FairTax: Debunking the Debunkers

*The article I am referencing can be found here. This rebuttal to that article was co-written by me, Rob Rimes & my friend and Co-Director of the SWFL FairTax Educational Association, Shawn Bussler.

Recently, the National Review published an article by Ramesh Ponnuru titled “A Misleading Sales Pitch: For a misguided sales tax”. Mr. Ponnuru, like many FairTax critics, made a lot of interesting points and presented a convincing argument against the FairTax. That is, of course, if you don’t understand it and aren’t educated on how it actually works. Whether Mr. Ponnuru just doesn’t get it, didn’t properly research the subject or just has it out for the FairTax, his article was packed full of untruths and misinformation. I published the fallacious article a few weeks back and promised to offer a rebuttal in the near future. This is that rebuttal.

To start, for those who don’t know what the FairTax is, it is a system to replace the federal income tax, corporate income tax, estate tax, gift tax, alternative minimum tax and payroll tax with a national sales tax. The greatest part about the FairTax is that it ends the tyranny of the IRS and puts the power back into the hands of the people. Under the FairTax, the IRS will no longer exist and the unconstitutional (Article 1, Sec 9) 16th Amendment would be repealed. For those needing a civics lesson, that is the amendment that gave Congress the power to impose a federal income tax on the American people. With the FairTax implemented, workers will be able to take home their entire paycheck. There are dozens of other great benefits as well and to fully understand it, read “The FairTax Book” by Neal Boortz and former congressman John Linder.

In the article written by Mr. Ponnuru, he states that the FairTax is too good to be true. He also states that it is “deeply misleading” and “likely to set back the cause of tax reform than to advance it.” Fair enough homeboy but you’re wrong and your article is the misleading thing here. Let me break it down and explain why.

The first fallacy presented in the article, is that he tries to debunk the 23 percent sales tax figure by stating that it will be 30 percent. This is a common argument and it goes to show that Mr. Ponnuru obviously didn’t read “The FairTax Book” or its sequel “FairTax: The Truth – Answering the Critics”. Both of these books explained the situation really well. Mr. Ponnuru’s representation of these numbers is a complete fabrication.

He claims that the 23 percent is actually 30 percent and claims that FairTaxers came up with the figure of 23 percent because $30 is 23 percent of $130. Incorrect sir. The 23 percent that would be taxed, first of all, would be included into the listed price of the product. So if the product were $100 it would not be $130 after taxes, as you claim, it would be $100 period! The price of the item would actually be $77 with $23 of the total price being the tax. The tax is worked into the listed retail price of every product. Mr. Ponnuru claims that FairTaxers may be trying to mislead people while stirring up confusion. Well, there is that old adage about “finger pointing” that cupcake needs to learn. Truth is, he does not understand the 23 percent/30 percent inclusive/exclusive nature of the FairTax. It is clearly stated and laid out in Neal Boortz’s “FairTax” books.

He also states that it is not clear that the 30 percent (keep in mind it is 23 percent, actually) would raise enough revenue to eliminate the income tax and payroll taxes. He claims, through the research of Brookings Institute economist William Gale that the tax rate would have to be 44 percent. Then he falsely claims that a $100 item would actually cost $144, once again disregarding the fact that the tax is worked into the item’s sticker price. The only way Mr. Ponnuru can make his argument, is by distorting the facts.

The true fact is, that once the FairTax is implemented, this 23 percent figure won’t be more than what we are paying now. Most of our taxes that are stripped from our paychecks are well over 23 percent and that is forcibly taken. For instance, most people pay 15 percent towards the income tax, then over 7 percent for FICA. Now add in the taxes that your employer must pay on top of that. Chances are, you could be that employer and you could be taking it in the arse pretty hard. Under the FairTax, you pay by what you consume. Also, the tax is only on new products. If you buy a used car or an item from a pawn shop, etc., etc., you do not pay tax! Reason being, the FairTax has already been paid on those used items. Try to calculate the taxes you’ve paid on a single dollar under our current wonderful and easy-to-understand system. With income tax, payroll tax, capital gains tax if it was invested, and all of the embedded, hidden taxes from the price of whatever you are trying to purchase, you’d be shocked at the total already paid if there was even a way to calculate it.

Mr. Ponnuru then talks about how several groups would be adversely affected by the FairTax. He gives retirees as an example and states that they have already paid taxes on their wages over the course of their working lives. Now with the FairTax implemented, he claims that the retirees would be screwed paying higher prices for goods due to his fantasy 30 percent. He also claims that the value of non-retirees accumulated savings would drop. Again, he doesn’t understand how this works, going back to the 23 percent vs 30 percent point. Truth is, retirees are already paying these prices, as the prices will not shift.

To expand on the 23 vs 30 point, the embedded cost of our tax code is roughly 22 percent. That is the accumulated taxes for every business that had a hand in creating that good, or any tool in which that service is being performed. The doctor has to pay the taxes for their cotton swabs manufacturer and every entity that has had a hand in creating that cotton swab, including the farmer that grew the cotton, the marketing that went behind it, the distribution of it: all to wipe out your ears. And then, the consumer has the pay the doctor’s taxes, which are built into the bill.

The King of Deception, Mr. Ponnuru then brings in the class warfare argument and tries to frame his point by painting the poor as the victim and the rich as the villain. He talks of how the middle class will pay higher taxes. Wrong. He talks about how these higher taxes will hurt the poor. Also wrong. He then states that the rich would pay less than they do now because investment returns equate to a large share of their income and that they would be untaxed. M’kay pal, let me explain the basic fundamentals of capitalism to you.

Under the FairTax, when a poor man buys his used ’83 Oldsmobile Cutlass Supreme, he isn’t paying any tax whatsoever. Hell, if he pulls together enough cash to buy a brand new Hyundai Accent, he’s putting 23 percent of that $10,000 price tag into the tax system. Essentially, the poor man is paying $2,300 in taxes. Keep in mind that the car, even with the taxes is still $10,000 and not a penny more. Now when the rich dude buys a Bentley Flying Spur at $220,000, his 23 percent is $50,600! So, how exactly is the rich guy making out better than the poor guy? Both men are paying 23 percent. In essence, the tax rate is “fair”. Not to mention, the prebate and no capital gains taxes would help spur investments which create more opportunities for more people. You see, it doesn’t matter how much you make, all that matters is what you spend. Therefore, the argument about income classes isn’t even a part of the equation.

Our friendly neighborhood deceiver then goes on to use some scare tactics with his argument against the FairTax’s selling point that workers can keep their “entire paychecks”. He writes that if prices stay flat, that wages would have to fall. He tells the reader to think of the “fact” that if existing taxes are embedded in the cost of every product, that they’d also be embedded in the cost of labor as well. This is another complete fabrication or misunderstanding and just proves that this guy hasn’t read the books or the bill and if he did, it was done half-assed. The truth here, is that businesses do not pay taxes, only consumers do! Mr. Ponnuru should watch Milton Friedman’s video “The Free Lunch Myth”. In fact, here it is.

The author’s next point is that the tax administration says that enforcing sales taxes over double digits is hard. He talks about how no country relies on a national sales tax to the extent that the FairTax proposes and then takes a shot at FairTax supporters by saying that that fact doesn’t faze them. Of course it doesn’t mister! The reality is, that if another country had a system like the FairTax, businesses would have already moved there. That country would have a booming economy and any other countries that followed suit would find that it was already too late. The nation that acts first is the nation that will prosper the most. This is why FairTax supporters want this now and not later, after another nation has implemented the idea. The FairTax is the second wave of American Exceptionalism, except on an economic scale.

What do I mean by that? Well, imagine that you are a business owner; you may be one right now. You do a little research and find out that there is a country out there, at this very moment, that you could move to, where every single penny you earn you could keep to reinvest in your business. That would be revenue you earned that you could use to reward your employees, pay your stockholders, streamline your business, and expand into new products or services. That country is what they would call a “tax haven”. That country could mean the difference between keeping your business alive or watching it sink slowly. The United States could be a tax haven under the FairTax. If that were the case, you would have to actively hide from finding a job.

Moving forward, what does a double digit tax mean? What is a higher percentage? What it is, is a clear cut way to see how much the government is spending. If the FairTax goes up, the government is spending like crazy. If the FairTax goes down, the government is cutting back. You see, the FairTax offers an uncomplicated way of seeing exactly where government spending levels are. If the tax goes too high, the assholes get voted out. Solidifying my point from earlier, this is why the FairTax puts the power back in the hands of the people. The FairTax percentage accurately reflects how big our government is getting. The FairTax forces accountability and transparency.

Next, Mr. Ponnuru argues that the advantages of the FairTax system are overstated. He implies that the FairTax plan’s claim that households would not have to prepare federal income tax returns is incorrect. He goes on to say that the federal government needs to know people’s wages in order to properly determine what their Social Security benefits should be. What Mr. Ponnuru is conveniently overlooking, that nearly every American should already know and understand, is that employers report wages to the federal government. The employers would still report these wages and the wasted time of the individual reporting them, under the FairTax, would be pointless and a waste of paperwork and time. The Social Security Fund comes out of general revenue, which will be more stable than the base pay of an employee.

If you were paying attention over the last few years, you saw the unemployment rate steadily climb. If you are somewhat knowledgeable, you can think of when the unemployment rate went higher in the 70’s under Jimmy Carter, how it was lower under Reagan, how it was low under most of George W. Bush’s tenure, and how it was high during the Great Depression and a few years after but low again in the 50’s. The employment rate over the last 80 years has been like a yo-yo or a roller coaster ride. But, have you ever seen a report on the consumption rate? It’s been a steady climb over the last 80 years. That is what our tax code would be based on under the FairTax: consumption. It would be a stable source of revenue for the federal government.

Mr. Ponnuru then gets to the politics of making the FairTax a reality. He asks the reader how likely it is that Congress, the President, etc. would go for a tax system that “punishes the middle class and senior citizens?” M’kay butthead, I already cleared that bullshit up for you.

He then references “The FairTax Fantasy” by Hank Adler and Hugh Hewitt, which was already debunked and challenged by several other writers who understand the FairTax system far better than I do. The example he gives, is that the FairTax requires state and local governments to pay the federal government tax through anything that they purchase. He then gleefully and condescendingly states, “Good luck with that” when telling the reader that it will take 38 states to approve the repeal of the 16th Amendment. I bet he’s one of those who thought that the majority of states wouldn’t step up and repeal ObamaCare. Those people now have egg on their face. Where the argument fails, is in the fact that state and local governments already pay taxes to the federal government through various embedded taxes. I will refrain from calling Mr. Ponnuru an idiot or a jackass.

Homeboy, then attacks the spirit of the FairTax supporters by saying that it will never happen and even though, in America, the odds have been beaten again and again throughout history, that the vast majority of the times that people said, “That will never happen,” they were right. He says that those supporting and pushing this are wasting their time. Guys like Mr. Ponnuru were loyalists to King George back in the day. If it really doesn’t matter and is a big waste of time, I guess that explains his half-assed research and apparent lack of digging for the real facts in regards to the FairTax. Why waste your time even acknowledging the FairTax, sir? I mean, if it’s a big waste and all?

MC Ramesh then talks about tinkering with the income tax and refers to such tinkering as “improvements”. This guy can’t be a conservative, a libertarian or anything other than a statist, if that is his logic. He says that over time, the FairTax system, if passed, would become “just as riddled with exemptions and loopholes” as the current income tax system. Negative Nestor here takes his misunderstanding of the FairTax and recycles his bullshit points throughout his crummy article. The FairTax is one tax rate, affecting everyone, no exceptions. Legislators do not have the ability to play with the numbers for their crony constituents and those they owe favors to. In fact, at its core, the FairTax would eliminate the vast majority of lobbyists looking for special interests inside the Capitol Beltway.

This nincompoop finishes out his article by insulting those behind this movement, telling them to go back to the drawing board and then pulling back his statement only to say that they shouldn’t be allowed near drawing boards. I guess there is no civility in arrogant stupidity.

Being the Senior Editor for National Review just makes Ramesh Ponnuru’s poorly crafted argument a solid piece of evidence against that magazine’s validity as a respected source of conservative journalism. Describing itself as, “America’s most widely read and influential magazine and web site for conservative news, commentary, and opinion,” makes me kind of shutter. After reading such a drivel-filled article, I question the talking points of any conservative who points to the National Review as their source of political sustenance.

I could go on and on about the positives of the FairTax but I’m not trying to write an epic here. All one has to do is pick up the two books that Boortz and Linder have written on the subject. If you have questions or concerns, call into Boortz’s radio show and speak to him directly or just go to the FairTax website. Most states also have their own state websites that you can access. There are plenty of videos on YouTube and lots of other articles that can shed more light than I did here. The resources are endless.

Hell, if you have questions, direct them here and I’ll try and get you the answers. Lots of answers can be found on a thread my friend Shawn hosted here. I also have to give Shawn a shout out for helping me with this article. He is the Co-Director of the Southwest Florida FairTax Educational Association. If you are in Southwest Florida, hit me up here and I can get you info on where and when the next FairTax meetings is held.