wages figure.

Your pay check is going to be reduced by the amount of those “embedded taxes” that your employer is no longer paying.

I apologize.

In my haste I included non-federal deductions in things that would not be deducted from your check. If you have state and local tax deductions taken from your check, those will continue under the FairTax (assuming you have a state income tax.) (I am from Indiana and we are currently having a spirited debate in our state legislature about adopting a FairTax-like system on the state level as well which would alleviate everything I originally included.My mistake...)

However, as an owner of a business and employer I flatly reject Boortz's argument about wage levels decreasing. I want, and am incentivized to give my employees 100 cents on the dollar of their wages. I'll save so damn much money in payroll processing, reporting, and tax compliance costs that I'll have no reason to try and "bargain down" wages. Add to that the time saved by me and my employees no longer working on completely non-productive resource-wasting tax record keeping, and it will be like having 20% of our totally non-business generating lives given back to us to grow our business. How exciting!

I can't speak for the GMs and GEs and Boeings of the world, but for every small business owner I've ever encountered, the difficulty isn't in wage levels, it's in KEEPING qualified good employees around. Handing them $1 for every $1 they earn is something I would LOVE to have the opportunity to do, rather than give them 66 cents on the dollar as it currently is. It's THEIR money, not the government's. ThEY should choose how to be taxed based on what they purchase, not have Big Brother remove it from their paychecks before they even see it.

Now you say I don't understand.

The taxes withheld from your paycheck are YOUR monies. I may have been off a slight amount, because the State of Georgia taxes are not a part of this discussion. They will still he withheld and sent to Georgia.

The employers part of your check that he contributes to SS will be up for grabs too.

One more thing, Boortz is not the be all, end all of information regarding Fairtax.

How good of a negotiator are you?

Lastly, there is obviously no FREE RIDE, unless you are very poor, and this system gives them that.

I've asked elsewhere in this blog, what changes do you recommend, if any, to the current tax system? My belief is that is way to convulated and gone to fix. It needs to be scrapped in my opinion.

because your answer was wrong. And you did not answer any of my specific comments as to why you were wrong except to imply that Boortz is wrong also.

Semantically, you may be right when you say, "The taxes withheld from your paycheck are YOUR monies."

However they are "your monies" to the extent that you use them to pay income taxes.

Are you now asserting that your understanding is that the taxes that are withheld are not part of the embedded taxes that businesses will NO LONGER PAY as part of the FairTax?

If businesses continue to pay these monies to you, how do they then reduce the costs of their products?

If businesses do not continue to pay these monies to you, then how can it be that your gross paycheck stays the same?

You simply cannot have it both ways. That is why I believe that you don't understand the FairTax.

Business's charge their customers for the costs of the corporate income taxes. I think that is one thing that you don't seem to understand. Their employees are not their customers. We now collect taxes on many levels, (which are ultimately passed on to us, the consumer at the retail level), this new system would seem to collect taxes at only one level. Not sure how much more simple it could be.

I'm glad you admitted that the monies withheld from your paycheck on the Federal level are your monies. At least we seem to be getting somewhere on this.

Obviously, we disagree. I do not think this proposed system is perfect by any means. But those that disagree with it, don't seem to offer any alternative to the current system, which I believe to be broken.

I have never contended anywhere that the monies withheld from your paycheck on the Federal level are not your monies. This was never under contention, so I am not sure how far we have gotten. My point is and has been that your paycheck must be reduced from your gross pay amount for the FairTax to work.

You say, “Their employees are not their customers. We now collect taxes on many levels, (which are ultimately passed on to us, the consumer at the retail level)…”

YES!

Now under the FairTax those taxes will not be collected and passed on to the consumer at the retail level allowing for the cost of a product to be reduced by approximately 21% according to the FairTax people.

However, (and here is the rub now) if businesses are still paying their employees the same amount of gross pay (as you stated) which includes the amount of taxes they are currently withholding (i.e. collecting), then there is no reduction in costs to the business. Where do the savings come from so that they can reduce their costs by that 21%?

Part of those savings come from, just as Neal Boortz says on his web site, the reduction of your gross paycheck to your present take home pay.

I called into Shelly Wynter’s radio show this afternoon when he had Ken Hoagland(?) on from FairTax.org. The instant I asked this very question I was cut off so the question was not broadcast and Mr. Hoagland said, “When the Democrats come to understand the FairTax they will also come to support it.”

Do you think salaries are the only component of price? What about the corporate income tax? What about the cost of record keeping and compliance with IRS rules? Back in the 1980's Roger Smith, then head of GM, stated that he could sell a Chevy for half the price if the embedded taxes were removed.

We could have both without HR 25 being passed. There is nothing to stop congress from doing it today except for the threat of being voted out of office. HR 25 specifically revokes the current code, so if it were passed, congress would have to deliberately reinstate the income tax.

Let us leave aside the fact that, according to your figures, a perfect collection of the FairTax will yield $2.586 trillion dollars and the 2007 budget submitted by President Bush was $2.77 trillion and the 2008 budget is projected to be $2.90 trillion.

A lot of what you write is sheer speculation such as, “Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20.” How can this possibly be stated as a fact?

However some is just demonstrably untrue on the face of it. For instance, you assert:

“Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system.”

Assume someone is retired with no income (except their pitifully inadequate Social Security) and they rent an apartment. Assume the FairTax has worked as advertised and the goods they buy have been reduced by the embedded tax amounts and with the addition of the tax the prices have leveled out at their old level or slightly below. A pre-FairTax dollars worth of goods costs about a post-FairTax dollar and income and corporate taxes have been done away with, etc. etc. etc…

But wait!

They have to pay the tax on their rent, which they didn’t used to have to pay.

They have to pay tax on their food, which they didn’t used to have to pay (Prebate!).

They have to pay tax on their medical expenses, which they didn’t used to have to pay.

When they drive over to the bingo game they pay an extra 70 or so cents a gallon for gas, which they didn’t used to have to pay.

When they fall down the stairs and break their hip and get paid $50,000 in medical expenses, they now owe 23% tax on that $50,000 (minus what ever they paid for the premium), which they didn’t used to have to pay.

When their kids stick them in a nursing home, they either pay tax on the costs of the nursing home or they pay tax on the benefits paid for by their long-term old-age insurance, which they didn’t used to have to pay.

So to pay for all these new taxes, they charge them on their credit cards. Then they owe the 23% tax on the interest on their credit cards (minus the prime rate ((this was stuck into the law to keep the government from being cheated when people finance new car purchases)), which they didn’t used to have to pay.

These people have certainly made out like bandits under the FairTax.

ih2005, there are competing analyses as to how Fair Tax -- I prefer the more accurate name Huge Freakin' Sales Tax on Everything -- would shift the tax burden, but the truth is no one knows until it happens. There are too many layers of assumptions and hypotheses, many of which border on absurdist as JeffC has pointed out. In that sense, the Fair Tax would at best be a gigantic gamble. Unless everything worked out precisely as proponents predict (what do your economic models tell you the chances of that are?) they'd have a lot of 'splainin to do.

The final report of the President’s (that’d be Bush) Advisory Panel on Tax Reform, says this:

“Low-income and high-income Americans would benefit from the retail sales tax with a Prebate, while middle-income Americans would pay a larger share of the federal tax burden."

Numbers stew aside, here's the reality: This Prebate program – without which everyone agrees the Fair Tax would be monstrously regressive -- would amount to the biggest cash entitlement program in US history.

It would shift our tax credit mechanism from exemption – if your income is below certain levels, you simply don’t pay income tax – to direct cash payouts intended to undo the damage that a high sales tax on all goods and services inflicts on the poor.

Such a program -- assuming it could even be made workable, which is like assuming I could climb Mt. Everest this weekend -- would make most US households dependent on a federal check every month.

If you are for the Fair Tax, you are for that.

It's Friday already so you need to hurry!

Bush's team that studied the plan changed the fundemental parameters of the Fairtax as it is currently proposed, then said it wouldn't work.

Ooooh, those evildoers...

So can we put you down as being FOR creating the biggest government payout program in US history and making most US households dependent on a federal check every month?

But then the poor will be paying taxes. All the pre-bate does it to eliminate the tax on the "basics" of life.

Right now, the poor don't pay, this way, it will remain that way.

Oh, I see, you're for the Huge Freakin' Sales Tax on Everything with NO prebate....that way we could have the most regressive tax system possible.

Good luck with that.

Btw, it's a fiction that poor people now "pay no taxes." They don't pay income tax, but they pay the same state and local sales taxes as you and I, and if they are employed they pay payroll tax at the same rate.

They have never been in this equation.

Like I've said elsewhere, no system is perfect. I tend to believe this one would be better than our current system. We obviously disagree.

And yes, the pre-bate is crucial to the success of the fairtax in my opinion. My comment was tongue in cheek at best.

I submit that they did nothing of the sort, McDonoughDawf. I invite you to prove me wrong.

Go HERE and click on "Chapter 9". Bush's commission discussed both flavors of the unFairTax (with and without prebate) and found both plans to be lacking merit.

They changed NO 'fundamental parameters'.

I look forward to your reply.

_____________________________________________________
Wall Street Journal: FairTax,Flawed Tax
Unspinning the FairTax

I trust the combined opinion and wisdom of the economists and experts below who all are in favor of the FairTax proposal as opposed to a small hand-picked Presidential Committee advised by Washington K-Street insiders who have a vested interest is not losing the ability to lobby Congress for tax favors.

Donald L. Alexander
Professor of Economics
Western Michigan University

Wayne Angell
Angell Economics

Jim Araji
Professor of Agricultural
Economics
University of Idaho

Ray Ball
Graduate School of Business
University of Chicago

Roger J. Beck
Professor Emeritus
Southern Illinois University,

Carbondale
John J. Bethune
Kennedy Chair of Free
Enterprise

Barton College
David M. Brasington
Louisiana State University

Jack A. Chambless
Professor of Economics
Valencia College

Christopher K. Coombs
Louisiana State University

William J. Corcoran, Ph.D.
University of Nebraska at
Omaha

Eleanor D. Craig
Economics Department
University of Delaware

Susan Dadres, Ph.D.
Department of Economics
Southern Methodist University

Henry Demmert
Santa Clara University

Arthur De Vany
Professor Emeritus
Economics and Mathematical
Behavioral Sciences

University of California, Irvine
Pradeep Dubey
Leading Professor
Center for Game Theory
Dept. of Economics

SUNY at Stony Brook
Demissew Diro Ejara
William Paterson University of
New Jersey

Patricia J. Euzent
Department of Economics
University of Central Florida

John A. Flanders
Professor of Business and
Economics
Central Methodist University

Richard H. Fosberg, Ph.D.
William Paterson University

Gary L. French, Ph.D.
Senior Vice President
Nathan Associates Inc.

Professor James Frew
Economics Department
Willamette University

K. K. Fung
University of Memphis

Satya J. Gabriel, Ph.D.
Professor of Economics and
Finance
Mount Holyoke College

Dave Garthoff
Summit College

The University of Akron
Ronald D. Gilbert
Associate Professor of
Economics
Texas Tech University

Philip E. Graves
Department of Economics
University of Colorado

Bettina Bien Greaves, Retired
Foundation for Economic
Education

John Greenhut, Ph.D.
Associate Professor
Finance & Business Economics
School of Global Management
and Leadership
Arizona State University

Darrin V. Gulla
Dept. of Economics
University of Georgia

Jon Halvorson
Assistant Professor of
Economics
Indiana University of
Pennsylvania

Reza G. Hamzaee, Ph.D.
Professor of Economics &
Applied Decision Sciences
Department of Economics
Missouri Western State College

James M. Hvidding
Professor of Economics
Kutztown University

F. Jerry Ingram, Ph.D.
Professor of Economics and
Finance
The University of Louisiana-
Monroe

Drew Johnson
Fellow
Davenport Institute for Public
Policy
Pepperdine University

Steven J. Jordan
Visiting Assistant Professor
Virginia Tech
Department of Economics

Richard E. Just
University of Maryland

Dr. Michael S. Kaylen
Associate Professor
University of Missouri

David L. Kendall
Professor of Economics and
Finance
University of Virginia's College
at Wise

Peter M. Kerr
Professor of Economics
Southeast Missouri State
University

Miles Spencer Kimball
Professor of Economics
University of Michigan

James V. Koch
Department of Economics
Old Dominion University

Laurence J. Kotlikoff
Professor of Economics
Boston University

Edward J. López
Assistant Professor
University of North Texas

Franklin Lopez
Tulane University

Salvador Lopez
University of West Georgia

Yuri N. Maltsev, Ph.D.
Professor of Economics
Carthage College

Glenn MacDonald
John M. Olin Distinguished
Professor of Economics and
Strategy
Washington University in St.
Louis

Dr. John Merrifield,
Professor of Economics
University of Texas-San
Antonio

Dr. Matt Metzgar
Mount Union College

Carlisle Moody
Department of Economics
College of William and Mary

Andrew P. Morriss
Galen J. Roush Professor of
Business Law & Regulation
Case Western Reserve
University School of Law

Timothy Perri
Department of Economics
Appalachian State University

Mark J. Perry
School of Management and
Department of Economics
University of Michigan-Flint

Timothy Peterson
Assistant Professor
Economics and Management
Department
Gustavus Adolphus College

Ben Pierce
Central Missouri State
University

Michael K. Pippenger, Ph.D.
Associate Professor of
Economics
University of Alaska

Robert Piron
Professor of Economics
Oberlin College

Mattias Polborn
Department of Economics
University of Illinois

Joseph S. Pomykala, Ph.D.
Department of Economics
Towson University

Barry Popkin
University of North Carolina-
Chapel Hill

Steven W. Rick
Lecturer, University of
Wisconsin
Senior Economist, Credit Union
National Association

Paul H. Rubin
Samuel Candler Dobbs
Professor of Economics & Law
Department of Economics
Emory Univeristy

John Ruggiero
University of Dayton

Michael K. Salemi
Bowman and Gordon Gray
Professor of Economics
University of North Carolina at
Chapel Hill

Dr. Carole E. Scott
Richards College of Business
State University of West
Georgia

Carlos Seiglie
Dept. of Economics
Rutgers University

John Semmens
Economist
Phoenix College
Arizona

Alan C. Shapiro
Ivadelle and Theodore Johnson
Professor of Banking and
Finance
Marshall School of Business
University of Southern
California

Dr. Stephen Shmanske
Professor of Economics
California State University,
Hayward

James F. Smith
University of North Carolina-
Chapel Hill

Vernon L. Smith
Economist
W. James Smith
Dean of Liberal Arts and
Sciences and Professor of
Economics
University of Colorado at
Denver

John C. Soper
Boler School of Business
John Carroll University

Roger Spencer
Professor of Economics
Trinity University

Daniel A. Sumner, Director,
University of California
Agricultural Issues Center
and the Frank H. Buck, Jr.,
Chair Professor,
Department of Agricultural and
Resource Economics,

University of California,
Davis
Curtis R. Taylor
Professor of Economics and
Business

Duke University
Robert Vigil
Analysis Group, Inc.

John H. Wicks, Ph.D.
Professor Emeritus
Department of Economics
University of Montana

F. Scott Wilson, Ph.D.
Canisius College

Mokhlis Y. Zaki
Professor of Economics
Emeritus
Northern Michigan University

by any one of these noted economists to back up your assertion that your take home pay will go up to your gross pay as you asserted earlier?

Can you even show me a single reference where this aspect of the FairTax is even addressed?

This is the dirty little secret of the FairTax that its supporters do not understand or if they do understand, will not give a straight answer to.

Sorry, but Mr. Barker beat you to the punch with that cut-and-paste list from some fairtax site. I doubt either he or you have any idea who these people are or exactly what they have said specifically about the FairTax and HB25. (Quick now: start googling so you can prove me wrong.)

In any case, pianoguy, we will we put you down as being FOR creating the biggest government payout program in US history and making most US households dependent on a federal check every month.

I've read that chapter. First, they immediately change the rate to 34%. Then unless I've missed it, they fail to take into account the removal of taxes up to the retail point. Which will lower prices at the retail level. Competition will be fierce at the retail level. I use for an example when one of the Major Auto Manufacturers offered pricing that was the same as the employees paid, it took no less than a week of so for the other Automakers to follow suit.

No where will you see where I've said this plan is perfect for everyone. I think our current plan stinks. It leaves many outs for many people.

I am also a little bit confused why Bush's Committee is to be totally trusted on this issue, while in most cases, folks think that Bush can't find his way on any other issues. So is Bush smart or not? Can he appoint people with sense to a committee or will they "cook the books" like they do on other things. I've seen it here many times, Bush's Committees aren't to be believed on anything. Obviously, this is different. Confusing, at best.

Make no mistake about it, the Lobbyists on K-Street HATE this plan. It puts power into the hands of us, with no way to tinker with taxes to get breaks, cuts, and help special interests.

From Box 9.2 onward in the link I gave above, the committee explains the 34% tax rate. The FairTax crowd assumes a perfect world as far as sales tax collection goes, and the Internal Revenue Service has empirical data to disabuse them of that notion. (Heck in a "perfect world" scenario, we'd have been out of Iraq for years now).

There is a tremendous incentive to cheat when tax rates are high. Under-the-table cash sales at the retail level are particularly notable. The IRS has data indicating that approximately 15-40% cash sales go unreported. The committee discarded Boortz's pie-in-the-sky 100% compliance pipe dream and injected a very conservative 15% non-compliance rate: hence 34% tax rate.

Secondly, the FairTax assumes that the federal government will be paying the 30+% sales tax on everything it purchases now. This will have a tremendous negative impact the federal budget, yet the book does not address this. The committe did so.

You attempt to discredit my argument by bringing up the "totally trusted" issue. While it is documented that the Bush Administration habitually lies to the public, I give credence to this report as it is backed up by cold hard numbers provided by Treasury Dept number crunchers.

The FairTax is a regressive fraud that shifts the burden of taxation from the $200,000+ folks to the $30,000-$200,000 middle class.
_____________________________________________________
Wall Street Journal: FairTax,Flawed Tax
Unspinning the FairTax

Your point about collections being less than 100% are valid. But I'd argue that it will be a wash with the current system once you start collecting sales tax on everything that the black market profiteers are now exempted from because they don't report any income to the IRS.

Drug dealers, illegal aliens earning non-documented income, pimps, whatever... They don't file income tax returns but they sure do go out and buy things. Now instead of having them cheat the rest of us by not paying into the system in the form of income taxes, they will pay into the system through their retail purchases and thus, add to the tax base.

You'll get non-compliance in both systems, but according to economists, the base is significantly larger with a consumption tax which more than makes up for the difference.

If the retailer is going to add 23-35% to everything he sells, won't that make for a perfect situation for stolen goods being sold, that are stolen or hi-jacked?
35% ain't a bad profit! I might buy a $2000 TV for 35% less, off the black market!
Remember liquor? Remember cigarettes being sold in NY that were stolen from NC who had not tax on cigarettes.
There must be a thousand ways to cheat this "poor Tax."
,

...and there's not a thousand ways to cheat the current broken system?

My point is that there will be non-compliance in either.

Not that there is anything wrong with that.

You fail to see or address where prices will drop. I think they will drop across the board on most items.

Assuming the fairtax is DOA, what changes would you propose, if any, to our current system of taxation? I personally feel the current system is way to open to the whims of our elected officials. With too many tax breaks given to to many interests. Too many tweaks to try and get a desired result in behavior.

I still find it interesting why this committee preaches the Gospel on this issue, and anything else Bush has done is ridiculed by many. But that is another blog for another day.

The ONLY sensible plan out there. Supported by America's 2 leading anti tax organizations, the Club for growth and American's for tax reform.

"everybody's dancin' in a ring around the sun"