FAIRtax (FT) HIDDEN TAXES – in addition to its 30% sales tax
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FT propaganda deceptively claims “The FT is transparent - just look at your receipt and see all the tax you pay – there are NO HIDDEN TAXES”. Below, I expose this lie.
The FT itself produces a total tax equivalent to about 50% of retail sales, and will surely result in a NEW Income Tax to replace a $600-$900B shortfall in FT revenues.
The FT RATE:
The first (lie) hidden tax on the receipt is the FT RATE. That receipt will state the RATE is 23%, without telling you that the (e.g.) $30 FT on a $100 purchase (total $130) is “only” 23% OF THE TOTAL $130 – this is the FT’s distorted, deceptive, financially-unsound sales pitch. FT may compare to a 23% income tax but it is NOT an income tax – it IS a SALES tax.
STEALTH FEDERAL & STATE GOVT TAXES:
The FT creators started with a required rate of 65-75% and had to try to find a way to hide that from the public because it was absurdly too high for them to sell to the public.
First, they simply and deceptively merely "assumed away" 20-30% of that (see evasion/avoidance, below) which got it down close to 42%. Then, In the FT's very own Jonathan Gruber-Obamacare imitation, they hid 12% of that 42% by taxing the federal and S/L govt’s on their spending – those govts have no money of their own and so they must get funds to pay the 30% higher prices (caused by the FT) from taxpayers in the form of higher taxes. See FairTax® (FT) Will Increase Prices by Nearly 30%
FT’s STARTING RATE OF 30% IS TOO LOW:
FT’s (BHI’s) admitted that its 30% rate is 5% short to achieve its revenue-neutral goals - i.e., it needs to be 35%.
HIGHER FEDERAL TAXES TO PAY FOR SS & PENSION COLA's:
SS has a Cost of Living (COLA) provision which increases these pensions for increases in retail price (inflation). Because the FT creators knew that the FT would cause a 30% increase in retail prices, they wrote a provision into the FT that guarantees that the SS COLA would take into account the FT (see Sec. 303).
All other federal pensions contain similar COLAs.
The federal budget must increase for all of these federal SS and pension COLAs and they are not accounted for in FT's "economics". Thus, direct or indirect federal taxes must rise to pay for these budget increases.
HIGHER FEDERAL TAXES TO PAY FOR FRAUDULENT SS BENEFITS "INVITED" BY FT:
FT eliminates the requirement to pay the 6.2% (12.4%) SS tax, but still superficially requires people to work to earn SS benefits and thus continues the requirement to file SS Wage reports.
However, when filing such reports, there would no longer be a tax "penalty" to pay - this "invites" the fraudulent over-reporting of SS Wages (think what ACORN would do with this). This is just another small step in the Progressive march towards SS for all, regardless of work.
Over time, this will produce a growing fraudulent increase in the federal budget that is not accounted for in FT "economics" that must be paid for by higher federal taxes.
This point has also been noted by retired tax professional Hank Adler in the book he co-authored with Hugh Hewitt, Fair Tax Fantasy, and by author Louis Woodhill in one of his many Unconventional Logic articles in Forbes magazine, When The Republicans Get Serious About Leading, They Will Lead With The Fair Tax, 9/28/13 (but he proposes a FairTax that differs greatly from H.R. 25 in 2 very critical ways, one of which while admirable is unachievable in my opinion).
USED GOODS MAY NOT BE EXEMPT:
FT’ers repeatedly proclaim that USED goods are exempt from the FT and indeed the FT appears to say just that. However, a deeper reading of the FT - Definitions, Sec. 2(a)(16) - reveals that the FT defines USED goods as those upon which an FT has been paid (for post-FT goods) and for which any 1 of 3 credits against the FT has not been claimed. For pre-FT goods, the buyer would need to establish that the goods were indeed pre-FT and that were not used in a business.
As a practical matter with respect to most purchases, no one will be able to provide documentation that is necessary to establish that they are entitled to the exemption, thus making the exemption a cruel hoax.
A NEW INCOME TAX TO MAKE UP FOR EVASION/AVOIDANCE:
The FT deceptively claims to be revenue-neutral, i.e., that it will raise the same dollar amount of revenue as the taxes it replaces.
However, a revIew of FT's "economics" (BHI papers) reveals the outlandish economic “assumption” that there will be ZERO evasion and ZERO voluntary reduction in spending in reaction to FT’s outrageously high tax rate, ZERO "substitution" of cheaper goods, and ZERO migration from NEW to USED property, and ZERO use of other legal methods of FT "avoidance" in order to avoid paying FT. A 20$ evasion/avoidance rate ($600B shortfall) would increase the 30% FT rate to 50% and a 30% evasion/avoidance rate ($900B shortfall) would boost the FT rate to 60+%.
FT’s initial 30% rate will certainly need to be raised to make up for FT revenue shortfalls of $600-$900B. However, it is not at all conceivable to raise the explicit FT rate to 50%-60% (70%-80% with the other hidden taxes noted above). The only practical alternative is for Congress to enact a NEW Income Tax (along with the OLD IRS) - it would be much easier to bring back a tax we lived with for over 100 years than enact a VAT today.
See, FairTax® (FT) Myth that the IRS is “Abolished” - it is NOT!